Sila Realty Trust, Inc. (SILA) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this Annual Report on Form 10-K. The discussion contains forward looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under “Risk Factors” and “Forward-Looking Statements.” All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.

This section of the Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. A discussion of the changes in our financial condition and results of operations for the years ended December 31, 2022, and 2021 may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal years ended December 31, 2022 and December 31, 2021.

Overview

We invest in high quality properties leased to tenants capitalizing on critical and structural economic growth drivers. We are primarily focused on investing in healthcare assets across the continuum of care, which we believe typically generate predictable, durable and growing income streams. We may also make other real estate-related investments, which may include equity or debt interests in other real estate entities.

As of December 31, 2023, we owned 131 real estate properties and two undeveloped land parcels.

We raised the equity capital for our real estate investments through our Offerings from May 2014 through November 2018, and we have offered shares pursuant to the DRIP Offerings since November 2017.

Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. Changes in these estimates and assumptions could have a significant effect on the financial statements. From time to time, we evaluate our estimates based on historical experience and various assumptions that we believe are reasonable under the circumstances. Although our actual results historically have not deviated materially from those determined using estimates, our results of operations or financial condition could differ materially from these estimates under different assumptions or conditions.

We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the impairment of long-lived assets.

We review our real estate assets on an asset group basis for impairment. Typically, an individual property constitutes an asset group. We identify an asset group based on the lowest level of identifiable cash flows. In the impairment analysis we must determine whether there are indicators of impairment. For operating properties, these indicators could include a tenant being delinquent or not paying rent, a reduction in our estimated hold period, a significant decline in a property’s leasing percentage, a current period operating loss or negative cash flows combined with a history of losses at the property, a significant decline in lease rates for that property or others in the property’s market, a significant change in the market value of the property, or an adverse change in the financial condition of significant tenants.

If we determine that an asset has indicators of impairment, we then determine whether the undiscounted cash flows associated with the asset group exceed the carrying amount of the asset group. In calculating the undiscounted net cash flows of an asset group, we use considerable judgment to estimate several inputs. We estimate future rental rates, future capital expenditures, future operating expenses, and market capitalization rates for residual values, among other things. In addition, if there are alternative strategies for the future use of the asset, we assess the probability of each alternative strategy and perform a probability-weighted undiscounted cash flow analysis to assess the recoverability of the asset group. If the carrying value of the asset group exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over the estimated fair value of the asset group.

In determining the fair value of an asset group, we exercise considerable judgment on several factors. We may determine fair value by using a direct capitalization method, a discounted cash flow method or by utilizing comparable sales information. The direct capitalization method is based on a capitalization rate applied to the underlying asset group's most recent stabilized trailing twelve-month net operating income at the measurement date. The discounted cash flow method is based on estimated future cash flow projections utilizing discount rates, terminal capitalization rates, and planned capital expenditures. We use

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judgment to determine an appropriate discount rate to apply to the cash flows in the discounted cash flow calculation. We also use judgment in analyzing comparable market information because no two real estate assets are identical in location and price.

The estimates and judgments used in the impairment process are highly subjective and susceptible to frequent change. Significant increases or decreases in any of these inputs, particularly with regard to cash flow projections and discount and capitalization rates, would result in a significantly lower or higher fair value measurement of the real estate assets being assessed. Additionally, changes in economic and operating conditions, including changes in the financial condition of our tenants, and changes to our intent and ability to hold the related asset, that occur after our impairment assessment could impact the assumptions used in that assessment and could result in future charges to earnings if assumptions regarding those investments differ from actual results.

Real Estate Acquisitions and Dispositions in 2023

•We purchased two healthcare properties, comprising approximately 130,000 rentable square feet for an aggregate purchase price of approximately $69,822,000.

•We sold three healthcare properties for an aggregate sale price of $271,107,000 and generated net proceeds of $270,306,000.

Factors That May Influence Results of Operations

We are not aware at this time of any material trends or uncertainties, other than national economic conditions and those discussed below and in Part I. Item 1A. "Risk Factors" of this Annual Report on Form 10-K, affecting our real estate properties, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income, management and operation of our properties.

Rental Revenue

The amount of rental revenue generated by our properties depends principally on our ability to maintain the occupancy rates of leased space and to lease available space at existing rental rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. We continually monitor our tenants' ability to meet their lease obligations to pay us rent to determine if any adjustments should be reflected currently. As of December 31, 2023, our real estate properties were 99.4% leased.

GenesisCare Bankruptcy Filing

As disclosed in the Current Report on Form 8-K that the Company filed with the SEC on June 5, 2023, GenesisCare, sponsor and owner of the tenant in 17 of our real estate properties, announced that it filed for Chapter 11 bankruptcy protection under the United States Bankruptcy Code. GenesisCare sought U.S. bankruptcy court approval to reject certain unexpired real property leases. GenesisCare's lease obligations with us were not included in any motions. GenesisCare continues to make its lease payments due to us in accordance with their contractual terms, although we are in ongoing negotiations with GenesisCare regarding certain adjustments to its lease. Bankruptcy proceedings are subject to uncertainty and there can be no assurance how the bankruptcy court's or other parties' actions or decisions may impact GenesisCare. Due to GenesisCare filing for bankruptcy and its subsequent emergence from bankruptcy on February 16, 2024, we determined the collectability of amounts owed under the contractual terms of GenesisCare's lease were no longer reasonably assured. As a result, we ceased recognizing rent on a straight-line basis and have only recorded rent for GenesisCare to the extent we have received cash. In addition, during the year ended December 31, 2023, we wrote off $1,630,000 of straight-line rent receivables related to GenesisCare, as a reduction in rental revenue, because the amounts were determined to be uncollectible.

Results of Operations

Our results of operations are influenced by the timing of acquisitions and the performance of our real estate properties. The following table shows the property statistics of our real estate properties as of December 31, 2023 and 2022:

(1)As of December 31, 2023, we owned 131 real estate properties and two undeveloped land parcels. As of December 31, 2022, we owned 132 real estate properties and two undeveloped land parcels.

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The following table summarizes our real estate activity for the years ended December 31, 2023 and 2022:

(1)During the year ended December 31, 2022, we disposed of one land parcel that formerly contained a property.

(2)Includes capitalized acquisition costs associated with transactions determined to be asset acquisitions.

This section describes and compares our results of operations for the years ended December 31, 2023 and 2022. We generate substantially all of our revenue from property operations. In order to evaluate our overall portfolio, management analyzes the results of our same store properties. We define "same store properties" as properties that were owned and operated for the entirety of both calendar periods being compared and exclude properties under development, re-development, or classified as held for sale.

By evaluating the results of our same store properties, management is able to monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and readily observe the expected effects of our new acquisitions and dispositions on net income.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The following table allocates total rental revenue for the year ended December 31, 2023 compared to the comparable period in 2022 (amounts in thousands).

•Same store rental revenue decreased primarily due to a $1,861,000 decrease related to tenants who ceased paying all or a portion of their rent, an $834,000 increase in the write-off of straight-line rent receivables related to prior periods due to tenant uncertainty and an impairment of above-market lease intangible assets of $260,000, partially offset by a $913,000 increase in annual base rent escalations for leases indexed to CPI and a $256,000 increase from new and renewal leases.

•Same store tenant reimbursements increased $487,000 primarily due to higher operating costs in the current year which are generally passed along to our tenants.

•Non-same store rental revenue increased primarily due to lease termination income of $5,185,000 and a $6,406,000 increase attributable to properties acquired and properties placed in service since January 1, 2022, partially offset by a $2,427,000 decrease due to property dispositions and a $99,000 decrease due to deferment of rent on a property under renovation.

•Non-same store tenant reimbursements increased $1,311,000 primarily due to properties acquired and placed in service since January 1, 2022.

•There were no significant changes in other operating income.

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Changes in our expenses are summarized in the following table (amounts in thousands):

•Same store rental expenses, certain of which are subject to reimbursement by our tenants, increased $789,000 primarily due to higher operating costs in the current year.

•Non-same store rental expenses, certain of which are subject to reimbursement by our tenants, increased primarily due to a $1,666,000 increase from properties acquired and properties placed in service since January 1, 2022, partially offset by a $209,000 decrease due to property dispositions.

•General and administrative expenses increased primarily due to a $2,188,000 increase in stock-based compensation due to equity awards granted in 2023, and $512,000 additional separation pay primarily related to our former chief accounting officer and former chief administrative officer, partially offset by a $84,000 decrease in accelerated stock-based compensation related to former officers and directors, a decrease of $449,000 as a result of a reduction in personnel, and a $350,000 decrease in reporting costs.

•Depreciation and amortization decreased primarily due to a $1,392,000 decrease from property dispositions, a $771,000 decrease attributable to fully amortized in-place leases and tenant improvements, a $1,038,000 decrease related to properties impaired and a $3,215,000 decrease in impairments of an in-place lease intangible assets, partially offset by a $3,330,000 increase attributable to properties acquired and properties placed in service since January 1, 2022, and a $180,000 increase due to capital expenditures placed in service.

•Impairment losses were recorded in the aggregate amount of $24,252,000 during the year ended December 31, 2023, as a result of property sales and tenant related triggering events that occurred at certain properties. Impairment losses were recorded in the aggregate amount of $47,424,000 during the year ended December 31, 2022, as a result of tenant related triggering events that occurred at certain properties.

•Gains on real estate dispositions were $22,000 and $460,000 during the years ended December 31, 2023 and 2022, respectively.

Changes in interest expense and interest and other income are summarized in the following table (amounts in thousands):

•Interest expense decreased primarily due to $3,367,000 in loss on extinguishment of debt and $1,400,000 in interest rate swap amortization recognized during the year ended December 31, 2022, partially offset by an increase of $3,054,000 related to changes in the weighted average interest rate on our credit facility that was subject to variable rates during the year and an increase of $856,000 due to an increase in the weighted average outstanding principal balance on our credit facility of $32,452,000.

•Interest and other income increased primarily due to a $457,000 increase in dividend income from investments in money market funds, a $118,000 increase in interest income from cash deposits, and a $105,000 increase in interest income on a note receivable, partially offset by a decrease of $283,000 in settlement income from disposed properties.

Liquidity and Capital Resources

Our principal uses of funds are for acquisitions of real estate and real estate-related investments, capital expenditures, operating expenses, distributions to, and share repurchases from, stockholders, and principal and interest payments on current

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and future indebtedness. While interest rates on variable rate debt have increased and may continue to increase, we believe our exposure is limited at this time due to our hedging strategy, which has effectively fixed 100% of our outstanding debt as of December 31, 2023, allowing us to reasonably project our liquidity needs. Generally, cash for these items is generated from operations of our current and future investments. Our sources of funds are primarily operating cash flows, funds equal to amounts reinvested in the DRIP, our credit facility and other potential borrowings.

When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include, for example, costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include a line of credit, operating cash generated by the investment, additional equity investments from us, and when necessary, capital reserves. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or, as necessary, to respond to unanticipated additional capital needs.

Short-term Liquidity and Capital Resources

For at least the next twelve months, we expect our principal demands for funds will be for operating expenses, including our general and administrative expenses, as well as the acquisition of real estate and real estate-related investments and funding of capital improvements and tenant improvements, distributions to and stock repurchases from stockholders, and interest payments on our credit facility. We expect to meet our short-term liquidity requirements through net cash flows provided by operations, funds equal to amounts reinvested in the DRIP and borrowings on our credit facility and potential other borrowings.

We believe we will have sufficient liquidity available to meet our obligations in a timely manner, under both normal and stressed conditions, for the next twelve months.

Long-term Liquidity and Capital Resources

Beyond the next twelve months, we expect our principal demands for funds will be for costs to acquire additional real estate properties, interest and principal payments on our credit facility, long-term capital investment demands for our real estate properties and our distributions necessary to maintain our REIT status.

We currently expect to meet our long-term liquidity requirements through proceeds from cash flows from operations and borrowings on our credit facility and potential other borrowings.

We expect to pay distributions to our stockholders from cash flows from operations; however, we have used, and may continue to use, other sources to fund distributions, as necessary, such as funds equal to amounts reinvested in the DRIP. To the extent cash flows from operations are lower due to lower-than-expected returns on the properties held or the disposition of properties, distributions paid to stockholders may be lower. We currently expect that substantially all net cash flows from our operations will be used to fund acquisitions, certain capital expenditures identified at acquisition, ongoing capital expenditures, interest and principal payments on outstanding debt and distributions to our stockholders.

Material Cash Requirements

As of December 31, 2023, we had approximately $202,019,000 in cash and cash equivalents. In addition to the cash we need to conduct our normal business operations, we expect to require approximately $19,944,000 in cash over the next twelve months, of which $17,198,000 is related to estimated interest payments on our outstanding debt (calculated based on our effective interest rates as of December 31, 2023) and $2,746,000 is related to our various obligations as lessee. We cannot provide assurances, however, that actual expenditures will not exceed these estimates. The 2024 Term Loan (as defined below) has a maturity date of December 31, 2024, and, at our election, may be extended for a period of six-months on no more than two occasions, subject to the satisfaction of certain conditions, including the payment of an extension fee. We currently meet these conditions and therefore may exercise our option to extend the maturity date if we so choose.

As of December 31, 2023, we had material obligations beyond 12 months (or that we will meet the extension criteria on the maturity date) in the amount of approximately $676,064,000, inclusive of $560,444,000 related to principal and estimated interest payments on our outstanding debt (calculated based on our effective interest rates as of December 31, 2023) and $115,620,000 related to our various obligations as lessee.

One of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness. As of December 31, 2023, we had $525,000,000 of principal outstanding under our Unsecured Credit Facility (as defined below). We are required by the terms of certain loan documents to meet certain covenants, such as financial ratios and reporting requirements. As of December 31, 2023, we were in compliance with all such covenants and requirements on our Unsecured Credit Facility.

As of December 31, 2023, the aggregate notional amount under our derivative instruments was $525,000,000. We have agreements with each derivative counterparty that contain cross-default provisions; if we default on our indebtedness, then we could also be declared in default on our derivative obligations, resulting in an acceleration of payment of any net amounts due under our derivative contracts. As of December 31, 2023, we were in compliance with all such cross-default provisions.

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Debt Service Requirements

Credit Facility

As of December 31, 2023, the maximum commitments available under our senior unsecured revolving line of credit with Truist Bank, as Administrative Agent for the lenders, or the Revolving Credit Agreement, were $500,000,000, which may be increased, subject to lender approval, through incremental term loans and/or revolving loan commitments in an aggregate amount not to exceed $1,000,000,000. The maturity date for the Revolving Credit Agreement is February 15, 2026, which, at our election, may be extended for a period of six-months on no more than two occasions, subject to certain conditions, including the payment of an extension fee. As of December 31, 2023, the Revolving Credit Agreement had no outstanding principal balance.

As of December 31, 2023, the maximum commitments available under our senior unsecured term loan with Truist Bank, as Administrative Agent for the lenders, or the 2024 Term Loan Agreement, were $250,000,000, which may be increased, subject to lender approval, to an aggregate amount not to exceed $550,000,000. The 2024 Term Loan Agreement has a maturity date of December 31, 2024, and, at our election, may be extended for a period of six-months on no more than two occasions, subject to the satisfaction of certain conditions (which we currently meet), including the payment of an extension fee. As of December 31, 2023, the 2024 Term Loan Agreement had an aggregate outstanding principal balance of $250,000,000.

As of December 31, 2023, the maximum commitments available under our senior unsecured term loan with Truist Bank, as Administrative Agent for the lenders, or the 2028 Term Loan Agreement, were $275,000,000, which may be increased, subject to lender approval, to an aggregate amount not to exceed $500,000,000 and has a maturity date of January 31, 2028. The 2028 Term Loan Agreement is pari passu with our Revolving Credit Agreement and 2024 Term Loan Agreement. As of December 31, 2023, the 2028 Term Loan Agreement had an aggregate outstanding principal balance of $275,000,000.

We refer to the Revolving Credit Agreement, the 2024 Term Loan Agreement and the 2028 Term Loan Agreement, collectively, as the “Unsecured Credit Facility,” which has aggregate commitments available of $1,025,000,000, as of December 31, 2023. Generally, the proceeds of loans made under our Unsecured Credit Facility may be used for acquisition of real estate investments, funding of tenant improvements and leasing commissions with respect to real estate, repayment of indebtedness, funding of capital expenditures with respect to real estate, and general corporate and working capital purposes.

As of December 31, 2023, we had a total pool availability under our Unsecured Credit Facility of $1,025,000,000 and an aggregate outstanding principal balance of $525,000,000; therefore, $500,000,000 was available to be drawn under our Unsecured Credit Facility. We were in compliance with all the financial covenant requirements as of December 31, 2023.

Cash Flows

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Operating Activities

•Net cash provided by operating activities increased primarily due to an increase in cash collected for rent resulting from acquiring and placing properties in service, annual rent increases, new leasing and renewal activity and the receipt of lease termination income, partially offset by a decrease related to property dispositions and tenants who ceased paying all or a portion of their rent and an increase in interest paid on our credit facility.

Investing Activities

Significant investing activities included:

•Investment of $69,822,000 to purchase two properties during the year ended December 31, 2023, compared to an investment of $157,194,000 to purchase seven properties during the year ended December 31, 2022.

•Sale of three properties for net proceeds of $270,306,000 during the year ended December 31, 2023, compared to receiving $22,822,000 from the sale of a land parcel that formerly contained a property during the year ended December 31, 2022.

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•Incurred capital expenditures, primarily for tenant improvements, of $3,177,000 during the year ended December 31, 2023, compared to incurring $8,440,000 during the year ended December 31, 2022.

Financing Activities

Significant financing activities included:

•Payment of $66,515,000 in cash distributions to common stockholders during the year ended December 31, 2023, compared to $65,310,000 during the year ended December 31, 2022.

•Repurchase of $12,374,000 of common stock under our share repurchase program during the year ended December 31, 2023, compared to $9,217,000 during the year ended December 31, 2022.

•The following Unsecured Credit Facility related activity during the year ended December 31, 2023:

◦Repayment of $58,000,000 on the Revolving Credit Agreement with cash flows from operations and proceeds from a disposition;

◦Repayment of $50,000,000 on the 2024 Term Loan Agreement with proceeds from dispositions, the collection of a note receivable related to a disposition and cash flows from operations; and

◦Draw of $50,000,000 on the Revolving Credit Agreement to fund an acquisition.

•The following Unsecured Credit Facility related activity during the year ended December 31, 2022:

◦Draw of $70,000,000 on the Revolving Credit Agreement to fund acquisitions;

◦Draw of $70,000,000 on the 2028 Term Loan Agreement to fund acquisitions;

◦Repayment of $57,000,000 on the Revolving Credit Agreement with proceeds from dispositions and cash flows from operations;

◦Replacement of $500,000,000 from our prior unsecured credit facility with borrowings from our new Revolving Credit Agreement and 2024 Term Loan Agreement;

◦Draw of $205,000,000 on the 2028 Term Loan Agreement at closing to pay down the $205,000,000 outstanding balance on the Revolving Credit Agreement; and

◦Payment of $6,937,000 in deferred financing costs as a result of entering into the Revolving Credit Agreement, 2024 Term Loan Agreement and 2028 Term Loan Agreement during the year ended December 31, 2022.

Distributions to Stockholders

We have paid, and may continue to pay, distributions from sources other than from our cash flows from operations. For the year ended December 31, 2023, our cash flows provided by operations of approximately $128,924,000 covered 100% of our ordinary distributions paid (total ordinary distributions were approximately $91,266,000, of which $66,515,000 was cash and $24,751,000 was reinvested in shares of our common stock pursuant to the DRIP) during such period. For the year ended December 31, 2022, our cash flows provided by operations of approximately $121,675,000 covered 100% of our ordinary distributions paid (total ordinary distributions were approximately $90,144,000, of which $65,310,000 was cash and $24,834,000 was reinvested in shares of our common stock pursuant to the DRIP) during such period.

We do not currently have any limits on the sources of funding distribution payments to our stockholders. We may pay distributions from any source, such as the sale of assets, the sale of additional securities, and offering proceeds and we do not currently have any limits on the amounts we may pay from such sources. See “Risk Factors – General Risk Factors – Distributions paid from sources other than our cash flows from operations, including from the proceeds of our Offerings, will result in us having fewer funds available for the acquisition of properties and real estate-related investments, which may adversely affect our ability to fund future distributions with cash flows from operations and may adversely affect a stockholder’s overall return” in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of risks related to funding distribution payments from various sources.

For federal income tax purposes, distributions to common stockholders are characterized as ordinary dividends, capital gain distributions, or nontaxable distributions. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, such excess will be a nontaxable return of capital, reducing the tax basis in each U.S. stockholder’s shares. Further, the amount of distributions in excess of a U.S. stockholder’s tax basis in such shares will be taxable as a realized gain.

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The following table shows the sources of distributions paid during the years ended December 31, 2023 and 2022 (amounts in thousands):

(1)Attributable to Class A shares, Class I shares, Class T shares of common stock for the year ended December 31, 2023. Attributable to Class A shares, Class I shares, Class T shares, and Class T2 shares of common stock for the years ended December 31, 2022 and 2021.

The amount of distributions payable to our stockholders is determined by the Board and is dependent on a number of factors, including our funds available for distribution, financial condition, lenders' restrictions and limitations, capital expenditure requirements, corporate law restrictions and the annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. The Board must authorize each distribution and may, in the future, authorize lower amounts of distributions or not authorize additional distributions and, therefore, distribution payments are not guaranteed.

The following table shows the sources of distributions paid during the years ended December 31, 2023 and 2022 (amounts in thousands):

(1)Percentages were calculated by dividing the respective source amount by the total sources of distributions.

Total distributions declared but not paid on Class A shares, Class I shares and Class T shares as of December 31, 2023, were approximately $7,782,000 for common stockholders. These distributions were paid on January 8, 2024.

Share Repurchase Program

Our SRP allows for repurchases of shares of our common stock when certain criteria are met. Under the SRP, we currently only repurchase shares due to death or involuntary exigent circumstances, subject in each case to the terms and limitations of the SRP, including, but not limited to, quarterly share limitations, an annual 5.0% share limitation and DRIP funding limitations. See Part II, Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for more information on the SRP.

During the year ended December 31, 2023, we repurchased 1,513,997 Class A shares, Class I shares and Class T shares of common stock (1,182,006 Class A shares, 105,660 Class I shares and 226,331 Class T shares), for an aggregate purchase price of approximately $12,374,000 (an average of $8.17 per share). During the year ended December 31, 2022, we repurchased 1,123,183 Class A shares, Class I shares and Class T shares of common stock (981,772 Class A shares, 31,666 Class I shares and 109,745 Class T shares), for an aggregate purchase price of approximately $9,217,000 (an average of $8.21 per share).

Commitments and Contingencies

For a discussion of our commitments and contingencies, see Note 17—"Commitments and Contingencies" to the consolidated financial statements that are a part of this Annual Report on Form 10-K.

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Non-GAAP Financial Measures

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. We use the following non-GAAP financial measures: Funds From Operations, or FFO, Core Funds From Operations, or Core FFO, and Adjusted Funds From Operations, or AFFO.

Net Income (Loss) and FFO, Core FFO and AFFO

A description of FFO, Core FFO, and AFFO and reconciliations of these non-GAAP measures to net income (loss), the most directly comparable GAAP measure, are provided below.

The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated the FFO measure, which we believe is an appropriate additional measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income as determined under GAAP.

We define FFO, consistent with NAREIT’s definition, as net income (loss) (calculated in accordance with GAAP), excluding gains (or losses) from sales of real estate assets and impairments of real estate assets, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. To date, we do not have any investments in unconsolidated partnerships or joint ventures.

We, along with many of our peers in the real estate industry, consider FFO to be an appropriate supplemental measure of a REIT’s operating performance, because it is based on a net income (loss) analysis of real estate portfolio performance that excludes non-cash items such as real estate depreciation and amortization and real estate impairments. We believe FFO provides a useful understanding of our performance to the investors and to our management, and when compared to year over year, FFO reflects the impact on our operations from trends in occupancy.

We calculate Core FFO by adjusting FFO to remove the effect of items that are not expected to impact our operating performance on an ongoing basis and consider it to be a useful supplemental measure because it provides investors with additional information to understand our sustainable performance. These include severance, write-off of straight-line rent receivables related to prior periods, accelerated stock-based compensation, amortization of above- and below-market lease intangibles (including ground leases) and loss on extinguishment of debt.

We calculate AFFO by further adjusting Core FFO for the following items: deferred rent, current period straight-line rent adjustments, amortization of deferred financing costs and stock-based compensation.

Presentation of this information is intended to assist management and investors in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO, Core FFO and AFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO, Core FFO and AFFO are not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance or as an indication of our liquidity, including our ability to make distributions to our stockholders. FFO, Core FFO and AFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods. All of our non-GAAP financial measures should be reviewed in conjunction with other measurements as an indication of our performance. The method used to evaluate the value and performance of real estate under GAAP should be considered as a more relevant measure of operating performance and considered more prominent than the non-GAAP financial measures presented here.

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Reconciliation of Net Income (Loss) to FFO, Core FFO and AFFO

The following table presents a reconciliation of net income (loss) attributable to common stockholders, which is the most directly comparable GAAP financial measure, to FFO, Core FFO and AFFO for the years ended December 31, 2023 and 2022 (amounts in thousands):