Gladstone Commercial Q1 2025 Earnings Report

Gladstone Commercial EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.34
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Gladstone Commercial Revenue Results

• Actual Revenue: $37.50 million
• Expected Revenue: $37.33 million
• Beat/Miss: Beat by +$169.00 thousand
• YoY Revenue Growth: N/A

Gladstone Commercial Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:30AM ET

Gladstone Commercial (NASDAQ:GOOD) is a real estate investment trust focused on acquiring, owning, and operating net leased industrial and office properties across the United States. Including payments through January 2024, Gladstone Commercial has paid 229 consecutive monthly cash distributions on its common stock. Prior to paying distributions on a monthly basis, Gladstone Commercial paid five consecutive quarterly cash distributions. Gladstone Commercial has never skipped or deferred a distribution since its inception in 2003.

Gladstone Commercial Q1 2025 Earnings Call Transcript

Key Takeaways

• The company reported Q1 2025 FFO and core FFO of $0.34 per share (unchanged YoY), with operating revenues of $37.5 M, 6.6% same-store rent growth, and 98.4% portfolio occupancy.
• Gladstone acquired 355,778 sq ft of industrial properties for $73.3 M, raising industrial concentration to 65% of annualized rent and aiming for at least 70% soon.
• With 100% rent collection, $18.4 M in cash and $80.6 M of revolver availability (over $99 M total liquidity), the firm is set to close ~$70 M of Q2 acquisitions and review a $140 M pipeline.
• Management highlights a slowdown in new industrial construction and reshoring/onshoring trends as drivers of future rental rate growth and lower vacancy.
• A disciplined underwriting strategy led to the sale of a non-core office asset post-quarter, ongoing lease extensions through 2026, and a focus on mission-critical tenants.

Presentation

[Operator]

As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr.

[Operator]

David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Well, thank you, Latonya. That was a nice introduction and thank all of you for calling in and listening to our pitch. We enjoy this time that we get with you and on the phone and wish we had more time to talk to you, but only do this once a quarter. And now we'll hear from Michael LiCalsi. He's our General Counsel and Secretary to give the legal and regulatory matters concerning this report.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Michael, go ahead.

[Michael Licalsi, General Counsel & Secretary at Gladstone Investment]

Thanks, David. Good morning, everybody. Today's report may include forward looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. There are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward looking statements, including all the risk factors in our Forms 10 Q, 10 ks and other documents that we file with the SEC.

[Michael Licalsi, General Counsel & Secretary at Gladstone Investment]

These can be found on our website, which is gladstonecommercial.com, specifically look on the Investors page or on the SEC's website, which is www.sec.gov. Now we undertake no obligation to publicly update or revise any of these forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. And today, we will discuss FFO, which is funds from operations. Now FFO is a non GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses on property plus depreciation and amortization of real estate assets. We will also discuss core FFO, which is generally FFO adjusted for certain other nonrecurring revenues and expenses.

[Michael Licalsi, General Counsel & Secretary at Gladstone Investment]

We believe these metrics are a better indication of our operating results and allow better comparability of our period over period performance. Please visit our website once again that's gladshealthcommercial.com, sign up for notification service. You can also find us on Facebook, the keyword there is The Gladstone Companies, and Twitter, which is GladstoneComps. Now today's call is an overview of our results, so we ask that you review our press release and Form 10 Q both issued yesterday for more detailed information. With that, I'll hand it over to Gladstone Commercial's President, Buzz Cooper.

[Buzz Cooper, President at Gladstone Commercial]

Thank you, Michael, and thank you all for joining today's call. We look forward to updating you on our first quarter of twenty twenty five results, our current portfolio and our 2025 outlook. Starting with the broader economic environment, the first quarter of twenty twenty five has been marked by a growing uncertainty followed by recent tariff announcements. These announcements have added pressure to global trade flows and extended decision timelines for many businesses. Companies are reassessing how to store, manufacture and distribute their goods, especially those companies with exposure to Asia.

[Buzz Cooper, President at Gladstone Commercial]

U. S. Treasury yields remain volatile as markets absorb shifting policy signals and evaluate the outlook for inflation and economic growth. Despite an uncertain macroeconomic outlook, the industrial real estate sector continues to perform. According to Cushman Wakefield, net absorption reached 23,100,000 square feet in the first quarter of twenty twenty five, matching levels from a year ago.

[Buzz Cooper, President at Gladstone Commercial]

Vacancy rose modestly to 7%, driven by speculative deliveries, but remains in line with historical averages. This suggests the market is approaching a more balanced state. New construction completions during the quarter declined to the lowest level in nearly four years, reflecting higher capital costs and a slowdown in the development pipeline. We anticipate this construction slowdown will bring upward pressure on industrial rental rates and downward pressure on vacancy as industrial users compete for additional square footage to grow their businesses. Moving on to our portfolio.

[Buzz Cooper, President at Gladstone Commercial]

We remain confident heading into the second quarter. During the first quarter of twenty twenty five, we collected 100% of our cash based rents, acquired industrial properties encompassing 355,778 square feet for $73,250,000 We increased portfolio industrial concentration as a percentage of annualized straight line rent to 65%, maintained portfolio occupancy at 98.4% as of March 31. And subsequent to the end of the quarter, we sold one office property for a gain of $377,000 and one industrial property where we previously recognized a selling profit of $3,900,000 from a sales type lease. This was one of our most active quarters to date with over $73,000,000 in capital deployed for new industrial acquisitions. While we remain focused on increasing our industrial concentration, hope to get to at least 70% in the near term, we continue to maintain disciplined underwriting approach.

[Buzz Cooper, President at Gladstone Commercial]

This discipline was on display in the acquisitions we completed this quarter and the numerous acquisitions we chose not to pursue. We evaluated hundreds of opportunities over the last year and passed on many that did not meet our criteria whether due to credit concerns, overpricing or location risk. Our ability to act decisively reflects our continued focus on high quality mission critical assets that align with our investment thesis. Thesis. In particular, we are seeing long term tailwinds from reshoring and onshoring activity.

[Buzz Cooper, President at Gladstone Commercial]

The private placement we completed in the fourth quarter of twenty twenty four helped position us to execute with confidence, and we believe our disciplined approach will continue to create long term value. Moving ahead to the second quarter, we remain focused on acquiring high quality industrial assets that are mission critical to tenants and industries and accretive to our long term strategy. At the same time, we will continue to selectively dispose of non core assets to further improve our portfolio. Our team is actively working to extend lease terms, capture mark to market opportunities and support tenant growth through targeted expansions and capital improvement initiatives. We remain mindful of our overall leverage and are continuing to strengthen our balance sheet.

[Buzz Cooper, President at Gladstone Commercial]

With over $99,000,000 in availability via our line of credit and cash on hand, we are well positioned to deploy capital into accretive industrial acquisitions. Several opportunities are currently under exclusivity or contract with closings expected to come in the next few months. Our portfolio continues to generate sustainable cash flow. We remain more than 98% occupied as of March 31, and we've not seen any material deterioration in credit quality even in the face of higher for longer interest rates. I will now turn the call over to Gary to review our financial results for the quarter and liquidity position.

[Buzz Cooper, President at Gladstone Commercial]

Gary?

[Gary Gerson, CFO & Assistant Treasurer at Gladstone Commercial]

Thank you, Buzz. I'll start my remarks this morning regarding our financial results by reviewing our operating results for the first quarter of twenty twenty five. All per share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO per share available to common shareholders were both $0.34 per share for the first quarter of twenty twenty five as well as the first quarter of twenty twenty four. Same store rents increased by 6.6% in the three months ended March 31 over the same period in 2024 due to increased property expense recovery revenue and increased rental rates from leasing activity subsequent to the first three months of twenty twenty four.

[Gary Gerson, CFO & Assistant Treasurer at Gladstone Commercial]

Our first quarter results reflected total operating revenues of $37,500,000 with operating expenses of $23,900,000 as compared to operating revenues of $35,700,000 and operating expense of $23,300,000 for the same period in 2024. Operating revenues were higher in 2025 due to increased recovery and higher rental rates for the same properties, slightly offset by lower variable lease payments from the seven property sales during and subsequent to the first quarter of twenty twenty four. Expenses were higher in the first quarter of twenty twenty five versus the same period in 2024 mainly due to increased costs created by the inflationary environment as well as higher net incentive fee paid in Q1 twenty twenty five. In Q1 twenty twenty five, we increased net assets from $1,090,000,000 to $1,160,000,000 which was a result of the two acquisitions this quarter. Looking at our debt profile, 45% is fixed rate, 47% is hedged floating rate and 8% is floating rate, which is the amount drawn on revolving credit facility mortgage note and one of our small term loans.

[Gary Gerson, CFO & Assistant Treasurer at Gladstone Commercial]

As of March 31, our effective average SOFR was 4.41%. Our outstanding bank term loans were hedged with $310,000,000 of interest rate swaps. We continue to monitor interest rates closely and update our hedging strategy as needed. As of today, our remaining twenty twenty five loan maturities are very manageable at $3,100,000 As of the end of the quarter, we had $51,300,000 of revolver borrowings outstanding. During the quarter ended 03/31/2025, we sold 1,770,000.00 common shares under our ATM program raising net proceeds of $27,700,000 We also received net proceeds of $300,000 from sales of our Series F preferred stock through March 31.

[Gary Gerson, CFO & Assistant Treasurer at Gladstone Commercial]

We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements and new acquisitions. As of today, we have approximately $18,400,000 in cash and $80,600,000 of availability under our line of credit. We encourage you to review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. Our common stock dividend is $0.30 per share per quarter or Our common stock closed yesterday at 13.83% and our yield at that price was 8.68.

[Gary Gerson, CFO & Assistant Treasurer at Gladstone Commercial]

And now I'll turn the program back to David.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Well, thank you, Gary. That was a good one. We had a good one from Buzz and Michael too. And the team of commercial is really performing well there, renting more of our buildings and so we're continuing to grow. You've heard a lot today.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

In summary, we acquired two industrial facilities for a total of $73,000,000 nice addition to our group. Subsequent to the end of the quarter, we sold one office property with about a $377,000 profit. Previously recognized this is selling profit of $3,900,000 from sales type lease. Commercial team is continuing to grow our real estate, add more deals and refi and redo things. So we just continue to march along at the same pace we've marched at for a long time now.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Our team of strong professionals continues to pursue potential quality properties. On this list of acquisitions that we keep adding to, there are an acquisition team that's just out there seeking only the strong credit tenants, and we're going to continue that process. So let's stop now and have the operator come on and tell listeners how they can ask some

[Operator]

The first question comes from Gaurav Mehta with Alliance Global Partners. Please proceed.

[Gaurav Mehta, Managing Director at Alliance Global Partners]

Yes. Thank you. Good morning. Good I wanted to talk about your acquisition pipeline and what you were seeing in the market for industrial properties?

[Buzz Cooper, President at Gladstone Commercial]

Thanks, Gaurav. We are seeing activity. It's picking up here as the year gets started. For ourselves, we currently have approximately 70,000,000 teed up here that we believe will close into the second quarter and are looking at have a backlog that we are reviewing of approximately 140,000,000 which consists of about 10 assets. Obviously,

[Buzz Cooper, President at Gladstone Commercial]

there is

[Buzz Cooper, President at Gladstone Commercial]

a lot of competition coming from the marketplace, both family offices as well as PE shops. But as David referenced, the team is aggressive in the market, looking at every transaction we can find, being very selective in these challenging times. But we believe we will continue to be active certainly through next quarter this quarter and into next quarter.

[Gaurav Mehta, Managing Director at Alliance Global Partners]

Okay. And so the $70,000,000 that you mentioned under contract, can you maybe provide some color on how you expect to fund those acquisitions?

[Buzz Cooper, President at Gladstone Commercial]

As Gary mentioned, we've got great liquidity. We have adequate cash and availability on hand. We will also and have been going to look at other financing sources as we did a private placement at the end of last year as well as perhaps other ways of having capital on hand, whether perhaps through a JV or other.

[Gaurav Mehta, Managing Director at Alliance Global Partners]

Okay. Thank you. That's all I had.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Thank you. Next question.

[Operator]

Next question comes from Craig Kucera with Lucid Capital. Please proceed.

[Craig Kucera, MD - Equity Research at Lucid Capital Markets]

Yes. Hey, good morning, guys. I want

[Craig Kucera, MD - Equity Research at Lucid Capital Markets]

to circle back to the acquisition volume here. Obviously, a big pickup after really a relatively slow couple of years. Are you seeing sellers more willing to budge on price? Or are you just seeing more assets that fit what you want the portfolio to look like?

[Buzz Cooper, President at Gladstone Commercial]

If I may, a little it's a combination of both. We have been also aggressively trying to stay close with our broker relationships in order to have an early look as well as hopefully a last look at transactions. One of our value adds is we do what we say we got to do. We don't re trade. I don't like that word.

[Buzz Cooper, President at Gladstone Commercial]

So I think it's a function of getting to the transactions earlier rather than later and having early impact back to either seller or broker that's allowing us this success.

[Craig Kucera, MD - Equity Research at Lucid Capital Markets]

Okay, great. I know you don't have much in the way of remaining lease expirations here in 2025, but I'm kind of curious to hear if you're starting tackling 2026 and 2027, which are much larger years that are expiring.

[Buzz Cooper, President at Gladstone Commercial]

As has been our history, Craig, we do and we are. If you look at the expirations, again, as you mentioned, for this year is under 2%, and that represents two transactions of which we are willing to have an RFP out on the other for a longer term extension. So we're in talks. As it relates to '26, we have approximately eight or nine that we are working on. And of those, we really only have one at this point in time that we have not traded paper on or had discussions with.

[Buzz Cooper, President at Gladstone Commercial]

So we will hopefully winnow that down quickly and at the appropriate time. But we've got a good handle on it. We get out in front of it. And we are as we work these '26 expirations also looking at '27 and believe that we will be successful there as well. Many of those are industrial in nature, which we hope will allow us for obviously rent pickup.

[Craig Kucera, MD - Equity Research at Lucid Capital Markets]

Got it. And kind of circling back to the lease you did renew recently. Can you talk about leasing spread relative to expiring rent on the asset that you extended for another three years? Did you get a pickup there?

[Buzz Cooper, President at Gladstone Commercial]

That was not a pickup on a straight line basis for the term. It's a small drop. And the reason for that was, again, we could not get them to extend longer. They have to let us know after an eighteen month period if they are going to remain. But it is in a market that is strong and believe that should we not have success in re upping them longer, we will have a pickup as it relates to the rental rate.

[Craig Kucera, MD - Equity Research at Lucid Capital Markets]

Okay, great. And just one more for me for Gary. You mentioned the swaps on the floating rate debt. Any of those expiring this year or are they swapped through maturity?

[Gary Gerson, CFO & Assistant Treasurer at Gladstone Commercial]

No, all those are swapped to maturity. Those two term loans mature in late twenty twenty seven and early twenty twenty eight.

[Craig Kucera, MD - Equity Research at Lucid Capital Markets]

Okay. Thanks guys.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Thank you. Next question.

[Operator]

Next question comes from John Massocca with B. Riley. Please proceed.

[John Massocca, Senior Research Analyst at B Riley Financial]

Good morning.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Good morning, John.

[John Massocca, Senior Research Analyst at B Riley Financial]

Apologies if I missed this in the prepared remarks, but any color on the dispositions completed subsequent to quarter end, kind of what was pricing there maybe and what made those kind non core?

[Buzz Cooper, President at Gladstone Commercial]

And John, you were cutting up a little bit. I think you're asking about our dispositions that we had here in the first and into the second quarter?

[John Massocca, Senior Research Analyst at B Riley Financial]

Correct.

[Buzz Cooper, President at Gladstone Commercial]

Okay. So we had two sales right at the April. And if I may, one was industrial. Tenet had an option to buy, so they did. And that was the realization of the gain there that we had.

[Buzz Cooper, President at Gladstone Commercial]

And the other was an office property that was purchased, had a little loss on that, not great. It did pay through its rent, but it was good to get away from a one story office.

[John Massocca, Senior Research Analyst at B Riley Financial]

Okay. And then I guess maybe just as an update, how much of the portfolio today would you view as noncore? And maybe an update on the situation with the Austin office property?

[Buzz Cooper, President at Gladstone Commercial]

As it relates to non core, I assume you're referring to office. Our office occupancy is north of 93% at the moment. I would say of that very small amount would be considered non core, but we do have some property types within that office. We do wish to get move on from and redeploy those into industrial assets. We have two call centers that we are working on.

[Buzz Cooper, President at Gladstone Commercial]

So most of the offices, from the standpoint of office today, healthy. And I could not understand the property you were referencing?

[John Massocca, Senior Research Analyst at B Riley Financial]

Sorry, the Austin office property, any update on lease up there?

[Buzz Cooper, President at Gladstone Commercial]

Sure. Austin always is top of mind. It does throw a lot of positive cash for us. At the moment, we currently have a few requirements out in the marketplace that we are tracking as well as two RFPs unsolicited out in the marketplace. Austin is improving.

[Buzz Cooper, President at Gladstone Commercial]

Office is also leading coming back to office work. So we are hopeful that we will be able to add tenancy there and then make a decision relative to a long term plan.

[John Massocca, Senior Research Analyst at B Riley Financial]

Okay. And then bigger picture, any changes in the acquisition kind of parameters given some of the changes in government policy? I mean, I guess, does light manufacturing look more attractive relative to warehouse distribution today in your mind?

[Buzz Cooper, President at Gladstone Commercial]

Yes, absolutely. And we do not have a lot of distribution in our portfolio. We don't have large boxes that are going to be affected by, if you will, tariffs and incoming product. We are light manufacturing in nature. So we feel confident.

[Buzz Cooper, President at Gladstone Commercial]

And I think if you look back at our previous calls, we have had a focus for the last two years as it relates to reshoring and onshoring. So we believe we're in a good position there to take advantage of that occurrence.

[John Massocca, Senior Research Analyst at B Riley Financial]

Okay. That's it for me. Thank you very much.

[Buzz Cooper, President at Gladstone Commercial]

Thank you.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Okay. We have any more questions. One more. Okay.

[Operator]

Yes. The next question comes from Dave Storms with Stonegate. Please proceed.

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Good morning.

[Buzz Cooper, President at Gladstone Commercial]

Good morning, Dave.

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Morning. Just going back to the renewal process, with your average lease term, it's just down a couple of months sequentially and your top five tenants lease terms down to about five years. Just curious as to what your thoughts are and how you feel about the duration of your contracts as you start preparing for the 2026 and 2027 negotiations?

[Buzz Cooper, President at Gladstone Commercial]

We do feel good about our term and it will I believe with these closings I mentioned coming up going to for lack of better word move back up over seven year WALT, they are good long term sale leaseback transactions. Obviously, we also have to keep in mind, you get a little more bang for the buck on the shorter term deals. So that's also important to us. We have continued and will continue our underwriting focus as to the ability of the tenant obviously to pay their rent and the stickiness of the real estate is mission critical or C suite and orientation that we feel comfortable they will renew if a shorter term lease. So hopefully that answers your question.

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

That's very helpful. Thank you. And then just one more for me and apologies if I missed this in the beginning. I know you mentioned that there's additional competition out there buying properties. I'm curious what kind of competition are you seeing on the leasing front?

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Are there any new tenants that are coming into the market that maybe haven't been historically there just in light of some of the macro

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

stuff?

[Buzz Cooper, President at Gladstone Commercial]

For us on the leasing front and if the question is who's leasing, most of it currently is end users and that's also true on the purchase side of the equation. So that's a good thing. The competition for those leases relative to who we might be losing a deal to has also been similar. They're looking for obviously properties that fit their need. So I think we're very competitive within the market where we have current leases coming due.

[Dave Storms, Director of Equity Research at Stonegate Capital Partners]

Very helpful. Thank you for taking my questions.

[Buzz Cooper, President at Gladstone Commercial]

Thank you.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

Any more questions?

[Operator]

Mr. Gladstone, there are no further questions in queue. I'll turn it back to you for closing comments.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

All right. Well, we thank you all for listening to our presentation and asking good questions. And we hope you'll save up a lot of good questions for next time because we like the questions.

[David Gladstone, Founder, Chairman & CEO at Gladstone Commercial]

That's the end of this.

[Buzz Cooper, President at Gladstone Commercial]

Thank you.

[Operator]

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and thank you for your participation.

Participants

Executives

• David Gladstone, Founder, Chairman & CEO
• Buzz Cooper, President
• Gary Gerson, CFO & Assistant Treasurer

Analysts

• Michael Licalsi, General Counsel & Secretary at Gladstone Investment
• Gaurav Mehta, Managing Director at Alliance Global Partners
• Craig Kucera, MD - Equity Research at Lucid Capital Markets
• John Massocca, Senior Research Analyst at B Riley Financial
• Dave Storms, Director of Equity Research at Stonegate Capital Partners