NASDAQ:GOOD Gladstone Commercial Q3 2023 Earnings Report $14.10 -0.02 (-0.14%) Closing price 04/28/2025 04:00 PM EasternExtended Trading$13.98 -0.12 (-0.85%) As of 04/28/2025 07:52 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Gladstone Commercial EPS ResultsActual EPS-$0.04Consensus EPS $0.38Beat/MissMissed by -$0.42One Year Ago EPSN/AGladstone Commercial Revenue ResultsActual Revenue$36.46 millionExpected Revenue$39.80 millionBeat/MissMissed by -$3.34 millionYoY Revenue GrowthN/AGladstone Commercial Announcement DetailsQuarterQ3 2023Date11/6/2023TimeN/AConference Call DateTuesday, November 7, 2023Conference Call Time8:30AM ETUpcoming EarningsGladstone Commercial's Q1 2025 earnings is scheduled for Wednesday, May 7, 2025, with a conference call scheduled on Thursday, May 8, 2025 at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Gladstone Commercial Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 7, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Greetings, and welcome to the Gladstone Commercial Corporation Third Quarter Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, Chief Executive Officer. Operator00:00:25Please proceed, sir. Speaker 100:00:27Well, thank you so much for that nice introduction and thanks to all of you for calling in. We enjoy this time we have with you on the phone and Wish I had more time to talk with you. Now we'll first hear from Michael LiCalsi, our General Counsel and Secretary and It gives us good legal and regulatory information. So Michael, go ahead. Speaker 200:00:49Thanks, David. Good morning, everybody. Today's Support 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, Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward looking statements, including all risk factors Our forms 10 Q, 10 ks and other documents we file with the SEC. You can find those on the Investors page of our website, gladstonecommercial.com or on the SEC's website, which is www.sec.gov. Speaker 200:01:31And 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. Today, we'll discuss FFO, which is funds from operations. It is a non GAAP accounting term defined as net income, excluding the gains or losses from the sale of real impairment losses on property, plus depreciation and amortization of real estate assets. We'll also discuss core FFO, which is generally FFO adjusted for certain Other non recurring revenue and expenses. We believe these metrics are a better indication of our operating results and allow better comparability of our period over period performance. Speaker 200:02:11Please go to our website, once again, gladstonecommercial.com, sign up for our e mail notification service. You View 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. Speaker 300:02:35Thank you, Michael. Thank you all for calling in. Today, we will discuss our operations and topics that are top of mind. Before discussing portfolio developments, I would like to briefly highlight the broader economic backdrop in which we operate. In July 2023, the Fed raised rates by 25 basis points, raising the target policy rate to its highest level in 22 years. Speaker 300:02:59The impacts of the Fed's policies are becoming more pronounced in the real estate world with new construction starts across all asset Classes slowing significantly. The office market continues to feel the impact of work from home dynamic, While despite a slight slowing in rent absorption, the industrial market continues to outperform, which is driven primarily by and reassuring initiatives. Uncertainty in geopolitics, capital markets and Fed policies Continue contributing to volatile real estate markets today. Despite this uncertainty, we are sticking to our core strategies, Divesting non core office assets, acquiring mission critical industrial assets in the path of growth markets and diligently underwriting tenants' credits. By focusing on these strategies, we believe we position our portfolio for growth and outperformance. Speaker 300:03:57With that, I would like to highlight a few portfolio developments for the Q3. First, as of September 30, our industrial concentration as a percent of annual straight line rent increased to 59%, A strategy we initiated and have stated since before 2019. We acquired 100,000 Square Foot Industrial Manufacturing Distribution Facility in Cedar Hill, Texas for $9,100,000 in a 20 year sale leaseback transaction at At a GAAP cap rate of 10.1 percent, we acquired a 7,714 Square Foot Medical Property in Burleson, Texas With a 10 year lease in place, we sold 3 office assets in Pittsburgh, Pennsylvania, New Jersey and Taylorsville, Utah for a combined $19,000,000 in 3 separate transactions. We extended 2 leases on our Wilmington, North Carolina Industrial asset and New Albany Ohio office property. The new leases resulted in term extensions through 2,030 7 and 2,040 2, respectively, and straight line rent increases. Speaker 300:05:09During the quarter, our asset management team grew same store revenues by 5.4% q3 2022 toq3 2023. Subsequent to the end of the quarter, we acquired a 69,920 Square Foot Manufacturing distribution facility in Allentown, Pennsylvania for $7,800,000 in a 20 year sale leaseback transaction at a GAAP cap rate of 9.2%. Again, subsequent to the end of the quarter, we also acquired a 67,000 709 Square Foot Industrial Manufacturing Distribution Facility in Indianapolis, Indiana for $4,500,000 in a Our outline strategy and our team continues to create value through the repositioning and sustained disposition of our legacy office Assets. Year to date, we have sold 6 office assets and executed new leases or extensions at an additional 5 office assets. The combined GAAP cap rate on new acquisitions during the 3rd quarter was 9.54% and the disposition Cap rate on stabilized office sales was 8.23%, resulting in a 130 basis point increase in yield. Speaker 300:06:33This capital recycling is highly accretive to the portfolio in the short term and better positions the portfolio in the long term. Another example of the strength of our portfolio, we were able to generate a same store GAAP rent increase of 38% at our Fort Lauderdale Office asset by executing a full building lease. This was a tremendous outcome for our shareholders and allows us to be strategic with our long term plans for that asset. Since 2019, our industrial concentration as a percentage of annualized straight line rent has increased from 32% to 59%. Furthermore, all industrial acquisitions are mission critical to quality tenants and well located Growing MSA. Speaker 300:07:17Our new acquisitions are all poised to benefit from reshoring initiatives as corporations try to insulate themselves from geopolitical tensions to bring their manufacturing operations back to the United States. I would also like to point out that the company has collected 100% of rents since the beginning of the year. Going forward, we plan to continue targeting industrial assets, particularly leveraging our experience in negotiating acquisitions for sale leaseback transactions. We appreciate these transactions as opportunities to negotiate leases that are mutually favorable for both the buyer and the seller and utilizing our tenant underwriting skills. We will always evaluate 3rd party transactions as well with the goal of further increasing our industrial In the next 6 to 12 months. Speaker 300:08:11As of the end of the quarter, our pipeline consists of $366,000,000 of opportunities, $45,000,000 were in the LOI stage with the remainder under initial review. While the bid ask spread between buyer and sellers narrowed somewhat in the Q3, we expect to see more opportunities at attractive yields In the New Year as seller expectations normalize. I will now turn the call over to Gary Garrison, our CFO, to review our financial results for the quarter and our liquidity position. Gary? Speaker 400:08:42Thank you, Buzz. I'll start my remarks regarding our financial results this morning by reviewing our operating for the Q3 of 2023. All per share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO per share available to common stockholders were $0.33 and $0.34 per share for the quarter, respectively. FFO and core FFO available to common stockholders during the Q3 of 2022 were $0.43 $0.44 Per share, respectively. Speaker 400:09:13FFO and core FFO for the 9 months ended September 30 were $1.10 $1.11 respectively. FFO and core FFO for the same period in 2022 were $1.21 and $1.22 per share, respectively. Core FFO was affected this quarter by one time expenses related to property distribution, professional fees and increased interest costs. FFO was further affected by derivative maturities and defeasance costs. Our same store rent in the 1st 3 quarters of 20 20 Increased by 5.4 percent over the same period in 2022. Speaker 400:09:49This was due to a one time accelerated rental and increased recovery revenues. Our 3rd quarter results reflected total operating revenues of $36,500,000 with operating expenses of $29,600,000 as compared to operating revenues of $39,800,000 and operating expenses of $37,200,000 for the same period in 2022. Operating expenses were lower in this period, mainly due to a $6,800,000 of impairment charges taken in 2023 versus 10 point $72,000,000 taken in the same period in 2022 waiver of the incentive fee in 2023 and Reduced depreciation expense in 2023 due to revisions related to tenant funded improvement assets also resulted in lower operating costs. Looking to our debt profile, 41.6 percent is fixed rate, 49% is hedged floating rate and 9.4% is floating rate, which is the amount drawn on our revolving credit facility. As of September 30, our effective average SOFR rate was 5.31%. Speaker 400:10:59Our outstanding bank term loans are hedged with $310,000,000 of interest rate swaps and the remainder with interest caps. We continue to monitor interest rates very closely and update our hedging strategy as needed. As of today, our 20 3 and 2024 loan maturities are manageable. We have no further maturities in 2023 and $19,600,000 coming due in 2024. As of the end of the quarter, we had $70,950,000 of revolver borrowings outstanding. Speaker 400:11:29We had No activity this quarter in issuing equity through our at the market or ATM program. We received net proceeds of $900,000 from sales of our Series F preferred stock. 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 $6,000,000 in cash $43,600,000 of availability under our line of credit. We encourage you to also review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. Speaker 400:12:05Our common stock dividend is $0.30 per share per quarter or $1.20 per year. Our common stock closed yesterday at $12.53 per share with a yield of 9.58%. And now I'll turn the program back to David. Speaker 100:12:21Wonderful. Gary, good report. Good one from Buzz and Michael too. The team has performed very well and We reacted admirably, I'd have to say, to the various challenges presented by the lasting impact of much higher interest rates, which You heard a lot today. In summary, during the Q3, we acquired 2 industrial facilities. Speaker 100:12:54We sold 3 non core properties. All of them are office buildings. So you can see we're continuing to get out of the business of renting office space. We also renewed Or leased 2 of our properties subsequent to the end of the quarter, we acquired 1 industrial facility as well. The commercial team is growing the real estate we own at a good pace and the team is doing a great job of managing the properties we own, especially during These times with these very high interest rates, our team of strong professionals continues to pursue potential quality properties The list of acquisitions they are reviewing. Speaker 100:13:36Acquisition team seems a little pick up in Opportunities for us. So I'm going to stop at this point in time and have the operator come on and get some questions from the people that are on the phone. Operator00:13:50Thank you. We will now conduct a question and answer session. A confirmation tone will indicate your line is in the question Our first question comes from Rob Stevenson with Janney Montgomery Scott. Please proceed. Speaker 500:14:28Good morning, guys. Buzz, the buyers of your office assets today, are they the users or is there still 10/31 demand in your various markets for these types of smaller assets? Speaker 300:14:39Good morning, Rob. The majority of them are honestly developers looking to reposition The properties in the respective markets, there are a few owner users that we have sold to, but majority are looking to reposition They see it as value add more than occupancy of office per se. They're generally going into multifamily. Speaker 500:15:02Okay. That's helpful. And any known non renewals and move outs That you're planning for over the next 12 to 18 months? Speaker 300:15:12Let me see. We've got one that we know is moving out And we are in the process of, as we do, as you know, stay in front of our tenancy very tightly. Our Portfolio managers and asset managers work very hard and closely to know what's happening with our tenants on the ground. At this point in time, I know of 1, but we do have that building under due diligence as it relates to a sale. Speaker 500:15:39Okay. That's helpful. And then Gary, there were a lot of moving parts in the Q3 earnings. Obviously, Q4 is going to have the impact of any Acquisitions, dispositions that you do and that you did do here in the Q3 and also higher rates, but anything else that's either carrying Over from the Q3 drag wise or alternatively going away that we should be thinking about when updating our models? Speaker 400:16:03I mean, we did have thanks, Rob. We did have an unusually high amount Of G and A costs this quarter, legal and associated with dispositions and so forth. And then we also had Some financial costs related to a defeasance of a mortgage as well as cap, some realized losses on So those won't be going forward, but we did have some increase in interest costs, primarily due to Refinancing a couple of mortgages on the line of credit instead of going into the mortgage market as the unfortunately the line of credit was Cheaper but more expensive in turn to the mortgages we refinance with it, hoping to go to the market when The rates go down on those, but that unfortunate drag will continue. But as far as dispositions, as we Dispose of our office properties, we'll see less of a drag in operating expenses. So I can't forecast what that's going to be, but Hopefully over the next couple of quarters, you'll definitely see that as an increase in overall. Speaker 400:17:12Okay. Speaker 500:17:13And other than the stuff that you've mentioned in the various releases, Is there anything that you're expecting to close on acquisition disposition wise in the Q4 or are you Waiting for pricing to sort of change etcetera or financing costs to come down? Operator00:17:32We have a number of I'll give this Speaker 400:17:34to Buzz, but we do have a number of buildings right now held for sale. But in some of those, we're hoping they will close in the Q4. But Buzz, I'll let you have the answer to that. Speaker 300:17:44Sure. On the acquisition side, Rob, here as we hit 2.5 months out, if you will, before year end, We have a few under review that we would love to push to get closed in this quarter. I'm not sure that's going to occur. So at this point in time, I would say most likely not at the end of the year, but as we just closed when you saw right at the Beginning of this month sorry, just closed I guess on Friday. We are doing all we can to push For lack of a better word, get those assets on our books and our portfolio. Speaker 300:18:20But at this point in time, we've seen a relative's, I'll call it, less Year over year activity going toward the end of the year haven't seen the plethora of packages out for properties for sale as people try to dispose of them In 'twenty three versus 'twenty four, which tells you that the brokers and the sellers are, I think, currently sitting on the sidelines a bit. We still have several to look at and a good volume of dollars, of over $300,000,000 I think $66,000,000 that we're looking at. But at this point in time, I don't Foresee close some sales before the end of the year, but I don't see that we will have any new acquisitions unless something were to fall quickly into our labs. Speaker 500:19:03Okay. And then any proceeds that you have there on dispositions just go towards repaying the line until the acquisitions get teed up? Speaker 400:19:13With that and or the mortgage that the building may be encumbered with. Speaker 500:19:18Okay. All right, guys. Thanks. I appreciate the time this morning. Speaker 100:19:21Thank you. Thank you. Next question please. Operator00:19:25The next question comes from Dave Storns with Stonegate. Please proceed. Speaker 100:19:30Good morning. Good morning. Speaker 600:19:35Just curious if you could kind of talk to us about how you think your Lease profile term or the term of your lease profile will shift over 2024? Speaker 300:19:46As it relates to new acquisitions, of course, as I mentioned, Dave, we're looking for long term sale leasebacks. Recent closings obviously reflect that 15 plus years in order to increase our WALT. On the renewals, we are pushing for longer and have a few that we are looking at, But generally, they are 5 year renewals. So that puts the concentration obviously on the origination side versus renewal to 15, 20 year sale leasebacks, but we do not have any great concentration of lease Expiring into 2024. So I believe we'll be able to keep our WALT and increase our WALT going forward. Speaker 600:20:29Very helpful. Thank you. And then just as it relates to occupancy, it's kind of taken a step up every quarter here in the year and has even up another 80 basis points or so Since the end of the quarter, how much more headroom do you think is there? And are you having to give any concessions or anything like that to get to those occupancy numbers up? Speaker 300:20:51With new leases, obviously, there are some concessions as it relates to TI dollars. We are not, however, going to give away just to get occupancy. We need to make sure that these transactions are accretive to our portfolio and help the company overall. But yes, we do see concessions in marketplace, Some larger than others, but the team actually has done a great job in negotiating the balance between term and cost to get that term. As we know, capital expense into an existing deal can create creative positive numbers to The deal itself into the portfolio overall, in fact, in a couple of cases, they're much more accretive than they would be on a new deal. Speaker 300:21:36So We look at it carefully as it relates to the TI dollars and capital spend into The existing portfolio because tenant improvement dollars obviously can be as accretive as new dollars out the door. Speaker 600:21:52Very, very helpful. Thank you. And then just one more if I could. How do you think about geographic focus of acquisitions going forward? It looks like your last two Acquisitions were in Pennsylvania and Indianapolis. Speaker 600:22:03Do you are you focusing more westward, southward or kind of right in those core markets? And then, thank you. Speaker 300:22:10Sure. We are not focused west of the Rockies at this point in time. It's just too expensive to play. Majority of growth as we've seen in the country from various industries has been more Midwest to South, Southeast, Texas, if you will, to the East. So that is where we see the focus because that's where we see the opportunities. Speaker 300:22:31And as you've heard in the past, we look to Look for acquisitions in the path of growth, so that we can get the returns that we're looking for, but we're not going to get away from our Credit necessities as it relates to evaluation of the tenancy, but mostly you're going to see this growth not in the Northeast, but it's going to be in Illinois, Ohio to the south, if you will, and over to Georgia, Florida, with a few opportunities being created. When I say in the Northeast, in New Jersey with a couple of assets we have as we look to build a concentration there, but they've got to be accretive to the portfolio. Speaker 600:23:19Yes, sorry. Thank you. Speaker 100:23:21Okay. Next question, please. Operator00:23:29Our next question comes from John Massocca with B. Riley. Please proceed. Speaker 700:23:34Good morning. Good morning. Good morning. So sticking with tenant dispositions, were any of the assets that were sold either this quarter or subsequent Quarter end vacant and I guess for ones that were occupied, what's kind of the rough disposition cap rate or even kind of Gross NOI that went away as a result of the sales? Speaker 300:23:57I've got that answer for you, John. Give me one second. With the dispositions, one that we had Previously a building down in South Carolina had a tenant that purchased the building. So that one, however, we had not been responsible for the building, but it did indeed Close here at the beginning last quarter. On other dispositions, they are not we have one vacancy That did get sold and the others that we, as Gary mentioned, held for sale, those are all currently Occupied, I think save 1. Speaker 300:24:47Now I'm not sure that gives you the complete answer that you're looking for, but We feel very good about our dispositions and what we have coming up as we release to that toward the end of the year Because they're all under contract. And then as we look early into next year, the 1st 6 months, we are actively engaged with the Property as relates to either having it occupied because we've had several leases sorry, several tours at our buildings as well as sales for repositioning the properties generally for multi tenant. Speaker 700:25:23Okay. I guess maybe ask another way. I mean, how is the cap rate on dispositions Comparing to acquisition cap Speaker 300:25:31rates? As I mentioned earlier on the one that had a, I think, 130 basis point swing to it, We are making sure that what we can do is going to be accretive to the portfolio. We also have to weigh that if it is an empty building as it relates to the burn associated with carrying the building, so we have to balance that out. But we are increasing the value of the portfolio also as mentioned with a couple of the renewals that we are doing that Again, the office building reference might give us a ability to redeploy that cash as the building has Increased in value as a result of full tenancy. Speaker 700:26:12Okay. And then on the balance Cheatside, you know, is it kind of thinking about the I think you mentioned on the 3Q call sorry, the 2Q call That it's important starting swaps that came on and replaced caps. I mean, is the full impact of that reflected in the current quarter or was that kind of mid quarter? And I guess, is there any kind of other One time stuff as it relates to kind of swapping out interest rates that may be worth noting in the next Couple of quarters. Speaker 400:26:44Well, right now, we have $310,000,000 of swaps. The one that was forward starting started at the beginning of July. So that's all within this quarter. So there won't be any additional effects ongoing with those swaps. They are what they are. Speaker 400:26:58They're Our term loans, we would probably you might see a little bit in Q1 some unrealized losses on some Cap maturities in Q1, but that should be it. We don't have any we're working on our hedging strategy. We don't have any plans Right at the moment to swap or cap anything right now, but that could change given where interest rates go. Speaker 700:27:25Okay. And then lastly, the incentive advisors incentive fee, how should we think about that in the near term? I know you've kind of waived it for the last couple of quarters? Speaker 300:27:39Obviously, that discussions occurred will occur at the Board level. We have not made any decisions at this point in time to do anything different than what we are currently doing in waiving it. But that will be discussed at the right time. Speaker 700:27:56Okay. That's it Speaker 600:27:58for me. Speaker 700:27:58Thank you Speaker 600:27:58very much for your time. Speaker 300:28:00Thanks, Sean. Speaker 100:28:01Okay. Next question. Operator00:28:04Thank you, Mr. Gladstone. There are no questions you. At this time, I would like to turn it back to you for closing comments. Speaker 100:28:11Okay. Thank you so much all of you for calling in. We love all those good questions you have. Next quarter, we end it with a lot of good questions as well. That's the end of this call, and we thank you all again. Operator00:28:25Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallGladstone Commercial Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Gladstone Commercial Earnings HeadlinesShort Interest in Gladstone Commercial Co. 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Sign up for Earnings360's daily newsletter to receive timely earnings updates on Gladstone Commercial and other key companies, straight to your email. Email Address About Gladstone CommercialGladstone 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. 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There are 8 speakers on the call. Operator00:00:00Greetings, and welcome to the Gladstone Commercial Corporation Third Quarter Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, Chief Executive Officer. Operator00:00:25Please proceed, sir. Speaker 100:00:27Well, thank you so much for that nice introduction and thanks to all of you for calling in. We enjoy this time we have with you on the phone and Wish I had more time to talk with you. Now we'll first hear from Michael LiCalsi, our General Counsel and Secretary and It gives us good legal and regulatory information. So Michael, go ahead. Speaker 200:00:49Thanks, David. Good morning, everybody. Today's Support 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, Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward looking statements, including all risk factors Our forms 10 Q, 10 ks and other documents we file with the SEC. You can find those on the Investors page of our website, gladstonecommercial.com or on the SEC's website, which is www.sec.gov. Speaker 200:01:31And 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. Today, we'll discuss FFO, which is funds from operations. It is a non GAAP accounting term defined as net income, excluding the gains or losses from the sale of real impairment losses on property, plus depreciation and amortization of real estate assets. We'll also discuss core FFO, which is generally FFO adjusted for certain Other non recurring revenue and expenses. We believe these metrics are a better indication of our operating results and allow better comparability of our period over period performance. Speaker 200:02:11Please go to our website, once again, gladstonecommercial.com, sign up for our e mail notification service. You View 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. Speaker 300:02:35Thank you, Michael. Thank you all for calling in. Today, we will discuss our operations and topics that are top of mind. Before discussing portfolio developments, I would like to briefly highlight the broader economic backdrop in which we operate. In July 2023, the Fed raised rates by 25 basis points, raising the target policy rate to its highest level in 22 years. Speaker 300:02:59The impacts of the Fed's policies are becoming more pronounced in the real estate world with new construction starts across all asset Classes slowing significantly. The office market continues to feel the impact of work from home dynamic, While despite a slight slowing in rent absorption, the industrial market continues to outperform, which is driven primarily by and reassuring initiatives. Uncertainty in geopolitics, capital markets and Fed policies Continue contributing to volatile real estate markets today. Despite this uncertainty, we are sticking to our core strategies, Divesting non core office assets, acquiring mission critical industrial assets in the path of growth markets and diligently underwriting tenants' credits. By focusing on these strategies, we believe we position our portfolio for growth and outperformance. Speaker 300:03:57With that, I would like to highlight a few portfolio developments for the Q3. First, as of September 30, our industrial concentration as a percent of annual straight line rent increased to 59%, A strategy we initiated and have stated since before 2019. We acquired 100,000 Square Foot Industrial Manufacturing Distribution Facility in Cedar Hill, Texas for $9,100,000 in a 20 year sale leaseback transaction at At a GAAP cap rate of 10.1 percent, we acquired a 7,714 Square Foot Medical Property in Burleson, Texas With a 10 year lease in place, we sold 3 office assets in Pittsburgh, Pennsylvania, New Jersey and Taylorsville, Utah for a combined $19,000,000 in 3 separate transactions. We extended 2 leases on our Wilmington, North Carolina Industrial asset and New Albany Ohio office property. The new leases resulted in term extensions through 2,030 7 and 2,040 2, respectively, and straight line rent increases. Speaker 300:05:09During the quarter, our asset management team grew same store revenues by 5.4% q3 2022 toq3 2023. Subsequent to the end of the quarter, we acquired a 69,920 Square Foot Manufacturing distribution facility in Allentown, Pennsylvania for $7,800,000 in a 20 year sale leaseback transaction at a GAAP cap rate of 9.2%. Again, subsequent to the end of the quarter, we also acquired a 67,000 709 Square Foot Industrial Manufacturing Distribution Facility in Indianapolis, Indiana for $4,500,000 in a Our outline strategy and our team continues to create value through the repositioning and sustained disposition of our legacy office Assets. Year to date, we have sold 6 office assets and executed new leases or extensions at an additional 5 office assets. The combined GAAP cap rate on new acquisitions during the 3rd quarter was 9.54% and the disposition Cap rate on stabilized office sales was 8.23%, resulting in a 130 basis point increase in yield. Speaker 300:06:33This capital recycling is highly accretive to the portfolio in the short term and better positions the portfolio in the long term. Another example of the strength of our portfolio, we were able to generate a same store GAAP rent increase of 38% at our Fort Lauderdale Office asset by executing a full building lease. This was a tremendous outcome for our shareholders and allows us to be strategic with our long term plans for that asset. Since 2019, our industrial concentration as a percentage of annualized straight line rent has increased from 32% to 59%. Furthermore, all industrial acquisitions are mission critical to quality tenants and well located Growing MSA. Speaker 300:07:17Our new acquisitions are all poised to benefit from reshoring initiatives as corporations try to insulate themselves from geopolitical tensions to bring their manufacturing operations back to the United States. I would also like to point out that the company has collected 100% of rents since the beginning of the year. Going forward, we plan to continue targeting industrial assets, particularly leveraging our experience in negotiating acquisitions for sale leaseback transactions. We appreciate these transactions as opportunities to negotiate leases that are mutually favorable for both the buyer and the seller and utilizing our tenant underwriting skills. We will always evaluate 3rd party transactions as well with the goal of further increasing our industrial In the next 6 to 12 months. Speaker 300:08:11As of the end of the quarter, our pipeline consists of $366,000,000 of opportunities, $45,000,000 were in the LOI stage with the remainder under initial review. While the bid ask spread between buyer and sellers narrowed somewhat in the Q3, we expect to see more opportunities at attractive yields In the New Year as seller expectations normalize. I will now turn the call over to Gary Garrison, our CFO, to review our financial results for the quarter and our liquidity position. Gary? Speaker 400:08:42Thank you, Buzz. I'll start my remarks regarding our financial results this morning by reviewing our operating for the Q3 of 2023. All per share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO per share available to common stockholders were $0.33 and $0.34 per share for the quarter, respectively. FFO and core FFO available to common stockholders during the Q3 of 2022 were $0.43 $0.44 Per share, respectively. Speaker 400:09:13FFO and core FFO for the 9 months ended September 30 were $1.10 $1.11 respectively. FFO and core FFO for the same period in 2022 were $1.21 and $1.22 per share, respectively. Core FFO was affected this quarter by one time expenses related to property distribution, professional fees and increased interest costs. FFO was further affected by derivative maturities and defeasance costs. Our same store rent in the 1st 3 quarters of 20 20 Increased by 5.4 percent over the same period in 2022. Speaker 400:09:49This was due to a one time accelerated rental and increased recovery revenues. Our 3rd quarter results reflected total operating revenues of $36,500,000 with operating expenses of $29,600,000 as compared to operating revenues of $39,800,000 and operating expenses of $37,200,000 for the same period in 2022. Operating expenses were lower in this period, mainly due to a $6,800,000 of impairment charges taken in 2023 versus 10 point $72,000,000 taken in the same period in 2022 waiver of the incentive fee in 2023 and Reduced depreciation expense in 2023 due to revisions related to tenant funded improvement assets also resulted in lower operating costs. Looking to our debt profile, 41.6 percent is fixed rate, 49% is hedged floating rate and 9.4% is floating rate, which is the amount drawn on our revolving credit facility. As of September 30, our effective average SOFR rate was 5.31%. Speaker 400:10:59Our outstanding bank term loans are hedged with $310,000,000 of interest rate swaps and the remainder with interest caps. We continue to monitor interest rates very closely and update our hedging strategy as needed. As of today, our 20 3 and 2024 loan maturities are manageable. We have no further maturities in 2023 and $19,600,000 coming due in 2024. As of the end of the quarter, we had $70,950,000 of revolver borrowings outstanding. Speaker 400:11:29We had No activity this quarter in issuing equity through our at the market or ATM program. We received net proceeds of $900,000 from sales of our Series F preferred stock. 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 $6,000,000 in cash $43,600,000 of availability under our line of credit. We encourage you to also review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. Speaker 400:12:05Our common stock dividend is $0.30 per share per quarter or $1.20 per year. Our common stock closed yesterday at $12.53 per share with a yield of 9.58%. And now I'll turn the program back to David. Speaker 100:12:21Wonderful. Gary, good report. Good one from Buzz and Michael too. The team has performed very well and We reacted admirably, I'd have to say, to the various challenges presented by the lasting impact of much higher interest rates, which You heard a lot today. In summary, during the Q3, we acquired 2 industrial facilities. Speaker 100:12:54We sold 3 non core properties. All of them are office buildings. So you can see we're continuing to get out of the business of renting office space. We also renewed Or leased 2 of our properties subsequent to the end of the quarter, we acquired 1 industrial facility as well. The commercial team is growing the real estate we own at a good pace and the team is doing a great job of managing the properties we own, especially during These times with these very high interest rates, our team of strong professionals continues to pursue potential quality properties The list of acquisitions they are reviewing. Speaker 100:13:36Acquisition team seems a little pick up in Opportunities for us. So I'm going to stop at this point in time and have the operator come on and get some questions from the people that are on the phone. Operator00:13:50Thank you. We will now conduct a question and answer session. A confirmation tone will indicate your line is in the question Our first question comes from Rob Stevenson with Janney Montgomery Scott. Please proceed. Speaker 500:14:28Good morning, guys. Buzz, the buyers of your office assets today, are they the users or is there still 10/31 demand in your various markets for these types of smaller assets? Speaker 300:14:39Good morning, Rob. The majority of them are honestly developers looking to reposition The properties in the respective markets, there are a few owner users that we have sold to, but majority are looking to reposition They see it as value add more than occupancy of office per se. They're generally going into multifamily. Speaker 500:15:02Okay. That's helpful. And any known non renewals and move outs That you're planning for over the next 12 to 18 months? Speaker 300:15:12Let me see. We've got one that we know is moving out And we are in the process of, as we do, as you know, stay in front of our tenancy very tightly. Our Portfolio managers and asset managers work very hard and closely to know what's happening with our tenants on the ground. At this point in time, I know of 1, but we do have that building under due diligence as it relates to a sale. Speaker 500:15:39Okay. That's helpful. And then Gary, there were a lot of moving parts in the Q3 earnings. Obviously, Q4 is going to have the impact of any Acquisitions, dispositions that you do and that you did do here in the Q3 and also higher rates, but anything else that's either carrying Over from the Q3 drag wise or alternatively going away that we should be thinking about when updating our models? Speaker 400:16:03I mean, we did have thanks, Rob. We did have an unusually high amount Of G and A costs this quarter, legal and associated with dispositions and so forth. And then we also had Some financial costs related to a defeasance of a mortgage as well as cap, some realized losses on So those won't be going forward, but we did have some increase in interest costs, primarily due to Refinancing a couple of mortgages on the line of credit instead of going into the mortgage market as the unfortunately the line of credit was Cheaper but more expensive in turn to the mortgages we refinance with it, hoping to go to the market when The rates go down on those, but that unfortunate drag will continue. But as far as dispositions, as we Dispose of our office properties, we'll see less of a drag in operating expenses. So I can't forecast what that's going to be, but Hopefully over the next couple of quarters, you'll definitely see that as an increase in overall. Speaker 400:17:12Okay. Speaker 500:17:13And other than the stuff that you've mentioned in the various releases, Is there anything that you're expecting to close on acquisition disposition wise in the Q4 or are you Waiting for pricing to sort of change etcetera or financing costs to come down? Operator00:17:32We have a number of I'll give this Speaker 400:17:34to Buzz, but we do have a number of buildings right now held for sale. But in some of those, we're hoping they will close in the Q4. But Buzz, I'll let you have the answer to that. Speaker 300:17:44Sure. On the acquisition side, Rob, here as we hit 2.5 months out, if you will, before year end, We have a few under review that we would love to push to get closed in this quarter. I'm not sure that's going to occur. So at this point in time, I would say most likely not at the end of the year, but as we just closed when you saw right at the Beginning of this month sorry, just closed I guess on Friday. We are doing all we can to push For lack of a better word, get those assets on our books and our portfolio. Speaker 300:18:20But at this point in time, we've seen a relative's, I'll call it, less Year over year activity going toward the end of the year haven't seen the plethora of packages out for properties for sale as people try to dispose of them In 'twenty three versus 'twenty four, which tells you that the brokers and the sellers are, I think, currently sitting on the sidelines a bit. We still have several to look at and a good volume of dollars, of over $300,000,000 I think $66,000,000 that we're looking at. But at this point in time, I don't Foresee close some sales before the end of the year, but I don't see that we will have any new acquisitions unless something were to fall quickly into our labs. Speaker 500:19:03Okay. And then any proceeds that you have there on dispositions just go towards repaying the line until the acquisitions get teed up? Speaker 400:19:13With that and or the mortgage that the building may be encumbered with. Speaker 500:19:18Okay. All right, guys. Thanks. I appreciate the time this morning. Speaker 100:19:21Thank you. Thank you. Next question please. Operator00:19:25The next question comes from Dave Storns with Stonegate. Please proceed. Speaker 100:19:30Good morning. Good morning. Speaker 600:19:35Just curious if you could kind of talk to us about how you think your Lease profile term or the term of your lease profile will shift over 2024? Speaker 300:19:46As it relates to new acquisitions, of course, as I mentioned, Dave, we're looking for long term sale leasebacks. Recent closings obviously reflect that 15 plus years in order to increase our WALT. On the renewals, we are pushing for longer and have a few that we are looking at, But generally, they are 5 year renewals. So that puts the concentration obviously on the origination side versus renewal to 15, 20 year sale leasebacks, but we do not have any great concentration of lease Expiring into 2024. So I believe we'll be able to keep our WALT and increase our WALT going forward. Speaker 600:20:29Very helpful. Thank you. And then just as it relates to occupancy, it's kind of taken a step up every quarter here in the year and has even up another 80 basis points or so Since the end of the quarter, how much more headroom do you think is there? And are you having to give any concessions or anything like that to get to those occupancy numbers up? Speaker 300:20:51With new leases, obviously, there are some concessions as it relates to TI dollars. We are not, however, going to give away just to get occupancy. We need to make sure that these transactions are accretive to our portfolio and help the company overall. But yes, we do see concessions in marketplace, Some larger than others, but the team actually has done a great job in negotiating the balance between term and cost to get that term. As we know, capital expense into an existing deal can create creative positive numbers to The deal itself into the portfolio overall, in fact, in a couple of cases, they're much more accretive than they would be on a new deal. Speaker 300:21:36So We look at it carefully as it relates to the TI dollars and capital spend into The existing portfolio because tenant improvement dollars obviously can be as accretive as new dollars out the door. Speaker 600:21:52Very, very helpful. Thank you. And then just one more if I could. How do you think about geographic focus of acquisitions going forward? It looks like your last two Acquisitions were in Pennsylvania and Indianapolis. Speaker 600:22:03Do you are you focusing more westward, southward or kind of right in those core markets? And then, thank you. Speaker 300:22:10Sure. We are not focused west of the Rockies at this point in time. It's just too expensive to play. Majority of growth as we've seen in the country from various industries has been more Midwest to South, Southeast, Texas, if you will, to the East. So that is where we see the focus because that's where we see the opportunities. Speaker 300:22:31And as you've heard in the past, we look to Look for acquisitions in the path of growth, so that we can get the returns that we're looking for, but we're not going to get away from our Credit necessities as it relates to evaluation of the tenancy, but mostly you're going to see this growth not in the Northeast, but it's going to be in Illinois, Ohio to the south, if you will, and over to Georgia, Florida, with a few opportunities being created. When I say in the Northeast, in New Jersey with a couple of assets we have as we look to build a concentration there, but they've got to be accretive to the portfolio. Speaker 600:23:19Yes, sorry. Thank you. Speaker 100:23:21Okay. Next question, please. Operator00:23:29Our next question comes from John Massocca with B. Riley. Please proceed. Speaker 700:23:34Good morning. Good morning. Good morning. So sticking with tenant dispositions, were any of the assets that were sold either this quarter or subsequent Quarter end vacant and I guess for ones that were occupied, what's kind of the rough disposition cap rate or even kind of Gross NOI that went away as a result of the sales? Speaker 300:23:57I've got that answer for you, John. Give me one second. With the dispositions, one that we had Previously a building down in South Carolina had a tenant that purchased the building. So that one, however, we had not been responsible for the building, but it did indeed Close here at the beginning last quarter. On other dispositions, they are not we have one vacancy That did get sold and the others that we, as Gary mentioned, held for sale, those are all currently Occupied, I think save 1. Speaker 300:24:47Now I'm not sure that gives you the complete answer that you're looking for, but We feel very good about our dispositions and what we have coming up as we release to that toward the end of the year Because they're all under contract. And then as we look early into next year, the 1st 6 months, we are actively engaged with the Property as relates to either having it occupied because we've had several leases sorry, several tours at our buildings as well as sales for repositioning the properties generally for multi tenant. Speaker 700:25:23Okay. I guess maybe ask another way. I mean, how is the cap rate on dispositions Comparing to acquisition cap Speaker 300:25:31rates? As I mentioned earlier on the one that had a, I think, 130 basis point swing to it, We are making sure that what we can do is going to be accretive to the portfolio. We also have to weigh that if it is an empty building as it relates to the burn associated with carrying the building, so we have to balance that out. But we are increasing the value of the portfolio also as mentioned with a couple of the renewals that we are doing that Again, the office building reference might give us a ability to redeploy that cash as the building has Increased in value as a result of full tenancy. Speaker 700:26:12Okay. And then on the balance Cheatside, you know, is it kind of thinking about the I think you mentioned on the 3Q call sorry, the 2Q call That it's important starting swaps that came on and replaced caps. I mean, is the full impact of that reflected in the current quarter or was that kind of mid quarter? And I guess, is there any kind of other One time stuff as it relates to kind of swapping out interest rates that may be worth noting in the next Couple of quarters. Speaker 400:26:44Well, right now, we have $310,000,000 of swaps. The one that was forward starting started at the beginning of July. So that's all within this quarter. So there won't be any additional effects ongoing with those swaps. They are what they are. Speaker 400:26:58They're Our term loans, we would probably you might see a little bit in Q1 some unrealized losses on some Cap maturities in Q1, but that should be it. We don't have any we're working on our hedging strategy. We don't have any plans Right at the moment to swap or cap anything right now, but that could change given where interest rates go. Speaker 700:27:25Okay. And then lastly, the incentive advisors incentive fee, how should we think about that in the near term? I know you've kind of waived it for the last couple of quarters? Speaker 300:27:39Obviously, that discussions occurred will occur at the Board level. We have not made any decisions at this point in time to do anything different than what we are currently doing in waiving it. But that will be discussed at the right time. Speaker 700:27:56Okay. That's it Speaker 600:27:58for me. Speaker 700:27:58Thank you Speaker 600:27:58very much for your time. Speaker 300:28:00Thanks, Sean. Speaker 100:28:01Okay. Next question. Operator00:28:04Thank you, Mr. Gladstone. There are no questions you. At this time, I would like to turn it back to you for closing comments. Speaker 100:28:11Okay. Thank you so much all of you for calling in. We love all those good questions you have. Next quarter, we end it with a lot of good questions as well. That's the end of this call, and we thank you all again. Operator00:28:25Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. 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