Q4 2023 Gladstone Commercial Corp Earnings Call

Operator: Fourth Quarter Earnings Call At this time, all participants will be in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad.

At this time, all participants will be in listen only mode.

Question and answer session will follow the formal presentation.

If anyone should require operator assistance during todays conference. Please press star zero from your telephone keypad.

Operator: Please note, this conference is being recorded. I'll now turn the conference over to Mr. David Gladstone, Chief Executive Officer. Mr. Gladstone, you may now begin your presentation. Okay, thank you, Rob. That's a nice introduction. And thank all of you for calling in this morning. It's nice of you.

Please note this conference is being recorded.

I'll now turn the conference over to Mr. David Gladstone, Chief Executive Officer, Mr. Gladstone, you May now begin your presentation.

Thank you Rob that's nice introduction and thank all of you for calling in this morning.

It's nice of you we enjoy the time that you take away from your day to come listen to her I phone presentation.

David Gladstone: We enjoy the time that you take away from your day to come listen to our phone presentation. We wish we had more time to talk to you. We only get this sort of thing once a quarter. Now we'll hear from Michael Lacalcie, our General Counsel and Secretary, to give us the legal and regulatory matters concerning the call today.

We've had more time to talk to you we only get this sort of once a quarter now or hear from Michael of calcium General counsel and secretary to give us a legal and regulatory matters concerning the call today, Michael Thanks, David Good morning, everybody. Today's report May include forward looking statements under the Securities Act of 1933, the Securities Exchange.

Michael Lacalcie: 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. 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 the risk factors in our Forms 10-Q-10-K and other documents we file with the SEC. You can find them on our website, gladstonecommercial.com, specifically the Investors page, or on the SEC's website, which is www.sec.gov. And 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. 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.

Range active 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 and 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 the risk factors.

And our forms 10-Q, 10-K, and other documents we file with the SEC. So you can find them on our website Gladstone commercial dotcom, specifically, the investor's page or on the Sec's website, which is www dot FCC Dot G O V and we.

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 will discuss F. F O which is funds from operations now F. F. O is a non-GAAP accounting term dip.

Find 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.

Michael Lacalcie: We'll also discuss core FFO, which is generally FFO adjusted for certain other non-recurring revenues and expenses, and 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, GladstoneCommercial.com, and sign up for our email notification service. You can also find us on Facebook, the keyword there is the Gladstone Companies, and on Today's call is an overview of our results, so we ask that you review our press release and form 10-K, both issued yesterday, for more detailed information. And with that, I'll hand the baton over to Gladstone Commercials President Buzz Cooper. Buzz.

Also discuss core <unk>, which is generally <unk> adjusted for certain other nonrecurring revenues and expenses and we believe these metrics are a better indication of our operating results will allow better comparability of our period over period performance. Please visit our website once again Gladstone commercial dotcom.

Sign up for our email notification service you can also find the salt Facebook keyword. There is the Gladstone companies and on Twitter at Gladstone comps that today's call is an overview of our results. So we ask that you review our press release and Form 10-K again, both issued yesterday for more detailed information and with that I'll hand, the baton over to slide <unk>.

Commercial's President Buzz Cooper bus. Thank you Michael and thank you all for calling in.

Buzz Cooper: Thank you, Michael, and thank you all for calling in. Today, we will discuss our operations and topics that are top of mind. Interest rates continue to have outsized impacts on capital markets and real estate. In October 2023, the benchmark 10-year treasury yield peaked above 5% for the first time since 2007, but rates remain volatile through the end of the year, with the 10-year yield finishing below 4% and increasing to 4.32% as of yesterday.

Today, we will discuss our operations and topics that are top of mind.

Interest rates continue to have outsized impacts on capital markets and real estate in October 2023, benchmark 10 year Treasury yield peaked about 5% for the first time since 2007.

Rates remain volatile through the end of the year, but the 10 year yield, finishing below 4% and increasing to $4 three two as of yesterday.

Buzz Cooper: This volatility translated directly to capital markets and investment volumes as sellers' pricing expectations lag real-time changes in rates. According to CBRE, net lease investment volume fell 55% year-over-year through Q3 of 2023. Despite volatile capital markets, industrial real estate, which now accounts for more than 60% of our annualized straight-line rent, continues to perform. According to CBRE, average industrial asking rents in Q4 of 2023 rose 6% year-over-year, and industrial vacancy rates at the end of the year were just 4.8% despite record annual completions of 612 million square feet. Moving on to office, the broader market continued to struggle in 2023.

Volatility translated directly to capital markets and investment volumes as sellers pricing expectations lagged real time changes in rates.

According to CBRE, the net lease investment volume fell 55% year over year through Q3 of 2023.

Spike volatile capital markets industrial real estate, which now accounts for more than 60% of our annualized straight line rent continues to perform according to CBRE average industrial asking rents in Q4 of 2023 rose 6% year over year.

In the industrial vacancy rates at the end of the year were just four 8% despite record of annual completions of 612 million square feet.

Moving on to office the broader market continue to struggle in 2023 and according to Cushman Wakefield office net absorption in Q4 of 2023 was negative for the eighth consecutive quarter.

Buzz Cooper: According to Cushman Wakefield, office net absorption in Q4 of 2023 was negative for the eighth consecutive quarter. We made tremendous progress throughout the year delivering on our current core strategies, divesting non-core office assets, acquiring mission-critical industrial assets in the path of growth markets, and diligently underwriting our tenants' credits. We exited seven non-core markets and properties, completed nearly $30 million in new acquisitions, and increased portfolio industrial concentration from 56 percent of annualized straight-line rent as of December 2022 to 60 percent as of December 2023. All of our acquisitions throughout the year were completed in established, growing markets, including Chicago, Dallas, Fort Worth, Indianapolis, and the Lehigh Valley in Pennsylvania.

We made tremendous progress throughout the year of delivering on our current core strategies divesting noncore office assets at Friday mission critical industrial assets in the path of growth markets and diligently underwriting our tenants credits, we exited seven noncore markets and properties completed nearly.

$30 million in new acquisitions, and increased portfolio industrial concentration from 56% of annualized straight line rent as of December 2022% to 60% as of December 2023.

All of our acquisitions throughout the year were completed an established growing markets, including Chicago, Dallas Fort Worth Indianapolis, and the Lehigh Valley in Pennsylvania.

Buzz Cooper: Furthermore, the acquisitions improved Portfolio Walt with a weighted average lease term at closing of 19.3 years. In addition to new acquisitions during the year, our asset management team led more than 1.4 million square feet of leases, resulting in more than $1.2 million, or a 13% net increase in same-store gap rent. The annualized straight line rent of these transactions totaled $10.7 million.

Furthermore, the acquisitions improved portfolio, Walt with a weighted average lease term at closing of $19 three years.

In addition to new acquisitions during the year, our asset management team led more than one 4 million square feet of leases, resulting in no more than $1 2 million or 13% net increase in same store GAAP rent.

The annualized straight line rent of these transaction totaled $10 7 million.

Buzz Cooper: While we cannot control the Fed or predict exactly where interest rates will go, we remain confident that all of these developments have better positioned our portfolio for 2024. Portfolio occupancy was at 96.8% as of December 31st, 2023, and we collected 100% of cash base rents during the year. This is a testament to the mission-critical nature of our assets and quality credit of our tenants, both of which position us well to weather any economic storms we may face. In addition, we believe there are levers which we have yet to fully realize.

While we cannot control the fed or predict exactly where interest rates will go we remain confident that all of these developments have better position our portfolio for 2024.

Portfolio occupancy was at 96, 8% as of December 31, 2023, and we collected 100% of cash base rents during the year.

This is a testament to the mission critical nature of our assets and quality credits of our tenants both of which position us well to weather.

Any economic storms, we may face in.

In addition, we believe there are levers, which we have yet to fully realize most of our industrial assets have fixed annual escalations of one 5% to three 5%.

Buzz Cooper: Most of our industrial assets have fixed annual escalations of 1.5% to 3.5%. However, industrial rent growth over the last few years has exceeded these escalation rates, resulting in rents that are below market and valuable upon lease renewal. Our balance sheet is healthy and flexible, positioning us to continue deploying capital into industrial deals at accretive cap rates as seller expectations normalize. Since January 1st of 2022, we have repaid more than $194 million of mortgage debt and grown our unencumbered asset base by 61% from $510 million to $822 million. Following the completion of the four office building sales currently under contract, we'll have only five office mortgages remaining, and the first maturity of those five is in 2026.

Industrial rent growth over the last few years has exceeded these escalation rates, resulting in rents that are below market and valuable upon lease renewal.

Our balance sheet is healthy and flexible positioning us to continue deploying capital into industrial deals at accretive cap rates as seller expectations normalized.

Since January 1st of 2022, we have repaid more than $194 million of mortgage debt and grown our unencumbered asset base by 61% from 51 million excuse me $510 million to $822 million.

Following the completion of the four office building sales currently under contract will have only five office mortgages remaining and the first maturity of those five as in 'twenty 'twenty six.

We have $56 5 million in available liquidity via our revolving credit facility and cash on hand, and remain below 50% Levered as of December 2023.

Buzz Cooper: 56.5 million in available liquidity via our revolving credit facility and cash on hand and remain below 50% levered as of December 2023. In short, 2023 was a successful year for selling legacy non-core office assets and redeploying proceeds into mission-critical industrial assets. Seller expectations have yet to fully normalize to the new standard set by the Federal Reserve, but as we do, we will be well positioned to capitalize on this creative new opportunity. We expect ZAO Leasebacks in particular to be the primary source of new deals for us, and ZAO Leasebacks provide additional credit diligence and term, which are both hallmarks of our value proposition.

In short 2023 was successful year for Schein legacy Noncore office assets and redeploying proceeds into mission critical industrial assets.

Seller expectations have yet to fully normalize.

To the new standards set by the Federal reserve, but as we do we will be well positioned to capitalize on accretive new opportunities. We expect sale leasebacks in particular to be the primary source of new deals for us and sale leasebacks provide additional credit diligence and term, which are both hallmarks of our value proposition are.

Buzz Cooper: Our balance sheet is flexible, driven by more than $154 million of net mortgage debt reduction since January of 2022. Again, we have more than $56 million of liquidity on hand to continue growing our industrial base. Since 2019, our industrial concentration as a percentage of annualized straight-line rents has increased from 32% to 60%.

Balance sheet is flexible driven by more than 154 million of net mortgage debt reduction since January of 2022.

And again, we have more than 56 million of liquidity on hand to continue growing our industrial base.

Since 2019, our industrial concentration as a percentage of annualized straight line rent has increased from 32% to 60% and we expect to further increase this concentration in the next six to 12 months.

Gary Gerson: And we expect to further increase this concentration in the next 6 to 12 months. I will now turn the call over to Gary Gerson, our CFO, to review our financial results for the quarter and our liquidity position.

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. Thank you Buzz I'll start my remarks regarding our financial results. This morning by reviewing our operating results for the fourth quarter of 2023 all per share numbers referenced are based on fully diluted weighted average com.

Gary Gerson: Thank you, Buzz. I'll start my remarks regarding our financial results this morning by reviewing our operating results for the fourth quarter of 2020. All per share numbers referenced are based on fully diluted weighted average common shares.

When shares SSO in core <unk> per share available to common stockholders were both <unk> 36 per <unk>.

Gary Gerson: FFO and core FFO per share available to common stockholders were both $0.36 per share for the quarter. FFO and core FFO available to common stockholders during the fourth quarter of 2022 were both $0.34 per share. FFO and core FFO for the 12 months ended December 31st were $1.46 and $1.47, respectively. FFO and core FFO for the same period in 2022 were $1.54 and $1.56 per share,

<unk> per share for the quarter <unk> and core <unk> available to common stockholders. During the fourth quarter of 2022 were both 34 cents per share that's a phone for S. F. Over the 12 months ended December 31, $1 46, and $1.47, respectively. SSL worth of folks are the same.

Period in 2020 to $1 54, and $1 56 per share respectively. Our same store cash rent in the four quarters of 2023 increased by six 5% over the same period. In 2022. This was due to a one time accelerated rental and increased recovery.

Gary Gerson: Our same store cash rent in the four quarters of 2023 increased by 6.5 percent over the same period in 2022. This was due to a one-time accelerated rent and increased recovery. Fourth quarter results reflected total operating revenues of $35.9 million with operating expenses of $28.1 million as compared to operating revenues of $37.2 million and operating expenses of $25.7 million for the same period in 2022. Expenses were higher in this period mainly due to impairment charges offset by the waiver of the incentive fee in 2023.

Fourth quarter results reflected total operating revenues of $35 9 billion with operating expenses of 28 1 billion as compared to operating revenues of $37 2 million in operating expenses of $25 7 million for the same period in 2022 expenses were higher in this period, mainly due to impairment charges.

All set by the waiver of the incentive in 2023 looking at our debt profile, 41% is fixed rate 49, 7% is hedged floating rate and 10, 2% is floating rate, which is the amount drawn on our revolving credit facility as of December 31, our effective average silver was 538.

Gary Gerson: Looking at our debt profile, 40.1 percent is fixed rate, 49.7 percent is a hedge floating rate, and 10.2 percent is a floating rate, which is the amount drawn on our revolving credit facility. As of December 31st, our effective average SOFR was 5.38 percent. Our outstanding bank term loans are hedged with $310 million of interest rate swaps and the remainder with interest rate caps. We continue to monitor interest rates closely and update our hedging strategy as needed. As of today, our 2024 loan maturities are manageable with $15.6 million due, which encumbered two properties held for sale. As of the end of the quarter, we had $75.8 million of revolver borrowings outstanding.

Our outstanding Bank term loans are hedged with $310 million of interest rate swaps and the remainder with interest rate caps, we continue to monitor and monitor interest rates closely and update our hedging strategy is needed as of today, our 'twenty 'twenty four loan maturities are manageable with 15.6 million do which.

Encumbered two properties held for sale as of the end of the quarter, we had $75 $8 million of revolver borrowings outstanding.

Gary Gerson: We sold 1,776 shares of common stock this quarter, resulting in net proceeds of $24,000 through our at-the-market program for ATM. Additionally, we received net proceeds of $400,000 from sales of our Series F stock. We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements and new acquisitions. Presently, we have four properties held for sale. As of today, we have approximately $3.4 million in cash and $51.5 million 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. Our common stock dividend is $0.30 per share per quarter, or $1.20 per year. Our common stock closed yesterday at $12.51. The distribution yield is about 9.59%.

We sold 1700 76 shares of common stock this quarter, resulting in net proceeds of $24000 through our aftermarket program for ACF. We received net proceeds of $400000 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.

Clients and new acquisitions presently we have four properties held for sale as of today, we have approximately $3 $4 million in cash and $51 5 million 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 <unk>.

Portfolio information for the quarter, our common stock dividend is 30 cents per share per quarter or $1 20 per year, our common stock closed yesterday at 12.51 $12.51. The distribution yield is about 959% and now I will turn the program back to David.

David Gladstone: And now I'll turn the program back to David. Well, thank you, Gary. That was a good report, and Buzz and Michael did good reports as well. This team has performed very well and reacted admirably to the various changes presented by the lasting impact of the pandemic and changes in the economy. All in all, I just have to tell you, it's been a very nice quarter.

Well. Thank you Gary that was a good report and Baas and Michael did good reports as well.

This team has performed very well and reacted admirably to the various changes presented by the lasting impact of the pandemic changes in the economy overall.

Just have to tell you, it's a very nice quarter.

David Gladstone: So you heard today of some of the things that they've been doing. In summary, during the fourth quarter, they acquired two new industrial facilities, again manufacturing-oriented, and they sold two non-core properties. These were both office properties, and we're talking about the end of December 31st, 2023. We, of course, are off to a good start. We also, during the last quarter, leased six of our properties. Subsequent to the end of the quarter, we sold an additional non-core slash office property.

So you heard today of some of the things that they've been doing in summary during the fourth quarter. They acquired two new industrial facilities again manufacturing oriented.

They sold two noncore properties. These were both office properties and we're talking about the end of December 31st 2023.

Of course are off to a good start.

We also during the last quarter at least six of our properties subsequent to the end of the quarter, we sold an additional non core slash office.

David Gladstone: The commercial team is growing the real estate that we own at a good pace, and the team is doing a great job of managing the existing properties. We have quite a good team of people that are working those deals that come up. I'm very proud of them.

The commercial team is growing the real estate that we own at a good pace and the team doing is doing a great job of managing the existing properties. We have a quite a good team of people that are working those deals that come up then.

Very proud of them.

David Gladstone: Our team of strong professionals continues to pursue potential quality projects on the list of acquisitions that they are reviewing. They've got quite a list to go through now. Our acquisition team is seeking only strong credit tenants, not going after the marginal ones.

Our team of strong professional continue to pursue the potential quality.

Problems projects on the list of acquisitions that they are reviewing they've got quite a list to go through now.

Acquisition team is seeking only strong credit tenants not going after the marginal ones.

Operator: Well, that's really enough from me. Let's stop here, and Rob, if you'll come on and ask them questions and show them how to ask questions, we'll take some questions from those who are listening. Thank you, Mr. Gladstone. If you'd like to ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Well, that's really enough for me, let's stop here and Rob if youll come on in.

Ask and show them how to ask questions, we'll take some questions.

Listener.

Thank you Mr. Gladstone, if you'd like to ask a question at this time. Please press star one from your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star two if you like to remove your question from the queue.

For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys one.

Operator: One moment, please, while we poll for questions, and that's star number one. Thank you. Our first question today will be coming from the line of John Massocca with B Riley Securities. Please proceed with your question. Good morning. Good morning. Good morning.

One moment, please we poll for questions and Thats Star one thank you.

Yeah.

Our first question today is coming from the line of John <unk> with B Riley Securities. Please proceed with your questions.

Good morning.

Good morning Arnie.

John Massocca: So. I have a quick question. Sorry if you touched on it somewhere in the call and I missed it, but have you made any decision yet on the incentive fee going forward into 2024? Is that something you are still considering suspending, or is that going to be essentially back as some kind of operating expense this year? Hey John, good morning, it's Buzz.

So.

Maybe quick question, sorry, if you touched on it somewhere in the call and I missed it but have you made any decision yet on the incentive fee going forward into 2024 is that something you are still considering the spending or is that going to be okay.

I'll get back in and kind of operating expense this year.

Hey, John Good morning, it's buzz.

Buzz Cooper: We are having internal discussions; we have not met with the board and had any formal recommendations at this point, so I cannot give you a definitive answer, but we are obviously looking at all our alternatives as we did waive it last year. As we look going into 24, we obviously want to be cognizant of doing the right thing. Okay, that's understood. And then in terms of kind of the existing vacancy, can you provide some updates on either, you know, potential, the disposition potential or lease up, just given the number kind of stayed flat quarter over quarter in terms of both partially vacant assets and fully vacant assets? Sure, and I'll hit first, obviously, an asset we have discussed previously, our asset in Austin on Palmer. We have had some interest there. We continue to work with the tenancy, trying to attract new tenancy or expansion. There are some requirements in the market that are of good size, can't disclose who they are, that we are certainly running down and trying to work with.

We are having internal discussions we have not met with the board and had any formal recommendations at this point.

So I cannot give you a definitive answer but we are obviously looking at all our Turner two says we did waive it last year as we look going into 'twenty four we obviously want to be cognizant of doing the right thing.

Okay.

And then in terms of kind of the existing vacancy can you provide some updates on either you know potential disposition potential or lease up.

Just given the number of kind of stayed flat quarter over quarter in terms of both parts will be vacant assets and fully vacant assets.

Sure and I'll hit first obviously it asset we have discussed previously our asset in Austin.

On parmer.

We have had some interest there we continue to work with the tendency trying to attract new tendency or expansion.

There are some requirements in the market that are a good size.

I can't disclose who they are that we are certainly running down and trying to work with.

Buzz Cooper: Our hope there is to get tenancy and then, within that building, look to see what is best for us, for the stockholders, as it relates to hold or sell. But at this point in time, I don't have anything from the standpoint of being able to report on leasing activity there. Other than that, and I have my CIO here, E.J.

Our hope there is to get tenancy and then within that building looked to see what is best for us for the stockholder as it relates to hold or sell but at this point in time I don't have anything from the standpoint of being able that I can report.

From leasing activity there.

Other than that and I have my C. I O here E. J Whistler I can have him comment on some activity positive activity that we have on our leasing front with with.

E.J. Whistler: Whistler, I can have him comment on some activity, positive activity that we have on our leasing front within the portfolio. Do want to state that it's all very positive and I think, as you know, we stay in front of our tenants on a quarterly and certainly annual basis. So we're ahead of the curve as it relates to our vacancy. E.J.

E.J. Whistler: Thanks, Buzz. Yeah, John, as we kind of look at where things stand today and our current assets held for sale as of 12-31, and obviously, it was mentioned that there's an additional asset held for sale currently, a few of those are vacant office assets. So as we kind of look at our capital allocation strategy, making sure we're being the most efficient, whether we want to break those buildings or sell them and redeploy those proceeds, I would expect we'd see that vacancy rate improve over the next few quarters as we dispose of the few vacant office assets. Okay. And then maybe just on a line item basis, you know, property operating expense was kind of down in the quarter, and you called out some successful real estate tax appeals. Can you maybe just provide some more color on that? And is that something that's sustainable on a go forward basis? Or is that kind of a one time true up in 4Q?

John Massocca: I'll let Gary handle that, but if I may, I will tell you that we are aggressive where we can be as it relates to appeals, and we've had successes there. John, just to mention as a one-time thing, I think these were appeals, so they lowered the taxes on some of these buildings. I believe one of them was in Texas, which was significant, two in Texas that were significant, and I think that's going forward, so these are basically reappraisals from a tax perspective. Okay, so it's not just the true up for what was budgeted in 2030; it's a lower base tax rate, essentially. Okay, I will feed the floor. Thank you very much. That's it for me.

And we've had successes there Gary John as I mentioned as a one time I think these were appeals to the lower the taxes on some of these buildings.

I believe one of them was in Texas, which was significant or two in Texas where significant.

And that I think that's a going forward. So these are these are basically reappraisal is from a tax perspective.

Okay. So it's not just the true up and you know for for with budget and 23, it's it's a lower base tax rate essentially.

Okay I will see the floor. Thank you very much except for me. Thank you.

Buzz Cooper: Thank you. Next question. Hi, yes, the next question is from the line of Dave Storms with Stonegate. Good morning. Mornin' Dad.

Next question.

The next question is from the line of Dave storms, What's don't get please proceed with your questions.

Morning.

Dave Storms: I just want to start by saying that Occupancy did a really nice job, went to the end of the quarter. Was that the product of a couple really good wins? One giant was the story there. As mentioned, we do stay in front of the tenants and, obviously, work with them. We're well ahead of our lease expirations and discussions. So we have had some successes there, as I referenced in my notes, of several, exactly on a million four square feet and a million two inches..., that operating increase on the same store gap rent. So we are again actively engaged there and have had good success. We will continue that as we go into 2024. I also ask E.J.

Born and data.

Just wanted to start occupancy you had a really nice job subsequent to the end of the quarter.

Is that a product of a couple brokered Windsor one giant win.

What's the story there.

As mentioned, we do stay in front of the tenants in obviously work with them were well ahead of our lease expirations and discussions. So we have had some successes there is I referenced in my notes of several exactly on among and four square feet and a million two and.

That operating increase on the same store gap rant. So we are again actively engaged there and had good success. We will continue that as we go in into 2024 I'll also ask you J to give a comment here on a couple of it.

Buzz Cooper: to give a comment here on a couple that he's been working on as well, specific because our concentration, for lack of a better word, is light relative to one asset that we are in good stead with. Yeah, thanks. The occupancy increase was also related to the sale of one vacant office asset in South Carolina, so that was an improvement there. And as I mentioned before, we've got a few more vacant office assets that will be sold here in the next quarter or so. Very helpful, thank you.

He has been working as well specific because our concentration for lack of a better word is light relative to one asset that we are.

In good stead with yeah. Thanks, the the occupancy increase was also related to the sale of one vacant office asset in South Carolina. So that was an improvement there and as I mentioned before we've got a few more vacant office asked that there'll be sold here in the next quarter or so.

Very helpful. Thank you and then you mentioned in the comments that you're focusing more on higher quality credit tenants is that a comment on just to maintain a strong enough that you can focus on those higher quality tenants or is that more of a comment on spreadsheet.

Buzz Cooper: And then you mentioned in the comments that you're focusing more on higher quality credit tenants. Is that a comment on just demand being strong enough that you can focus on those higher quality tenants? Or is that more of a comment on the spread shrinking between the high-grade and low-grade tenants, you know, kind of what's driving that, and how it has increased. Obviously, with the market and with our company history, we've always been focused on the credit of our tenancy.

Drinking between hydrating low grade tenant's, you know it kind of puts driving that that increased focus.

Obviously with the market and with our company history, we've always been been focused on credit of our tendency I'll, let E. J take that specific to market from the standpoint of what the market is also providing to us in the way of tendencies E J, Yeah and Dave when.

E.J. Whistler: I'll let EJ take that specific to market from the standpoint of what the market is also providing to us in the way of tenancy. Yeah, and Dave, when we say high-quality tenants, it doesn't necessarily mean tenants rated investment grade. What we mean is when we look to acquire mission critical industrial assets where the underlying tenancy has strong fixed cost coverage ratios, moderate to low leverage, strong EBITDA margins, and operates in a counter-cyclical or defensible industry with a strong moat. And so what we like to do is acquire those mission critical assets that are generating an outsized portion of corporate revenue and EBITDA on free cash flow at the asset level. And so we certainly do like to acquire assets leased to rated investment grade tenants, but there's also something to be said for acquiring an asset that is very important to the underlying tenant. So when we say credit tenants, it's not just investment grade, but also those kind of upper middle market tenants that we get additional granular information on their operations that helps us underwrite them.

We say high quality tenants it doesn't necessarily mean, a rated investment grade tenants. What we mean is when we look to acquire mission critical industrial assets, where the underlying tendency has strong fixed cards coverage ratios Ah moderate to low leverage strong EBITDA margins and operates in a counter cyclical or defensible industry with a strong.

Boat and so what we like to do is acquire those mission critical assets that are generating an outsized portion of corporate revenue and EBITDA in free cash flow at the asset level and so we certainly do like to acquire assets least two rated investment grade tenants, but there's also something to be said for acquiring an asset that is very.

Important to the underlying tenants out when we say credit tenants that's not.

<unk> just investment grade, but also those kind of upper middle market tenants that we get additional granular information into their operations that helps us underwrite them.

Dave Storms: Ends, understood. That's very helpful. And then just one more for me.

Understood. That's very helpful. And then just one more for me do you have a sense of what your geographic focus is gonna be in 2024, Uhm, one way or another.

Dave Storms: Do you have a sense of what your geographic focus is going to be in 2024? one way or another. We have obviously seen, as it relates to the health of the country from the standpoint of growth, has been southeast, and south-central in nature.

We have obviously seen as it relates to the health of the country from the standpoint of growth has been southeast south central in nature. So we have had good success, there and certainly it's a concentration the more we do the more of that also comes our way I'll, let D J get more specific on those mark.

Buzz Cooper: So we have had good success there, and certainly it's a concentration. The more we do, the more that also comes our way. I'll let E.J.

E.J. Whistler: get more specific on those markets, but that's where we are, as well as in the Midwest, seeing a focus. It's not the west, and it's certainly not in the northeast at this point in time, and we've had good success. Yeah, obviously, Dave. You know, when we look at our markets, what we like to see is business-friendly environments with strong demographic inflows as well as business formation. And so that leads us to be focusing on places like the Sunbelt, as well as some select Midwest markets. We like those markets as well; they've got a strong manufacturing base. And we like the light manufacturing space and that the tenants are very sticky, meaning they've got significant capital invested in the assets, which increases the renewal probability. So I would expect you'll see us continue to focus on those markets over the next few years.

But that's where we are as well as the Midwest scene of focus it's not on the west end, it's not certainly in the northeast at this point in time and we've had good success.

Yeah, David when we look at our markets, where we'd like to see his business friendly environments with strong demographic inflows as well as business formation and so that leads us to be focusing on places like the sun belt as well as some select Midwest markets.

We like those marked as well they've got a strong manufacturing base and we'd like the light manufacturing space and that the tenants are very sticky, meaning they've got significant capital invested into the assets, which increases the renewal probability. So I would expect you'll see us continue to focus on those markets over the next few years.

Dave Storms: It's all very helpful. Thank you for taking the time to answer my question. Thanks.

That's all very helpful. Thank you for taking my questions.

Operator: Okay, Rob, any more questions? There are no additional questions at this time, Mr. Gladstone. Oh, that's terrible.

Okay, Rob any more questions are there are no additional questions at this time Mister Gladstone.

Oh, that's terrible we need more questions like.

David Gladstone: We need more questions. We like it when you ask questions, so now you're going to have to hold your question until next quarter. So we'll see you next quarter. That's the end of this conference call. Thank you. This will conclude today's call. You may disconnect your lines at this time. We thank you for your participation.

Well I can win you ask questions. So now you're gonna have to hold your question until next quarter. So we'll see you next quarter. That's the end of this conference call.

Thank you. This will conclude today's call you may disconnect. Your lines at this time, we thank you for your participation.