Q1 2025 Gladstone Commercial Corp Earnings Call
Speaker Change: Greetings and welcome to the Gladstone Commercial Corporation first quarter earnings call.
At this time, all participants are in a listen-only mode.
Speaker Change: A brief question and succession will follow the formal presentation. If anyone wants to require operator assistance during a conference, please press star zero on your telephone key pad. As a reminder, this conference will be in recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.
David Gladstone: Thank you, Latanya. That was a nice introduction and thank all of you for calling in and listening to our pitch.
David Gladstone: We enjoy this time that we get with you and on the phone, and we wish we had more time to talk to you, but...
David Gladstone: Well, I do this one supporter, and now we're here from Michael LaCalsi. He's our General Counsel and Secretary.
Michael LiCalsi: to give the legal and regulatory matters concerning this report. Michael, go ahead. Thanks, David. Good morning, everybody. Today's report may include forward-looking statements on the Securities Act in 1933. The Securities Exchange Act of 1934, including those regard as future performance.
Michael LiCalsi: These forward-looking statements involve certain risks and uncertainties that are based on our car plans.
which we believe to be reasonable
The many factors may cause our actual results.
Michael LiCalsi: To be materially different from any future results expressed to imply that he's following looking statements.
Michael LiCalsi: Flooding all the risk factors in our forms, 10Q, 10K, and other documents that we found with the SEC, you can be found on our website, which is GladstoneCommercial.com
Michael LiCalsi: and we undertake no obligation to publicly update or revise any of these following-looking statements whether as a result of new information, future events are otherwise accepted as required by law.
Michael LiCalsi: Today, we will discuss FFO, which is funds from operations. Now, FFO is a non-GAAP accounting term. The fund is net income. Excluding the gains or losses from the sale of real estate and payment losses on property.
Michael LiCalsi: plus depreciation and ammonization of real estate assets. We will also discuss core FFO, which is generally FFO with just a certain other non-recurring revenues and expenses. We believe these metrics are a better indication of our operating results while our better comparability of our period over period performance.
Please visit our website once again at Gladstone Commercial.com
Michael LiCalsi: Sign up for email notification service and also find us on Facebook, the keyword there is the Gladstone Company's and Twitter, which is at Gladstone Cumps.
Speaker Change: Now, today's call is an overview of our results, so we ask that you review our press release and form 10Q, both issued yesterday for more detailed information. With that, I'll hand it over to Gladstone Commercial's president, Buzz Cooper.
Buzz Cooper: Thank you, Michael, and thank you all for joining today's call. We look forward to updating you on our first quarter of 2025 results, our current portfolio, and our 2025 outlook.
Speaker Change: Starting with the broader economic environment, the first quarter of 2025 has been marked by growing uncertainty, followed by recent terror announcements.
Buzz Cooper: These announcements have added pressure to global trade flows and extended decision primal for many patients. Competence are reassessing, manufacture and distribute their goods, especially those companies with exposure to Asia.
Buzz Cooper: U.S. Treasury yields remain volatile as markets absorb a shifting policy signal and evaluate the outlook for inflation and economic growth.
Buzz Cooper: Despite an uncertain macroeconomic outlook, the industrial real estate sector continues to perform. According to Cushman Wakefield, net absorption reached 23.1 million square feet in the first quarter of 2025, matching levels from a year ago.
Buzz Cooper: Vacancy rose modestly to 7%, driven by speculative deliveries, but remains in line with historical averages.
Buzz Cooper: This suggests the market is approaching a more balanced state. New construction completions during the quarter decline to the lowest level in nearly four years, reflecting higher capital costs and a slowdown in the development pipeline.
Buzz Cooper: We anticipate this construction slowdown will bring upward pressure on industrial rental rates and downward pressure on vacancy as industrial users compete for additional square footage to grow their businesses.
Buzz Cooper: Moving on to our portfolio, we remain confident heading into the second quarter. During the first quarter of 2025, we collect at a hundred percent of our cash-based rents.
Buzz Cooper: Fired Industrial Properties, encompassing 355,778 square feet for 73.25 million. We increase portfolio industrial concentration as a percentage of industrial straight line rent to 65 percent.
Buzz Cooper: maintained portfolio occupancy at 98.4 as of March 31st. And subsequent to the end of the quarter, we sold one office property for a gain of 377,000, and one industrial property will be previously recognized as a selling profit of 3.9 million from a sales-type lease.
Buzz Cooper: This is one of our most active quarters to date, with over 73 million in capital deployed for new industrial acquisitions.
Buzz Cooper: While we remain focused on increasing our industrial concentration, hope to get to at least 70% in the near term, we continue to maintain disciplined underwriting approach.
Buzz Cooper: This discipline was on display in the acquisitions we completed this quarter and the numerous acquisitions chose not to pursue. We evaluated hundreds of opportunities over the last year and passed on many that did not meet our criteria whether due to credit concerns, overpricing or location risk.
Buzz Cooper: Our ability to act decisively reflects our continued focus on high-quality mission-clear assets that align with our investment thesis.
Buzz Cooper: In particular, we are seeing long-term tailwinds from re-shoring and on-shoring activity. The private placement we completed in the fourth quarter of 2024, helped position us to execute with confidence, and we believe our discipline approach will continue to create long-term value.
Buzz Cooper: Moving ahead to the second quarter, we remain focused on acquiring high-quality industrial assets that are mission-critical to tenants and industries, and accretive to our long-term strategy.
Buzz Cooper: At the same time, we will continue to selectively dispose of non-core assets to further improve our portfolio.
Buzz Cooper: Our team is actively working to extend lease terms, capture market opportunities and support tenant growth through targeted expansions and capital improvement initiatives.
Buzz Cooper: We remain mindful of our overall leverage and our continuing to strengthen our balance sheet. With over 99 million in availability via our line of credit and cash on hand, we are well positioned to deploy capital into a creative industrial acquisitions.
Buzz Cooper: Several opportunities are currently under exclusivity or contract with closings expected to come in the next few months. Our portfolio continues to generate sustainable cash flow.
Buzz Cooper: We remain more than 98% occupied as of March 31st, and we have not seen any material deterioration in intedent, strict quality, even in the face of higher for longer interest rates.
Buzz Cooper: I will now turn the call over to Gary to review our financial results for the quarter and liquidity position. Gary, thank you both.
Speaker Change: I'll start my remarks this morning regarding our financial results by reviewing our operating results for the first quarter of 2025. All per share numbers referenced are based on fully deluded weighted average common shares.
Speaker Change: FFO and Corp FFO for Chair, available to common shareholders were both 34 cents per share for the first core of 2025 as well as the first core of 2024.
Speaker Change: Same-store rents increased by 6.6% in the three months ended March 31st over the same period in 2024 due to increased property expense.
Speaker Change: Recovery Revenue, and increased rental rates from leasing activity subsequent to the first three months of 2024.
Speaker Change: Recovery and higher rental rates for the same properties slightly offset by
Lower Variable Least Payments from the Seven Property Sales
Speaker Change: during and subsequent to the first quarter of 2024. Expenses were higher in the first quarter of 2025 versus the same period in 2024 mainly due to increased cost created by the inflationary environment as well as higher net and centipede paid in Q1 2025.
which was a result of the two acquisitions in this quarter.
Speaker Change: Looking at our debt profile, 45% is fixed rate, 47% is hedged floating rate, and 8% is floating rate, which is the amount drawn on revolving credit facility.
Speaker Change: Mortgage Note, and one of our small-term loans. As of March 31, our effective average suffer was 4.41 percent. Our outstanding bank-term loans were hedged with $310 million of interest
Speaker Change: We continue to monitor interest rates closely and update our hedging strategy as needed. As of today, our remaining 2025 loan maturities are very manageable at $3.1 million. As of the end of the quarter, we had $51.3 million, a revolver of darlings outstanding.
Speaker Change: Under our ATM program, raising net proceeds of 27.7 million. We also received net proceeds of $300,000 from sales of our Series F, preferred stock to March 31st.
We continue to manage our-
Speaker Change: Equity Activity to ensure that we have sufficient liquidity for upcoming capital requirements in new acquisitions.
Speaker Change: As of today, we have approximately $18.4 million in cash and $80.6 million of availability under our line of credit.
Speaker Change: We encourage you to review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter.
David Gladstone: Our common stock dividend is $0.30 per share per quarter or $1.20 per year. Our common stock closed yesterday at 13.83 and our yield at that price was 8.68%. And now I'll turn the program back to David.
David Gladstone: Well, thank you, Gary. That was a good one. We had a good one from Buzz and Michael too, and a team of commercials is really performing well there, renting more of our buildings and so we're continuing to grow.
David Gladstone: You've heard a lot today, and summary, we acquired two industrial facilities for a total of 73 million nice addition to our group.
David Gladstone: Subsequently, to the end of the quarter, we saw one office property with about a $377,000 profit. Previously recognized, this is a selling profit of $3.9 million from sales type leaves.
David Gladstone: Commercial team is continuing to grow our real estate and more deals and
David Gladstone: Wi-Fi and we do things so we just continue to march along at the same pace we've marched that for a long time now.
David Gladstone: A team of strong professionals continues to pursue potential quality properties.
David Gladstone: on this list of acquisitions that we keep adding to, there are an acquisition team that's just out there seeking only the strong credit tenants and we're going to continue that process.
David Gladstone: So, let's stop now and have the operator come on and tell listeners how they can ask some questions. Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in a question and cue. You may press star 2 to remove yourself from the cue. For participants using speak equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that star 1 to ask a question at this time.
One moment while we pull for our first question in.
Guave Meta: The first question comes from Gaurav Mehta with the Lions Global Partners. Please proceed.
Guave Meta: Yeah, thank you. Good morning. I wanted to have your acquisition pipeline and what you were seeing in the market for industrial properties.
Guave Meta: Thanks, Gaurav. We are seeing activity. It's picking up here as the year gets started.
Guave Meta: For ourselves, we currently have approximately 70 million teet up here that we believe will close into the second quarter.
Speaker Change: Obviously there is a lot of competition coming from the marketplace, both family offices as well as
PE shops.
David Gladstone: But as David referenced, the team is aggressive in the market, looking at every transaction we can find being very selective in these challenging times.
Speaker Change: But we believe we will continue to be active, certainly through this quarter and into next quarter.
Speaker Change: Okay, and so the $70 million that you mentioned under Confed, can you maybe provide some color on how you expect to fund those institutions?
Speaker Change: As Gary mentioned, we've got great liquidity. We have adequate cash and availability on hand. We will also go and have been going to look at other financing sources as we did a private placement at the end of last year.
Speaker Change: as well as perhaps other ways of having capital on hand, whether perhaps through it J.V. or other.
Okay. Thank you. That's all I have.
Thank you.
Next question.
Speaker Change: Next question comes from Craig Kucera, with Lucid Capital, please proceed.
Craig Couchera: Yeah, hey, good morning, guys. I want to circle back to the acquisition volume here. You know, obviously a big pickup after really a relatively slow couple of years. Are you seeing sellers more willing to budge on price? Are you just seeing more assets that fit what you want the portfolio to look like?
Craig Couchera: If I may, a little, it's a combination of both. We have been also aggressively trying to stay close with our broker relationships in order to have an early look as well as hopefully a last look at transactions.
Craig Couchera: One of our value ads is we do what we say we're going to do, we don't retrain.
Craig Couchera: I don't like that word, so I think it's a function of getting to the
Transactions earlier, rather, and later, and having early impact.
Craig Couchera: back to either seller or broker that's allowing us this success.
Craig Couchera: Okay, great. I know you don't have much in the way of remaining Lease Explorations here in 2025, but I'm kind of curious to hear if you're starting tackling 26 and 27, which are much larger years that are expiring.
Craig Couchera: As has been our history, Craig, we do, and we are, if you look at the expressions again, as you mentioned for this year is under 2% and that represents the actions of which we have an RFP out on the other for a longer term extension.
So, we're in talks as it relates to 26 [inaudible]
Craig Couchera: We are working on and of those we really only have one at this point in time that we have not traded paper on or had discussions with so we will hopefully winnow that down.
quickly and at the appropriate time.
Craig Couchera: but we've got a good handle on it. We get out in front of it and we are as we work these 26 expressions also looking at 27 and believe that we will be successful there as well.
Craig Couchera: Many of those are industrial in nature, which we hope will allow us for obviously rent pick-up.
Speaker Change: Got it. And kind of circling back to the, Leacy did renew recently. Can you talk about Leacy's spread relative to aspiring rent on the asset that you extended for another three years? Did you get a pick up there?
Speaker Change: That was not a pickup on a straight line basis for the term.
[inaudible]
Speaker Change: is a small, small drop, and the reason for that was…
Speaker Change: Again, we could not get into extend longer. They have to let us know after an 18-month period if they are going to remain.
Speaker Change: But it is in a market that is strong and believe that should we not have success in re-upping them longer, we will have a pickup as it relates to the rental rate.
Speaker Change: Okay, great. And just one more for me for Gary. You mentioned the swaps on the floating rate debt. Are any of those expiring this year or are they swaps through maturity?
Speaker Change: Now all those are swap to maturity. Those two term loans mature in late 27 and early 28.
Okay, thanks guys.
Speaker Change: Thank you. Next question. Next question comes from John Massocca would be Raleigh, please proceed.
Good morning.
Good morning.
Speaker Change: I'm honest, I admit this is a pair of marks, but any corner on the Distributions Completed Substance Quarter End, kind of what was pricing there maybe and what made those to end on
Speaker Change: And John , you were cutting up a little bit. I think you're asking about our dispositions that we had here in the first and into the second quarter.
Yes, that's correct.
and if I may.
Speaker Change: One was industrial, Tenet had an option to buy, so they did, and that was the realization of the of the gain there that we had.
Speaker Change: and the other was an office property that was purchased. Had a little loss on that, not great, it did pay through its rent, but it was good to get away from a...
One Story Office.
Speaker Change: Okay, and then I guess maybe just as an update, how much portfolio today would you view as non-core and maybe an update on the situation with the Austin Office property?
Speaker Change: I would say of that very small amount would be considered non-core, but we do have some property types within that office we do wish to get
Speaker Change: We have two call centers that we are working on. So most of the offices from the standpoint of office today, healthy.
and I could not understand the property you were referencing.
Speaker Change: So is it the Austin Office property and the update on Lisa there?
Speaker Change: Sure, Austin always is top of mind. It does throw a lot of positive cash for us.
Speaker Change: At the moment, we currently have a few requirements out in the marketplace that we are tracking as well as two RFPs unsolicited out in the marketplace.
Speaker Change: Office is also leading coming back to office work, so we are hopeful that we will be able to add tenancy there and then make a decision relative to a long-term plan.
Speaker Change: Okay. And then bigger picture, any changes in the acquisition, kind of parameters given some changes in government policy. And I mean, I guess specifically, does light manufacturing look more attractive relative to warehouse distribution today? Okay.
Speaker Change: In your mind? Yes, absolutely, and we do not have a lot of distribution in our portfolio. We don't have a large boxes that are going to be affected by a few will tears and incoming product.
Speaker Change: We are light manufacturing in nature, so we feel confident and I think if you look back at our previous calls, we have had a focus for the last two years as it relates to reshoring and ensuring. So we believe we're in a good position there to take advantage of that occurrence. [inaudible]
Okay, that's it for me. Thank you very much.
Thank you.
Speaker Change: Okay, we have any more questions? One more? Yes, the next question comes from Dave Storms with David Stonegate, please proceed.
Good morning.
Morning, David.
Speaker Change: Good morning. Just going back to the new process with your average lease term, you know, it's just down a couple months. Sequentially in your top five tenants, lease term is down to about five years. Just curious as to what your thoughts are and how you feel about the duration of your contracts as you, you know, start preparing for the 26th and 27th negotiations.
Speaker Change: We do feel good about our term, and it will, I believe, with these closings I mentioned coming up, going to, for like a bit, we're moved back up over a seven-year walled. They're good long-term, sale-ease-back transactions.
Speaker Change: Obviously, we also have to keep in mind. You get a little more bang for the buck on the shoulder and return deals, so that's also important to us.
Speaker Change: We have continued and will continue our underwriting focus as to the ability of the tenant obviously to pay their rent and the stickiness of the real estate is mission critical or see sweet orientation that we feel comfortable they will renew if a shorter term lease.
So, hopefully that answers your question.
Soft.
Speaker Change: For us on the leasing front and if the question is who's leasing most of it currently is end users and that's also true on the purchase side of the equation.
Speaker Change: So that's a good thing. The competition for those leases relative to...
Speaker Change: Who we might be quote unquote losing a deal to has also been similar. They're looking for obviously properties that fit their need. So I think we're very competitive within the market, where we have current leases coming do.
It's very helpful. Thank you for taking my questions.
Speaker Change: Thank you. Any more questions? Mr. Gladstone, there are no further questions. Thank you. I'll turn it back to you for closing comments.
Speaker Change: All right. Well, we thank you all for listening to our presentation and asking good questions and we hope you'll save up a lot of good questions for next time because we'd like to answer any questions at the end of this.
Thank you.
Speaker Change: Thank you. This thus concludes today's teleconference. Please disconnect your lines at this time and thank you for your participation.