Gladstone mercial (GOOD) - 2024 Q2 - Quarterly Results

Executive Summary Q2 2024 Financial Highlights Gladstone Commercial Corporation reported a net loss of $1.6 million in Q2 2024, while Core FFO increased by 5.0% to $14.6 million, driven by accelerated rental income from property sales Key Financial Metrics Q2 2024 vs Q1 2024 | Metric | Q2 2024 | Q1 2024 | Change Amount | Change Percentage | | :----------------------------------------------------------------------------------------------- | :------------- | :------------- | :------------ | :---------------- | | Net (Loss) Income Attributable to Common Stockholders and Non-Controlling Partnership Units - Basic and Diluted (Per Share) | $ (0.04) | $ 0.01 | $ (0.05) | (500.0)% | | Core FFO Attributable to Common Stockholders and Non-Controlling Partnership Units (in millions) | $ 14.6 | $ 13.9 | $ 0.7 | 5.0% | | Core FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Basic and Diluted (Per Share) | $ 0.36 | $ 0.34 | $ 0.02 | 5.9% | - Core FFO growth was primarily attributed to accelerated rental income related to termination fees from property sales this quarter7 Key Operational Activities Overview The company maintained 100% rent collection, actively managed its portfolio with acquisitions and dispositions, extended mortgage terms, and renewed over 2.3 million square feet of space - The company collected 100% of cash rents for April, May, June, and July68 - Acquired a five-property portfolio totaling 142,125 square feet for $12.0 million, with a 12.3% capitalization rate6 - Sold one non-core property for $2.6 million as part of a capital recycling program6 - Renewed or leased 2,383,732 square feet during Q2, with an additional 91,304 square feet renewed post-quarter68 Detailed Financial Results Operating Data Total operating revenue increased by 3.7% to $37.057 million in Q2 2024, while operating and other expenses also rose, indicating increased cost pressure Operating Data (Q2 2024 vs Q1 2024) | Metric | Q2 2024 (in thousands) | Q1 2024 (in thousands) | Change Amount (in thousands) | Change Percentage | | :------------------- | :--------------------- | :--------------------- | :--------------------------- | :---------------- | | Total Operating Revenue | 37,057 | 35,721 | 1,336 | 3.7 % | | Total Operating Expenses | (25,973) | (23,315) | (2,658) | 11.4 % | | Other Expenses, Net | (9,484) | (8,880) | (604) | 6.8 % | Net Income and Attributable Loss Net income decreased by 54.6% to $1.6 million, resulting in a net loss of $1.625 million attributable to common stockholders and non-controlling partnership units Net Income and Attributable Loss (Q2 2024 vs Q1 2024) | Metric | Q2 2024 (in thousands) | Q1 2024 (in thousands) | Change Amount (in thousands) | Change Percentage | | :----------------------------------------------------------------------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :---------------- | | Net Income | 1,600 | 3,526 | (1,926) | (54.6)% | | Net (Loss) Income Attributable to Common Stockholders and Non-Controlling Partnership Units | (1,625) | 306 | (1,931) | (631.0)% | Funds From Operations (FFO & Core FFO) Basic and diluted FFO increased by 6.6% to $14.4 million and $14.5 million, respectively, while Core FFO grew by 5.0% to $14.5 million and $14.6 million, driven by accelerated rental income FFO and Core FFO (Q2 2024 vs Q1 2024) | Metric | Q2 2024 (in thousands) | Q1 2024 (in thousands) | Change Amount (in thousands) | Change Percentage | | :----------------------------------------------------------------------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :---------------- | | FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Basic | 14,437 | 13,542 | 895 | 6.6 % | | FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Diluted | 14,542 | 13,647 | 895 | 6.6 % | | Core FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Basic | 14,534 | 13,839 | 695 | 5.0 % | | Core FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Diluted | 14,639 | 13,944 | 695 | 5.0 % | - Core FFO growth was primarily attributed to accelerated rental income related to termination fees from property sales this quarter7 Per Share Data Basic and diluted FFO and Core FFO per share increased by $0.02 to $0.36, a 5.9% rise, while cash dividends per share remained constant at $0.30 Per Share Data (Q2 2024 vs Q1 2024) | Metric | Q2 2024 | Q1 2024 | Change Amount | Change Percentage | | :----------------------------------------------------------------------------------------------- | :------------- | :------------- | :------- | :--------- | | FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Basic | $ 0.36 | $ 0.34 | $ 0.02 | 5.9 % | | FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Diluted | $ 0.36 | $ 0.34 | $ 0.02 | 5.9 % | | Core FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Basic | $ 0.36 | $ 0.34 | $ 0.02 | 5.9 % | | Core FFO Attributable to Common Stockholders and Non-Controlling Partnership Units - Diluted | $ 0.36 | $ 0.34 | $ 0.02 | 5.9 % | | Cash Dividends Per Common Share and Non-Controlling Partnership Units | $ 0.30 | $ 0.30 | $ — | — % | Financial Position Balance Sheet Metrics Total assets remained stable at $1.106 billion, with real estate increasing by 0.7% to $1.239 billion, while leased square footage percentage slightly decreased to 98.5% Financial Position (Q2 2024 vs Q1 2024) | Metric | Q2 2024 (in thousands) | Q1 2024 (in thousands) | Change Amount (in thousands) | Change Percentage | | :----------------------------------------------------------------------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :---------------- | | Real Estate, Net of Accumulated Depreciation | 1,239,476 | 1,230,541 | 8,935 | 0.7 % | | Total Assets | 1,105,546 | 1,105,157 | 389 | — % | | Mortgage Notes Payable, Net, Revolving Loan and Term Loan Borrowings, Net | 722,536 | 719,356 | 3,180 | 0.4 % | | Total Equity and Mezzanine Equity | 315,862 | 318,292 | (2,430) | (0.8)% | | Number of Properties Owned | 136 | 132 | 4 | 3.0 % | | Number of Square Feet Owned | 16,825,776 | 16,702,090 | 123,686 | 0.7 % | | Leased Square Footage Percentage | 98.5 % | 98.9 % | (0.4)% | (0.4)% | - Q2 included two properties classified as held for sale, valued at $9.3 million and 26,331 square feet, compared to $20.6 million and 705,288 square feet in Q15 Operational Activities and Strategic Commentary Second Quarter Activities The company maintained high rent collection, executed strategic property acquisitions and dispositions, optimized debt, raised capital via stock issuance, and paid consistent dividends - Collected 100% of cash rents due for April, May, and June6 - Acquired a five-property portfolio totaling 142,125 square feet for $12.0 million, with a 12.3% capitalization rate6 - Sold one non-core property for $2.6 million as part of a capital recycling program6 - Extended the maturity of a $7.4 million fixed-rate mortgage from June 2024 to September 2025, with the rate converting to SOFR + 2.25% floating6 - Renewed or leased 2,383,732 square feet of space with terms ranging from 0.7 to 11.0 years6 - Issued 756,214 shares of common stock for $10.6 million net proceeds and 18,200 shares of Series F preferred stock for $0.4 million net proceeds via ATM programs6 - Paid monthly cash dividends of $0.30 per share to common stockholders and non-controlling partnership units6 Subsequent Events Post-Q2, the company maintained strong rent collection, enhanced liquidity through ATM stock issuance, renewed property space, and announced future dividend distributions - Collected 100% of cash rents due for July8 - Issued 1,499,509 shares of common stock for $21.6 million net proceeds and 3,200 shares of Series F preferred stock for $0.1 million net proceeds via ATM programs8 - Renewed 91,304 square feet of space with terms ranging from 6.4 to 6.6 years8 - Declared monthly cash dividends of $0.30 per share for common stockholders and non-controlling partnership units for July, August, and September 20248 Management Outlook and Strategy Management highlights sustained performance in occupancy, rent collection, and value-add investments, continuing capital recycling to focus on industrial properties and anticipating future rent growth and financing access - Financial results reflect sustained performance in same-store property occupancy, rent collection and growth, value-add real estate investments made in 2023 and 2024, and tenant renewals9 - The company will continue its capital recycling program, selling non-core assets to deleverage and redeploying proceeds into target growth markets, with a focus on industrial investment opportunities9 - Despite challenges from the pandemic, inflation, rising interest rates, and geopolitics, the company is confident in its tenant credit assessment, having collected 100% of cash rents for Q1, Q2, and July9 - Same-store rents are expected to continue growing annually (2% per year in recent years), and the company anticipates continued access to debt and equity market financing9 Company Overview About Gladstone Commercial Corporation Gladstone Commercial Corporation is a REIT focused on acquiring, owning, and operating net-leased industrial and office properties across the U.S. - Gladstone Commercial Corporation is a Real Estate Investment Trust (REIT)10 - Focuses on acquiring, owning, and operating net-leased industrial and office properties across the United States10 About The Gladstone Companies Gladstone Companies refers to the Gladstone family of funds, providing information on business activities and investor relations - Information on the business activities of the Gladstone family of funds is available at www.gladstonecompanies.com[10](index=10&type=chunk) - Investor relations inquiries related to the Gladstone family of funds can be found at www.gladstonecompanies.com[10](index=10&type=chunk) Non-GAAP Financial Measures Definitions Funds From Operations (FFO) FFO is a NAREIT-defined non-GAAP supplemental operating performance measure for REITs, not a substitute for GAAP net income or cash flow from operations - FFO is a non-GAAP supplemental measure of operating performance developed by NAREIT for equity REITs11 - Calculated as GAAP net income, excluding gains/losses on property sales and property impairment losses, plus real estate depreciation and amortization, adjusted for unconsolidated partnerships and joint ventures11 - FFO does not represent cash flow from operating activities under GAAP and should not be considered an alternative to net income for performance or cash flow from operations for liquidity/distribution capacity1113 Core Funds From Operations (Core FFO) Core FFO adjusts FFO for specific items not reflecting operating portfolio results or affecting comparability, such as acquisition costs and debt extinguishment gains/losses, serving as a meaningful supplemental performance measure - Core FFO is an adjusted FFO metric that excludes specific items not reflective of the company's operating portfolio results and affecting period-to-period comparability12 - Adjustments include acquisition-related expenses, gains/losses on early extinguishment of debt, and other non-recurring expense adjustments12 - The company considers Core FFO a meaningful supplemental operating performance measure, though its calculation may differ from other REITs12 - Core FFO should be considered a supplemental measure to GAAP net income and not an alternative for performance or liquidity/distribution capacity1213 Forward-Looking Statements Forward-Looking Statements & Risks Statements regarding revenue stability and portfolio growth are forward-looking, subject to risks like capital availability, economic downturns, tenant performance, and interest rate changes, with no obligation for public updates - Statements in this press release regarding revenue stability, re-leasing vacant properties, and portfolio growth are "forward-looking statements" involving inherent risks and uncertainties14 - Factors that could cause actual results to differ materially include: ability to raise additional capital, availability and terms of capital and financing, downturns in the economic environment, tenant performance, competitive impacts, and significant changes in interest rates14 - Readers are cautioned not to place undue reliance on any forward-looking statements, and the company is under no obligation to publicly update or revise these statements, except as required by law14