Gladstone mercial (US:GOOD)2024-08-06 20:03PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2024 Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and liabilities from year-end 2023 to June 30, 2024 Condensed Consolidated Balance Sheets (in thousands) | Assets & Liabilities | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total real estate, net | $918,773 | $921,702 | | Cash and cash equivalents | $10,416 | $11,985 | | TOTAL ASSETS | $1,105,546 | $1,133,471 | | Mortgage notes payable, net | $273,783 | $295,853 | | Borrowings under Revolver, Term Loans, net | $448,753 | $443,008 | | TOTAL LIABILITIES | $789,684 | $809,164 | | TOTAL MEZZANINE EQUITY | $170,041 | $170,041 | | TOTAL EQUITY | $145,821 | $154,266 | | TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY | $1,105,546 | $1,133,471 | Condensed Consolidated Statements of Operations and Comprehensive Income The company reported a significant turnaround to net income for H1 2024, driven by lower operating expenses Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $37,057 | $38,658 | $72,779 | $75,212 | | Total operating expenses | $25,973 | $33,716 | $49,290 | $58,379 | | Impairment charge | $0 | $6,823 | $493 | $6,823 | | Net income (loss) | $1,600 | $(4,588) | $5,125 | $(1,420) | | Net loss attributable to common stockholders | $(1,614) | $(7,685) | $(1,313) | $(7,642) | | Loss per share - basic & diluted | $(0.04) | $(0.19) | $(0.03) | $(0.19) | Condensed Consolidated Statements of Cash Flows Operating activities provided $28.6 million in cash, while financing activities used $36.1 million in H1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $28,626 | $30,688 | | Net cash provided by (used in) investing activities | $5,807 | $(6,924) | | Net cash used in financing activities | $(36,149) | $(19,193) | | Net (decrease) increase in cash | $(1,716) | $4,571 | Notes to Condensed Consolidated Financial Statements Provides detailed disclosures on accounting policies, related-party transactions, debt, equity, and other items - The company is an externally managed REIT, with business managed by Gladstone Management Corporation (the "Adviser") and administrative services by Gladstone Administration, LLC (the "Administrator")15 - There were no material changes to the company's critical accounting policies during the first six months of 202419 Fees Paid to Related Parties (in millions) | Fee Type | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Base Management Fee | $1.5 | $1.6 | $3.1 | $3.2 | | Incentive Fee (net of waiver) | $1.0 | $0 | $1.4 | $0 | | Administration Fee | $0.6 | $0.5 | $1.2 | $1.1 | - During the six months ended June 30, 2024, the company acquired five industrial properties for $12.0 million and sold four non-core properties for $22.2 million414849 - As of June 30, 2024, the company had $722.5 million in total debt outstanding, with a weighted average interest rate of 5.82%53 - Subsequent to June 30, 2024, the company raised $21.6 million in net proceeds from the sale of common stock and declared monthly distributions for July, August, and September 20248285 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the business environment, corporate activities, portfolio status, and financial results for H1 2024 Business Environment and Portfolio Overview The industrial real estate sector shows strong fundamentals, positioning the company's 98.5% occupied portfolio well - The industrial sector continues to show strong fundamentals, with U.S. industrial net absorption more than doubling in Q2 2024 and asking rents increasing 3.7% YoY93 - The office sector showed mixed results, with national absorption remaining negative in Q2 2024, though a third of U.S. markets showed positive absorption94 - The company collected 100% of all outstanding cash rents for the six months ended June 30, 202495 Portfolio Snapshot (as of August 6, 2024) | Metric | Value | | :--- | :--- | | Properties Owned | 136 | | Total Square Feet | 16.8 million | | Occupancy Rate | 98.5% | | Average Remaining Lease Term | 7.1 years | Recent Developments The company continued its capital recycling program, acquiring industrial properties and executing new leases H1 2024 Transaction Summary (in thousands) | Activity | Details | | :--- | :--- | | Property Sales | 4 properties sold for $22,165 | | Property Acquisitions | 5 industrial properties acquired for $11,954 | | Leasing | 7 leases executed for 2,475,036 sq. ft. | | Financing | Repaid $17,674 in fixed-rate debt | | Equity | Raised $10,600 net proceeds from common stock sales | Results of Operations Net income reached $5.1 million in H1 2024, up from a loss, despite a 3.2% decrease in operating revenues Comparison of Operations (Six Months Ended June 30, in thousands) | Line Item | 2024 | 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lease revenue | $72,779 | $75,212 | $(2,433) | (3.2)% | | Total operating expenses | $49,290 | $58,379 | $(9,089) | (15.6)% | | Impairment charge | $493 | $6,823 | $(6,330) | (92.8)% | | Interest expense | $(18,960) | $(17,909) | $(1,051) | 5.9% | | Net income (loss) | $5,125 | $(1,420) | $6,545 | (460.9)% | - Same-store lease revenues decreased by 2.9% for the six months ended June 30, 2024, compared to the same period in 2023, mainly due to accelerated rent from a lease termination in 2023136 Liquidity and Capital Resources The company maintained $52.5 million in available liquidity as of June 30, 2024, sufficient for near-term needs - Total available liquidity was $52.5 million as of June 30, 2024, which increased to $60.3 million by August 6, 2024143 - The company plans to use proceeds from future equity and debt to continue investing in industrial and office properties or to pay down its revolver144 Material Contractual Obligations as of June 30, 2024 (in thousands) | Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt Obligations | $726,884 | $24,078 | $237,287 | $405,925 | $59,594 | | Interest on Debt | $128,185 | $41,281 | $68,163 | $15,908 | $2,833 | | Operating Leases | $5,911 | $457 | $920 | $941 | $3,593 | | Purchase Obligations | $10,625 | $8,492 | $2,133 | $0 | $0 | | Total | $871,605 | $74,308 | $308,503 | $422,774 | $66,020 | Funds from Operations (FFO) Basic FFO per share decreased to $0.69 for H1 2024, down from $0.77 in the prior-year period FFO Reconciliation and Per Share Data (in thousands, except per share) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $1,600 | $(4,588) | $5,125 | $(1,420) | | Adjustments (Depreciation, Impairment, etc.) | $16,062 | $23,759 | $29,598 | $38,463 | | FFO available to common stockholders - basic | $14,437 | $16,452 | $27,976 | $31,191 | | Basic FFO per share | $0.36 | $0.41 | $0.69 | $0.77 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, which it mitigates using derivative contracts - The primary market risk exposure is interest rate risk due to variable-rate debt on the Credit Facility162 Annual Impact of Interest Rate Changes on Net Income (in thousands) | Interest Rate Change | Net increase (decrease) to Net Income | | :--- | :--- | | 3% Decrease to SOFR | $4,061 | | 2% Decrease to SOFR | $2,707 | | 1% Decrease to SOFR | $1,354 | | 1% Increase to SOFR | $(897) | | 2% Increase to SOFR | $(1,795) | | 3% Increase to SOFR | $(2,692) | Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal control - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2024169 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting170 PART II OTHER INFORMATION Legal Proceedings The company is not currently subject to any material legal proceedings - We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us172 Risk Factors No material changes to risk factors were reported from the company's 2023 Annual Report on Form 10-K - There are no material changes to risks associated with our business or investment in our securities from those previously set forth in the Annual Report on Form 10-K for the year ended December 31, 2023173 Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or issuer purchases during the period - There were no sales of unregistered securities or issuer purchases of equity securities in the period173 Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None175 Mine Safety Disclosures This item is not applicable to the company - Not applicable175 Other Information There is no other information to report for the period - None173 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act177 Signatures - The report was duly signed on August 6, 2024, by Gary Gerson, Chief Financial Officer, and David Gladstone, Chief Executive Officer and Chairman of the Board180