Gladstone mercial (GOOD) - 2025 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the quarter Condensed Consolidated Balance Sheets The balance sheet shows growth in total assets and liabilities, driven by real estate acquisitions and increased borrowings Balance Sheet Overview | Metric | March 31, 2025 (in Thousands) | December 31, 2024 (in Thousands) | Change (in Thousands) | % Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total Assets | $1,160,443 | $1,094,348 | $66,095 | 6.04% | | Total Liabilities | $807,050 | $753,006 | $54,044 | 7.18% | | Total Mezzanine Equity | $170,041 | $170,041 | $0 | 0.00% | | Total Equity | $183,352 | $171,301 | $12,051 | 7.03% | - Real estate, net, increased from $892.1 million at December 31, 2024, to $950.1 million at March 31, 2025, reflecting new acquisitions[9] - Borrowings under Revolver significantly increased from $1.9 million at December 31, 2024, to $51.3 million at March 31, 2025[9] Condensed Consolidated Statements of Operations and Comprehensive Income The company's operating revenues and net income increased significantly year-over-year, while comprehensive income declined Statement of Operations Overview | Metric | Three Months Ended March 31, 2025 (in Thousands) | Three Months Ended March 31, 2024 (in Thousands) | Change (in Thousands) | % Change | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Total Operating Revenues | $37,501 | $35,721 | $1,780 | 5.0% | | Total Operating Expenses | $23,858 | $23,315 | $543 | 2.3% | | Net Income | $5,136 | $3,526 | $1,610 | 45.7% | | Net Income Available to Common Stockholders | $1,915 | $304 | $1,611 | 529.9% | | Income per Weighted Average Share of Common Stock - Basic & Diluted | $0.04 | $0.01 | $0.03 | 300.0% | | Comprehensive Income | $1,120 | $8,943 | $(7,823) | -87.47% | - Lease revenue increased by 5.0% year-over-year, from $35.7 million in Q1 2024 to $37.5 million in Q1 2025[10] - The company reported a significant increase in net income available to common stockholders, rising from $0.3 million in Q1 2024 to $1.9 million in Q1 2025[10] Condensed Consolidated Statements of Cash Flows Cash flow from operations increased, while significant property acquisitions drove negative investing cash flow Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2025 (in Thousands) | Three Months Ended March 31, 2024 (in Thousands) | Change (in Thousands) | | :----------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Operating Activities | $17,684 | $15,023 | $2,661 | | Investing Activities | $(75,644) | $18,468 | $(94,112) | | Financing Activities | $58,247 | $(34,708) | $92,955 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $287 | $(1,217) | $1,504 | - Net cash used in investing activities significantly increased to $75.6 million in Q1 2025, primarily due to property acquisitions, compared to net cash provided of $18.5 million in Q1 2024[13] - Net cash provided by financing activities was $58.2 million in Q1 2025, a substantial increase from net cash used of $34.7 million in Q1 2024, driven by equity issuance and net borrowings on the credit facility[13] Notes to Condensed Consolidated Financial Statements 1. Organization, Basis of Presentation and Significant Accounting Policies The company operates as a REIT focused on industrial and office properties, with no material changes to accounting policies - Gladstone Commercial Corporation is a REIT focused on acquiring, owning, and managing industrial and office properties, externally managed by Gladstone Management Corporation and Gladstone Administration, LLC[18] - The company operates with one reporting segment: Real Estate Rental Operations, generating revenue through operating leases and aiming for earnings growth via rent increases, high occupancy, and property acquisitions[23] - ASU 2024-03, requiring disaggregation of income statement expenses, is effective for fiscal years beginning after December 15, 2026, and the company is evaluating its impact[25] 2. Related-Party Transactions The company incurs management, incentive, and administration fees from affiliates controlled by its chairman and CEO - The company is externally managed by Gladstone Management Corporation (Adviser) and Gladstone Administration, LLC (Administrator), both affiliates controlled by Mr. David Gladstone[26] Fees Paid to Affiliates | Fee Type | Three Months Ended March 31, 2025 (in Thousands) | Three Months Ended March 31, 2024 (in Thousands) | Change (in Thousands) | % Change | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Base Management Fee | $1,568 | $1,535 | $33 | 2.1% | | Incentive Fee | $640 | $1,171 | $(531) | -45.3% | | Administration Fee | $622 | $630 | $(8) | -1.3% | - Gladstone Securities, an affiliate, earned $0.03 million in fees in Q1 2025 (vs. $0.02 million in Q1 2024) for acting as the exclusive dealer manager for the Series F Preferred Stock offering[39] 3. Earnings Per Share of Common Stock Earnings per share increased significantly due to higher net income available to common stockholders EPS Calculation | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net Income Available to Common Stockholders (in Thousands) | $1,915 | $304 | $1,611 | | Basic EPS of Common Stock | $0.04 | $0.01 | $0.03 | | Diluted EPS of Common Stock | $0.04 | $0.01 | $0.03 | | Weighted Average Shares Outstanding (Basic & Diluted) | 44,607,012 | 40,003,481 | 4,603,531 | - Convertible Senior Common Stock was excluded from diluted EPS calculations for both periods as it was anti-dilutive[45] 4. Real Estate and Intangible Assets Net real estate assets grew due to the acquisition of six industrial properties during the first quarter Real Estate Assets | Real Estate Component | March 31, 2025 (in Thousands) | December 31, 2024 (in Thousands) | Change (in Thousands) | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Land | $145,313 | $139,743 | $5,570 | | Building and Improvements | $1,079,127 | $1,017,534 | $61,593 | | Tenant Improvements | $55,098 | $54,516 | $582 | | Accumulated Depreciation | $(329,448) | $(319,646) | $(9,802) | | Real Estate, Net | $950,090 | $892,147 | $57,943 | - Six industrial properties were acquired in Q1 2025 for an aggregate purchase price of $73.7 million, with a weighted average remaining lease term of 10.8 years[45][46] Lease Revenue Breakdown | Lease Revenue Type | Three Months Ended March 31, 2025 (in Thousands) | Three Months Ended March 31, 2024 (in Thousands) | Change (in Thousands) | % Change | | :----------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Fixed Lease Payments | $32,448 | $31,789 | $659 | 2.1% | | Variable Lease Payments | $5,053 | $3,932 | $1,121 | 28.5% | | Total Lease Revenue | $37,501 | $35,721 | $1,780 | 5.0% | 5. Real Estate Dispositions, Held for Sale and Impairment Charges No properties were sold in Q1 2025, and no impairment charges were recognized during the period - No properties were sold in Q1 2025, compared to three properties sold in Q1 2024[58] Assets Held for Sale | Asset Category | March 31, 2025 (in Thousands) | December 31, 2024 (in Thousands) | | :--------------- | :----------------------------- | :----------------------------- | | Total Real Estate Held for Sale | $4,337 | $4,337 | | Lease Intangibles, Net | $26 | $26 | | Total Assets Held for Sale | $4,363 | $4,363 | - No impairment charges were recognized in Q1 2025, a decrease from $0.5 million recognized in Q1 2024 on a held for sale asset[61] 6. Mortgage Notes Payable, Credit Facility, and Senior Unsecured Notes Total debt increased to $740.7 million, with a weighted average interest rate of 5.28% Debt Overview | Debt Type | March 31, 2025 (in Thousands) | December 31, 2024 (in Thousands) | Stated Interest Rates at March 31, 2025 | Scheduled Maturity Dates at March 31, 2025 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | :-------------------------------------- | :--------------------------------------- | | Total Mortgage Notes Payable, Net | $267,326 | $269,579 | 2.80% to 6.63% (fixed), SOFR + 2.25% (variable) | Sep 30, 2025 - Aug 1, 2037 | | Borrowings under Revolver | $51,300 | $1,900 | SOFR + 1.35% | Aug 18, 2026 | | Borrowings under Term Loan A, Term Loan B, Term Loan C, Net | $348,121 | $347,948 | SOFR + 1.30% | Feb 11, 2026 - Feb 18, 2028 | | Senior Unsecured Notes, Net | $73,999 | $73,958 | 6.47% | Dec 18, 2029 | | Total Debt | $740,746 | $693,385 | Weighted Average: 5.28% | | - The company had $401.3 million outstanding under its Credit Facility at a weighted average interest rate of approximately 5.72% as of March 31, 2025[76] Derivative Instruments | Derivative Instrument | March 31, 2025 (in Thousands) | December 31, 2024 (in Thousands) | | :-------------------- | :----------------------------- | :----------------------------- | | Interest Rate Swaps (Asset) | $5,218 | $8,965 | | Interest Rate Swaps (Liability) | $(289) | $(19) | | Total Derivative Liabilities, Net | $4,929 | $8,946 | 7. Commitments and Contingencies The company has future minimum rental payment obligations under four ground leases and outstanding letters of credit Future Lease Payments | Year | Operating Lease Payments Due (in Thousands) | Finance Lease Payments Due (in Thousands) | | :-------------------------- | :---------------------------------------- | :-------------------------------------- | | Nine Months Ending Dec 31, 2025 | $343 | $116 | | 2026 | $460 | $172 | | 2027 | $467 | $178 | | 2028 | $470 | $178 | | 2029 | $470 | $178 | | 2030 | $385 | $178 | | Thereafter | $2,974 | $7,098 | | Total Anticipated Lease Payments | $5,569 | $8,098 | - As of March 31, 2025, $2.1 million in letters of credit were outstanding for mortgage requirements[81] 8. Equity and Mezzanine Equity Total equity increased due to common and preferred stock issuances, while certain preferred stocks are classified as mezzanine equity Equity Summary | Equity Component | March 31, 2025 (in Thousands) | December 31, 2024 (in Thousands) | Change (in Thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Total Stockholders' Equity | $183,216 | $171,171 | $12,045 | | Non-Controlling Interest | $136 | $130 | $6 | | Total Equity | $183,352 | $171,301 | $12,051 | Distributions per Share | Distribution Type | Three Months Ended March 31, 2025 (per share) | Three Months Ended March 31, 2024 (per share) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Common Stock and Non-controlling OP Units | $0.30 | $0.30 | | Senior Common Stock | $0.2625 | $0.2625 | | Series E Preferred Stock | $0.414063 | $0.414063 | | Series F Preferred Stock | $0.375 | $0.375 | | Series G Preferred Stock | $0.375 | $0.375 | - The company sold 1,770,581 shares of common stock, raising approximately $27.7 million in net proceeds under the 2024 Common Stock Sales Agreement during Q1 2025[88] - A universal shelf registration statement (2024 Registration Statement) was filed, allowing for the issuance of up to $1.3 billion of securities[90] 9. Subsequent Events Post-quarter activities include declared distributions, additional equity raised, two property sales, and a mortgage repayment Declared Monthly Distributions | Distribution Type | Monthly Distribution per Share (April-June 2025) | | :-------------------------------- | :--------------------------------------------- | | Common Stock and Non-controlling OP Units | $0.10 | | Senior Common Stock | $0.0875 | | Series E Preferred Stock | $0.138021 | | Series F Preferred Stock | $0.125 | | Series G Preferred Stock | $0.125 | - Through May 7, 2025, the company raised $7.2 million in net proceeds from common stock sales and $0.1 million from Series F Preferred Stock sales[95] - Two properties were sold in April 2025: one in Hickory, NC for $5.1 million (realizing a $0.4 million gain) and one in Tifton, GA for $18.5 million (recognizing a $3.9 million selling profit from a sales-type lease)[96][97] - A $7.2 million variable-rate mortgage was fully repaid on April 30, 2025[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, and strategic activities for the first quarter General The company maintains a large, highly occupied portfolio of industrial and office properties across the United States - As of May 7, 2025, the company owned 139 properties totaling 16.5 million square feet across 27 states, with an occupancy rate of 98.7%[105] - The weighted average remaining term of mortgage debt was 3.3 years with a 4.23% interest rate, and the average remaining lease term of the portfolio was 6.9 years[105] Business Environment The company navigated interest rate volatility and shifting industrial leasing demand while maintaining strong rent collections - Interest rates and capital markets remained primary drivers in Q1 2025, with the 10-year U.S. Treasury yield ranging between 4.2% and 4.8%[106] - Industrial leasing demand softened slightly in Q1 2025 (6.4% decline year-over-year in new leasing activity), but industrial rents increased 4.3% year-over-year[107] - The company collected 100% of all outstanding base rents for Q1 2025, demonstrating strong credit underwriting and asset management[109] - Available vacant space at March 31, 2025, represented 1.6% of total square footage, with annual carrying costs of approximately $2.0 million[113] Recent Developments The company actively managed its portfolio through acquisitions, dispositions, leasing, and financing activities - Post-Q1 2025, the company sold a 60,000 sq ft property in Hickory, NC for $5.1 million (realizing a $0.4 million gain) and a 676,031 sq ft property in Tifton, GA for $18.5 million (recognizing a $3.9 million selling profit from a sales-type lease)[116][117] - Six industrial properties were acquired in Q1 2025 for $73.7 million, with a weighted average lease term of 10.8 years and annualized GAAP fixed lease payments of $6.1 million[118] - During and subsequent to Q1 2025, one lease was executed for 67,709 sq ft with a 3.0-year weighted average remaining lease term and $0.3 million in annualized GAAP fixed lease payments[119] - A $7.2 million variable-rate mortgage was fully repaid on April 30, 2025[120] - The company sold 1,770,581 shares of common stock, raising $27.7 million in net proceeds under the 2024 Common Stock Sales Agreement during Q1 2025[123] Diversity of Our Portfolio The portfolio demonstrates diversification across tenants, industries, and geographic locations, mitigating concentration risk - The largest tenant comprised only 5.4% of total lease revenue for Q1 2025, indicating a diversified tenant base[128] Top 5 Industry Classifications by Revenue | Top 5 Industry Classifications | Q1 2025 Lease Revenue (in Thousands) | Q1 2025 Percentage of Lease Revenue | | :----------------------------- | :----------------------------------- | :---------------------------------- | | Automotive | $5,532 | 14.7% | | Diversified/Conglomerate Services | $5,244 | 14.0% | | Buildings and Real Estate | $3,818 | 10.2% | | Telecommunications | $3,472 | 9.3% | | Diversified/Conglomerate Manufacturing | $2,790 | 7.4% | Top 5 States by Revenue | Top 5 States by Lease Revenue | Q1 2025 Lease Revenue (in Thousands) | Q1 2025 Percentage of Lease Revenue | Number of Leases (Q1 2025) | | :---------------------------- | :----------------------------------- | :---------------------------------- | :------------------------- | | Texas | $5,328 | 14.2% | 17 | | Pennsylvania | $5,246 | 14.0% | 11 | | Florida | $4,386 | 11.7% | 9 | | Ohio | $3,085 | 8.2% | 15 | | North Carolina | $2,397 | 6.4% | 9 | Our Adviser and Administrator The company is externally managed by entities controlled by its chairman and CEO, who also manage other affiliated companies - The Adviser and Administrator are controlled by Mr. David Gladstone, who also serves as the company's chairman and CEO, ensuring alignment but also creating related-party dynamics[129][131] - The Adviser and Administrator also provide services to other affiliated companies, including publicly-traded business development companies and REITs[130] Advisory and Administration Agreements The agreements outline the fee structure for the external Adviser, including base management and performance-based incentive fees - The base management fee is calculated at an annual rate of 0.425% of the prior calendar quarter's 'Gross Tangible Real Estate'[133] - The incentive fee is 15.0% of pre-incentive fee Core FFO exceeding an 8.0% annualized hurdle rate, capped at 15.0% of the average quarterly incentive fee paid over the previous four quarters where a fee was actually paid[137][139] - The Advisory Agreement includes a termination fee equal to two times the sum of the average annual base management fee and incentive fee earned by the Adviser during the 24-month period prior to termination without cause[141] Significant Accounting Policies and Estimates No material changes to the company's critical accounting policies or estimates occurred during the first quarter - No material changes to critical accounting policies or estimates occurred during the three months ended March 31, 2025[144] Results of Operations Net income available to common stockholders increased substantially due to higher revenues and lower expenses - The weighted average yield on the total portfolio was 8.5% as of March 31, 2025 and 2024[145] Q1 Operational Performance Comparison | Metric | Q1 2025 (in Thousands) | Q1 2024 (in Thousands) | $ Change | % Change | | :------------------------------------------------ | :--------------------- | :--------------------- | :------- | :------- | | Lease Revenue | $37,501 | $35,721 | $1,780 | 5.0% | | Property Operating Expenses | $6,900 | $5,884 | $1,016 | 17.3% | | Incentive Fee | $640 | $1,171 | $(531) | -45.3% | | Interest Expense | $(9,138) | $(9,497) | $359 | -3.8% | | Net Income Available to Common Stockholders and Non-controlling OP Unitholders | $1,917 | $306 | $1,611 | 526.5% | | Basic FFO per weighted average share and unit | $0.34 | $0.34 | $0 | 0.0% | - Lease revenues from same store properties increased by 6.6% due to higher recovery revenue and increased rental rates from leasing activity[148] - Net income available to common stockholders and Non-controlling OP Unitholders increased significantly due to higher recovery revenue, increased rental rates, no impairment charge, and lower interest expense, partially offset by a higher net incentive fee[155] Liquidity and Capital Resources The company maintained sufficient liquidity through cash reserves, credit facility availability, and equity issuances - Available liquidity as of March 31, 2025, was $80.5 million, comprising $10.4 million in cash and $70.1 million in available borrowing capacity under the Credit Facility[156] - The company raised $27.7 million in net proceeds from common equity and $0.3 million from Series F Preferred Stock sales during Q1 2025[159] - As of March 31, 2025, mortgage debt totaled $269.1 million across 45 properties, with a weighted-average interest rate of 4.29% and a remaining weighted average maturity of 3.3 years[161] - Net cash provided by operating activities was $17.7 million in Q1 2025, up from $15.0 million in Q1 2024[163] - Net cash used in investing activities was $75.6 million in Q1 2025, primarily for six property acquisitions and capital improvements[165] - Net cash provided by financing activities was $58.2 million in Q1 2025, driven by equity issuance and net borrowings on the credit facility[166] Contractual Obligations The company has significant future obligations related to debt principal and interest, as well as lease payments Summary of Contractual Obligations | Contractual Obligations | Total (in Thousands) | Less than 1 Year (in Thousands) | 1-3 Years (in Thousands) | 3-5 Years (in Thousands) | More than 5 Years (in Thousands) | | :---------------------- | :------------------- | :------------------------------ | :----------------------- | :----------------------- | :------------------------------- | | Debt Obligations | $745,399 | $59,978 | $498,716 | $165,679 | $21,026 | | Interest on Debt Obligations | $111,731 | $38,853 | $56,028 | $15,342 | $1,508 | | Operating Lease Obligations | $5,569 | $457 | $931 | $932 | $3,249 | | Finance Lease Obligations | $8,098 | $155 | $356 | $356 | $7,231 | | Purchase Obligations | $13,298 | $11,412 | $1,886 | $0 | $0 | Off-Balance Sheet Arrangements The company reports no material off-balance sheet arrangements as of the end of the first quarter - The company did not have any material off-balance sheet arrangements as of March 31, 2025[172] Funds from Operations FFO, a non-GAAP measure, remained stable on a per-share basis compared to the prior year period - FFO (Funds from Operations) is a non-GAAP supplemental measure of operating performance for REITs, excluding gains/losses from property sales and impairment, plus depreciation and amortization of real estate assets[173] FFO Reconciliation | FFO Metric | Q1 2025 (in Thousands, except per share) | Q1 2024 (in Thousands, except per share) | | :------------------------------------------------ | :--------------------------------------- | :--------------------------------------- | | FFO available to common stockholders and Non-controlling OP Unitholders - basic | $15,160 | $13,542 | | Basic FFO per weighted average share of common stock and Non-controlling OP Unit | $0.34 | $0.34 | | FFO available to common stockholders and Non-controlling OP Unitholders plus assumed conversions | $15,261 | $13,647 | | Diluted FFO per weighted average share of common stock and Non-controlling OP Unit | $0.34 | $0.34 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, which it manages through derivative instruments - The primary market risk is interest rate risk, affecting variable-rate debt and leases, mitigated by interest rate caps and swaps[179][185] Interest Rate Sensitivity Analysis | Interest Rate Change | Net Increase (Decrease) to Net Income (in Thousands) | | :------------------- | :--------------------------------------------------- | | 3% Decrease to SOFR | $1,779 | | 2% Decrease to SOFR | $1,186 | | 1% Decrease to SOFR | $593 | | 1% Increase to SOFR | $(593) | | 2% Increase to SOFR | $(1,186) | | 3% Increase to SOFR | $(1,779) | - As of March 31, 2025, the fair value of mortgage debt outstanding was $255.9 million; a 1% change in interest rates would alter this fair value by approximately $7.0-$7.2 million[183] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the quarter-end - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025, providing reasonable assurance for timely and accurate reporting[187] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025[188] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not currently subject to any material legal proceedings, nor are any material legal proceedings threatened[191] Item 1A. Risk Factors There have been no material changes to the company's risk factors since the last annual report - No material changes to risk factors were identified from those previously set forth in the Annual Report on Form 10-K for the year ended December 31, 2024[192] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales or issuer purchases of its equity securities during the period - There were no unregistered sales of equity securities or issuer purchases of equity securities[193] Item 3. Defaults Upon Senior Securities The company reports no defaults upon its senior securities during the period - There were no defaults upon senior securities[194] Item 4. Mine Safety Disclosures This disclosure requirement is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the registrant[195] Item 5. Other Information No other material information was reported for the quarter - No officer or director adopted or terminated any Rule 10b5-1 trading agreement or non-Rule 10b5-1 trading arrangement during Q1 2025[196] Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including governance documents and certifications - The exhibit index includes various corporate governance documents, such as Articles of Restatement, Bylaws, and Articles Supplementary for different classes of stock[198][199] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed or furnished[199] - iXBRL (Inline eXtensible Business Reporting Language) documents for the financial statements and notes are attached as Exhibit 101[199] SIGNATURES The report is duly signed by the company's Chief Executive Officer and Chief Financial Officer - The report was signed by Gary Gerson, Chief Financial Officer, and David Gladstone, Chief Executive Officer and Chairman of the Board of Directors, on May 7, 2025[203]