Gladstone mercial (GOOD) - 2021 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents the unaudited condensed consolidated financial statements for the period ended September 30, 2021 Condensed Consolidated Balance Sheets Total assets increased to $1.105 billion, driven by real estate growth, while total equity declined to $201.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total real estate, net | $915,498 | $900,215 | | Cash and cash equivalents | $10,230 | $11,016 | | TOTAL ASSETS | $1,104,794 | $1,097,908 | | Mortgage notes payable, net | $448,001 | $456,177 | | Borrowings under Revolver | $2,100 | $53,312 | | Borrowings under Term Loan, net | $223,951 | $159,203 | | TOTAL LIABILITIES | $732,988 | $722,585 | | TOTAL EQUITY | $201,542 | $216,037 | Condensed Consolidated Statements of Operations and Comprehensive Income Quarterly net income rose to $4.5 million, boosted by higher lease revenue and a significant legal settlement Key Performance Indicators (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Lease Revenue | $34,334 | $33,142 | $102,381 | $100,287 | | Total Operating Expenses | $25,498 | $25,254 | $77,388 | $75,199 | | Net Income | $4,498 | $2,844 | $6,657 | $6,070 | | Net Income (Loss) to Common Stockholders | $1,439 | $(128) | $(4,547) | $(2,643) | | EPS (basic & diluted) | $0.04 | $(0.004) | $(0.13) | $(0.08) | Condensed Consolidated Statements of Cash Flows Operating cash flow remained stable, while financing activities used cash due to preferred stock redemption and debt repayments Net Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $53,693 | $52,384 | | Net cash used in investing activities | $(45,956) | $(73,008) | | Net cash (used in) provided by financing activities | $(8,611) | $24,398 | | Net (decrease) increase in cash | $(874) | $3,774 | Notes to Condensed Consolidated Financial Statements Details significant activities including property acquisitions, capital recycling, debt management, and equity offerings - The company acquired eight properties for an aggregate purchase price of $46.2 million during the first nine months of 2021[45] - During the first nine months of 2021, the company sold two non-core properties for aggregate proceeds of $5.5 million, resulting in a net loss of $0.9 million[56][57] - On June 28, 2021, the company issued 4 million shares of 6.00% Series G Preferred Stock, raising $96.6 million in net proceeds, which were used to redeem all outstanding shares of its 7.00% Series D Preferred Stock[88][91] - Subsequent to the quarter end, the company declared monthly distributions for October, November, and December 2021 for its common, Series E, and Series G preferred stock[99] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, strategic activities, and the minimal impact of COVID-19 on rent collections Business Environment and COVID-19 Impact The company maintained 100% rent collection, citing its diversified portfolio as a key mitigant to COVID-19 impacts - As of November 1, 2021, the company has collected 100% of all outstanding September 2021 cash base rent and approximately 100% of October 2021 cash base rent[114] - The company believes its portfolio is well-diversified, with properties across 27 states and no significant exposure to industries severely impacted by COVID-19, such as retail, hospitality, airlines, and oil and gas[114] - Management believes the company has adequate near-term liquidity and that the availability on its Credit Facility is sufficient to cover debt obligations, operating expenses, and its industrial growth strategy[115] Recent Developments The company executed its capital recycling strategy, completed significant leasing, and refinanced preferred stock to lower costs Acquisition & Disposition Activity (9 Months Ended Sep 30, 2021) | Activity | Properties | Aggregate Square Footage | Aggregate Price | Net Gain/(Loss) | | :--- | :--- | :--- | :--- | :--- | | Acquisitions | 8 | 367,716 | $46,225,000 | N/A | | Dispositions | 2 | 81,758 | $5,473,000 | $(882,000) | - Executed 14 leases totaling 1,486,870 square feet with a weighted average remaining lease term of 7.5 years[124] - Completed a $100 million offering of 6.00% Series G Preferred Stock and redeemed all outstanding 7.00% Series D Preferred Stock[131][133] - Sold 1.2 million shares of common stock under its ATM program, raising $24.1 million in net proceeds[132] Results of Operations Revenue growth from acquisitions and a $2.4 million legal settlement drove higher net income for the quarter Same Store Lease Revenue Change (in thousands) | Period | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Q3 | $28,076 | $27,480 | $596 | 2.2% | | 9 Months | $85,011 | $82,211 | $2,800 | 3.4% | - Other income increased significantly in Q3 and the first nine months of 2021, primarily due to recognizing $2.4 million, net, from legal settlements[171] - The net loss for common stockholders in the first nine months of 2021 was impacted by a $2.1 million write-off of original issuance costs for the redeemed Series D Preferred Stock[172][177] Liquidity and Capital Resources The company possesses $36.3 million in available liquidity, deemed sufficient for near-term operational and strategic needs - Available liquidity as of September 30, 2021, was $36.3 million, consisting of $10.2 million in cash and $26.1 million of availability under the Credit Facility[173] - As of November 1, 2021, the company had a combined capacity to issue up to $1.035 billion of securities under its 2019 and 2020 Universal Shelf registrations[180][181] Contractual Obligations as of September 30, 2021 (in thousands) | Obligation Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt Obligations | $678,102 | $77,270 | $315,006 | $131,644 | $154,182 | | Interest on Debt | $79,887 | $21,829 | $31,785 | $16,746 | $9,527 | | Operating Leases | $9,395 | $488 | $985 | $980 | $6,942 | | Total | $771,945 | $102,703 | $349,221 | $149,370 | $170,651 | Funds from Operations (FFO) Diluted FFO, a non-GAAP measure, increased to $0.44 per share for Q3 2021 from $0.39 in the prior year FFO Reconciliation and Per Share Data | Metric (Diluted) | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) to Common Stockholders & Unitholders | $1,460 | $(130) | $(4,589) | $(2,682) | | Real estate depreciation and amortization | $14,760 | $13,798 | $45,661 | $42,076 | | Impairment / (Gain) Loss on Sale | $0 | $(12) | $882 | $1,721 | | FFO available to common stockholders | $16,390 | $13,859 | $42,488 | $41,730 | | Diluted FFO per share | $0.44 | $0.39 | $1.14 | $1.19 | | Diluted FFO per share, as adjusted | $0.44 | $0.39 | $1.20 | $1.19 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market exposure is interest rate risk on its variable-rate debt, managed via derivative contracts Annual Impact of LIBOR Increase on Net Income (in thousands) | Interest Rate Change | Decrease to Net Income | | :--- | :--- | | 1% Increase to LIBOR | $(2,547) | | 2% Increase to LIBOR | $(4,753) | | 3% Increase to LIBOR | $(5,817) | - The company uses derivative contracts, including interest rate caps and swaps, to mitigate interest rate risk on its variable-rate debt[202] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[210] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[211] 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[214] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2020 Annual Report - There are no material changes to the risk factors from those disclosed in the 2020 Annual Report on Form 10-K[215] Other Items (Items 2-6) Reports no unregistered equity sales or defaults and notes other items are either not applicable or included in exhibits - The company reported no unregistered sales of equity securities, no defaults upon senior securities, and no other information under Item 5 for the period[216]