Gladstone mercial (GOOD) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements for Gladstone Commercial Corporation as of March 31, 2022, and for the three months then ended Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Gladstone Commercial Corporation as of March 31, 2022, and for the three months then ended Condensed Consolidated Balance Sheets As of March 31, 2022, total assets were $1.15 billion, a slight increase from $1.14 billion at year-end 2021 Condensed Consolidated Balance Sheets (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total real estate, net | $964,316 | $958,586 | | Cash and cash equivalents | $9,585 | $7,956 | | TOTAL ASSETS | $1,154,409 | $1,143,352 | | Mortgage notes payable, net | $446,720 | $449,944 | | Borrowings under Revolver | $34,550 | $33,550 | | TOTAL LIABILITIES | $769,578 | $770,529 | | TOTAL EQUITY | $214,570 | $202,562 | Condensed Consolidated Statements of Operations and Comprehensive Income For the three months ended March 31, 2022, the company reported a net income of $3.4 million, a substantial improvement from $38 thousand in the same period of 2021 Q1 2022 vs Q1 2021 Operations (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Lease revenue | $35,531 | $34,677 | | Total operating expenses | $25,658 | $26,904 | | Net income | $3,391 | $38 | | Net income (loss) available to common stockholders | $322 | $(2,955) | | EPS - basic & diluted | $0.01 | $(0.08) | Condensed Consolidated Statements of Cash Flows For Q1 2022, net cash from operating activities was stable at $17.2 million, with financing activities providing $1.9 million due to equity issuance Q1 2022 vs Q1 2021 Cash Flows (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,187 | $16,879 | | Net cash used in investing activities | $(17,571) | $(6,526) | | Net cash provided by (used in) financing activities | $1,866 | $(11,824) | | Net increase (decrease) in cash | $1,482 | $(1,471) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, related-party transactions, real estate, debt, and equity, including Q1 2022 property acquisitions and equity raises - In Q1 2022, the company acquired two properties for an aggregate purchase price of $13.5 million[42] - No properties were sold during Q1 2022, in contrast to two non-core properties sold in Q1 2021[50] - The company raised $20.3 million in net proceeds from selling 0.9 million shares of common stock through its At-the-Market (ATM) program during Q1 2022[79] - Subsequent to quarter-end, on May 4, 2022, the company acquired a two-property portfolio for $19.3 million and issued $10.0 million of fixed-rate debt[88][89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the business environment, including strong industrial demand, rising interest rates, and the impact of COVID-19, with FFO per share at $0.39 Business Environment and COVID-19 Impact The business environment features strong industrial demand offsetting weaker office demand, with the company maintaining 100% rent collection and adequate liquidity - Demand for industrial space continues to be strong due to e-commerce growth, while the office sector experiences negative absorption and downward pressure on rental rates[97] - As of May 4, 2022, the company has collected 100% of all outstanding rent for calendar year 2021 and the first quarter of 2022[101] - The company is monitoring the transition from LIBOR to SOFR for its variable rate debt, anticipated to be phased out by June 2023[106] Recent Developments During Q1 2022 and subsequently, the company acquired properties, executed new leases, and raised $20.3 million via its common stock ATM program Q1 2022 Acquisition Activity (in thousands) | Aggregate Square Footage | Weighted Average Remaining Lease Term | Aggregate Purchase Price | Annualized GAAP Fixed Lease Payments | | :--- | :--- | :--- | :--- | | 136,000 | 10.2 years | $13,463 | $876 | - During and subsequent to Q1 2022, the company executed four leases totaling 257,978 sq. ft. with a weighted average lease term of 10.6 years[112] - In Q1 2022, the company sold 0.9 million shares of common stock, raising $20.3 million in net proceeds under its ATM program[116] Portfolio Diversity The company's portfolio is diversified by tenant, industry, and geography to mitigate risk, with no single tenant exceeding 4.4% of lease revenue Top 5 Industries by Lease Revenue (Q1 2022) | Industry Classification | Lease Revenue (in thousands) | Percentage of Revenue | | :--- | :--- | :--- | | Telecommunications | $5,609 | 15.8% | | Automotive | $4,636 | 13.0% | | Diversified/Conglomerate Services | $4,537 | 12.8% | | Healthcare | $3,984 | 11.2% | | Diversified/Conglomerate Manufacturing | $2,626 | 7.4% | Results of Operations Total operating revenues increased by 2.5% to $35.5 million in Q1 2022, driven by acquisitions, while net income available to common stockholders significantly improved Lease Revenue by Property Type (in thousands) | Property Type | Q1 2022 | Q1 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Same Store Properties | $29,258 | $30,163 | $(905) | (3.0)% | | Acquired & Disposed Properties | $1,842 | $528 | $1,314 | 248.9% | | Properties with Vacancy | $4,431 | $3,986 | $445 | 11.2% | | Total | $35,531 | $34,677 | $854 | 2.5% | - Depreciation and amortization decreased by $2.0 million (12.1%) YoY, mainly due to accelerated depreciation related to two early lease terminations in Q1 2021[139] - Interest expense decreased by 8.1% YoY, primarily due to costs incurred to repay outstanding mortgage debt in Q1 2021[143] Liquidity and Capital Resources As of March 31, 2022, the company had $35.2 million in available liquidity and anticipates refinancing $101.7 million in mortgage debt maturing in 2022 - Available liquidity as of March 31, 2022, was $35.2 million, consisting of $9.6 million in cash and $25.6 million of availability under the Credit Facility[147] - As of May 4, 2022, the company had the ability to raise up to $669.3 million of additional equity capital under its 2020 Universal Shelf registration[153] Contractual Obligations as of March 31, 2022 (in thousands) | Obligation Type | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt Obligations | $708,956 | $121,447 | $310,385 | $164,437 | $112,687 | | Interest on Debt | $75,199 | $21,516 | $30,194 | $15,613 | $7,876 | | Operating Lease Obligations | $9,152 | $491 | $986 | $994 | $6,681 | | Purchase Obligations | $8,109 | $4,337 | $3,772 | — | — | Funds from Operations (FFO) Basic FFO available to common stockholders and OP unitholders for Q1 2022 was $15.0 million, or $0.39 per share, a slight decrease from the prior year FFO Reconciliation and Per Share Data (in thousands, except per share amounts) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net income (loss) available to common stockholders and Non-controlling OP Unitholders | $324 | $(2,996) | | Add: Real estate depreciation and amortization | $14,689 | $16,710 | | Add: Loss on sale of real estate, net | — | $882 | | FFO available - basic | $15,013 | $14,596 | | Basic FFO per share/unit | $0.39 | $0.40 | | Diluted FFO per share/unit | $0.39 | $0.40 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on variable-rate debt, mitigated by derivatives, with a 1% LIBOR increase decreasing annual net income by $2.8 million Annual Impact of LIBOR Increase on Net Income (in thousands) | Interest Rate Change | Increase to Interest Expense | Net decrease to Net Income | | :--- | :--- | :--- | | 1% Increase to LIBOR | $2,795 | $(2,795) | | 2% Increase to LIBOR | $5,024 | $(5,024) | | 3% Increase to LIBOR | $5,740 | $(5,740) | - The company's primary market risk exposure is to interest rate changes, mitigated by derivative instruments including interest rate caps and swaps[173] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of March 31, 2022[181] - No changes occurred in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[182] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings, nor is it aware of any material threats - The company is not currently subject to any material legal proceedings[185] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - There are no material changes to risk factors from those set forth in the Annual Report on Form 10-K for the year ended December 31, 2021[186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and no issuer purchases of equity securities during the period - There were no unregistered sales of equity securities or issuer purchases of equity securities in the period[187] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[188] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[188] Item 5. Other Information The company reports no other information for this item - None[188] Item 6. Exhibits This section provides an index of all exhibits filed with or furnished as part of the quarterly report, including certifications and XBRL data files - Lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL interactive data files[190][192]