Gladstone mercial (US:GOOD)2022-11-08 15:10Financial Data and Key Metrics Changes - Funds from operations (FFO) available to common stockholders was $0.23 per share for Q3 2022, compared to $0.44 per share in Q3 2021, while core FFO was $0.44 per share in Q3 2022, up from $0.39 per share in Q3 2021 [30] - Total operating revenues for Q3 2022 were $39.8 million, an increase from $34.3 million in Q3 2021, while operating expenses rose to $37.4 million from $25.5 million in the same period [32] - Year-to-date same-store cash rent increased by 0.2% over the first three quarters of 2021 [31] Business Line Data and Key Metrics Changes - The company acquired a total of four industrial assets during the quarter for $46.1 million, while selling three office buildings, reinforcing its strategy to increase industrial allocation [46] - Industrial allocation increased from 32% to 54% since July 2021, with a target to reach 60% within the next 12 to 18 months [16] Market Data and Key Metrics Changes - National industrial market fundamentals remain strong, with net absorption exceeding 100 million square feet for the eighth consecutive quarter, driving vacancy down to 3.2% [21] - Average industrial asking rates increased by 22% year-over-year, marking the strongest growth rate ever recorded [22] - The office market continues to face challenges, with a net negative absorption of 18.5 million square feet in Q3 2022 [25] Company Strategy and Development Direction - The company is focused on industrial acquisitions and improving operations, with a strategy to increase its portfolio's industrial allocation while reducing office property holdings [10][14] - The company aims to continue capital recycling efforts to redeploy sale proceeds into industrial assets, benefiting both current and future operating performance [17] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from rising inflation, interest rates, and supply chain disruptions but expressed confidence in the portfolio's performance and tenant rent payments [49][50] - The company is actively managing lease expirations and is optimistic about re-leasing efforts, particularly for properties with upcoming expirations [52][54] Other Important Information - The company amended and extended its syndicated revolving credit and term loan facility from $325 million to $495 million, using net proceeds to pay down mortgage loans [10] - Institutional ownership of the stock increased to 46.6% as of September 30, indicating growing investor confidence [41] Q&A Session Summary Question: Can you provide details on lease expirations and management strategies? - Management is actively monitoring one lease expiring in Q4 2022 in South Carolina and is exploring options for re-leasing or selling the property [52][54] Question: What are the expectations for acquisition cap rates moving forward? - The company noted that the higher cap rate on recent acquisitions reflects market conditions and the need for sellers to adjust expectations due to rising interest rates [56] Question: How is the company addressing the slowdown in deal volume? - Management acknowledged a slowdown in opportunities but emphasized a continued focus on off-market sale-leaseback transactions and a discerning approach to acquisitions [64][66] Question: What is the outlook for refinancing and cost of debt in 2023? - The company expects interest rates to rise, impacting refinancing costs, but believes its current debt profile is manageable [67][70] Question: Are there signs of stress among tenants due to rising input costs? - Management indicated that cash flows are generally stable, and the company has chosen strong tenants, although rising interest rates pose challenges for new transactions [80][82]