管理層發言
Greetings and welcome to Gladstone Commercial Corporation Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce David Gladstone, Chief Executive Officer. Thank you, Mr. Gladstone. You may begin.
Well, thank you for that nice introduction, and we thank all of you for calling in today. We certainly enjoy the time we have with you on the phone and wish there were more time to talk with you. Now we hear from Michael LiCalsi, our General Counsel and Secretary, to give us legal and regulatory matters concerning this call this morning. Michael?
Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933 and Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable, and many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the risk factors in our Forms 10-Q, 10-K, and other documents that we file with the SEC. We undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Today we will discuss FFO, which is funds from operations. FFO is a non-GAAP accounting term defined as net income excluding the gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets.
We'll also discuss core FFO, which is generally FFO adjusted for certain other non-recurring revenues and expenses, and we believe these metrics are a better indication of our operating results and allow better comparability of our period-over-period performance. We ask that you visit our website and sign up for our email notification service. You'll also find us on Facebook and Twitter. Now today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information. Now, with that, I'll turn it over to Gladstone Commercial's President, Buzz Cooper.
Thank you, Michael, and thank you all for joining today's call. We have several key updates regarding our operations and the broader economic environment. First, I'd like to share our concern for all those impacted by the recent hurricanes that swept through communities in the Southeast. Our thoughts are with all those affected. As for our portfolio, we fortunately sustained minimal impact. Our team has been proactive in reaching out, supporting tenants, and addressing any needs. Turning to the broader economic environment, the Fed in September implemented its first rate cut since rate hikes began in 2022. They lowered the benchmark federal funds rate by 50 basis points to a range of 4.75% to 5%, which had been the highest level in 23 years. This marks a significant reversal after a prolonged period of high rates that negatively impacted capital markets. We expect additional cuts to follow, although the timing and magnitude depend on economic indicators.
September US job growth surged with employers adding 254,000 jobs, significantly surpassing expectations, while the unemployment rate dipped to 4.1 from 4.2. While this is positive for the overall economy, the strength of the labor market and higher-than-expected inflation may delay any further rate cuts. Today's election is likely to bring further volatility to the markets. We believe our portfolio is well-positioned regardless of which party is in office. Despite broader economic uncertainties, we continue to perform well, with industrial real estate being a key growth driver. According to Colliers Industrial Market Statistics for the third quarter, net absorption in the United States totaled 39 million square feet, bringing the year-to-date total to 115 million square feet. This reflects a 36% decline primarily due to a particularly slow first quarter. Of the 77 markets tracked by Colliers, 19 saw net absorption exceeding 1 million square feet in Q3, while 26 markets turned negative.
We expect leasing to pick up in the fourth quarter, driven by increased economic activity. On the supply side, new construction slowed to 76 million square feet in Q3, which was 54% lower than last year, tempering the rise in vacancy rates, which increased slightly to 6.6%. However, this long rate environment has discouraged new starts and led to declining new completions, so we expect vacancies to begin to decline in 2025. Although the broader economic outlook has its challenges, we have not observed any significant decline in tenant credit quality. The industrial real estate sector, specifically manufacturing-related real estate, is poised for continued growth driven by reshoring and nearshoring. We are well-positioned to capitalize on new opportunities, utilizing our expertise in underwriting middle-market credits to grow our portfolio. Moving on to some company portfolio specifics for the third quarter, we increased our industrial concentration as a percentage of annualized straight-line rent from 62% to 63% and decreased our office from 34% to 33%.
We successfully leased or extended over 242,000 square feet across five assets. These leases and extensions resulted in over 100,000 increased straight-line rent. Through the third quarter, we've renewed more than 2.6 million square feet across 10 assets for an aggregate increase. We have no remaining expiring leases in 2024. We acquired an industrial asset in Midland, Texas for $10 million with a weighted GAAP cap rate of 9.94% over a 15-year term. We successfully sold two medical office assets in Georgia resulting in over $10.3 million in gain on sale. We've collected 100% of cash base rents, and our portfolio occupancy remains at 98.5%. Before turning the call over to our CFO, Gary Gerson, I will highlight our plans and goals for the next 12 months. We pride ourselves on our progress since COVID, particularly our shift toward a higher concentration of industrial assets. Since 2018, nearly all acquisitions have been in industrial, with almost $565 million invested.
As capital markets open, we will continue growing our industrial concentration, aiming to exceed 70% of annualized straight-line rent in 12 months. We actively dispose of non-core office assets, currently have one new industrial opportunity under contract for $12.1 million set to close in the fourth quarter. We will leverage our in-house credit underwriting expertise to capitalize on sale-leaseback opportunities. We can closely monitor our tenants' financial health, allowing proactive risk management. Additionally, we will maintain a healthy and flexible balance sheet with liquidity of $80.7 million, including $70.2 million of availability under our credit facility and $10.5 million in cash. We remain below a 50% leverage level as of September 30. Successfully completing these goals will position us for growth, including obtaining a credit rating and a private placement.
Thank you, Buzz. I'll start with our financial results this morning by reviewing our operating results for the third quarter of 2024. All per-share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO per share available to common stockholders were both $0.38 for the quarter, compared to $0.33 per share in the third quarter of 2023 for FFO and $0.34 for core FFO. FFO and core FFO for the nine months ended September 30 were $1.07 and $1.08 per share, respectively. In 2023, those numbers were $1.10 and $1.11 respectively. Same-store rents increased by 10.2% in the three months ended September 30 over the same period in 2023 due to a settlement received by one of our properties related to deferred maintenance. Our same-store rent in the first three quarters of 2024 increased by 1.4% over the same period in 2023. Our third-quarter results reflected total operating revenues of $39.2 million with operating expenses of $28.5 million compared to $36.5 million in operating revenues and $29.6 million in operating expenses for the same period in 2023.
The expenses were higher in 2023 mainly due to larger impairment charges. Looking at our debt profile, 38% is fixed rate, 53% is hedged floating rate, and 9% is floating rate, which is the amount drawn on our revolving credit facility. As of September 30, our effective average SOFR was 4.96%. We monitor interest rates closely and update our hedging strategy as needed. We have no 2024 loan maturities, and our 2025 maturities are manageable at $10.5 million. Our outstanding bank term loans are hedged with $310 million of interest rate swaps. During the nine months ended September 30, 2024, we sold 3.45 million shares of common stock under our ATM Program, raising net proceeds of $49.5 million. We continue to manage our equity activity to ensure sufficient liquidity for capital requirements and new acquisitions. Presently, we have three properties held for sale. We have approximately $5.4 million in cash and $73.3 million of availability under our line of credit.
We encourage you to review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information. Our common stock dividend is $0.30 per share per quarter or $1.20 per year. Our stock closed yesterday at $16.01 with a distribution yield of 7.5%.
Thank you. That was a good report, Gary, and one from Buzz and Michael. The team has performed extremely well. Overall, it was a very nice quarter. You've heard a lot today. During the third quarter, we acquired one industrial facility in Midland, Texas for about $10 million. We sold two non-core properties, which were medical offices in Georgia. We also renewed leases on five properties. This company has continued to move along at a great pace. The commercial team is growing the real estate we own consistently, and the team is doing an excellent job managing these properties during these challenging times.
分析師問答
Thank you. We will now be conducting a question-and-answer session. Our first question is from Gaurav Mehta with Alliance Global Partners. Please proceed.
Thank you. Good morning. I wanted to ask you about your 3Q results. You mentioned a settlement at one of your properties. Can you provide some insight into how much that settlement revenue was?
The total amount was $2 million.
Okay. Second question. I think you mentioned that you have three properties held for sale. Any insight on the timing of the expected sale of those properties?
One of them we're looking to sell by the end of the year and the other one likely by mid-next year.
Okay. And lastly, maybe big picture, could you provide some insight into the acquisition market?
Acquisitions, toward the end of the year, have seen quite a few, and we're currently underwriting two. We expect to pick up pace into the first quarter of '25. There's a lot of competition in the market, but we are noticing our fair share of actionable deals.
Okay, thank you. That's all I had.
Thank you.
Thank you. Next question.
Good morning.
Good morning.
Just wanted to start by touching on the one new property you mentioned you have under contract. Is there any more you can provide around the timing or the anticipated cap rate for this?
Closing should occur in the early fourth quarter. The cap rate over the term will be over 9%.
Okay. So also high single-digits. Just curious about your overall thoughts on cap rates in the market right now and where you see them going.
We hope that with interest rates coming down, it will impact cap rates for us. It is a competitive market. Sellers are getting a better understanding of where the market stands, and we're seeing competition, but it seems cap rates are coming down slightly.
Understood. Just one more from me. It looks like a couple of tenants dropped off quarter-over-quarter. Is that just regular business operations, or is there more to the story behind that?
No, that would be due to the sales.
Understood. Thank you for taking my questions and good luck on the fourth quarter.
Thanks, Dave.
Thank you. Next question.
Great. Thanks, guys. To build on the cap rate question, you have been buying industrial and selling office. What do you see going forward in terms of the cap rate spread between the two? It seems like you may be losing a bit on the cap rate spread.
I would agree that we are losing on the cap rate spread due to competition in the market.
Right. That said, considering how your stock has performed, are you going to continue tapping the ATM at an elevated level?
No, Barry. We will probably continue to tap the ATM to fund acquisitions and maintain or lower our leverage level. We did a large amount last quarter, which was unusual for us. We will continue to sell under the ATM to finance acquisitions and to keep our leverage level manageable.
Great. All that makes sense. Thanks, guys.
Thank you.
Next question.
Good morning, everyone.
Good morning.
Good morning.
It looks like CapEx and leasing commissions jumped up quarter-over-quarter. Was there something specific driving that? And what are the expectations for those two items for the rest of the year and into '25?
We had a large asset in Lehigh Valley that was fully tenanted, and we re-tenanted with a new tenant, achieving almost double the income. This came with a sizeable lease commission as well as some tenant improvement costs. We do not foresee any large CapEx items coming up but some of this CapEx is potentially profitable for us.
Okay. Did you address the one remaining 2024 lease expiration and the outlook for leases expiring in '25?
We have an agreement with a new tenant for a property that matures in November with a 7-year lease and a purchase option at the beginning of '25. We expect they will purchase. For 2025, we have four properties with maturities; one is under sale for closing in the first quarter and the others are in discussion with existing tenants.
Broad strokes, are the lease expirations over the next 15 months mostly office, industrial, or a mix?
It is a mix, but more office than industrial, with some of those taken care of by dispositions.
In terms of competitive environment, with interest rates having ticked down, are you seeing more competition from smaller PE funds or finance-oriented buyers, or are they still cautious in getting back into the market?
They're somewhat cautious but we have seen opportunities for sale-leasebacks. Brokers are providing opinions of value, so we're seeing more opportunities there, but it remains a competitive marketplace.
I appreciate the insight. That's all for me.
Thank you.
Thanks for the questions.
There are no more further questions. I would like to turn the conference back over to management for closing remarks.
Thank you very much. Hope you've all gone out and voted, but only voted for people who are pro-industrial real estate. Thank you all for calling in. That's the end of this call. We'll catch you next quarter.
Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.