管理層發言
Greetings, and welcome to the Gladstone Commercial Corporation First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.
Well, thank you for that nice introduction, and thank all of you for calling in and listening to our pitch. We enjoy this time that we get with you on the phone, and wish we had more time to talk to you, but we only do this once a quarter. And now, we’ll hear from Michael LiCalsi. He’s our General Counsel and Secretary to give the legal and regulatory matters concerning this report. Michael, go ahead.
Thanks, David. Good morning, everybody. Today’s report may include forward-looking statements under the Securities Act of 1933 and the 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. There are many factors that 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. These can be found on our website, specifically on the Investors page or on the SEC’s website, which is www.sec.gov. Now, 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.
And today, we will discuss FFO, which is funds from operations. Now, FFO is a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate and net 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. We believe these metrics are a better indication of our operating results and will have better comparability of our period-over-period performance. And please visit our website, once again that’s gladstonecommercial.com, to sign up for our e-mail notification service. You can 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. With that, I’ll hand it over to Gladstone Commercial’s President, Buzz Cooper.
Thank you, Michael, and thank you all for joining today’s call. We look forward to updating you on our first quarter of 2025 results, our current portfolio and our 2025 outlook. Starting with the broader economic environment, the first quarter of 2025 has been marked by growing uncertainty followed by recent tariff announcements. These announcements have added pressure to global trade flows and extended decision time for manufacturers and distributors, especially those companies with exposure to Asia. U.S. Treasury yields remain volatile as markets absorb shifting policy signals and evaluate the outlook for inflation and economic growth. Despite an uncertain macroeconomic outlook, the industrial real estate sector continues to perform. According to Cushman & Wakefield, net absorption reached 23.1 million square feet in the first quarter of 2025, matching levels from a year ago. Vacancy rose modestly to 7%, driven by speculative deliveries, but remains in line with historical averages.
This suggests the market is approaching a more balanced state. New construction completions during the quarter declined to the lowest level in nearly four years, reflecting higher capital costs and a slowdown in the development pipeline. We anticipate this construction slowdown will bring upward pressure on industrial rental rates and downward pressure on vacancy as industrial users compete for additional square footage to grow their businesses. Moving on to our portfolio, we remain confident heading into the second quarter. During the first quarter of 2025, we collected 100% of our cash-based rents for industrial properties encompassing 355,778 square feet for $73.25 million. We increased portfolio industrial concentration as a percentage of annualized straight-line rent to 65% and maintained portfolio occupancy at approximately 98.4% as of March 31. Subsequent to the end of the quarter, we sold one office property for a gain of $377,000 and another industrial property where we previously recognized a selling profit of $3.9 million from a sales-type lease.
This was one of our most active quarters to date with over $73 million in capital deployed for new industrial acquisitions. While we remain focused on increasing our industrial concentration and hope to get to at least 70% in the near-term, we continue to maintain a disciplined underwriting approach. This discipline was on display in the acquisitions we completed this quarter, as well as the numerous acquisitions we chose not to pursue. We evaluated hundreds of opportunities over the past year and passed on many that did not meet our criteria, whether due to credit concerns, overpricing or location risk. Our ability to act decisively reflects our continued focus on high-quality mission-critical assets that align with our investment thesis. In particular, we are seeing long-term tailwinds from re-shoring and on-shoring activity. The private placement we completed in the fourth quarter of 2024 helped position us to execute with confidence, and we believe our disciplined approach will continue to create long-term value.
Moving ahead to the second quarter, we remain focused on acquiring high-quality industrial assets that are mission-critical to tenants and industries, and accretive to our long-term strategy. At the same time, we will continue to selectively dispose of non-core assets to further improve our portfolio. Our team is actively working to extend lease terms, capture mark-to-market opportunities and support tenant growth through targeted expansions and capital improvement initiatives. We remain mindful of our overall leverage and are continuing to strengthen our balance sheet. With over $99 million in availability via our line-of-credit and cash on hand, we are well-positioned to deploy capital into accretive industrial acquisitions. Several opportunities are currently under exclusivity or contract, with closings expected to come in the next few months, and our portfolio continues to generate sustainable cash flow.
We remain more than 98% occupied as of March 31, and we have not seen any material deterioration in tenant credit quality even in the face of higher interest rates. I will now turn the call over to Gary, to review our financial results for the quarter and liquidity position. Gary?
Thank you, Buzz. I’ll start my remarks this morning regarding our financial results by reviewing our operating results for the first quarter of 2025. All per share numbers referenced are based on fully diluted weighted average common shares. FFO and Core FFO per share available to common shareholders were both $0.34 per share for the first quarter of 2025 as well as the first quarter of 2024. Same-store rents increased by 6.6% in the three months ended March 31 over the same period in 2024 due to increased property expenses, recovery revenue and increased rental rates from leasing activity subsequent to the first three months of 2024. Our first quarter results reflected total operating revenues of $37.5 million, with operating expenses of $23.9 million as compared to operating revenues of $35.7 million and operating expenses of $23.3 million for the same period in 2024. Operating revenues were higher in 2025 due to increased recovery and higher rental rates for the same properties, slightly offset by lower variable lease payments from the seven property sales during and subsequent to the first quarter of 2024.
Expenses were higher in the first quarter of 2025 versus the same period in 2024, mainly due to increased costs created by the inflationary environment as well as higher net incentive fees paid in Q1 2025. In Q1 2025, we increased net assets from $1.09 billion to $1.16 billion as a result of the two acquisitions this quarter. Looking at our debt profile, 45% is fixed rate, 47% is hedged floating rate and 8% is floating rate, which is the amount drawn on revolving credit facilities, mortgage notes and one of our small term loans. As of March 31, our effective average SOFR was 4.41%. Our outstanding bank term loans were hedged with $310 million of interest rate swaps. We continue to monitor interest rates closely and update our hedging strategy as needed. As of today, our remaining 2025 loan maturities are very manageable at $3.1 million. As of the end of the quarter, we had $51.3 million of revolver borrowings outstanding.
During the quarter ended March 31, 2025, we sold 1.77 million common shares under our ATM program, raising net proceeds of $27.7 million. We also received net proceeds of $300,000 from sales of our Series F Preferred Stock through March 31. We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements and new acquisitions. As of today, we have approximately $18.4 million in cash and $80.6 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 for the quarter. Our common stock dividend is $0.30 per share per quarter or $1.20 per year. Our common stock closed yesterday at $13.83 and our yield at that price was 8.68%. And now, I’ll turn the program back to David.
Well, thank you, Gary. That was a good overview. We had a strong report from Buzz and Michael too. The team is really performing well, renting more of our buildings and continuing to grow. You’ve heard a lot today. In summary, we acquired two industrial facilities for a total of $73 million, which is a nice addition to our group. Subsequent to the end of the quarter, we sold one office property with a profit of about $377,000. We previously recognized a selling profit of $3.9 million from a sales-type lease. The commercial team is continuing to grow our real estate, add more deals, and refinance and redo things, so we just continue to march along at the same pace we’ve maintained for a long time now. Our team of strong professionals continues to pursue potential quality properties on this list of acquisitions that we keep adding to. Our acquisition team is actively seeking only strong credit tenants and we’re going to continue that process. So, let’s stop now and have the operator come on and tell listeners how they can ask some questions.
分析師問答
Thank you. We will now conduct a question-and-answer session. The first question comes from Gaurav Mehta with Alliance Global Partners. Please proceed.
Yes, thank you. Good morning.
Good morning.
I wanted to ask about your acquisition pipeline and what you’re seeing in the market for industrial properties.
Thanks, Gaurav. We are seeing activity. It’s picking up as the year gets started. For ourselves, we currently have approximately $70 million teed up here that we believe will close in the second quarter and are looking at a backlog of approximately $140 million which consists of about 10 assets. Obviously, there is a lot of competition coming from the marketplace, both family offices as well as private equity shops. But as David referenced, the team is aggressive in the market, looking at every transaction we can find, being very selective in these challenging times. But we believe we will continue to be active, certainly through this quarter and into the next.
Okay. And so, the $70 million that you mentioned under contract, can you maybe provide some color on how you expect to fund those acquisitions?
As Gary mentioned, we've got great liquidity. We have adequate cash and availability on hand. We will also consider other financing sources, as we did a private placement at the end of last year, and look at the possibility of other ways of having capital on hand, whether perhaps through a joint venture or other options.
Okay. Thank you. That’s all I have.
Thank you.
Next question?
Next question comes from Craig Kucera with Lucid Capital. Please proceed.
Yes. Hey, good morning, guys. I want to circle back to the acquisition volume here. Obviously, a big pickup after really a relatively slow couple of years. Are you seeing sellers more willing to budge on price or are you just seeing more assets that fit what you want the portfolio to look like?
It’s a combination of both. We have been aggressively trying to stay close with our broker relationships to have an early look and hopefully a last look at transactions. One of our value-adds is we do what we say we are going to do. We don’t like to re-trade. So, I think it’s also about getting to the transactions earlier rather than later, allowing us to have a favorable impact with the seller or broker that’s contributing to our success.
Okay, great. I know you don’t have much in the way of remaining lease expirations here in 2025, but I’m curious to hear if you’re starting to tackle 2026 and 2027, which are much larger years that are expiring?
As has been our history, we do and we are. If you look at the expirations for this year, it is under 2%, representing both transactions of which we have an RFP out for a longer-term extension. We are in talks regarding 2026. We have approximately 8% or 9% that we are working on, and of those, we only have one at this point in time that we have not traded paper on or had discussions with. So, we will quickly winnow that down and, at the appropriate time, we’re in good shape. Many of those expirations are industrial, which we hope will allow for some rent pickup.
Got it. And kind of circling back to the lease you did renew recently, can you talk about leasing spread relative to the expiring rent on the asset that you extended for another three years? Did you get a pickup there?
There was not a pickup on a straight-line basis. It’s a small drop because we could not get them to extend long-term. They have to let us know after an 18-month period if they are going to remain. However, it is in a strong market, and we believe that if we don’t have success in extending them longer, we will eventually see an increase in the rental rate.
Okay, great. And just one more from me for Gary. You mentioned the swaps on the floating-rate debt. Are any of those expiring this year or are they swapped through maturity?
No, all those are swapped to maturity. Those two term loans mature in late 2027 and early 2028.
Okay. Thanks, guys.
Thank you.
Next question?
Next question comes from John Massocca with B. Riley. Please proceed.
Good morning.
Good morning, John.
So, apologies if I missed this in the prepared remarks, but any color on the dispositions completed subsequent quarter-end, kind of what was pricing there and what made those turn non-core?
And John, you were cutting out a little bit. I believe you’re asking about our dispositions that we had here in the first and into the second quarter?
Correct.
Okay. So, we had two sales right at the beginning of April. One was industrial where the tenant had an option to buy, and they did. That was the realization of the gain. The other was an office property that was purchased at a small loss. It did pay through its rent, but it was good to move away from a one-story office.
Okay. And then, I guess maybe just as an update, how much of the portfolio today would you view as non-core and maybe an update on the situation with the Austin office property?
Our office occupancy is north of 93% at the moment. I would say a very small amount would be considered non-core, but we do have some property types within that office that we wish to move on from and redeploy those into industrial assets. We have two call centers that we are working on. So, overall, our office portfolio is healthy, and I did not fully understand the property you referenced.
Sorry, the Austin office property, any update on lease-up there?
Sure. Austin is always top of mind. It does throw a lot of positive cash for us. At the moment, we currently have a few requirements out in the marketplace that we are tracking as well as two unsolicited RFPs in the marketplace. Austin is improving. Office occupancy is also coming back. We are hopeful that we will add tenants there and then make a decision regarding a long-term plan.
Okay. And then bigger picture, any changes in the acquisition parameters given some of the changes in government policy? Specifically, does light manufacturing look more attractive relative to warehouse distribution today in your view?
Yes, absolutely. We do not have a lot of distribution in our portfolio. We don’t have large boxes that will be affected by tariffs and incoming product. We are light manufacturing in nature, so we feel confident. As we stated in previous calls, we have had a focus for the last two years regarding re-shoring and on-shoring. We believe we’re well-positioned to take advantage of that trend.
Okay. That’s it for me. Thank you very much.
Thank you.
Okay. Do we have any more questions? One more? Okay.
Yes. The next question comes from Dave Storms with Stonegate. Please proceed.
Good morning.
Good morning, Dave.
Just going back to the renewal process, with your average lease term down a couple of months sequentially and your top five tenants' lease terms down to about five years. Just curious as to what your thoughts are and how you feel about the duration of your contracts as you start preparing for the 2026 and 2027 negotiations?
We feel good about our lease terms, and with the closings I mentioned coming up, I believe we will move back up over a seven-year WALT. They are good long-term sale leaseback transactions. We also have to keep in mind that shorter-term deals offer more immediate benefits, so that’s also important to us. We have continued and will continue our underwriting focus on the ability of the tenant to pay their rent and the stickiness of the real estate that we feel comfortable will renew if a shorter-term lease. Hopefully that answers your question.
That’s very helpful. Thank you. And then, just one more for me and apologies if I missed this at the beginning. I know you mentioned that there’s additional competition out there buying properties. I’m curious what kind of competition you are seeing on the leasing front. Are there any new tenants coming into the market that haven't historically been there just in light of some of the macro developments?
Most of our leasing currently is with end users, which is also true on the purchase side of transactions. So, that’s a positive sign. The competition for those leases is similar. They’re looking for properties that fit their needs. I think we’re very competitive within the market where we have current leases coming due.
Very helpful. Thank you for taking my questions.
Thank you.
Any more questions?
Mr. Gladstone, there are no further questions in queue. I’ll turn it back to you for closing comments.
All right. We thank you all for listening to our presentation and asking good questions, and we hope you’ll save up a lot of questions for next time because we really appreciate them. That’s the end of this. Thank you.
Thank you. This concludes today’s teleconference. Please disconnect your lines at this time and thank you for your participation.