Gladstone Commercial Corporation (GOOD) Earnings

Management highlights

- Buzz Cooper mentioned renewing or leasing over 773,000 square feet of industrial and 32,000 square feet of office in Q1 2026, resulting in an increase in straight line rent of over $86,000 annually. No property sales in Q1 2026 but sold a portion of land with a gain of approx $1.8 million. Focus areas include growing industrial concentration, adding value via renewals, extensions, and strategic capital investments, and disposing of non-core assets. Asset management team achieved 100% collection of cash-based rents, 98.7% occupancy, and 7.3-year average remaining lease term. Looking ahead to 2026, focused on evaluating high-quality industrial assets, aiming for 70% industrial annualized straight-line rent, working with existing tenants to extend leases, etc. Gary Gerson reviewed financial results, mentioned FFO and core FFO per share, same-store lease revenue, operating revenues and expenses, debt profile, revolver borrowings, cash and line of credit availability, and common stock dividend.

Guidance

- Working on two transactions that are expected to close within the quarter, both industrial, with proceeds from sale of a building being accretive. Anticipate a more robust second and third quarter for acquisitions as things come out of the first quarter and private credit situation stabilizes. Targeting mid-six and a half cap rate acquisitions, with pipeline in the range of $300 million to $350 million under review, currently with two LOIs for approx $87 million and reviewing 13 opportunities.

Segment performance

FFO and core FFO per share available to common stockholders were both $0.35 per share for the quarter, same as the same period in 2025. Same-store lease revenue increased by 1% in Q1 2026 due to increased recovery revenue from property operating expenses and higher rental rates from leasing activity. Total operating revenues were $41.9 million with operating expenses of $25.2 million in Q1 2026, compared to $37.5 million in operating revenues and $23.9 million in operating expenses in the same period in 2025. There was a small industrial property in Charlotte, North Carolina held for sale at the end of the quarter. Debt profile as of March 31st: 48% fixed rate, 48% hedge floating rate, 4% floating rate (revolver borrowings).

Risks & headwinds

- Uncertainties in private credit which can affect acquisition activity. Challenges in the office environment which may require strategic disposition of office and non-core industrial assets. Potential impacts from lease expirations and tenant-related issues, although occupancy has been strong and no tenants have asked for relief so far.

Analyst Q&A

• Q: Hey, good morning, guys. You were pretty active this quarter on the leasing front. Can you talk about the leasing spreads you typically achieve during the quarter versus prior?

  A: As mentioned, had a plus-up in the quarter, mostly from an industrial asset renewal. Try to get mark-to-market, have addressed all leases for 26 with a few outstanding, working on them. Concern about Austin property, working on it with some activity.

• Q: You had a small sequential decline in occupancy from the fourth quarter. Was that in an office or an industrial property?

  A: It was in an office for a period due to a tenant downsizing in a Pennsylvania building, but new tenant on longer term lease will pick up occupancy in third quarter.

• Q: I think last quarter you thought you might close on maybe a $10 million property this quarter. Is that still in the mix? And kind of what's your near-term appetite and pipeline for acquisitions?

  A: Have two transactions currently working on that we believe will close within the quarter, both industrial, with proceeds from sale of a building being very accretive. Pipeline has competition, look to differentiate via underwriting and performance, anticipate more robust second and third quarter for acquisitions.

• Q: And just circling back to the Austin property, does that GM lease, is that expiring in the second half of 26? And I guess kind of when you think about the lease expirations you have ahead of you in 26 and 27, can you give us a sense of the mix between office and industrial?

  A: GM lease in Austin expires 12-31 of 26. Lease expirations in 26: one sale held for sale, office building tenant taking over 7-1 of 26, other office leases in process of renewal, one with U.S. government, one building with tenant downsizing. In 27, working with tenants, some have fixed renewal rights, some renewed, mix currently approx 60-40 industrial to office.

• Q: Our first question comes from the line of David Storms with StoneGate. Please proceed with your question. Let's start with the parcel sale in the quarter. Just curious, is this a structural shift? Is this opportunistic? And maybe what's kind of the profile of a buyer that would come in for a parcel? Does it vary by geography, or is there a typical kind of buyer you would see here?

  A: It was opportunistic, municipality wanted the land for a bike path.

• Q: And then just curious, you mentioned some of the macro stuff. and some of the challenges in underwriting as well. Just curious as to how your underwriting processes have changed, maybe how you're evaluating tenants with their maybe energy needs in relation to AI, gas or geopolitical exposure, anything like that.

  A: Have not changed credit underwriting, occupancy has been strong, no tenants have asked for relief, will stick to underwriting.

• Q: It sounded like in the last round of questions, you had mentioned you're seeing maybe more sale-leaseback transactions. Is there a particular type of tenant that you're seeing this in? Just trying to maybe gauge what kind of momentum there could be for these kind of transactions.

  A: Look for mission-critical real estate in industrial side, specifically manufacturing with heavy bolt-down costs, heavy equipment within the building.

• Q: Good morning. Apologies if I missed this earlier in the call. Can you lay out kind of what the kind of brackets on the acquisition pipeline are and kind of what you're seeing in terms of the cap rate environment?

  A: Looking at deals in mid-six and a half cap going in, competition is high, differentiating via underwriting. Pipeline in range of $300 million to $350 million under review, currently with two LOIs for approx $87 million, reviewing 13 opportunities.

• Q: Or if those vehicles pull back, do you think it impacts your investment, both yields and or the amount of acquisition volume you can do?

  A: Private capital is not a great competitor, will be thoughtful in tenancy, location, etc.

• Q: And then anything one-time to kind of be aware of in the 1Q results? I just thought I saw a little bit of accelerated rent but wanted to kind of confirm that.

  A: No accelerated rent in Q1, only the parcel sale as one-time event.

• Q: Our next question is a follow-up question from the line of David Storms. Please proceed with your question. Apologies. I did not mean to interrupt that. David, do you have another question? Apologies. I do not have another question. I'm not too sure how I got back in queue.

  A: No further question from David Storms.