Gladstone Commercial Corporation Q3 FY2025 earnings call

• Macro level: Q3 provided stability with Fed rate cut, downward trend in long-term rates, and gradual decrease in asking cap rates.
• Portfolio activities: Acquired a 6-facility industrial portfolio for $54.5 million, sold 1 noncore industrial property, completed leasing activity of 734,000 square feet with $1.1 million straight-line rental increase. Portfolio occupancy at 99.1%, highest since Q1 2019; weighted average lease term 7.5 years, longest since Q1 2020.
• Balance sheet: Increased credit facility to $600 million, extended and laddered debt maturities; sold 4.4 million shares of common stock under ATM program, raising net proceeds of $61 million.

Industrial concentration: Acquired a 6-facility cross-regional industrial manufacturing portfolio via a $54.5 million sale-leaseback transaction. Industrial concentration reached 69% of annualized straight-line rents as of Q3 2025, up from 63% at the start of the year. FFO and core FFO per share for Q3 2025 were both $0.35, compared to $0.38 in Q3 2024. For the 9 months ended September 30, 2025, FFO was $1.02 per share and core FFO was $1.03 per share, versus $1.07 and $1.08 per share in the same period in 2024. Same-store lease revenue increased by 3.1% in the 9 months ended September 30, 2025, compared to the same period in 2024.

• Anticipate increasing industrial allocation within straight-line rent.
• Expect cap rates to compress, aiming to take advantage with available capital.
• Focus on evaluating high-quality industrial acquisitions, extending leases, and capital recycling of office and noncore industrial assets.

• Inflation impacting property operating expenses.
• Competition in certain markets (e.g., Austin, Texas with industrial and office under construction).
• Potential impact of economic events like government shutdowns on tenants, though no significant impact noted yet.

Q: On industrial allocation, expect increase?

A: Yes, anticipate increasing industrial percentage.

Q: On expenses, reason for increase?

A: Inflation, insurance costs, passed on to tenants where possible.

Q: On CapEx, reason for higher?

A: Renewals, keeping tenants and increasing rents.

Q: Dividend vs CapEx?

A: CapEx is accretive, confident in dividend.

Q: Acquisitions pipeline?

A: Planning transactions, competition strong but positioned with credit facility and cash.

Q: Lease termination?

A: Terminated a small tenant, rolled into new tenancy with no fee.

Q: Automotive exposure and bankruptcy?

A: Monitor concentration, one office building in Austin, repositioning planned.

Q: Cap rates and acquisitions?

A: Cap rates expected to compress, looking for accretive deals with average cap rates above 8.5%.

Q: CapEx going forward?

A: Trailing down as renewals managed, not as heavy as recent quarters.

Q: Cost of capital and acquisitions?

A: Cost of equity allows for acquisitions with cap rates averaging north of 8.5%