Gladstone Commercial Corp. Q1 FY2025 earnings call

• Economic Environment: First quarter 2025 had growing uncertainty with tariff announcements affecting global trade, volatile U.S. Treasury yields. Industrial real estate sector had net absorption matching prior year, vacancy at 7%, new construction completions at lowest in nearly four years.
• Portfolio Performance: Collected 100% of cash-based rents, industrial concentration at 65%, occupancy at 98.4% as of March 31. Sold office and industrial properties, deployed $73M in industrial acquisitions.
• Acquisitions/Dispositions: Active quarter with over $73M in capital deployed for industrial acquisitions, selectively disposing non-core assets.
• Discipline in Underwriting: Evaluated hundreds of opportunities, passed on many that didn't meet criteria due to credit, pricing, or location risks.
• Re-shoring Tailwinds: Seeing long-term tailwinds from re-shoring and on-shoring activity.
• Q2 Focus: Focused on acquiring high-quality industrial assets, selectively disposing non-core assets, extending lease terms, and supporting tenant growth.

In the first quarter of 2025, Gladstone Commercial collected 100% of cash-based rents from industrial properties totaling 355,778 square feet for $73.25 million. The industrial concentration as a percentage of annualized straight line rent increased to 65%. They sold an office property for a gain of $377,000 and an industrial property with a selling profit of $3.9 million from a sales type lease. $73 million was deployed for new industrial acquisitions. FFO and Core FFO per share available to common shareholders were both $0.34 per share for Q1 2025 and Q1 2024. Same-store rents increased by 6.6% due to increased property expense, recovery revenue, and rental rate increases.

• Over $70 million in acquisitions under contract to close in Q2.
• Backlog of approximately $140 million consisting of about 10 assets.
• Focus on acquiring high-quality industrial assets that are mission critical to tenants and industries and accretive to long-term strategy.
• Continue to selectively dispose of non-core assets to improve portfolio.

• Macroeconomic uncertainty including tariff announcements affecting global trade.
• Volatile U.S. Treasury yields impacting market conditions.
• Competition from family offices and private equity shops in the acquisition market.
• Interest rate volatility and its impact on financing and portfolio performance.

Q: What's your acquisition pipeline and what are you seeing in the market for industrial properties?

A: We're seeing activity pick up. Currently have approximately $70 million teed up to close in Q2 and a backlog of ~$140 million with 10 assets. Competition from family offices and private equity shops, but team is aggressive and selective.

Q: How do you expect to fund the $70 million in acquisitions under contract?

A: Have great liquidity with adequate cash and availability on hand. Also, considered other financing sources like private placement at end of last year and potential JV or other ways.

Q: Are sellers more willing to budge on price or are you seeing more assets that fit the portfolio?

A: Combination of both. Aggressively staying close with broker relationships for early looks at transactions. Get to transactions earlier and have early impact on sellers/brokers.

Q: Talk about lease expirations in 2026 and 2027?

A: Expirations for 2025 are under 2%, working on '26 expirations with ~8%-9% in talks, only one not in discussions yet. Working on '27 expirations too, many industrial, expecting rent pickup.

Q: Color on dispositions completed subsequent quarter-end, pricing, and what made them non-core?

A: Had two sales in early April: one industrial where tenant exercised option to buy realizing gain, and an office property with small loss, good to get away from one-story office. Non-core office properties are a small amount, working on re-deploying into industrial assets.

Q: Changes in acquisition parameters given government policy? Thoughts on light manufacturing vs warehouse distribution?

A: Light manufacturing is more attractive given government policy. Portfolio doesn't have much distribution, light manufacturing aligns with re-shoring/on-shoring tailwinds.

Q: Thoughts on lease term renewal, leasing spread, and competition?

A: Lease terms will move back up over seven-year WALT with new closings. Leasing competition is from end users, competitive in market where leases are coming due.