Gladstone Commercial Corporation Q2 FY2025 earnings call

• Broader economic environment: Second quarter 2025 had uncertainty, industrial real estate sector steady with net absorption, modestly higher vacancy rate, new construction completions at lowest since Q1 2019.
• Company portfolio: Collected 100% cash-based rents, acquired two industrial facilities, sold one office property, maintained 98.7% occupancy, increased weighted average remaining lease term to 7.1 years, $79 million in capital deployed for acquisitions, disciplined underwriting.
• Financial results: Total operating revenues $39.5M vs $37.1M in 2024, operating expenses $25.1M vs $26.0M in 2024, net assets increased to $1.2B, debt profile with 42% fixed rate, 39% hedged floating rate, 19% floating rate, equity activity with $38.1M from ATM program, $0.30 per share quarterly dividend.

In Q2 2025, the company acquired two industrial facilities totaling $78.95 million. The portfolio industrial concentration was 67% of annualized straight-line rents. An office property was sold for a gain of $377,000. FFO and core FFO per share for Q2 2025 were $0.33 and $0.35 respectively, compared to $0.36 each in Q2 2024. For the 6 months ended June 30, 2025, FFO and core FFO per share were $0.67 and $0.69 respectively, versus $0.69 and $0.70 in the same period of 2024.

• Focus on acquiring high-quality industrial assets mission-critical to tenants and accretive to long-term strategy.
• Selectively dispose of noncore assets to improve portfolio.
• Actively work to extend leases, capture mark-to-market opportunities, support tenant growth through expansions, capital improvements, build-to-suit.
• Strengthen balance sheet with line of credit, cash on hand, and ATM for capital deployment into accretive industrial acquisitions.

• Uncertain economic environment with policy changes, financing conditions, global supply chain dynamics.
• Interest rate fluctuations affecting leverage and underwriting.
• Market uncertainty impacting construction pipeline and rental rates for industrial space.

Q: Can you guys talk about the acquisition pipeline? What are you guys seeing in the market? And how is the volume?

A: We currently have 6 LOIs out, active in market looking at some 20 transactions, hoping to hear on awarding of transactions next week or thereafter, anticipate uptick post-summer Q: Can you remind us the background of the sales transaction of the industrial property that you guys sold?

A: That was a property down in Georgia where they had a purchase option within the lease and exercised it Q: You had a pretty healthy increase in your G&A. I'm guessing that's related to a few core FFO adjustments such as prepaid offering cost write-offs and the closing costs on sales. Is that the correct way to read through on that?

A: Yes, also due to annual meetings in Q2 Q: You've been very aggressive here in the first half of the year as far as the acquisition market. Your leverage has ticked up, but it's still flat year-over-year. Are you looking to maybe press leverage a little further in the back half of the year to close that $50 million transaction or in excess of that? Or how are you thinking about funding growth going forward?

A: Rather not press leverage, goal is to get leverage down again, options include sales on ATM, refinancing credit facility, potential private placement Q: Can you give some color on the lease renewal you completed this quarter, maybe the spread relative to the prior rents and what the term is on this the lease that you did get done this quarter?

A: Uptick of 2.5% on extended term, working on 10+ year lease with ~2% uptick, confident in renewals for expirations in 2025, 2026, 2027 Q: It looks like cap rates are starting to maybe climb up into the high 8s. Just curious if you could give us a sense of what you're seeing in the market, if they could get into the 9s this year, anything like that?

A: Don't see cap rates getting into the 9s, average cap rates will be 8.5% plus on average Q: Given some of the macro uncertainties, are you having to make any changes to your underwriting process to make sure you're still getting the tenant quality that you need? Are you seeing any meaningful impacts from the macro environment on your tenants, anything like that?

A: Not seeing meaningful impact, 100% rent collections, not changing underwriting criteria Q: Maybe as we think about the amount outstanding on the revolver, what's kind of potential plans there to either term that out or kind of repay it with some other form of debt or other capital?

A: Options include sales on ATM, refinancing credit facility to term loan, potential private placement if rates cooperate Q: In terms of the capital recycling front, are you seeing any change in kind of cap rates there just given some of the macro narratives, maybe a little more interest rate uncertainty, return to office, et cetera?

A: Average cap rates moving up a bit, not looking to buy office, recent sales show cap rates working for recycling into industrial Q: Is there anything kind of onetime in 2Q that wouldn't flow through to 3Q in either a reimbursement perspective or maybe even a top line rental revenue perspective?

A: Variable rents vary, not on a one-time apples-for-apples basis going forward