GOODO

• Macro level: Q3 had stability in capital markets with Fed rate cut, downward trend in long-term rates, and gradual decrease in asking cap rates.
• Portfolio focus: Concentrated on growing industrial concentration, adding value to existing portfolio through renewals, extensions, and strategic capital investments, and disposing of noncore assets. Achieved leasing activity of 734,000 square feet with straight-line rental increase of $1.1 million and disposed of 1 noncore industrial property.
• Balance sheet: Increased equity base through stock issuance, increased credit facility to $600 million, extended and laddered debt maturities.

• Expect to increase industrial concentration further.
• Focus on evaluating opportunities to acquire high-quality industrial assets.
• Will be strategic in disposing of office and noncore industrial assets as part of capital recycling efforts.
• Positioned to deploy capital into accretive industrial acquisitions and portfolio improvements.

The industrial segment was a key focus. In Q3, Gladstone Commercial acquired a 6-facility cross-regional industrial manufacturing portfolio via a $54.5 million sale-leaseback transaction. This brought the industrial concentration to 69% of annualized straight-line rents, up from 63% at the start of the year. The portfolio had an occupancy rate of 99.1% (highest since Q1 2019), weighted average lease term was 7.5 years (longest since Q1 2020), and same-store lease revenues increased by 3.1% compared to the same period a year ago.

• Uncertainties in capital markets that could affect acquisitions and portfolio performance.
• Interest rate fluctuations and their impact on borrowing costs and cap rates.
• Competition in the market for acquiring industrial assets.
• Inflation leading to increased operating expenses.
• Potential effects of government shutdowns on tenant businesses and lease payments.

Q: On industrial allocation, do you expect it to keep increasing?

A: Yes, we anticipate increasing going forward, though there may be ups and downs due to portfolio dispositions.

Q: On same property operating expenses increase, what's the driver?

A: Mainly due to inflation, including factors like insurance costs which are affected by insurance company returns and inflation.

Q: On higher capital expenditure in Q3, what drove it?

A: Driven by renewals from Q2 to Q3, which are accretive as they keep tenants and increase rents.

Q: How does CapEx relate to the dividend?

A: The dollars spent on CapEx are accretive, and we're confident in the dividend as the CapEx is beneficial for future income.

Q: On acquisitions pipeline for '26, can you match '25?

A: It may be too early to tell, but we have 2 transactions in the pipeline and aim to be competitive with our balance sheet and cost of capital.

Q: On lease termination, details?

A: There was a small tenant lease termination, and a new tenant moved in taking more space in the building with no termination fee.

Q: On automotive exposure and bankruptcy news?

A: We have robust underwriting and monitor concentration. One office building in Austin related to GM is being repositioned due to competition, but we're confident in tenancy.

Q: On cap rates movement between quarters?

A: Cap rates are expected to come down, though there was a one-off effect from anticipation of greater rate cuts, and we aim to take advantage of compressing cap rates.

Q: Impact of government shutdown on tenants?

A: No significant impact noticed so far as our property management team has checked in with tenants and they haven't expressed major concerns.

Q: On CapEx going forward and lease expirations?

A: CapEx should trail down as we get in front of '26 and '27 lease expirations, with confidence in renewals on involved properties.

Q: On investment return hurdle and cost of capital?

A: We're averaging north of 8.5% cap rates and believe we have a green light to acquire assets as cap rates are moving favorably and our cost of capital allows for accretive acquisitions