Gladstone Commercial Corp. Q4 FY2024 earnings call

• Broader economic environment: Industrial real estate outperformed in 2024 despite headwinds; Q4 2024 industrial vacancy rose but at slowest pace in 2 years; new deliveries fell to lowest since mid-2021. - Portfolio updates: Collected 100% of cash-based rents in 2024; acquired campus properties for $26.8 million; renewed/extended over 2.9 million sq ft of leases; sold 7 properties; portfolio occupancy at 98.7% as of Dec 31, 2024; closed $75M private placement of senior unsecured notes. - Financial results: Q4 2024 operating revenues $37.4M vs $35.9M in 2023; operating expenses $25M vs $28.1M in 2023. - Debt profile: 49% fixed rate, 50% hedged floating rate, 1% floating rate; effective average SOFR rate 4.49% as of Dec 31; reduced overall leverage from 46.1% to 44.1% from 2023 to 2024. - Equity activity: Sold common stock and preferred stock, raised net proceeds; two properties held for sale; $8M cash and $90M availability under line of credit.

For the fourth quarter of 2024, FFO and core FFO per share available to common stockholders were both $0.35 per share, compared to $0.36 per share in the same period of 2023. For the 12 months ended December 31st, FFO was $1.41 per share and core FFO was $1.42 per share, versus $1.46 and $1.47 per share in 2023. Portfolio industrial concentration increased to 63% of annualized straight-line rent from 60%, while office concentration decreased to 33% from 36%. Same-store rents increased 5% in Q4 2024 over Q4 2023, and 2.3% for the year, driven by increased straight-line rental rates and recovery revenue.

• Aim to reduce leverage further, targeting lower 40s. - Intend to deploy capital into accretive industrial acquisitions, with several opportunities under exclusivity/contract. - Expect private placements to continue if market willing, with interest rate from recent placement seen as strong for first-time issuer. - Hopeful to return to stronger incentive fees in future as performance improves.

• Interest rate volatility: Federal Reserve pause in rate cuts and volatile treasury yields. - Economic uncertainties: Impact of new administration policies, inflation, and labor disputes on real estate market. - Credit risks: Potential cracks in credits due to rate increases or overpriced real estate.

Q: Gaurav Mehta asked about leverage expectations and secured/unsecured debt mix.

A: Gary Gerson said goal is to delever to lower 40s, and to decrease secured debt proportion.

Q: Rob Stevenson asked about market depth for office assets to sell.

A: Buzz Cooper said selective sales of office assets, vacancy in one or two assets, and proposals on two buildings.

Q: John Massocca asked about balance sheet financing and leasing activity.

A: Gary Gerson said private placements not primary mode, and Buzz Cooper mentioned leasing activity in 4Q for both office and industrial with rent increases.

Q: Dave Storms asked about timing of held-for-sale assets and cap rates.

A: Buzz Cooper said one asset in April 1, another in second quarter, and cap rates on acquisition around 7.5%-8%, sales slightly higher.

Q: Craig Kucera asked about capital recycling and tariffs.

A: Buzz Cooper said no immediate impact from tariffs on tenancy, and Gary Gerson discussed reclassification of lease as sales-type.