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Gladstone Commercial (GOOD)

Participants
David Gladstone Founder, Chairman & CEO
Michael LiCalsi General Counsel & Secretary
Robert Cutlip President
Gary Gerson CFO & Assistant Treasurer
Robert Stevenson Janney Montgomery Scott
John Massocca Ladenburg Thalmann & Co.
Craig Kucera B. Riley Securities
Call transcript
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Operator

Greetings. Welcome to Gladstone Commercial's Second Quarter Earnings Call. [Operator Instructions]. Please note this conference is being recorded. At this time, I'll now turn the conference over to Mr. Gladstone. David Mr. ahead. go please Gladstone,

David Gladstone

We thank was you, instructions. line nice and talk phone. this was calling having you. together you to on times Rob. thank all like That the morning. us And to the wish and a this of time in and there introduction I listening Well, enjoy more you for to on this

legal Secretary, and with start matter Michael always LiCalsi, give out, us Counsel General to call some Going the do, and regulatory concerning today. as our we Michael?

Michael LiCalsi

the may Thanks, performance. Act David, Today's Securities including morning. and and XXXX, Exchange future our XXXX good include those report forward-looking Act regarding of statements under of the Securities

which certain and reasonable. documents based risk statements be or with that factors in any cause forward-looking And statements, other many involve Forms these these file factors XX-K expressed results all Now from actual implied materially SEC. risks different believe by the and be we we forward-looking XX-Q, results may future to to current uncertainties plans, our are on our our including

on them our at gladstonecommercial.com. find can You website

Specifically, is on the page, SEC's www.sec.gov. website, Investors go the to which or

a no future required forward-looking update of publicly obligation statements, undertake new law. events by of or any whether revise we Now or to otherwise, as as result information, these except

other FFO of and certain nonrecurring FFO, discuss as comparability, the defined will FFO and for core real today, and of term excluding is on net as also FFO losses losses expenses. property, generally sale adjusted accounting we impairment discuss are non-GAAP plus income, from Now gains real FFO, estate revenues that's operations. funds estate, a from amortization We'll assets. the depreciation which any for adjusted or

our performance. gladstonecommercial.com, e-mail please website, are a again, believe operating once our period-over-period better the sign allow these of we comparability our notification up take And service. opportunity Now visit of our results to indication better and metrics for

of We Companies. both review the is website. for handle, our of so more the own yesterday, them Facebook. our you information. that even us Today's find results, Again, Twitter Keyword find XX-Q, can Investors overview Gladstone also and there and on could ask that's an Form issued have we You call is on release @GladstoneComps. page our detailed press simply you our

that, it with Commercial's pass President, Cutlip. Gladstone Now Bob I'll to over Bob?

Robert Cutlip

morning, Thank Michael. you, Good everyone.

During in in Louis, a of in a a $XX facility of Michigan, Monroe, the abated foot XXX,XXX facility issued square used we Series in XXXX. through second And our of XXX,XXX our Catoosa million quarter, years. Renewed Detroit XXXX. XX,XXX feet proceeds facility of through XXXX. for in flex square XX,XXX Texas of Minnesota service end Missouri the foot the which foot at XX,XXX square our facility XX.X property preferred renewed a preferred for industrial through redeem Series lease of XXXX; through industrial a is Leased square million. of MSA foot August feet a of XXX% quarter, a second pandemic. square have D office suburb, G amounts Burnsville, Collected in and industrial we acquired throughout lease Antonio, December million; facility where in renewed building Blaine, stock. square Minnesota Texas to No square XX,XXX St. November foot office San $XXX the Baytown, $X.X cash-based been an our rents Leased the outstanding primarily lease Oklahoma, XX,XXX the acquired of Subsequent to during industrial industrial the Tulsa, Port all for quarter. in stock, were

very since Officer Gerson today. Gary CFO is March as He had our personnel with as him right We're role. On ago. seamlessly in was our on permanent the leadership previously as as into our And Financial board to Markets stepped been have several appointed us Gary CFO interim Chief the Capital has June. Treasurer years you and the front, we pleased he company's know,

we Officer. since regions. is our President Buzz our across firm He portfolio Vice South Executive appointed knowledge with has Investment XXXX. us percentage been our region the a experience in leads Central of Buzz of addition, the our Cooper and team the in Chief as an has have In And leader. significant and Buzz and acquiring current IPO properties acquisitions of several

has to all further volume are our our will XXXX, we investment believe is industrial that strategy of portfolio's $XXX total As evidence which our Since continuing our noted which improve property million, on of we January allocation, increase earlier commitment. providing been efficiencies. calls, investment operating industrial,

Our industrial today, with in a an to XX-plus allocation January XX% months. allocation XX% has within achieving of the of XXXX objective next increased XX% from

We size to in ranging XX,XXX primary overweight and our will will acquisitions, be from has been XXX,XXX continue and industrial acquisition candidates square feet. focus to

service subsequent industrial remaining We foot in yard thereto. was We acquired Baytown, GAAP XX,XXX term continued million, our square years and industrial total a a and XX.X rate in Texas. cap quarter with The the X.X%. lease during strategy storage facility acquisition investment second $X.X of

years cap industrial GAAP We total product in of MSA. storage foot Missouri XX,XXX St. X.X%. the an facility remaining and was million, rate lease also The $XX yard of a in with investment Louis, term acquired square XX.X

Year-to-date these rent weighted ending -- XX XX, annualized years team average tenant leased and team covering and/or expanded per foot. to an X.X $X.X operations. same-store totals $X.XX a extended, with square million. lease management excuse July allowance our of of term improvement deliver just of transactions improving The million continued asset straight-line the X.XX me, feet, X.X on tenants, Our square

industrial X.X%. by facility over but lease in pandemic. had Oklahoma. the lease of successful vacant XXX,XXX million vacancy straight-line also facility This square leased vacant a performance, we reduced per Port previously an during the foot at of increased not example our our the payments been increased $X the Catoosa by year, only occupancy As This rate

We're of our are with expirations tenants quarter interested in wanted for activities all portfolio thoughts that the many XXX% going times second collections summarize and strong. be XXXX, cash to and very rent to were pleased forward. paid, were and these continues experience lease challenging team's performance on call I collection rent Anticipating the collections Our during through industries. XX%. July

are currently encouraged our same-store have performance X.X% years, the our year-end as XXXX. over about expiring next and of two in we through leases We XXXX X.X%

of of balance million the of end at XXXX, have $X.X straight-line expires and $X.X expiring, For we million this the rent total of December. annualized

future be quite expirations So should manageable.

vacancy remains largest. quarter. during office the in has increased Austin second Activity Austin Our the market significantly our

same favorably, foot submarket, in to Our previous GAAP space rent in quite at as compares foot the the current low in indicated of the as $XX.XX offerings per is in to Austin per square on BAE's our build create campus Tesla's basis. decision mid-$XX square decision interest. generating And I've in property triple-net the the a a with and property our past, submarket Gigafactory to

That continue approximately currently property, interesting the of either adverse last and by particularly second that's reports include, selling X% transaction Market XXX the buyer with square quarter-over-quarter. the XX over and/or XXX square of over XX% increased vacancy got XX.X% research a level. Office and quarter pre-leased strong, of But to in the so third some increased number an the conditions product feet activity feet have drive to have negative with been X% an total higher a sector. prospects, are the dual for under industrial of Net Overall, industrial COVID of to review strategies construction, CBRE. logistics onset square over compared A absorption are tenant improvement the national significant improvements approximately re-leasing at active quarter industrial relating absorption the statistics We on place the space effects of million from demand the feet, with and both worthy exceeding types and comment, office few X.X% Office quarters, because end both quarter. virus. million announced reflects with XXX second the quarter exploring according level of some expectation to continues negative not the does rents to for sales to million sublease million with available and vacancy of to were square be X and volume square second this continued taking basis. a million however, feet. office vacancy E-commerce maybe challenges. Investment feet XXXX. has to we've absorption sector. of

it net over effective as listings. declined increased X% they increase to rents, million XXX growth office seeing as an in to we continues product over sales opportunities, However, of relates concessions. by under due And investment supply activity construction. feet And is currently are square new

properties, office review. of candidates of X initial representing Our -- and X the candidates balance current are volume, intent are approximately are and is stage in balance the pipeline X excuse $XXX letter of due million industrial. Of under in are is XX the in XX me, diligence, XX the property properties, acquisition which

in is believe staying team markets and that we pursue. Our engaged will will acquisition opportunities actively we we arise can as the

summary, to well acquisition us So opportunities. engagement collectively to identify continued industrial and second strong leasing growth in collection quarter success, active activities and rental our positions reflected opportunities pursue

capital it on turn report including markets let's Now to over the activities. a financial results, Gary our for

Gary Gerson

common comparability quarter and common to I'll adjusted All stockholders and X core share, numbers Bob, operating $X.XX. common start FFO reference fully per the available the per adjusted months stockholders and $X.XX XXXX quarter during were are average FFO and $X.XX and stockholders respectively. available $X.XX FFO of XXXX. based to core FFO the available FFO X available stockholders by second our results respectively. XXXX $X.XX both morning, weighted for reviewing on for common first were respectively. -- of $X.XX the share, were you, $X.XX everyone. to to share FFO my share core XXXX the per comparability good Thank first core FFO were during quarter, and remarks FFO months per common our of second of for diluted and for shares.

months X.X% at months rent over And it X the X Our at over for same-store XXXX. cash QX quarter this the first grew grew XXXX, XXXX. second first in X% of of of

with of XXXX. total as million, quarter results $XX to operating million compared operating Second of $XX.X expense million and revenues the period stable of operating reflected million, same $XX.X expenses in for operating of $XX.X revenues

continue grow strong we assets sheet as reducing to on leverage. our focus continue enhance balance to our our We and

past of believe the XX.X% to to X% have leverage within X level. over that refinancing financing new assets years reduced leverage levels. gross debt we to XX% and X% at lower through target our over maturing acquisitions our by debt are We We

were During the Series to stock. of preferred Series [indiscernible] quarter, we issued used primarily redeem preferred X% $XXX G stock. our D million X% perpetual

us the In $X with capital. dividend investable reducing over addition additional expense, to of offering our provided million

B. Nicolaus, wonderful by group, Stifel, led a Sachs Our Goldman bank job. and Riley, did

to We use debt to primarily make continue mortgage long-term acquisitions.

we also time, increase unsecured property investments, disciplined high-quality we financing this additional through expect with continue to assets. As Over debt expand options. grow we our pool will our

Looking debt hedged floating. X% is at and is profile: floating XX% rate; our fixed is rate; XX%

loan As maturities million XXXX million of and and manageable, our are with today, due coming XXXX in XXXX due XXXX. in $XX $XX

last appropriate down facility these $XX of refinance proceeds $XX time. will The upsized with quarter, amounts to end delayed We term the were $XX credit Subsequent which drew remaining our loan, the a consisted acquire We to million we draw on at the the properties. million. million of utilized component. quarter, a

of the end no were revolver outstanding. the of quarter, borrowings As there

quarter equity in second we've issuing our been entering ATM with the active sufficient While program. liquidity, through

sales. we X of stock issuance June net and cost, through ending months the XX, common raised XXXX $XX.X million During

to to for manage requirements. continued that liquidity our we -- activity We capital actively have equity upcoming ensure sufficient

which posted June X% website, stock last of a over encourage portfolio we XX.X% million strong increased the XX, long years. we believe incremental review our availability, our supplement performance of that term. cash our our in to and and credit the to of financial is line availability as quarterly quarter. credit. access to you We provides significant more financial and $XX.X Institutional our ATM we near sufficient over of which As ownership under has million our have X fund have portfolio of our With program, $XX the current approximately operations information today, detailed for also on of increase flexibility and to our time

We continue look current and We active meeting portfolio relationships to be potential managers, company to coverage establishing grows. investors, very new analysts investment banks. in forward as with and

to $X.XXX quarter of continue dividend year. share our per common per per We stock $X.XXXXX or pay

dividends our We the XXXX. have suspended since cut not IPO or in

X.X%. approximately Our turn yesterday distribution closed stock at And is on to The back $XX.XX. yield common David. stock the I'll now our program

David Gladstone

to and to to in total as has They about to Series collected year, issuance rent. million all Thank -- we has the $XXX up-to-date doing Operations date some team in providing have XX X% and Missouri. not of Gary. [indiscernible] at good pace. Bob the ending estate get a to June go X% is a job We've D was lot going $X months the a Okay. your is perpetual have that We from preferred on team acquired during industrial reactions the items that the It issued up-to-date second properties as great that number used. had the ending additional of been in of growing the XX, They The all those outstanding. a you other and getting $X.X during they packages. -- representing a especially is The real managing Louis, on you government transactions, Gary quarter impressive, we it good and Texas in -- reduced that XXX% the on, hands we pandemic, preferred various are assets by executed nice Bob encouraging This cash-based Gary G all [indiscernible]. Michael hurt by Series well. in dividend very over capital, annualized our really XX or much of results. good this well kind very we performed that St. The transaction. heard turned in transactions website the quarter. Baytown, own things June retire the and XX. prepared get of commercial in on very straight-line reported rents a million lot ended virus. as have If nice executed new this own, very are and that The a million leases, team leases investable July Almost today,

the strong. is are list on acquisitions pursue continues It that quality to team reviewing. properties they Our of potential

estate challenge on a own the a tenants. many the actively underwrite market we're but credit been thankful managers for asset know them can The we Like because and the credit real seen to to Our that, they've And of challenged related environment we that times a that's our we're the estate pay real hope. government to just But that won't tenants. middle quality excellent market. different properties their team with first-class to are the out is see middle the that the in restrictions tenants, acquisition pay today, the up around strong are guys. market team you, These businesses assets. I order their unlike that never turn occupied before is investments. this have and continue middle previous but in by businesses. team the job. owns probably future, of been very is doing great managing buy We dividends to our virus, rents. our tenants lot that in The real value. are that the people seeking a the going the in at tenant, of makes estate They maximize It's company And things as

Okay. Rob, for the here help have -- to you come and some our going and listeners on I'm have questions us. ask stop

Operator

Instructions]. [Operator

first with question comes line Stevenson Rob Our Janney. the of from

Robert Stevenson

third up? can quarters you what that? Gary, caused revenue the sort you has here bump that to in what's more guys little second that a about the drop? leasing bit what to the talk and And done And extent sequential of back caused

Gary Gerson

we stockholder costs QX think Yes, of some But lot related to of due had additional reduced two G&A and rents to point get reduced due had question. didn't QX cost increased an I some to QX. unfortunate here into in today were, of we numbers, a Well, professional, your QX heard just the legal issues include had follow costs. to diligence and the because costs QX of that the And of don't G&A part a we accelerated you from that some due in biggest the -- they timing. what

of million the done example, $XX was -- in acquisition middle the July. done of $XX $XX The the $X was the million middle of million For in June. acquisition acquisitions, million

Port reflected up really of in didn't QX numbers. June. was the until end signed lease not Catoosa vacancy get resolved, that which So The of

So that is not in the numbers.

of because you'll weren't which lot our in numbers in see forward, things a that going numbers will yes, quarter, unfortunately represented represented in we this of the be going forward. So the did timing

Robert Stevenson

the Okay. How that? year? does start When And vacant is on mean, be have we Is that leased, rent, et in rents cash free actually that thinking cetera, already that how effectively paying XXX Has million about space feet sometime much square you later there? that this should you, started? of guys? guys for I

Robert Cutlip

The until is November, the Rob, I as [indiscernible] I think it's everything -- starting, recall. doesn't start else can

Robert Stevenson

What the last quarter? the of spread of square have Okay. first then me. on renewals that end feet rents the for you was XXX,XXX And one guys roughly the on since of done

Robert Cutlip

January. tell we information me properties I've of $XXX,XXX. up those straight-line had -- about went They we that representing went did properties XX Let of when million about we transactions, you, XX X.X%. -- had the about up got We from $X.X rent

But to a year those. that's in a property. Blaine actually And X from converted property. Minnesota the realize a single-story to That been OpEx And we leasing. now up up. property that leased that the we're One Karen the an $XXX,XXX industrial but there's to reductions Priesman, and forward. in of plus when for as we region, address close that once other Head property. then for office a OpEx call the and is plus vacant -- I X/X property to bleed, of I costing do good Asset the to got approximately and And Midwest up So want property, Management had was we $XXX,XXX going an it. industrial us plus that converted we've consider they're going over that about that she rent, a you assets had actually of repositioned she

that's Port bleed. going is you I in with Gary of Catoosa be over leased, for that the talking my next million, then our other forward about OpEx million, property. referenced to was a the about, shift the us $XXX,XXX add was OpEx was of $XXX,XXX bleed starting So over a months. and it $X XX plus that million $X the That July. that's And us lease in comments, in with good now going one being $X.X And up property as costing this

Now as rent, that will cash, it's free stops right starts FFO, burn still There's not course, of I indicated. cash and but off, -- the now.

Robert Stevenson

year-to-date Okay. And talk you the then artificially quarter number mean, is I X.X I quarter nonrecurring? high. for -- actually, was of The so, quarter it one more How so. Is about that's Gary. XXX. when -- the think This much in the G&A, lied. -- second low, about or is I somewhere is it's somewhere second first is artificially it stuff

I of probably that we average we removing from should in think thinking good half out How of need of about that average that sort forward, G&A the the be the Is year? quarters? rate the run back first to a run it's forward? rate stuff the there Is a for X going that. going to figure be

Gary Gerson

G&A think think that's if And I the I longer-term look at a mean mid-XXXs is I probably I reasonable. think been from averaging. in we've where you perspective, our

QX artificially what -- low we're in you saying, artificially lot a G&A were so. and high at of -- in QX, it looking from think you was I

Operator

Massocca Thalmann. is The Ladenburg question coming next with from John

John Massocca

there? potential $XXX XXXX Has So that $XXX of changed million you think all on on were any going what's rates? last investment maybe the to that's those of in to changes of at Just happened kind cap in no as quarter, maybe based rate out kind what saying being to saw you based million. that investments the kind or environment interest changes expectations? And I XQ,

Robert Cutlip

under week or diligence we're John, million and going the now, that we've in Well, in due $X $XX of stage intent next million to right the in so. letter close just got about

we'll with So get million. I'm now for be we have be reach in, that north markets But going the of increased to to should I want don't that be to thinking know $XXX that able the do million. sure. to activity in believe that that level still we I we're we $XXX

John Massocca

your of kind And maybe in we particularly of there kind kind talked, has in any subsector of smaller last of cap I guess market markets? the of since non-gateway rate been kind change environment, assets for

Robert Cutlip

now Xs. markets high Well, the XX-year secondary to me debt, about gets markets, our our rate, Xs. in low you're price there, gateway they're think that weighted What if With in us in and leases, that high cap still cost a GAAP in X%. -- we're of X where to And with wrong, you down capital but seeing seeing Gary, that the our average I'm able of I about at you it saw correct we're is X- as cost the know now product Xs mid- -- stock find to and is is we're to that our capital.

want to So still I spread XX really we that basis to our acquisition with teams. XX upon that insist point have

John Massocca

then kind the there's And at might maybe mentioned of office And there the there end asset, you talk XQ. any of may the can on be X about giving But something time. you other maybe something that provide kind -- of of you be about Okay. you cannot that by on what's at this talk confidence understand in in stuff you XQ? I the actionable can end Austin point color more

Robert Cutlip

selling may tenant the getting I'm side more trying and traffic sell side. buyer capital in building then And sure. we're and the at of the prospect property part kind that it. seeing more lot just looking prospect We're interest well and a But at a of at lot dual more Buyers a and encouraged end redeploying come that market, think as the lease the potentially for strategy a Austin why to buyers. it foot both XQ, a least into and there lot on we're as re-leasing it in of that's industrial. have of we and/or I tours up end in interest

John Massocca

completely per square basis maybe price it, leased And there selling I versus on out in guess what today, is the difference vacant? market partially or foot roughly, the a leased

Gary Gerson

you talking sale price Are differences? the about

John Massocca

Yes.

you If to the to asset. going sell Austin were try

Robert Cutlip

Okay. in talk Right with we because about are And that not therefore... conversation rather now, publicly I'd parties.

Robert Cutlip

They it. have have it. access to They access to

John Massocca

last on one know rent rent back maybe that doesn't the until pre-vacancy that But what cash the cash that kind think detail Tulsa. quick cash one was of be I level should start if asset relatively November. versus we with then And rent, about doing before?

Robert Cutlip

No, John. No, John, it isn't.

building a leased You only to guy. were us and Cooper kind OpEx transparent going them the leaders of potentially found the balance, it down building. of up when building. we the there, a in Finney, balance entire the know tenant. I'm excellent the the in of Perry of to building. We in and be cut to the to it. able majority paying was them take the at Buzz leasing little looked wanted bit where convince difficulty It the The they be an Buzz the They And but rent, in picked

we're a bit. little So down

you'll me Let so something it where know I before. least we were but have what amount, don't website is is. on the specific put below it at the

Operator

with Securities. line Wunderlich the from of That's Craig Kucera

Craig Kucera

buildings second quarter, here where like or [indiscernible] those type and and sort like did you you were at the -- occur? It had a million. of that you in so you lease about looks of that in characterize terminations another It can had buildings looks million --

David Gladstone

second the know quarter. I

Robert Cutlip

look trying fumbling are at that. We to

David Gladstone

back to on have that you get We'll to. to have We'll one.

Robert Cutlip

that will you. have we and on those so mind, there back Craig, we'll where those, get I don't not website top know something tells put of you but don't that know to are we to why are at

Craig Kucera

follow That's I as of that, guess other think be up portion I kind regard fine. there the to is a that that to maybe question, of yet recognized.

that accelerated the to is to third the We 'XX. the of that spread in see or would expect quarter rest be randomly or that in year

Robert Cutlip

but also paying. that's to we'll end they back you that third the current of really we it, that. know will have at the on have addition I have negotiated year, to Again quarter, the and [indiscernible] that are rent goes Craig, something we the into get to next an buy

an combination to So it's going be two. those on

David Gladstone

a we fourth All question? right. Do have

Operator

not sir. do We

David Gladstone

let All questions, us is quarter. second road like me had since that for to good we is no and open have right. this It there will wide Well summarize. the terminate other half so a with looks this. We

end this presentation. of that's so Thank all. you the And

Operator

Thank today's concludes conference. you. This

disconnect you your you this participation. at may lines time. You Thank for