Gladstone Commercial Reports Q2 2026 Results: Full Earnings Call Transcript

Gladstone Commercial (NASDAQ: GOOD ) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

35, respectively, in the same period last year. 75 million and sold a 161,458-square-foot property in Monroe, NC, for a gain, demonstrating effective asset recycling. 1 years, as the company continues to focus on increasing its industrial asset concentration to 70% of annualized straight-line rent. Gladstone Commercial is strategically focusing on acquiring high-quality industrial assets and aims to dispose of non-core office assets while maintaining a strong occupancy rate.

2 million due to higher depreciation and incentive fees. Management expressed confidence in maintaining high occupancy rates and indicated a healthy pipeline of potential acquisitions, with a focus on securing accretive transactions with strong tenant credit. Full Transcript OPERATOR And welcome to the Gladstone Commercial Corporation second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode.

A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star-zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to Chairman David Gladstone.

Thank you. You may begin. David Gladstone, Chairman Well, thank you, Christian. That was a nice introduction, and thank all of you for calling in today.

We really do enjoy this time with you guys and hope you have a lot of questions for us today. Now we'll hear from Kathryn Purkis. She's our Director of Investor Relations, and she's got a brief disclosure to read to you regarding certain regulatory matters concerning all of these calls and things that we're doing today. Katherine, go ahead.

Kathryn Purkis, Director of Investor Relations Thanks, David, and good morning all. Today's call may include forward-looking statements which are based on management's estimates, assumptions and projections. com. We assume no obligation to update any of these statements unless required by law.

Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our email notification service and find information on how to contact our Investor Relations department. We are also on X, as well as Facebook and LinkedIn. Keyword for both is the Gladstone company.

Today we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income excluding the gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets. We may also discuss core FFO, which is generally FFO adjusted for certain other nonrecurring revenues and expenses. We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now let's turn the presentation to Buzz Cooper, Gladstone Commercial CEO and President.

Buzz Cooper, Chief Executive Officer and President Thank you, Kathryn, and thank you all for joining today's call. We are pleased to update you on our results for the quarter ended June 30, 2026, our current portfolio and our future outlook. Before I turn to our results, I'll comment briefly on the market, starting with the broader market. Industrial conditions continued to improve during the quarter.

1 million square feet. 6 million square feet, the strongest total since 2023. 9% year over year. Demand remains concentrated in modern large-format buildings supported by onshoring, near-shoring and ongoing supply chain optimization.

New construction deliveries remain below last year's pace, and while the development pipeline has begun to grow again, roughly a third of it are build-to-suits which keep speculative supply in check. The overall health of the industrial market remains continued competition for assets of all sizes, particularly those assets that are well located and mission critical. 75 million. This facility supports Huntington's Newport News Shipbuilding operation, and we funded the purchase with internally generated cash flow without issuing equity.

We sold a 161,458-square-foot industrial building in Monroe, North Carolina to the tenant Assa Abloy. We acquired this asset in 2021. Over the term of our hold period, the property was 100% occupied, and the sale represents a gain on equity and a highly accretive cap rate. This acquisition and sale together illustrate our ability to generate equity and redeploy proceeds into mission-critical industrial assets.

The Newport News acquisition represents nearly double the cash and straight-line rents from our North Carolina asset. We were able to achieve this growth without issuing new shares during a period when our common stock price was not attractive for new issuances. Furthermore, we increased portfolio WALT and added another mission-critical location at a great basis.

With respect to our existing portfolio, we renewed or leased over 126,000 square feet of office, retail, and over 34,000 square feet of industrial, with an increase in straight-line rent of $169,500 annually; purchased a land parcel adjacent to our Clintonville, Wisconsin facility and simultaneously entered into a lease amendment in which we provide the funding for an approximate expansion of 86,000 square feet and significant improvements to the existing 521,000-square-foot facility. Completion of these improvements is expected to be in the second quarter of 2027. The lease will commence with a new 15-year term.

Also, we've collected 100% of the cash-based rents in this period and this month. Subsequent, we leased 82,000 square feet, or the second floor, at our Austin, Texas office property. 5 million. As it relates to the Austin property and other office properties within our portfolio, we acknowledge that office leasing and re-leasing requires CapEx dollars.

When office buildings are as mission critical and well located as those in our portfolio, we are able to minimize those dollars such that we receive an accretive return on our investment. When we evaluate any office re-leasing, we review payback period, IRR and ROI, as well as the alternative of selling the property. We acknowledge that the returns are generally not as attractive to us as industrial properties, but they keep a constant stream of cash flow for our shareholders. We are not looking to grow our office portfolio, but until capital markets return fully, capital expenditures are typically more accretive and revenue generating than choosing to sell the asset.

Again, we evaluate each opportunity on a case-by-case basis, and we target payback periods between six and nine months through the efforts of our asset management team. 1 years. These transactions bring our industrial concentration to 69% of annualized straight-line rent as we continue working toward our near-term goal of 70%. Each of these milestones is a testament to the mission-critical nature of the assets in our portfolio, the quality of tenant credit in our portfolio, and our underwriting capabilities as evidenced by our execution during and subsequent to the second quarter.

We remain steadfast in several key focus areas: growing our industrial concentration, adding value in our existing portfolio through renewals, extension and strategic capital investments, and disposing of non-core assets and strategically redeploying those proceeds into quality industrial assets. By continuing to execute on these focus areas, we expect to again increase our WALT, maintain strong occupancy rates, increase straight-line rent growth across the portfolio, and decrease cost of capital.

Looking ahead into the second half of 2026, we remain focused on evaluating opportunities to acquire high-quality industrial assets that are mission critical to tenants and industries and accretive to our long-term strategy. We are working toward our near-term goal of 70% industrial annualized straight-line rents. We will look to achieve this goal and push past it during the year. While we do not have a timeline for the disposition of our office portfolio, we are keenly focused on growing the industrial concentration of the overall portfolio.

At the same time, we will continue to work with our existing tenants to extend leases, capture mark-to-market opportunities, and support tenant growth through tenant expansions, capital improvement initiatives and build-to-suit opportunities. While we remain aware of the challenging office environment, we will be strategic and intentional in evaluating our specific portfolio, seeking opportune times to dispose of office and non-core industrial as part of our continued capital recycling efforts.

With the availability via our increased line of credit, access to the private placement bond market, cash on hand, and the ability to raise equity at our ATM—although presently we believe our current stock price does not reflect the quality of our portfolio, tenant credit, or overall shareholder returns—we are positioned to deploy capital into accretive industrial acquisitions and portfolio improvements. In closing, the team executed well in the first half of the year, and we are focused on continuing that momentum through the remainder of 2026. I will now turn the call over to Gary Gerson to review our results for the quarter and liquidity position.

Gary Gerson, EVP & CFO Thank you, Buzz. I'll start my remarks regarding our financial results this morning by reviewing our operating results for the second quarter of 2026. All per-share numbers referenced are based on fully diluted weighted average common shares. 38 per share, respectively, for the quarter.

35, respectively. 72. 69 per share, respectively. 2% in the six months ended June 30, 2026 over the same period in 2025 due to an increase in recovery revenue from property expenses and an increase in rental rates from leasing activity subsequent to the six months ended June 30, 2025.

1 million for the same period in 2024. Operating revenues were higher in 2026 due to an increased portfolio size, increased recovery revenues, higher rental rates, and a one-time termination fee recognized in relation to the sale of a property. Expenses were higher in the second quarter of 2026 versus the same period in 2025 mainly due to higher depreciation from our larger portfolio and the payment of the majority of the incentive fee in the second quarter of 2026. At the end of the quarter, we had no properties held for sale.

9 million of loan maturities through the second quarter of 2027. 57 million in revolver borrowings outstanding. Looking at our debt profile, as of June 30, 47% was fixed rate, 47% was hedged floating rate, and 6% was floating rate, which is the amount drawn on a revolving credit facility. 68%.

Our outstanding bank term loans are all hedged to maturity with interest rate swaps. We continue to monitor interest rates closely and update our hedging strategy as needed. During the six months ended June 30, 2026, we did not sell any shares of common stock. Under our ATM, we continue to manage our equity activity to ensure that we have sufficient liquidity for all upcoming capital requirements and new acquisitions.

8 million of availability under our line of credit. We encourage you to review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. 20 per year. And now I'll turn the program back to David.

David Gladstone, Chairman Well, that was a good report, Gary, and good one from Buzz and Catherine. The team has performed very well overall. Again, a very nice quarter. You heard a lot today.

In summary, during 2Q26, we acquired a 153,000 square foot industrial property in Newport News using proceeds from the sale of an industrial property in Monroe, North Carolina. And that resulted in increasing the straight-line rent and FFO per share. We renewed a lease for 34,000 square feet as an industrial property and 26,000 square feet in office and retail. Again, company just continues to go along making more money.

Subsequent to the end of the quarter, we acquired a 146,000 square foot industrial property in Red Bud, Illinois. 55 million. So a small one, but again just adds to the ability to pay more dividends. 20 per share per year.

8% yield. That's a great yield for such solid company like this. Gladstone Commercial's team is growing their real estate. We own at a good pace and the team is doing a great job of managing the properties we own, especially during some of these challenging times that comes up.

Our team of strong professional continues to pursue quality properties on a list of acquisitions. They are reevaluating what we own in order to get us closer to all properties that are for projects that are critical to some of the tenants that we have. Acquisition team is seeking strong credit tenants and we are getting that done very well. Okay, let's just stop here for a while and get some questions from our listeners.

So, operator, would you come on and ask some questions for us? OPERATOR Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

A confirmation tone will indicate your line is in the question queue. Press star 2 if you would like to remove your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please, while we poll for questions.

Thank you. Our first question comes from the line of Rob Stevenson with Huntington. Please proceed with your question. Rob Stevenson, Analyst at Huntington Good morning, guys.

I think Gary said that there were no properties held for sale. How are you guys thinking about funding future transactions given the commentary also about how undervalued the stock price is? David Gladstone, Chairman Well, Rob, I mean, we did a redeployment this last time around. We had a sale and then we redeployed the assets into a new property.

We intend to do that going forward. If we have a potential acquisition that is accretive at the stock price, wherever we are, we would consider selling stock at that price to make that acquisition. But right now, I mean, it's... it's a little tough.

But, you know, we continue to grow and we're going to invest more into our, you know, existing properties as a way to increase, you know, our revenues and capital deployment. Rob Stevenson, Analyst at Huntington Okay. And at this point, do you think that you guys have any excess preferred capacity to be able to do any issuance there versus the common? Gary Gerson, EVP & CFO Really not considering doing any more preferred at this time.

Rob Stevenson, Analyst at Huntington Okay. And then you guys have done a good job of, you know, maintaining the occupancy level in the portfolio. But can you talk about, you know, some of the current vacancy? You know, are you in process on some of that in terms of signed but not commenced leases?

Are you getting close to some new tenants in some places? 3% of vacancy goes over the next four quarters or so. Buzz Cooper, Chief Executive Officer and President Sure, Rob, thank you.