Gladstone Commercial Reports Third-Quarter 2026 Results

Gladstone Commercial (NASDAQ: GOOD ) reported third-quarter financial results on Wednesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

Access the full call at Summary Gladstone Commercial Corporation reported financial results for Q3 2026, with FFO and core FFO per share both at $0.35, consistent with the previous year. The company acquired a 146,650 sq ft industrial property in Illinois and renewed/leased significant office and industrial space, resulting in an annual rent increase of $2.5 million. The company aims to increase its industrial portfolio to represent 70% of annualized rent, focusing on high-quality, mission-critical assets while strategically managing its office portfolio.

The current portfolio occupancy is at 99.3%, with a strong focus on maintaining high occupancy and extending lease terms. Management is cautious about acquisition opportunities due to high interest rates and a disconnect in buyer-seller price expectations, but remains committed to strategic capital deployment and maintaining liquidity. Full Transcript OPERATOR Greetings and welcome to the Gladstone Commercial Corporation third quarter earnings call. At this time all participants are in a listen-only mode.

A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone.

Thank you. You may begin. David Gladstone Well, thank you all for calling in. It was a nice introduction.

Thank you all for being part of our call. It's awfully early in the morning on the West Coast, so we're going to keep our time at 8:30, okay? At this time we have you on the phone and talk with you. We're glad to talk with you.

And I'm going to turn you over to Kathryn Gerkes. She's Director of Investor Relations and she's going to provide a brief disclosure regarding certain regulatory matters concerning this call and the report that we're giving today. Kathryn, good morning. Come on.

Kathryn Gerkes (Director of Investor Relations) Thank you, David, and good morning. Today's call may include forward-looking statements which are based on management's estimates, assumptions, and projections. There are no guarantees of future performance and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecommercial.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 at Gladstone Comp 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 non-recurring 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 call over to Buzz Cooper, Gladstone Commercial's CEO and President.

Buzz Cooper (Chief Executive Officer) 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 September 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 were a bit of a mixed bag during the quarter.

On the one hand, industrial occupancy continues to strengthen, which we have observed within our own portfolio as well. According to Cushman & Wakefield, net absorption was 76.6 million square feet, the strongest quarter since early 2023 and the second quarter in a row above 70 million. Year to date, net absorption is 203 million square feet, up 69% from the same period last year. National vacancy declined to 6.8%, down 20 basis points from its late 2025 peak, and asking rents rose 4% year over year.

Manufacturers were the second most active tenant group behind 3PLs, making up more than a quarter of leasing volume this year and indicating continued demand for similar assets which we have in our portfolio. Demand remains concentrated in modern large-format buildings supporting onshoring, near-shoring, and ongoing supply chain optimization. Cushman notes it is now starting to spill over into older buildings as space in newer buildings has become more scarce. New deliveries are 13% below last year's pace.

The development pipeline is growing, up 23% from a year ago, but about 35% of it is build-to-suit, which keeps speculative supply in check. That strength means continued competition for assets of all sizes, particularly those that are well located and mission critical. On the other hand, rates moved sharply higher in the quarter. The Fed raised rates in September for the first time since 2023 and the 10-year Treasury ended the quarter at about 5.3%, up roughly 87 basis points in the three months, to the highest level since 2007.

Sellers have been slow to adjust their pricing, so the gap between what they ask and what buyers are willing to pay is wide. Thus, fewer acquisition opportunities are meeting our criteria. Turning to our results, during the quarter we acquired a 146,650 square foot industrial property in Red Bud, Illinois, leased to Ultra Place Systems for $6.55 million. Term at the time of the acquisition was eight plus years.

With respect to our existing portfolio, we renewed or leased over 137,300 square feet of office and over 365,200 square feet of flex industrial with an increase in straight-line rent of approximately $2.5 million annually. We also collected 100% of cash-based rents in the period. Positively, subsequent to the end of the quarter we renewed or leased 453,234 square feet of industrial and 67,287 square feet of office with an increase in straight-line rent of $2.89 million annually. As we shared last quarter, we leased 82,000 square feet of vacant space in our Austin office property.

This approximates to probably 25% of the building and we continue to work on leasing the rest. As it relates to the Austin property and others 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 within our portfolio, we are able to maximize those dollars, such as receiving accretive return on our investment. When we evaluate any office re-leasing, we review payback period, IRR, and ROI, as well as alternatives to 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, though we look to have a targeted payback period of between six and nine months through the efforts of our asset management team.

As of September 30, 2026, our portfolio was 99.3% occupied, up from 98.7% last quarter, with a 7.1-year average remaining lease term. As of quarter end, the industrial portfolio represented 69% of our annualized straight-line rent, and 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 credits in our portfolio, and our underwriting capabilities.

Our playbook will continue as it has to grow our industrial concentration, adding value in our existing portfolio through renewals, extensions, 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 over the long term, again we will increase our WALT, maintain our strong occupancy rates, grow straight-line rent across the portfolio, and decrease cost of capital.

Looking ahead to the last quarter of 2026, we remain focused on evaluating opportunities to acquire high-quality industrial assets that are mission critical to tenants and accretive to our long-term strategy. We are working toward our near-term goal again of 70% plus industrial annualized straight-line rent. While we do not have a timeline for the disposition of our office portfolio, we are keenly focused on growing the industrial concentration.

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 targeted expansions and capital improvement initiatives, and we are looking at 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, and cash on hand, we have some ability at our ATM and we are positioned to deploy capital into accretive industrial acquisitions and portfolio improvements. In closing, the team executed well and we are focused on continuing the momentum through the remainder of 2026 and into '27. I'll now turn the call over to Gary Gerson, our CFO, to review our financial results, the quarter, and liquidity position. Gary.

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 third quarter of 2026. All per-share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO per share available to common stockholders were both $0.35 per share for the quarter.

FFO and core FFO available to common stockholders during the same period in 2025 were both $0.35 per share. FFO and core FFO per share for the nine months ended September 30, 2026 were both $1.07 per share. FFO and core FFO for the same period in 2025 were $1.02 and $1.03 per share, respectively. Same-store lease revenue increased by 0.2% in the nine months ended September 30, 2026 compared with the same period in 2025 due to an increase in recovery revenue from property expenses and an increase in rental rates for leasing activity subsequent to the nine months ended September 30, 2025.

Our third quarter results reflected total operating revenues of $42.4 million and operating expenses of $32.9 million, as compared to operating revenues of $40.8 million and operating expenses of $26.0 million for the same period in 2025. Operating revenues were higher in 2026 due to an increase in portfolio size, increased recovery revenues, and higher rental rates. Expenses were higher in the third quarter of 2026 versus the same period in 2025 mainly due to higher depreciation from the larger portfolio, the partial payment of an incentive fee, and the impairment charge on our Lake Mary, Florida office property in the third quarter of 2026.

At the end of the quarter, we had no properties held for sale. As of today, we have $7.4 million of loan maturities in 2026 and $99.9 million of loan maturities in 2027. As of the end of the quarter, we had $59.47 million in revolver borrowings outstanding. Looking at our debt profile, as of September 30, 47% was fixed rate, 46% was hedged floating rate, and 7% was floating rate, which is the amount drawn on our revolving credit facility.

As of September 30, our effective average SOFR was 3.9%. 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 nine months ended September 30, 2026, we sold 168,868 shares of common stock for net proceeds of $2.2 million under our ATM.

We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements and new acquisitions. As of today, we have approximately $7.7 million in cash and $70.2 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. Our common stock dividend is $0.30 per quarter, $0.10 per month, or $1.20 per year.

And now I'll turn the program back to David. David Gladstone Okay, that was a good report, Barry. And good ones from Buzz and Catherine. The team has performed very well overall.

Very nice quarter, I would say. During the quarter we acquired a 146,000 square foot industrial property in Red Bud, Illinois. Yes, that is the same. The city is Red Bud.

I didn't know that before. We renewed or leased 137,000 square foot office and over 365,000 square feet of flex industrial with an increase in straight-line rent to 2.5 million. Gladstone Commercial team is growing the real estate that they have. Remember we're in industrial side mostly.

Our team is strong professionals. Continue to pursue potential quality properties on the list of acquisitions. They're reviewing our acquisition team as regards renewing. Reviewing seeking strong credit tenants.

So I'm going to stop here and for the quarter we can have some questions from the people who have called in and we'll go from there. Operator would be coming in and tell them about how they can ask a question. OPERATOR Thank you. If you would like to ask a question, please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue; you may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys. And our first question comes from the line of Gaurav Mehta with Alliance Global Partners. You may proceed with your question.

Gaurav Mehta (Analyst) Thank you. Good morning. I wanted to ask you if you could comment on the acquisition pipeline. What are you guys seeing in the market and maybe some comments on the cap rates.

Buzz Cooper (Chief Executive Officer) Sure. Gaurav, good morning. Obviously, the pipeline, as we have heard from our competitors as well, it is very competitive from the standpoint of acquisitions. With the rise in interest rates, we have seen a little pullback as it relates to opportunities.

We also have seen a little deterioration in the credit. Not that we have booked, but as we analyze, obviously people go and use sale-leasebacks as a financing form. So the market is still robust, very competitive. But at this point in time, we are not seeing the type and quality of assets that we want to put on our books.

At the moment, we've got about 15 opportunities within our pipeline that we're reviewing for a combined total of over 200 million. And, and obviously of that we hope that some will meet our criteria. But as is stated before, we're not going to lower our underwriting standards and we need to look for cap rates going in the door of 7.5 and average cap over the term of the lease of 10 plus years north of 9. Next question.

Gaurav Mehta (Analyst) Second question I have on the balance sheet. Can you maybe comment on the interest rates on the debt that is maturing in 4Q and next year? And where do you expect to refinance that debt? Gary Gerson (EVP & CFO) I'll start and I'll let Jay Beckhorn, our treasurer, continue.

I mean, we have, as we said, we've got about almost $100 million of mortgage debt coming due. And we have enough availability on our line to take that all down. But that would be a temporary measure. Jay, some of our alternatives, Jay Beckhorn (Treasurer) Yeah, as Gary said, we can take it down using the revolving line of credit and then we'll look at how to put something out there more permanently, whether it be term loan or private placement depends on the interest rates.

But we're looking at those alternatives actively. And I guess for Q1, we've got about half that exposure is maturing and then the rest balances over the other half. Gary Gerson (EVP & CFO) And as we repay those loans, given the amortization and the way our credit facility works, as we add those to the credit facility, they actually increase our availability. Gaurav Mehta (Analyst) All right, thank you.

Buzz Cooper (Chief Executive Officer) Thank you. Okay, next question. OPERATOR Thank you. Our next question comes from the line of Rob Stevenson with Huntington.

You may proceed with your question. Rob Stevenson (Analyst) Good morning, guys. Buzz. Taking the sort of opposite side of the transaction question, hearing a lot about significant demand from 1031 and especially bonus depreciation buyers heading into year-end, is there an opportunity here for you guys to take advantage of that and sell some of the non-core assets here in fourth quarter and improve the portfolio that way?

Buzz Cooper (Chief Executive Officer) Certainly, Rob. We take a look at that and we track that because, of course, we want to take advantage where we can.