Gladstone Commercial Corporation (NASDAQ:GOOD) ("Gladstone
Commercial") today reported financial results for the third quarter
ended September 30, 2017. A description of funds from
operations, or FFO, and Core FFO, both non-GAAP (generally accepted
accounting principles in the United States) financial measures, are
located at the end of this press release. All per share
references are to fully-diluted weighted average shares of common
stock, unless otherwise noted. For further detail, please
also refer to Gladstone Commercial's quarterly financial supplement
and Quarterly Report on Form 10-Q, each of which are available at
www.GladstoneCommercial.com.
Summary Information (dollars in thousands,
except share and per share data):
|
|
As of and for the three months ended |
|
|
|
|
|
|
September 30, 2017 |
|
June 30, 2017 |
|
$ Change |
|
% Change |
Operating
Data: |
|
|
|
|
|
|
|
|
Total operating
revenue |
|
$ |
24,365 |
|
|
$ |
22,867 |
|
|
$ |
1,498 |
|
|
6.6 |
% |
Total operating
expenses |
|
(15,867 |
) |
|
(14,357 |
) |
(1) |
|
(1,510 |
) |
|
10.5 |
% |
Other expense, net |
|
(6,115 |
) |
|
(7,849 |
) |
(2) |
|
1,734 |
|
|
(22.1 |
)% |
Net income
available |
|
$ |
2,383 |
|
|
$ |
661 |
|
|
$ |
1,722 |
|
|
260.5 |
% |
Less: Dividends
attributable to preferred stock |
|
(2,520 |
) |
|
(2,437 |
) |
|
(83 |
) |
|
3.4 |
% |
Less: Dividends
attributable to senior common stock |
|
(247 |
) |
|
(249 |
) |
|
2 |
|
|
(0.8 |
)% |
Net loss attributable
to common stockholders |
|
$ |
(384 |
) |
|
$ |
(2,025 |
) |
|
$ |
1,641 |
|
|
(81.0 |
)% |
Add: Real estate
depreciation and amortization |
|
10,829 |
|
|
9,926 |
|
|
903 |
|
|
9.1 |
% |
Add: Impairment
charge |
|
— |
|
|
253 |
|
|
(253 |
) |
|
(100.0 |
)% |
Add: Loss on sale of
real estate |
|
— |
|
|
1,914 |
|
|
(1,914 |
) |
|
(100.0 |
)% |
Less: Gain on sale of
real estate |
|
(1 |
) |
|
— |
|
|
(1 |
) |
|
(100.0 |
)% |
Funds from
operations available to common stockholders - basic |
|
$ |
10,444 |
|
|
$ |
10,068 |
|
|
$ |
376 |
|
|
3.7 |
% |
Add: Convertible senior
common distributions |
|
247 |
|
|
249 |
|
|
(2 |
) |
|
(0.8 |
)% |
Funds from
operations available to common stockholders - diluted |
|
$ |
10,691 |
|
|
$ |
10,317 |
|
|
$ |
374 |
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
Funds from operations
available to common stockholders - basic |
|
10,444 |
|
|
10,068 |
|
|
376 |
|
|
3.7 |
% |
Less: Lease termination
fee |
|
— |
|
|
(550 |
) |
|
550 |
|
|
(100.0 |
)% |
Core funds from
operations available to common stockholders - basic |
|
$ |
10,444 |
|
|
$ |
9,518 |
|
|
$ |
926 |
|
|
9.7 |
% |
Add: Convertible senior
common distributions |
|
247 |
|
|
249 |
|
|
(2 |
) |
|
(0.8 |
)% |
Core funds from
operations available to common stockholders - diluted |
|
$ |
10,691 |
|
|
$ |
9,767 |
|
|
$ |
924 |
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
|
Share and Per
Share Data: |
|
|
|
|
|
|
|
|
|
Net loss attributable
to common stockholders - basic and diluted |
|
(0.01 |
) |
|
(0.08 |
) |
|
0.07 |
|
|
(87.5 |
)% |
FFO available to common
stockholders - basic |
|
0.38 |
|
|
0.40 |
|
|
(0.02 |
) |
|
(5.0 |
)% |
FFO available to common
stockholders - diluted |
|
0.38 |
|
|
0.40 |
|
|
(0.02 |
) |
|
(5.0 |
)% |
Core FFO available to
common stockholders - basic |
|
0.38 |
|
|
0.38 |
|
|
— |
|
|
— |
% |
Core FFO available to
common stockholders - diluted |
|
0.38 |
|
|
0.37 |
|
|
0.01 |
|
|
2.7 |
% |
Weighted average shares
of common stock outstanding - basic |
|
27,234,569 |
|
|
25,276,824 |
|
|
1,957,745 |
|
|
7.7 |
% |
Weighted average shares
of common stock outstanding - diluted |
|
28,008,122 |
|
|
26,060,060 |
|
|
1,948,062 |
|
|
7.5 |
% |
Cash dividends declared
per common share |
|
$ |
0.375 |
|
|
$ |
0.375 |
|
|
$ |
— |
|
|
— |
% |
|
|
|
|
|
|
|
|
|
|
Financial
Position |
|
|
|
|
|
|
|
|
|
Real estate, before
accumulated depreciation |
|
$ |
880,614 |
|
|
$ |
825,651 |
|
(3) |
|
$ |
54,963 |
|
|
6.7 |
% |
Total assets |
|
$ |
904,851 |
|
|
$ |
831,573 |
|
|
$ |
73,278 |
|
|
8.8 |
% |
Mortgage notes payable,
net, borrowings under revolver, net & borrowings under term
loan, net |
|
$ |
518,877 |
|
|
$ |
484,781 |
|
|
$ |
34,096 |
|
|
7.0 |
% |
Total stockholders' and
mezzanine equity |
|
$ |
349,010 |
|
|
$ |
316,416 |
|
|
$ |
32,594 |
|
|
10.3 |
% |
Properties owned |
|
97 |
|
|
94 |
|
(3) |
|
3 |
|
|
3.2 |
% |
Square feet owned |
|
11,247,044 |
|
|
10,651,899 |
|
(3) |
|
595,145 |
|
|
5.6 |
% |
Square feet leased |
|
97.9 |
% |
|
96.9 |
% |
|
1.0 |
% |
|
1.0 |
% |
(1) Includes a $0.3 million impairment charge recognized on one
property held for sale. (2) Includes a $1.9 million loss on
sale of real estate from two property sales. (3) Includes one
property classified as held for sale of $6.6 million and 86,308
square feet.
Third Quarter Activity:
- Acquired properties: Acquired a $26.4 million
industrial property located in Philadelphia, Pennsylvania, which is
100% leased to one tenant for the next 15.4 years, and acquired a
$51.4 million, three building office complex in Orlando, Florida
which is 100% leased to six tenants with a weighted average lease
term of 8.6 years;
- Sold properties: Sold one fully vacant
property located in Newburyport, Massachusetts, for gross proceeds
of $4.5 million;
- Renewed lease: Executed two lease renewals on
a total of 373,275 square feet of building space;
- Leased vacant space: Executed a lease with an
existing tenant in one of our Raleigh, North Carolina buildings for
the remaining vacant space in the building and executed a lease
with a new tenant in our Baytown, Texas building bringing the
occupancy for that building to 100%;
- Issued new debt: Issued $14.9 million in new
fixed rate mortgage debt collateralized by our Philadelphia,
Pennsylvania acquisition at an interest rate of 3.75% and issued
$28.8 million in new fixed rate debt collateralized by our Orlando,
Florida acquisition at an interest rate of 3.89%;
- Repaid mortgage debt: Repaid $13.9 million in
maturing mortgage debt with a fixed interest rate of 6.63%;
- Issued common stock through overnight
offering: Issued 1,322,500 shares of common stock through
an overnight offering and subsequent underwriters' exercise of the
overallotment option, raising net proceeds of $26.1 million;
- Issued stock under ATM programs: Issued
607,565 shares of common stock for net proceeds of $12.9 million
and 172,248 shares of our Series D Preferred Stock for net proceeds
of $4.4 million; and
- Paid distributions: Paid monthly cash
distributions for the quarter totaling $0.375 per share on our
common stock, $0.4843749 per share on our Series A Preferred Stock,
$0.4688 per share on our Series B Preferred Stock, $0.4375 per
share on our Series D Preferred Stock, and $0.2625 per share on our
senior common stock.
Third Quarter 2017 Results: Core FFO available
to common shareholders for the three months ended September 30,
2017, was $10.7 million, or $0.38 per share, a 9.5% increase when
compared to the three months ended June 30, 2017. Core FFO
increased primarily due to an increase in rental income from our
2017 acquisitions and decreased administration fees from using less
of our administrator's resources during the period.
Net loss attributable to common stockholders for the three
months ended September 30, 2017, was $0.4 million, or $0.01 per
share, compared to net loss attributable to common stockholders for
the three months ended June 30, 2017, of $2.0 million, or $0.08 per
share. A reconciliation of Core FFO to net loss for the three
months ended September 30, 2017 and June 30, 2017, which we
believe is the most directly comparable GAAP measure to Core FFO,
and a computation of basic and diluted Core FFO per weighted
average share of common stock and basic and diluted net loss per
weighted average share of common stock is set forth in the Summary
Information table above.
Subsequent to the end of the quarter:
- Continued capital recycling program: Executed
a purchase and sale agreement to sell our Arlington, Texas property
for $5.6 million to the current tenant and in the event of an
unsuccessful sale, a 10-year renewal option will automatically be
effective;
- Amended credit facility agreement: Amended
credit facility to increase the term loan portion from $25.0
million to $75.0 million, decreased interest rate spreads by 25
basis points at all leverage tiers, extended the maturity date of
the revolver to October 2021, and extended the maturity date of the
term loan to October 2022;
- Issued stock under ATM programs: Issued 10,604
shares of common stock for net proceeds of $0.2 million; and
- Declared distributions: Declared monthly cash
distributions for October, November and December 2017 totaling
$0.375 per share on our common stock, $0.4843749 per share on our
Series A Preferred Stock, $0.46875 per share on our Series B
Preferred Stock, $0.4375 per share on our Series D Preferred Stock,
and $0.2625 per share on our senior common stock.
Comments from Gladstone Commercial’s President, Bob
Cutlip: "Our financial results reflect consistent
performance and stabilized revenues from our highly occupied same
store properties and the real estate investments made during 2016
and 2017, our ability to lease previously vacant space, and our
deleveraging and capital recycling programs. We have continued our
capital recycling program, whereby we have sold non-core assets
located outside of our target growth markets and used the proceeds
to de-lever our portfolio as well as acquire properties in our
target growth markets. We have successfully exited four non-core
assets so far during 2017, recognizing a net capital gain of $4.0
million, and we will continue to opportunistically sell non-core
assets and redeploy the proceeds into stronger target growth
markets. Year to date, we have invested $94.4 million into the
strong markets of Philadelphia and Orlando, and we completed a $6.6
million expansion of an industrial facility adjacent to an auto
assembly plant in Vance, Alabama. We are extremely pleased with our
solid performance over the last several years, and we believe our
same store rents should be stable and growing through year end
2019. We will continue to focus on investing in new properties as
we only have 3.9% of forecasted rental income expiring through
2019. We are looking forward to continued growth and success for
our shareholders."
Conference Call: Gladstone Commercial will hold
a conference call on Wednesday November 1, 2017, at 8:30 a.m. EDT
to discuss its earnings results. Please call (888) 734-0328
to enter the conference call. An operator will monitor the
call and set a queue for questions. A conference call replay will
be available beginning one hour after the call and will be
accessible through December 1, 2017. To hear the replay,
please dial (855) 859-2056 and use playback conference number
54352285. The live audio broadcast of the company’s quarterly
conference call will also be available on our website,
www.GladstoneCommercial.com, and will also be archived and
available for replay through January 1, 2018.
About Gladstone Commercial: Gladstone
Commercial Corporation is a real estate investment trust that
invests in net leased industrial, office and medical real property
and selectively makes long-term industrial and commercial mortgage
loans. Including payments through October 2017, Gladstone
Commercial has paid 153 consecutive monthly cash distributions on
its common stock. Prior to paying distributions on a monthly
basis, Gladstone Commercial paid 5 consecutive quarterly cash
distributions. The company has also paid 141 consecutive monthly
cash distributions on its Series A Preferred Stock, 132 consecutive
monthly cash distributions on its Series B Preferred Stock and 17
consecutive monthly cash distributions on its Series D Preferred
Stock. Gladstone Commercial has never skipped, reduced or deferred
a distribution since its inception in 2003. Further
information can be found at www.GladstoneCommercial.com.
About the Gladstone Companies: Information on
the business activities of all the Gladstone family of funds can be
found at www.gladstonecompanies.com.
Investor Relations: For
Investor Relations inquiries related to any of the monthly
distribution-paying Gladstone family of funds, please visit
www.gladstone.com.
Non-GAAP Financial Measures:
FFO: The National Association of Real Estate
Investment Trusts (“NAREIT”) developed FFO as a relative non-GAAP
supplemental measure of operating performance of an equity REIT in
order to recognize that income-producing real estate historically
has not depreciated on the basis determined under GAAP. FFO,
as defined by NAREIT, is net income (computed in accordance with
GAAP), excluding gains (or losses) from sales of property and
impairment losses on property, plus depreciation and amortization
of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash
flows from operating activities determined in accordance with GAAP
and should not be considered an alternative to net income as an
indication of its performance or to cash flow from operations as a
measure of liquidity or ability to make distributions.
Gladstone Commercial believes that FFO per share provides investors
with an additional context for evaluating its financial performance
and as a supplemental measure to compare it to other REITs;
however, comparisons of its FFO to the FFO of other REITs may not
necessarily be meaningful due to potential differences in the
application of the NAREIT definition used by such other REITs.
Core FFO: Core FFO is FFO adjusted for certain
items that are not indicative of the results provided by Gladstone
Commercial’s operating portfolio and affect the comparability of
the company’s period-over-period performance. These items include
the adjustment for gains or losses from early extinguishment of
debt and any other non-recurring expense adjustments.
Although Gladstone Commercial’s calculation of Core FFO differs
from NAREIT’s definition of FFO and may not be comparable to that
of other REITs, the company believes it is a meaningful
supplemental measure of its operating performance.
Accordingly, Core FFO should be considered a supplement to net
income computed in accordance with GAAP as a measure of our
performance.
Gladstone Commercial’s presentation of FFO, as defined by
NAREIT, or presentation of Core FFO, does not represent cash flows
from operating activities determined in accordance with GAAP and
should not be considered an alternative to net income as an
indication of its performance or to cash flow from operations as a
measure of liquidity or ability to make distributions.
The statements in this press release regarding the forecasted
stability of Gladstone Commercial’s income, its ability, plans or
prospects to re-lease its unoccupied properties, and grow its
portfolio are “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements inherently involve certain risks and
uncertainties, although they are based on Gladstone Commercial’s
current plans that are believed to be reasonable as of the date of
this press release. Factors that may cause actual results to
differ materially from these forward-looking statements include,
but are not limited to, Gladstone Commercial’s ability to raise
additional capital; availability and terms of capital and
financing, both to fund its operations and to refinance its
indebtedness as it matures; downturns in the current economic
environment; the performance of its tenants; the impact of
competition on its efforts to renew existing leases or re-lease
space; and significant changes in interest rates. Additional
factors that could cause actual results to differ materially from
those stated or implied by its forward-looking statements are
disclosed under the caption "Risk Factors" of its Form 10-K for the
fiscal year ended December 31, 2016, as filed with the SEC on
February 15, 2017, and other reports filed with the SEC. Gladstone
Commercial cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.
Gladstone Commercial undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
CONTACT: Gladstone Commercial Corporation
+1-703-287-5893
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