DALLAS, TX -- May 9th, 2025 -- Gladstone Commercial Corporation.(NasdaqGS: GOOD): Stonegate Capital Partners Updates Coverage on Gladstone Commercial Corp. (NasdaqGS: GOOD). GOOD reported revenue, FFO per share, and AFFO per share of $37.5M, $0.34, and $0.29, respectively. This compares to our/consensus estimates of $36.8M/$37.3M, $0.34/$0.34, and $0.23/$0.26. Core FFO for the quarter was $0.34 per share, down from $0.35 in 4Q24.
Company Updates
Transactions: In the first quarter of 2025, Gladstone Commercial Corp. maintained its disciplined portfolio management approach. The Company ended the quarter with 141 properties across 27 states, expanding its footprint from the previous quarter. During 1Q25, GOOD executed its capital recycling strategy by selling two non-core properties, for $23.6M. Additionally, the Company expanded its portfolio by acquiring six fully leased industrial properties totaling 355,778 square feet for $73.7M, reflecting a weighted average lease term of 10.8 years and a blended cap rate of 8.39%. The acquisitions included a five-property portfolio in Houston, TX and a single property in Dallas-Fort Worth, TX. In the same period, the Company leased or renewed 67,709 square feet with a remaining lease term of 3.0 years. These strategic moves underscore GOOD’s ongoing emphasis on industrial assets while maintaining liquidity and reducing exposure to non-core properties.
Strengthened Liquidity and Capital Resources: Gladstone reported total liquidity of approximately $80.5M in 1Q25, consisting of $10.4M in cash and cash equivalents and $70.1M in borrowing capacity under its revolving credit facility. This liquidity position represents a 39.3% y/y increase, primarily due to a significant pay down of the revolver. These measures reflect the company’s approach to maintaining flexibility while optimizing its debt structure.
Fundamentals Remain Strong: GOOD continues to demonstrate strong operational fundamentals, maintaining a high occupancy rate of 98.4% as of 1Q25, down 30bps from 4Q24. The Company also reported 100% cash rent collection in the quarter, showcasing its stable tenant base and strong leasing activity. Renewal and Leasing activity remained stable in 1Q25 despite broader economic uncertainty, with 67,709 square feet leased or renewed at a single property, reflecting an average remaining lease term of 3.0 years. The portfolio’s weighted average lease term was at 6.8 years, reflecting the Company’s ability to secure long-term leases with creditworthy tenants.
Quarterly Results: GOOD reported revenue, FFO per share, and AFFO per share of $37.5M, $0.34, and $0.29, respectively. This compares to our/consensus estimates of $36.8M/$37.3M, $0.34/$0.34, and $0.23/$0.26. Core FFO for the quarter was $0.34 per share, down from $0.35 in 4Q24.
Improving Diversification: GOOD continues its strategic shift toward industrial properties, reducing exposure to office assets. As of 1Q25, the Company’s portfolio composition, based on annualized straight-line rent, consisted of 65% industrial properties and 31% office properties, maintaining its trajectory from the previous quarter and up from 63% industrial assets at year-end FY24. The shift underscores the Company’s focus on acquiring resilient, long-duration, single-tenant net lease industrial properties.
Payout Ratios: The Company currently pays a 8.7% dividend yield, paying out an annualized $1.20 per share. Based on a 1Q25 per share values for FFO of $0.34, Core FFO of $0.34, and AFFO of $0.29 GOOD has payout ratios of 88%, 88%, and 104% respectively.
Valuation: We use a combination of comp analysis, Revalued NAV (reNAV) per share analysis, and a Perpetual Growth Model based on the most recent FFO Payout Ratio to frame our valuation of GOOD. When we average these valuation methods it returns a valuation range of $15.74 to $17.81 with a mid-point of $16.76.
