DALLAS, TX -- August 8th, 2024 -- Gladstone Commercial Corporation.
(NasdaqGS: GOOD): Stonegate Capital Partners Updates Coverage on Gladstone Commercial Corp. (NasdaqGS: GOOD).
Company Updates:
Transactions: As of 2Q24, Gladstone Commercial Corp. has continued to deliver impressive financial performance. The Company's portfolio has grown to 136 properties, up from 131 at the end of FY2023, underscoring its commitment to acquiring mission-critical assets in expanding markets and the implementation of an ongoing strategic capital recycling program. During the 1H24, GOOD sold four non-core assets and plans to divest additional properties in the future. On the other end, the company has reinvested in highgrowth industrial properties. Despite ongoing economic uncertainty, GOOD expects steady access to debt and equity markets, with rents rising and a continued focus on industrial properties and active portfolio management.
Strengthened Liquidity and Capital Resources: In the second quarter, Gladstone reported liquidity that provides a flexible financial position. GOOD reported $52.5M in liquidity, including $10.4M in cash and cash equivalents, and a revolver borrowing capacity of $42.1M. The Company’s strategic use of equity and debt supports ongoing investments and ensures the execution of both short-term and long-term financial needs.
Fundamentals Remain Strong: GOOD fundamentals remain very strong. Occupancy at the end of the quarter was 98.5% with 100% rent collection quarter-to-quarter. The portfolio weighted average lease term was at 7.2 years, up from 6.7 years in 1Q24. This uptick was attributed to the renewal or leasing of 2,383,732 square feet across five properties, with remaining lease terms ranging from 0.7 to 11.0 years.
Quarterly Results: GOOD reported revenue, FFO per share, and AFFO per share of $37.1M, $0.36, and $0.23, respectively. This compares to our/consensus estimates of $36.3M/$35.9M, $0.43/$0.35, and $0.33/$0.28. Core FFO for the quarter was $0.36 per share, an increase from $0.34 in the last quarter. The sequential increase was due to accelerated rent related to a termination fee on a property sold during the second quarter.
Improving Diversification: GOOD continues to pivot from office properties into industrial. In 2Q24 the Company’s portfolio, as a function of straight-line rent, consisted of 62% industrial properties and 34% office properties. This was a change from 60% industrial and 36% office in 1Q24. This pivot is even more pronounced since 2019 when the Company ended the year with 38% industrial and 57% office. We are encouraged by the continued growth in the Company’s industrial portfolio
Payout Ratios: The Company currently pays an 8.3% dividend yield, paying out an annualized $1.20 per share. This is down from the $1.50 per share paid out in FY22. As is noted in the valuation segment, despite the decreased dividend the company still appears undervalued. Based on a 2Q24 per share values for FFO of $0.36, Core FFO of $0.36, and AFFO of $0.23 GOOD has payout ratios of 84%, 84%, and 130% respectively.
Valuation: We use a combination of comp analysis, Revalued Net Asset Value (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 $14.65 to $16.90 with a mid-point of $15.77.
