DALLAS, TX -- February 20th, 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 $37.4M, $0.35, and $0.23, respectively. This compares to our/consensus estimates of $38.6M/$38.0M, $0.34/$0.35, and $0.31/$0.28. Core FFO for the quarter was $0.35 per share, down from $0.38 in 3Q24. This was primarily driven by a settlement received at one property.
Company Updates:
Transactions: In the fourth quarter of 2024, Gladstone Commercial Corp. maintained its disciplined portfolio management approach. The Company ended the quarter with 135 properties across 27 states, maintaining its footprint from the previous quarter. During 4Q24, GOOD executed its capital recycling strategy by selling one non-core property, generating a net gain of $3.7M. For FY24 the Company sold seven non-core assets, generating a total of $39.0M. Conversely, The Company expanded its portfolio by acquiring a fully leased 124,500-square-foot industrial property in St. Clair, Missouri, for $5.1M. 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 a robust liquidity position at the close of 4Q24 with total liquidity of $101.7M, comprising $11.0M in cash and cash equivalents and $90.7M in borrowing capacity under its revolving credit facility. This liquidity position represents a 57.1% y/y increase, primarily due to a significant pay down of the revolver. Additionally, GOOD repaid $14.8M in fixed-rate mortgage debt. These measures reflect the company’s strategic approach to maintaining financial flexibility while optimizing its debt structure to ensure sustained growth.
Fundamentals Remain Strong: GOOD continues to demonstrate strong operational fundamentals, maintaining a high occupancy rate of 98.7% as of 4Q24, up 20bps from 3Q24. The Company also reported 100% cash rent collection throughout the year, showcasing its stable tenant base and strong leasing activity. Lease renewal activity remained steady in FY24, with the Company renewing 1.1 million square feet of leases across nine properties, extending remaining lease terms between 5.3 and 13.8 years. The portfolio’s weighted average lease term held steady at 7.0 years, reflecting the Company’s ability to secure long-term leases with creditworthy tenants.
Improving Diversification: GOOD continues its strategic shift toward industrial properties, reducing exposure to office assets. As of 4Q24, the Company’s portfolio composition, based on annualized straight-line rent, consisted of 63% industrial properties and 33% office properties, maintaining its trajectory from the previous quarter and up from 60% office assets at year end FY23. This ongoing transition highlights GOOD’s commitment to pivoting its portfolio into resilient industrial assets, driving stability and demand.
Payout Ratios: The Company currently pays a 7.5% dividend yield. This relates to paying out an annualized $1.20 per share. As is noted in the valuation segment the Company still appears undervalued. Based on 4Q24, per share values for FFO of $0.35, Core FFO of $0.35, and AFFO of $0.23 GOOD has payout ratios of 87%, 87%, and 130% respectively.
Valuation: We use a 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 $15.47 to $17.54 with a mid-point of $16.50.
