DALLAS, TX -- February 26th, 2024 -- Gladstone Commercial Corp. (NASDAQGS: GOOD): Stonegate Capital Partners updates their coverage on Gladstone Commercial Corp. (NASDAQGS: GOOD).
Company Updates
- Transactions: GOOD has remained acquisitive, prioritizing mission critical properties in growth markets at attractive cap rates. As of February 21, 2024 the Company owned 134 properties, a decrease from 137 at the end of FY22. This is in-line with management’s stated objective to reduce holdings in non-core office assets. In 2023 the Company completed $29.5M worth of acquisitions across five properties for a total of 321,432 square feet.
- Decreasing Debt Levels: The Company ended the quarter with a total debt level of $743.8M with an average interest rate of 5.78%. This translates to a Net Debt/Gross Assets percentage of 46.1%. This is in-line with the 2022 ratio of 45.3%. As the Company continues to recycle assets, we expect debt levels to continue to decrease. We note that the Company repaid $58.9M in fixed rate debt during FY23.
- Fundamentals Remain Strong: GOOD fundamentals remain very strong. Occupancy at the end of the quarter was 96.8% with 100% rent collection throughout the quarter. The portfolio weighted average lease terms were at 6.8 years, down from 7.0 years in 4Q22. Subsequent to the end of the quarter GOOD occupancy rate increase to 97.4% as of February 21, 2024.
- Quarterly Results: GOOD reported revenue, EPS, and AFFO per share of $35.9M, $0.03, and $0.30, respectively. This compares to our/consensus estimates of $37.2M/$36.8M, ($0.01)/$0.02, and $0.39/$0.32. Net Income to common stockholders was a gain of $1.3M, largely due to the 319bps sequential expansion in GPM. Core FFO for the quarter was $0.36 per share, an increase from $0.34 in the last quarter.
- Improving Diversification: GOOD continues to pivot from office properties into industrial. In 4Q23 the Company’s portfolio consisted of straight-line rent consisted of 60% industrial properties and 36% office properties, respectfully as it relates to straight line rent. This was up from 56% industrial and 40% office in 4Q22. This pivot is even more pronounced since 2019 when the Company ended the year with 38% industrial and 57% office.
- Payout Ratios: The Company currently pays a 9.6% 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 4Q23 per share values for FFO of $0.36, Core FFO of $0.36, and AFFO of $0.30 GOOD has payout ratios of 84%, 84% and 102% respectively.
- Valuation: We use a combination of comp analysis, 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 $14.10 to $17.63 with a mid-point of $15.83.
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Stonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking, equity research and capital raising for public and private companies.
