Overview of the Company’s Financial Performance

Gladstone Commercial Corporation is a real estate investment trust (REIT) that owns and operates a portfolio of commercial properties, primarily industrial and office buildings, across the United States. The company had a strong financial performance in 2024, with several key highlights:

• The company owned 135 properties totaling 16.9 million square feet of rentable space, located in 27 states, with an occupancy rate of 98.7%.
• The company collected 100% of all outstanding base rent for the calendar year 2024, demonstrating the strength of its credit underwriting and asset management.
• The company’s weighted average remaining lease term was 6.9 years, providing stability and predictable cash flows.
• The company was able to maintain adequate liquidity, with $101.7 million in available liquidity as of December 31, 2024, including $11.0 million in cash and $90.7 million in available borrowing capacity under its revolving credit facility.

Revenue and Profit Trends

The company’s total operating revenues increased by 1.2% in 2024 compared to 2023, driven by an increase in lease revenue from same-store properties. This was partially offset by a decrease in lease revenue from acquired and disposed properties, as well as properties with vacancy.

The company’s net income available to common stockholders and Non-controlling OP Unitholders increased significantly in 2024 compared to 2023, primarily due to lower impairment charges and a higher gain on the sale of real estate, partially offset by the payment of an incentive fee to the company’s Adviser and a lower gain on debt extinguishment.

The company’s funds from operations (FFO), a key metric used to evaluate REIT performance, increased slightly in 2024 compared to 2023, reflecting the company’s stable operating performance.

Analysis of Strengths and Weaknesses

Strengths:

• Diversified tenant base: The company does not have significant exposure to tenants in the retail, hospitality, airlines, and oil and gas industries, which have been particularly impacted by the COVID-19 pandemic.
• Geographic diversification: The company’s 135 properties are located across 27 states, which helps mitigate exposure to regional economic and weather-related issues.
• Strong credit underwriting and asset management: The company’s ability to collect 100% of outstanding base rent in 2024 demonstrates the strength of its credit underwriting and asset management teams.
• Adequate liquidity: The company has $101.7 million in available liquidity, which it believes is sufficient to cover near-term debt obligations and operating expenses, as well as continue its industrial growth strategy.

Weaknesses:

• Exposure to interest rate risk: The company’s variable-rate debt, including its revolving credit facility and term loans, exposes it to interest rate risk, which could impact its profitability if interest rates continue to rise.
• Reliance on external management: The company is externally managed by Gladstone Management Corporation, which could pose risks if the management agreement is terminated or the Adviser’s performance is suboptimal.
• Concentration in industrial and office sectors: While the company’s focus on industrial properties has been a strength in recent years, a downturn in these sectors could have a significant impact on the company’s performance.

Outlook and Future Considerations

The company believes it is well-positioned to navigate the current business environment, which continues to be influenced by factors such as interest rate volatility, supply chain disruptions, and the ongoing impact of the COVID-19 pandemic.

The company plans to continue focusing on re-leasing vacant space, renewing upcoming lease expirations, refinancing upcoming loan maturities, and acquiring additional properties with associated long-term leases. The company’s ability to make new investments is highly dependent on its ability to procure financing, which it expects to continue to be available from a variety of sources, including private credit institutions, banks, insurance companies, and the issuance of equity and debt securities.

The company’s outlook for the industrial and office sectors is cautiously optimistic, with the industrial market expected to see some softening in leasing activity and occupancy rates, while the office market is expected to continue its modest recovery. The company believes it is well-positioned to take advantage of opportunities that may arise in these sectors.

Overall, Gladstone Commercial Corporation’s strong financial performance in 2024, coupled with its diversified portfolio, adequate liquidity, and focus on strategic growth, suggest the company is well-equipped to navigate the current business environment and continue delivering value to its shareholders.