Supplemental Financial & Operating Information for the Quarter Ended December 31, 2016

Transcription

1 1 Supplemental Financial & Operating Information for the Quarter Ended December 31, 2016

2 2 Legal disclaimer Forward-Looking Statements: This presentation may include forward-looking statements within the meaning of the Securities Act of 1933 or the Securities Exchange Act of These forward-looking statements include comments with respect to our objectives and strategies, and the future results of our operations and our business. By their nature, these forward-looking statements involve numerous assumptions, uncertainties and descriptions of opportunities, both general and specific. The risk exists that these statements may not be fulfilled. We caution readers of this presentation not to place undue reliance on these forward-looking statements as a number of factors could cause our future results to differ materially from these statements. Any results or performance implied by forward-looking statements may be influenced in particular by factors such as fluctuations in interest rates and stock indices, the effects of competition in the areas in which we operate, and changes in economic, political, regulatory and technological conditions as well as those factors delineated under the caption Risk Factors in our Forms 10-Q and Form 10-K, as filed with the SEC. Therefore, we caution that the foregoing list is not exhaustive. When relying on forward-looking statements to make decisions, investors should carefully consider the aforementioned factors as well as other uncertainties and events. Past or Present Performance Disclaimer: This presentation includes information regarding past or present performance of the Company. Please note, past or present performance is not a guarantee of future performance or future results.

3 3 Table of contents About Gladstone Corporate overview Portfolio and financial overview Fourth Quarter 2016 highlights Financial overview Condensed consolidated statement of operations Funds from Operations (FFO) Condensed balance sheets Capital structure Liquidity and debt overview Portfolio Overview Portfolio update 15-19

4 Corporate overview About Gladstone Commercial Gladstone Commercial (NASDAQ: GOOD) is a leading real estate investment trust (REIT) that invests in single tenant and anchored multi-tenant net leased assets. Gladstone Commercial owns 11 million square feet of primarily office and industrial real estate nationwide. We partner with a variety of tenants from middle market private businesses to investment grade rated companies. Gladstone Commercial acquires properties through third party purchases, sale lease back transactions, and by partnering with developers in build-to-suit transactions. As of December 31, 2016, total assets were approximately $852 million, representing investments in 96 properties. Our properties are leased to 89 tenants who represent 19 diverse industries across 24 states. 15 Year Sale Leaseback, Acquired in 2016 Corporate Headquarters Investor Relations 1521 Westbranch Drive Suite 100 commercial@gladstonecompanies.com McLean, VA At December 31, 2016, our leases had an average remaining term of 7.8 years. In addition, approximately 64% of our tenants have an investment grade or investment grade equivalent credit rating.

5 Portfolio and financial overview Portfolio data Total assets ($mm) $852 Properties 96 Tenants 89 Industries 19 States 24 Average remaining lease term (years) 7.8 Occupancy 97.9% Square footage owned (mm) 11.1 Capitalization ($mm) Equity market capitalization 1 $516 Preferred equity $130 Total debt $509 Total capitalization $1,155 Less: Cash and cash equivalents $(5) Total enterprise value $1,150 Top 5 tenants % of rent % of SF 6% 3% 4% 9% 3% 1% 3% 1% 3% 5% Top 5 Tenants total 19% 19% Top 5 Tenants average remaining lease term 6.4 years Portfolio average remaining lease term 7.8 years Corporate liquidity ($mm) Cash and Cash Equivalents $4.7 Availability Under Revolving Credit Facility 2 $37.9 Total $42.6 Net total debt / enterprise value 43.9% Net total debt + preferred / enterprise value 55.2% ¹ Based on closing stock price on December 31, 2016 of $ Includes convertible senior common shares. 2 As of February 15, 2017 availability under revolving credit facility is approximately $30.8 million. 5

6 6 Q highlights (unaudited) FFO 1 and Core FFO 2 : Generated FFO and Core FFO of $9.4 million or $0.38 per diluted common share. Dividends: Paid quarterly common stock dividends of $0.375 per common share, or an annualized $1.50 per common share. Acquisitions: Acquired 1 property for a total purchase price of $25.7 million. 8.7% annualized straight-line cap rate 103,000 square feet 15 years of remaining lease term Equity Issuances: Executed a direct placement of common stock with net proceeds totaling $13.9 million. Issued $12.9 million of aggregate common and preferred equity through our ATM programs. 1 FFO is calculated as net income excluding gains from sales of property and impairment losses on property, plus depreciation and amortization. 2 Core FFO is FFO adjusted for acquisition related expenses, gains from early extinguishment of debt and any other non-recurring expense adjustments.

7 Financial Overview 7

8 8 Condensed consolidated statements of operations ($ in thousands, except per share amounts) For the three months ended (unaudited) For the twelve months ended 12/31/2016 9/30/ /31/ /31/ /31/2015 Operating revenues Rental revenue $ 21,746 $ 21,205 $ 20,938 $ 84,498 $ 80,892 Tenant recovery revenue ,489 1,753 Interest income from mortgage note receivable ,121 Total operating revenues 22,009 21,589 21,823 86,372 83,766 Operating expenses Depreciation and amortization 9,720 9,459 9,128 37,517 35,288 Property operating expenses 1,435 1,410 1,544 5,889 5,296 Acquisition related expenses (14) Base management fee 1,141 1, ,930 3,474 Incentive fee ,381 4,650 Administration fee ,474 1,419 General and administrative ,127 2,094 Impairment charge 1,786 2, Total operating expenses before credit to incentive fee 13,733 15,172 12,970 55,595 53,465 Credit to incentive fee (2,500) Total operating expenses 13,733 15,172 12,970 55,595 50,965 Other (expense) income Interest expense (6,254) (6,338) (7,101) (25,902) (28,014) Distributions attributable to Series C mandatorily redeemable preferred stock 1 (131) (686) (1,502) (2,743) Gain on sale of real estate 266 (24) 1, ,538 Other income 6 3 (37) Total other expense, net (5,981) (6,490) (6,286) (26,819) (29,205) Net income (loss) 2,295 (73) 2,567 3,958 3,596 Distributions attributable to Series A, B and D preferred stock (2,353) (2,002) (1,025) (6,645) (4,094) Distributions attributable to senior common stock (254) (254) (259) (1,011) (1,007) Net income (loss) available (attributable) to common stockholders $ (312) $ (2,329) $ 1,283 $ (3,698) $ (1,505) Weighted average shares of common stock outstanding Basic 24,024,280 23,509,054 22,165,654 23,193,962 21,159,597 Diluted 24,024,280 23,509,054 22,976,182 23,193,962 21,159,597

9 Funds From Operations (FFO) ($ in thousands except per share amounts) For the three months ended (unaudited) For the twelve months ended 12/31/2016 9/30/ /31/ /31/ /31/2015 Net income (loss) $ 2,295 $ (73) $ 2,567 $ 3,958 $ 3,596 Less: Distributions attributable to preferred and senior common stock (2,607) (2,256) (1,284) (7,656) (5,101) Net (loss) income (attributable) available to common stockholders $ (312) $ (2,329) $ 1,283 $ (3,698) $ (1,505) Adjustments: Add: Real estate depreciation and amortization $ 9,720 $ 9,459 $ 9,128 $ 37,517 $ 35,288 Add: Impairment charge 1,786 2, Add: Loss on sale of real estate, net $ $ 24 $ $ $ Less: Gain on sale of real estate, net $ (266) $ $ (1,538) $ (242) $ (1,538) FFO available to common stockholders - basic $ 9,142 $ 8,940 $ 8,873 $ 35,593 $ 32,867 Add: Convertible senior common distributions ,011 1,007 FFO available to common stockholders - diluted (1) $ 9,396 $ 9,194 $ 9,132 $ 36,604 $ 33,874 FFO available to common stockholders - basic $ 9,142 $ 8,940 $ 8,873 $ 35,593 $ 32,867 Add: Acquisition related expenses (14) Add: Write-off of terminated offering costs Core FFO available to common stockholders - basic $ 9,128 $ 9,147 $ 9,005 $ 36,117 $ 33,695 Add: Convertible senior common distributions ,011 1,007 Core FFO available to common stockholders - diluted (1) $ 9,382 $ 9,401 $ 9,264 $ 37,128 $ 34,702 Weighted average common shares outstanding - basic 24,024,280 23,509,054 22,165,654 23,193,962 21,159,597 Weighted average common shares outstanding - diluted 24,824,397 24,309,170 22,976,182 23,994,078 21,942,554 FFO per weighted average share of common stock - basic $ 0.38 $ 0.38 $ 0.40 $ 1.53 $ 1.55 FFO per weighted average share of common stock - diluted (1) $ 0.38 $ 0.38 $ 0.40 $ 1.53 $ 1.54 Core FFO per weighted average share of common stock - basic $ 0.38 $ 0.39 $ 0.41 $ 1.56 $ 1.59 Core FFO per weighted average share of common stock - diluted (1) $ 0.38 $ 0.39 $ 0.40 $ 1.55 $ 1.58 Distributions declared per share of common stock $ $ $ $ $ Diluted FFO available to common stockholders was not previously adjusted for the income impact of the assumed conversion of senior common stock for the three months and year ended December 31, 2015 but has subsequently been adjusted, in accordance with ASC 260 ("Earnings per Share"). 9

10 Condensed balance sheets ($ in thousands) 12/31/ /31/2015 ASSETS Real estate, at cost $ 821,749 $ 780,377 Less: accumulated depreciation 131, ,243 Total real estate, net 690, ,134 Lease intangibles, net 105, ,914 Real estate and related assets held for sale, net 9,562 1,077 Mortgage note receivable 5,900 Cash and cash equivalents 4,658 5,152 Restricted cash 3,030 4,205 Funds held in escrow 6,806 7,534 Deferred rent receivable, net 29,725 27,443 Other assets 2,320 2,825 TOTAL ASSETS $ 851,742 $ 827,184 LIABILITIES AND STOCKHOLDERS EQUITY LIABILITIES Mortgage notes payable, net $ 445,278 $ 455,863 Borrowings under line of credit and term loan, net 64,117 69,469 Series C mandatorily redeemable preferred stock, net 38,100 Deferred rent liability, asset retirement obligation and other liabilities, net 31,727 29,881 TOTAL LIABILITIES $ 541,122 $ 593,313 MEZZANINE EQUITY Series D redeemable preferred stock $ 70,743 $ TOTAL MEZZANINE EQUITY $ 70,743 $ STOCKHOLDERS EQUITY Series A and B redeemable preferred stock $ 2 $ 2 Senior common stock 1 1 Common stock Additional paid in capital 463, ,897 Distributions in excess of accumulated earnings (223,587) (185,051) TOTAL STOCKHOLDERS' EQUITY $ 239,877 $ 233,871 TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS EQUITY $ 851,742 $ 827,184 10

11 11 Capital structure Current capital structure as of 12/31/2016 ($000) Capital Structure Details $1,200,000 $1,000,000 $800,000 Common Equity, 44.8% Dollars in $000s, except stock price Wtd. Average Rate 12/31/2016 Mortgage Notes Payable, Net 4.69% $ 445,278 Less: Cash & Cash Equivalents (4,658) Net Mortgage Debt $ 440,620 Line of Credit L+2.25% $ 39,225 Term Note L+2.20% 24,892 Line of Credit and Term Loan $ 64,117 Total Debt, Net $ 504,737 $600,000 $400,000 Line of Credit & Term Loan, 5.6% Preferred Equity, 11.3% Series A - Preferred 7.75% $ 25,000 Series B - Preferred 7.50% 31,600 Series D - Preferred 7.00% 72,936 Total Preferred Equity $ 129,536 $200,000 Net Mortgage $479,000 Debt, 38.3% 48% Diluted Common Shares Outstanding 25,682,874 Stock Price¹ $ Implied Common Equity Market Capitalization $ 516,226 $0 Total = $1,150mm Enterprise Value $ 1,150,499 Note: Common Equity uses closing price as of December 31, 2016 and includes effect of convertible securities

12 12 Liquidity and debt overview Liquidity Fixed vs. Floating Debt $110mm credit facility comprised of $85mm line of credit and $25mm term loan $160mm common equity ATM program and $90mm in preferred equity ATM programs Minimal interest rate exposure because the vast majority of debt is either fixed rate or floating rate with an interest rate cap Reduced leverage 1 to 43.9% from 66.7% in 2009 Debt maturity schedule ($000) Floating Rate: 12.6% Hedged Floating Rate: 13.9% Fixed Rate: 73.5% 2 Mortgage Maturities Line of Credit Maturity Term Loan Maturity $140, % $120,000 $100, % 18.7% $80,000 $60,000 $40, % 9.0% 7.3% 6.2% $20,000 $ Leverage calculation is based on enterprise value. 2 Subject to loan compliance, we have the option to extend the maturity of the line of credit one year through August 2019.

13 13 Debt summary ($ in thousands) Principal Maturity Date Weighted Average Interest Rate as of Principal Balance Outstanding as of 12/31/ /31/ % 49, % 38, % 39, % 3, % 14, % 105, % 71, % 15, % 35, % 34, % 31, % 1, % 10,835 Contractual Mortgage Notes Payable: 4.69% $ 450,184 Premiums (Discounts), net: 217 Total Mortgage Notes Payable: $ 450,401 Variable-Rate Line of Credit: 2018 LIBOR +2.25% $ 39,700 Variable-Rate Term Loan Facility: 2020 LIBOR +2.20% $ 25,000 Total Mortgage Notes Payable and Line of Credit 4.48% $ 515,101

14 Portfolio Overview 14

15 15 Portfolio overview Geographic diversity 96 properties across the U.S. located in 24 states Focus on secondary growth markets with higher yields Tenant and property diversity Diverse base of 19 different industries and primarily office and industrial property types Focus on mid-size tenants occupying properties ranging from K SF (office) and K SF (industrial) Occupancy has never fallen below 96% High occupancy Current occupancy 97.9% 4.4% of projected rents expiring from Only one credit loss in Company s entire history Periodic capital recycling Sell non-core assets Re-deploy proceeds in growth markets Note: As of 12/31/2016

16 Diversified portfolio 96 properties spread across 24 states Geographic diversification (by rent) Northeast 14% Midwest 31% Southwest 27% Southeast 28% Property type diversification (by rent) Medical Office 3% Retail 4% «GOOD Properties Target Markets Industrial 36% Office 57% Note: As of 12/31/

17 17 Diversified portfolio (cont d) Publicly-traded vs. privately-held tenants (as % of total rent) Tenant credit ratings (as % of total rent) Not Rated, Non-Investment Grade Equivalent 24% Rated, Investment Grade 23% Private 50% Public 50% Rated, Non- Investment Grade 12% Rated Investment Grade and Non-Rated Equivalent 64% Not Rated, Investment Grade Equivalent 41% Note: As of 12/31/2016

18 18 High quality, diversified portfolio Top 5 tenants % of rent % of SF Industry diversification (based on rent) 6% 3% 4% 9% Telecommunications 17% All 13 Others 35% 3% 1% Healthcare 16% 3% 1% 3% 5% All other tenants 81% 81% Electronics 5% Diversified/Conglomerate Manufacturing 6% Automobile 12% Diversified/Conglomerate Services 9% Portfolio is diversified across industries Note: As of 12/31/2016

19 Smooth lease rollover Existing portfolio Year of Lease Expiration SF of Leases Expiring Number of Expiring Leases Base Rental Revenue (in thousands) % of Base Revenue ,260 2 $ % , % , % ,067, , % , , % , , % ,680, , % Sold/Terminated Leases N/A N/A % Total 10,869, $ 21, % Rent expiring 100.0% 80.0% 60.0% 60.1% 40.0% 20.0% 0.0% 13.9% 9.8% 10.3% 0.5% 0.5% 1.3% 1.1% 3.8% 2.8% GAAP Rents (Existing Portfolio) Projected Rents through 2019 Note: As of 12/31/

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