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Gladstone Commercial Hits Numbers With Rarely Used Accounting, While A Debt Maturity Looms

Old Time REITster profile picture
Old Time REITster


  • Gladstone Commercial reported a 5.8% increase in same-store properties revenue “primarily due to income from tenant-funded improvements.” This represents a novel interpretation of ASU 2016-02.
  • GOOD has not addressed the $29.3 million mortgage loan that matures in August and is secured by a leased but largely vacant office property in Austin.
  • According to management, proceeds from the sales of their office properties with near-term lease expirations would approximate the debt and/or book value. These assets represent 1.85% of rents or $0.035/share.
  • What happened to the Stock Repurchase Plan GOOD announced in March?

Young man diving

aydinmutlu/E+ via Getty Images

Upon first reviewing Gladstone's (NASDAQ:GOOD) 1Q23 Earnings Release I was surprised that they had matched consensus FFO as consensus had baked in acquisitions which did not occur. (They did have to round up to get there.) It

This article was written by

Old Time REITster profile picture
A retired scholar who studies both the real estate and the public markets seeking long and short opportunities in poorly followed securities

Analyst’s Disclosure: I/we have a beneficial short position in the shares of GOOD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (45)

Gastavio profile picture
Old Time REITster, can you follow up on what's happening with their mortgages debt maturities coming due this year - PLEASE.

You mentioned $54.8 million coming due this year - and implied that GOOD would likely have material issues with this.

In May you stated "On the next earnings call management will no longer be able to say we will deal with this at the appropriate time as the maturity is 3 months from now. Sell side analysts will be forced to adjust their models for the outcome"

Earnings are out. Stock is up.

What's going on?
Old Time REITster profile picture
@Gastavio I will be coming out with an article later this week. They used their credit facility to pay off $35.7 million of mortgages that had an weighted average interest rate 4.85%. With the current SOFR rate at 5.3% and the spread on their facility at 1.45%, the replacement debt is at 6.75%. The increasing interest expense will flow through in future quarters. I suspect the reason the stock is up is due to the termination fee which led to the 5 cent beat. Once the market gets back to focusing on future earnings this beat will seem irrelevant.
Rob G. in Vegas profile picture
@Old Time REITster Definitely another big increase in quarterly interest costs YOY. Went from $7.1M at 6/30/22 to $9.1M for 6/30/23.

Advanced 3% from the $8.83M paid during 3/31/23. Have to keep a close eye on this line item.
Strong sell, boy it only went up from
There. Realize hind sight is 20/20 but man was this WRONG looking back
Eileen Dover profile picture
@1TurboTrader If they suspend the dividend in the future I'll have to look to sell the Pfd GOODN.
Rob G. in Vegas profile picture
@Eileen Dover Why would they suspend the common dividend? They may have to cut it again, but not suspend.

2Q 2023 was a decent quarter for GOOD, but dividend coverage actually got worse, as they spent $4M in cap-ex during the quarter, compared to $1.96M during 1Q.

So for 2Q, they had $15.769M of Operating Cash Flow (up from $14.9M during 1Q), but had only $11.769M of Free Cash Flow.

From this FCF they paid out $15.16M in common and preferred dividends.

But the good news is that they issued another $4M in the private preferred stock (6% Series F) at very favorable prices (6.57% yield).

To me, the company continues to just muddle through a difficult environment for some of their office assets.

I continue to own the GOOD preferreds and love the fat yields.
Eileen Dover profile picture
@Rob G. in Vegas Common div down to .10/qtr, nearing where they "could" suspend it if they wanted to, putting the Pfd div at a slight risk even though cumulative. Long Pfd doing well bought cheap probably like you ! GLTY
I started to look through your past articles and everyone I clicked on you had a short position and the majority of them were REITs. And from all those Gladstone seems to be the one you wrote the most about have you been short since 2017 or have you been off and on short on Gladstone thank you for your answer. with the rate going up should be ez to short
Great article ! Income from tenant improvements is a new one. Regarding their loan due — I assumed that was covered by increased term loans A B,C that occurred last year… but might be wrong.

Curious if you understand the additional $2.24M of increased QoQ interest expense that killed their net income. 10-Q states this is from increased INT rates … but only the $29M (3.5% total debt) is floating (unhedged). This INT expense is also not from an ineffective hedge.
@Old Time REITster curious if you have taken a look at Peakstone after their recent listing? A lot of recent volatility but seems ripe for a short. Selective asset inclusion in their metrics (WALT, investment grade tenant mix, etc). Appears to have significant lease expiration risk next year.
Old Time REITster profile picture
@REITInvestor00 it is a name I have been meaning to look at. Dane got the first article out on seeking alpha.
Old Time REITster profile picture
@REITInvestor00 I took a peak at Peakstone. Definitely worth shorting, however, Fidelity did not have any shares available. Either someone beat us to it, or given their path to the public markets, bds do not have shares to lend.
Rob G. in Vegas profile picture
@Old Time REITster I like to use put options when I am bearish, but it is impossible on PKST. Giant bid-ask spreads and liquidity that is "less than minimal".
BeaBaggage profile picture
Good info on $GOOD, happy to be in $GOODO w a basis around $15, the common div is shipping out $50mil a year now at 1.20/y. $50mil buffer for the pfd divs, ok in the pfd not the common. Bea
CincinnatiRick profile picture
@BeaBaggage Travails of the common will likely provide increasingly enticing entry points on the preferreds.
Eileen Dover profile picture
@BeaBaggage Got out of GOODN with a profit at $23 earlier this year. Would you think it wise to reenter now for GOODN at $17.45 or GOODO at $16.07 (or lower on each? Thanks Bea
Eileen Dover profile picture
@CincinnatiRick Hi Rick. I asked Bea and also ask you. Do you think GOODN or GOODO are "smart" safe investments right now ? I may have asked you very recently but can't find the post. Thanks !
I originally thought your articles on GOOD were wrong. After the dividend cut, and this faked revenue find you have my full attention. I used to think GOOD had good and honest management, but the everything’s fine to dividend cut has made me realize this is a bad investment. Now the question is when to sell..
Mo_Hawk profile picture
@PassiveIncomeHunter how red is your GOOD invest atm?
Old Time REITster profile picture
@PassiveIncomeHunter I am glad I was able to help. You definitely want to get out before they have to deal with the August maturity.
@Mo_Hawk -10% the years of return of capital has lowered my cost basis a lot
This article is very insightful, very helpful. To recognize the tenant recognition issue and then research the 10k plus provide a concise and understandable article is great information. Thanks.
Old Time REITster profile picture
@Dhoffm I appreciate your reading my work. As a retiree I benefit from the ability to track down information as I am not under pressure to publish quickly.
johnny812 profile picture
thank you for another great piece. Much appreciated.
Old Time REITster profile picture
@johnny812 Thank you for the support!
Wow, great catch! Their use of recognizing tenant improvements as income is indeed absurd and it shows management is stretching for numbers.
Old Time REITster profile picture
@Dpj5678 Thanks! Appreciate the support!
They could hand the keys bank to the bank on the August maturity if the value is upside down vs the mtg amt - big players do this all the time . But GOOD needs to cut that dividend, they need to conserve cash.
Old Time REITster profile picture
@Workinhard they certainly could hand the keys back to the bank...but the current cash flow from the asset would disappear then
Rob G. in Vegas profile picture
@Workinhard That would be a very difficult decision for GOOD, as they will be getting $3.3M in annual NOI from the GM property until the end of 2026.
Pablomike profile picture
@Rob G. in Vegas
Can GOOD negotiate with GM on a lease release, take some cash out, then give the keys back??
Doesn't sound legal but just a thought.
Mo_Hawk profile picture
-24% deep red.. 🫣
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