Gladstone Commercial Maintains Strong Industrial Focus with Strategic Portfolio Growth in Third Quarter 2025

Stonegate Capital Partners has updated its third quarter 2025 coverage report on Gladstone Commercial Corp., revealing the company's continued strategic execution in portfolio management and industrial property focus. The real estate investment trust ended the quarter with 151 properties across 27 states, expanding its national footprint while maintaining strong operational fundamentals.

During the third quarter, Gladstone Commercial executed its capital recycling strategy by selling one non-core property for $3.0 million while simultaneously expanding its portfolio through the acquisition of a fully occupied six-facility industrial portfolio totaling 693,236 square feet for $54.8 million. The acquisition was completed at a capitalization rate of 9.53%, demonstrating the company's ability to secure attractive industrial assets. The company also demonstrated robust leasing activity, renewing or leasing 14 properties covering 734,464 square feet with remaining lease terms ranging from 0.7 to 11.4 years.

The company's strategic shift toward industrial properties continues to accelerate, with industrial assets now comprising 69% of the portfolio based on annualized straight-line rent, up from 63% at fiscal year-end 2024. Office properties represent 28% of the portfolio, reflecting the company's deliberate reduction in office exposure. This transition underscores management's focus on acquiring resilient, long-duration, single-tenant net lease industrial properties that provide stable cash flow.

Operational metrics remained strong, with Gladstone Commercial maintaining a 99.1% occupancy rate in the third quarter, representing improvement from both the second quarter and fourth quarter of 2024. The company reported 100% cash rent collection during the period, highlighting the stability of its tenant base and the effectiveness of its leasing strategy. The portfolio's weighted average lease term stood at 7.5 years, indicating the company's success in securing long-term commitments from creditworthy tenants.

Financial performance showed mixed results, with revenue of $40.8 million, funds from operations per share of $0.35, and adjusted funds from operations per share of $0.09. Core FFO per share improved to $0.35 from $0.33 in the second quarter. The company maintained total liquidity of approximately $24.6 million, consisting of $18.4 million in cash and cash equivalents and $6.2 million in borrowing capacity under its revolving credit facility. Management has since upsized the credit facility to ensure sufficient liquidity for ongoing operations and strategic initiatives.

Dividend sustainability remains a key consideration for investors, with the company currently paying a 10.5% dividend yield, equivalent to an annualized $1.20 per share. This represents a reduction from the $1.50 per share paid in fiscal year 2022. Based on third quarter per share metrics, payout ratios stand at 86.6% for FFO, 86.4% for core FFO, and 345.9% for AFFO. Stonegate Capital Partners' valuation analysis, incorporating comparable company analysis, revalued net asset value per share analysis, and a perpetual growth model, suggests a valuation range of $13.57 to $15.43 with a midpoint of $14.50, indicating potential undervaluation despite the reduced dividend.

The company's continued emphasis on industrial property acquisition and management, combined with strong occupancy rates and rent collection, positions Gladstone Commercial to navigate potential economic uncertainty while providing stable returns to shareholders. The strategic portfolio transformation toward industrial assets reflects broader industry trends favoring logistics and distribution properties over traditional office spaces.