Greetings and welcome to the Gladstone Commercial Corporation Second Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, CEO. Thank you, David. You may begin.

Thank you, Paul, and thanks to all of these nice people who are coming into this call. Enjoy the time that we have with all of you and I wish we had many more times to spend with you. We are going to start off, of course, with Michael LiCalsi. He is our General Counsel and Secretary. He gives us a legal warning. So, Michael, go ahead.

Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933, the Securities Exchange Act of 1934, including those regarding our future performance. Some of these statements involve certain risks and uncertainties that are based upon our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors listed on our Forms 10-Q, 10-K, and other documents we file with the SEC. You can find them on our website at gladstonecommercial.com, specifically the Investors page. You can always go to the SEC's website as well. Now we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. And today, we will discuss FFO, which is funds from operations. Now, FFO is a non-GAAP accounting term defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets. We will also discuss core FFO, which generally adjusts FFO for certain other non-recurring revenues and expenses. We believe these metrics are a better indication of our operating results and allow for better comparability of our period-over-period performance. We ask everyone to visit our website once again, gladstonecommercial.com, and sign-up for email notification service. You can also find us on Facebook, keyword there is The Gladstone Companies, and our Twitter handle is @GladstoneComps. Today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday, for more detailed information. Again, go to the Investors page of our website, you can find them there. Now, I will hand the presentation over to Gladstone Commercial's President, Buzz Cooper. Buzz?

Thank you, Michael. Good morning everyone and thank you for dialing in. I will cover the highlights for last quarter and provide some comments on the state of the portfolio and market outlook before turning the call over to Gary Gerson, Gladstone Commercial's CFO, to review our financial results for the period and our capital and liquidity positions. During the second quarter of 2022, we continued our focus on industrial acquisitions and improving operations. We acquired a 260,719 square foot industrial portfolio with locations in Fort Payne, Alabama and Cleveland, Ohio for $19.3 million; acquired a 345,584 square foot industrial manufacturing distribution facility in Wilmington, North Carolina for $18.8 million. Leased and renewed 34,732 square feet with a weighted average lease term of 5.3 years. Subsequent to the end of the quarter, we sold our Jupiter, Florida office property for $19 million, resulting in a gain on sale of $8 million and a levered IRR of approximately 18%. We also leased 41,225 square feet at our Parmer, Austin, Texas office building to Cognizant Technology Solutions for a 5.7-year term at market rates. These investments, dispositions, and leasing activities further reinforce our strategy to increase our portfolio's industrial allocation and improve property operations. Acquisition activity since July of 2021 has been steady and consistent in spite of the uncertain market conditions driven by rising inflation, a war in Europe and pandemic challenges. Our team averaged $11 million of investments per month, achieving a strong average GAAP cap rate of 6.99%. The acquisition volume since 2019 has exceeded $400 million, and all assets have been industrial in nature. Our industrial allocation has increased from 32% to 52% during this period, while our pure office allocation has been reduced to 44%. Our team's near-term objective is to reach an industrial allocation of 60% within the next 12 to 18 months. Our success has been with acquisition candidates in the 50,000 to 300,000 square foot range with a predominance of sale-leaseback transactions, and we expect to continue this focus. Now I’d like to comment on the portfolio. Our asset management team continued to deliver on improving our same-store operations. Year-to-date through July 30, the team leased, renewed, and extended 292,710 square feet covering six tenants with a weighted average lease term of 10.1 years. The annualized straight-line rent totaled $3.2 million. We are also continuing our capital recycling efforts in order to redeploy sales proceeds into industrial assets. These transactions will benefit our 2022 operating performance and in the out years as well. We have leases representing 3% of our annualized straight-line rent expiring in 2022, which will be quite manageable for the team and will enable us to continue our emphasis on top line rental growth through expansion of our portfolio. Our rent collection experiences continue to be strong. 100% of cash rent collections for the first half of 2022 were paid, plus the month of July as well. We are very pleased with our portfolio and our tenants performing during these challenging times for all industries. On the personnel side, we continue to grow our talent pool within size and experience. Recently, we promoted EJ Wislar, who is Head of the Southeast and Northeast regions, to Chief Investment Officer, where he will head up our acquisition efforts. To recap, in the second quarter, we closed two transactions for a total of $38.1 million. Again, the first was a two-property portfolio for Pain, Alabama and Cleveland, Ohio. The purchase price was $19.3 million with a GAAP cap rate of $6.7 million. The second closing was in Wilmington, North Carolina, purchased for $18.8 million and a GAAP cap rate of $6.45 million. Again, subsequent to the end of the quarter, we executed a 41,225 square foot lease at our Austin, Texas asset, increasing occupancy to approximately 70%. This lease improves overall FFO as compared to the prior lease for the 100% occupancy of the building. We have also signed two sales agreements for two of our office properties, which will close in the next 45 days. It is appropriate to mention that since January 2022, the average GAAP cap rate on our $51.4 million of acquisitions is 6.57%. Our transactions and due diligence scheduled to close within the next 45 days are above 7%, which is very accretive to our shareholders. Market conditions are worthy of comment, particularly with the continued effects of the COVID-19 virus, rising inflation, supply chain challenges, rapid interest rate increases, and geopolitical tensions. A review of research reports relating to industrial and office statistics for the fourth quarter reflects both improvements and continued challenges. For industrial, most property types continue to outperform expectations and the fundamentals remain strong, despite the economic volatility, creating a disconnect between the property markets and capital markets. While investors are beginning to take a risk-off approach, long-term quality real estate investment opportunities remain. Despite these headwinds indicating an economic slowdown, the national industrial market remains resilient. For Newmark, for the fifth consecutive quarter, net absorption exceeded 100 million square feet, bringing vacancy to a new record low of 3.7%. Demand continues to outpace deliveries and rising construction costs are driving the average industrial asking rates to new heights, up 12.7% year-over-year. National rents are poised to continue growing ahead of inflation over the next several months given the record low vacancy rate. The construction pipeline increased dramatically to 613 million square feet in the second quarter, up roughly 12.5% from Q1. Supply chain, labor, and inflationary pressures have delayed development schedules contributing to the record-high construction pipeline. The industrial market is expected to remain robust. The office market has continued to evolve and gradually recover from the pandemic. However, Cushman & Wakefield references that office absorption has continued to be negative. In Q2 2022, there was a net negative absorption of 7.8 million square feet across the U.S. Preferred JLL leasing activity remained relatively flat during Q2 with approximately 47 million square feet leased, just a 10 basis point increase from Q1. Nearly 50% of all deal volume was for terms of 10 years or longer, bringing the average lease to 7 years above the pandemic low of 6.7 years. The office sector recorded 11.8 million square feet of new deliveries, bringing year-to-date completions to $26.5 million and on track to repeat 2021’s 50 million square feet of new space deliveries. As it relates to growth opportunities, we are recently seeing a reduction in sale listing activity, and investment sales brokers are indicating that the number of acquisition candidates on a per property basis has been reduced. We continue to monitor market conditions to see if the increase in interest rates on debt will translate into a further expansion of cap rates over time. Our current pipeline of acquisition candidates is approximately $275 million in volume, representing 15 properties, all of which are industrial. Of the 15 properties, three properties are in due diligence totaling $58 million, three properties are in litter 10 stage totaling $68 million, and the balance are under initial review. Our team is staying actively engaged in our markets as we believe acquisition opportunities will continue to arise that we can and will pursue. So in summary, our second quarter activities reflected continued strong leasing and rental collection success, continued active engagement to identify industrial acquisition opportunities, and collectively position us well to pursue growth opportunities. Now let me turn it over to Gary, our CFO, for a report on the financial results, including our capital markets activities.

Thank you, Buzz, and good morning everyone. I’ll start my remarks regarding our financial results this morning by reviewing our operating results for the second quarter of 2022. All per share numbers I reference are based on fully diluted weighted average common shares. FFO and core FFO available to common shareholders were both $0.39 per share from the quarter, respectively. FFO adjusted for comparability and core FFO available to common stockholders during the second quarter of 2021 were $0.36 and $0.37 per share, respectively. FFO and core FFO available to common stock shareholders for the two quarters ended June 30, 2022, or $0.78, respectively. FFO adjusted for comparability and core FFO for the two quarters ended June 30, 2021, were $0.76 and $0.78, respectively. Our same-store cash rent in the two quarters of 2022 increased by 2.5% over the first two quarters of 2021, exclusive of accelerated rent recognized during the first six months of 2021 from early lease terminations. Our second quarter results reflected total operating revenues of $36.4 million, operating expenses of $27.8 million as compared to operating revenues of $33.3 million and operating expenses of $25 million for the same period in 2021. Moving on to the balance sheet, we continue to grow our assets and focus on reducing our leverage. In the second quarter, we increased total assets by approximately $39 million, primarily due to the two acquisitions Buzz described earlier. We continue to reduce our debt to gross assets and are now down to 44.9% as of the end of the quarter. We believe that we are 1% to 2% away from our target leverage level. We continue to use long-term mortgage debt to make acquisitions. As we grow through disciplined investments, we also expand our unsecured property pool with additional high-quality assets. Over time, we expect this will increase our debt financing options. Looking at our debt profile, 59% is fixed, 31.6% is hedged floating rate, and 9.4% is floating rate, which is the amount drawn on our revolving credit facility. We have seen increased expenses this quarter due to the rise in short-term interest rates. As of June 30, our effective average LIBOR was 1.79%. Given our current hedging, the impact of a 1% to 2% increase over the 1.79% would be between a $1.9 million and $2.6 million increase in expenses annually or between $500,000 and $650,000 quarterly, which is approximately $0.12 to $0.165 per share at today’s diluted weighted average shares outstanding. As of today, our 2022 and 2023 loan maturities are manageable with $57.1 million due in 2022 and $74.2 million coming due in 2023. We have a number of options, and we will refinance these amounts at the appropriate time. As of the end of the quarter, we had $47 million of revolver borrowings outstanding. While entering the first quarter with sufficient liquidity, we’ve been active in issuing equity through our at-the-market, or ATM program. During the second quarter of 2022, and net of issuance costs, we raised $11.4 million through common stock sales. We also raised net proceeds of $1.4 million from sales of our Series F preferred stock. We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements. As of today, we have approximately $3.8 million in cash and $34.6 million of availability under our line of credit. With our current availability, the strong performance of our portfolio and access to our ATM program, we believe that we have sufficient incremental flexibility to fund our current operations near and long-term. We encourage you to also review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. Institutional ownership of our stock has increased over time to 49.7% as of June 30, which is a significant increase over the past 8 years. We continue to be very active in meeting with current and potential investors, portfolio managers, coverage analysts, and investment banks. We look forward to establishing new relationships as the company grows. Our common stock dividend is $0.3762 per share per quarter or $1.548 per year. We have not cut or suspended the dividend since our IPO in 2003. Our common stock closed on Monday at $20.78. The distribution on our stock is 7.24%. Many REITs are trading at much lower yields. And now I will return the program back to David.

Okay. Thank you, Gary. That was a good report, and it’s also a good one from Buzz and Michael. The team has performed very well and reacted admirably to the various challenges presented during the slower economy that we are in today. Overall, very nice quarter. You have heard a lot today in terms of the numbers of transactions, as Gary said, and I think Buzz said the same thing that we have collected 100% of the cash-based rents during the second quarter. We acquired two industrial assets during the quarter for total investments of $38.1 million, and we also leased and renewed a total of 34,732 square feet, which is part of 293,000 of total leases renewals to date. Subsequent to the end of the quarter, we sold our wonderful Florida location that had been vacated by one of the large technology companies, and we sold it to a group that was willing to take the risk of leasing it up again, and we got about $8 million in capital gains out of that. We leased over 41,000 square feet in Austin, Texas. That one was a drag on us for so many years and now, of course, it’s almost leased up. We are in very good shape there. The commercial team is doing a great job of managing the properties we own, especially during the pandemic and now, of course, doing this very slow economy. Our team of strong professionals continues to pursue quality properties on the list of acquisitions. They are reviewing – our acquisition team is seeking strong credit tenants, quality tenants, and real estate makes excellent investments. Our asset managers are actively managing the properties that we own in order to maximize their value to us. It’s a different environment out there today, but the team is up to the challenge. The middle market business, like many of our tenants, has been challenged with previous government restrictions related to the pandemic, inflation, the rise in interest rates, and supply chain disruptions, but our tenants continue to pay their rent. This is wonderful for us. These are times that have never been seen before, and there will be future challenges, but our first-class team, I know they are going to do a fantastic job. Advisors who follow the economy say that you should buy hard assets, and believe me, these buildings and real estate, they are hard assets. So, if you buy our stock, you are getting a piece of what we own. I am going to stop here and ask anyone, and I will have the operator tell people how they can ask questions that we can answer for you. So, Paul, if you will come on, that would be great.

Our first question is from Gaurav Mehta with EF Hutton. Please proceed with your question.

Thank you. Good morning. First question on the transaction market, in your prepared remarks, you talked about a decline in investment sales listing in the market. I was wondering if you could touch upon the cap rates, and what kind of impact have you seen on the CapEx yet?

Thank you, Gaurav. We have seen cap rates push out. We don’t have enough information at this point to say they are out to what the rise in interest rate is at this point in time. But what we have seen is that they indeed have pushed out, which works to our benefit as well as a few opportunities that we looked at in the past have come back to life, so to speak. So, it is having an effect on the numbers that we look at, but what I was referring to is, the competition on those is also still very intense; albeit fewer shops are – some are pencil down until Labor Day.

Okay. Second question on your lease expirations. Can you provide some color on the three leases that you are expiring in 2022?

With leases expiring, yes, we have only got three, of which we are working hard upon South Carolina, Ohio, which actually the building is under consideration for sale as well as another one in Ohio that is up for sale. So, quite manageable here in ‘22, and then, of course, the team is also focused on ‘23.

Okay. And then lastly, can you provide some color on the $1.3 million impairment charge that you had in this quarter?

Yes, that has to do with a building that we have that is held for sale, and that we will be – as one of the three buildings that Buzz referred to earlier, we will probably be consummating that sale here shortly. And that has to do with basically just the structuring of the accounting on that, but generally, the building will be sold for overall a slight gain. We just had to impair the property because of the accounting treatment.

Okay. Thank you.

Next question.

Thank you. Our next question is from Craig Kucera with B. Riley. Please proceed with your question.

Yes. Hi. Good morning, guys. Can you give us some additional color on the new lease with Cognizant in Austin? Was the rent comparable to GM? Did you have to spend meaningful dollars on tenant improvements? Any color there would be helpful.

On the TI dollars, meaningful, yes, because anything out of pocket to us is meaningful. However, well below market down there on TI dollars for $50 to $70, even higher for some of the properties. At a 5.7-year deal, we could be aggressive on the TI side. We kept those under $30 a square foot. In relation to rental rate, it’s north of where it was when GM exited at approximately $14.5 when they exited. We are north of $20, but I don’t want to get too specific relative to that for Cognizant’s sake.

Fair enough. And as far as the asset sales, you sold the building earlier this month in Jupiter, Florida. You have got another couple in New Jersey and Ohio. Can you give us a sense of what initial cap rates you are selling those buildings at?

Again, the gain on the opportunity down in Florida was an 18 IRR. I would have to go back and look up the cap rate for those sales, but they are north of where we purchased them.

Okay. Alright. And I think you had – last quarter, you mentioned you had one tenant that was vacating in Utah, I think at the end of the second quarter. Has that building been leased up, or did I miss that maybe?

We did not lease it. We are working hard on it. It has not been leased up. We also were entertaining an interesting transaction on that. Again, I can’t get too specific on that, but could be a very positive outcome, but we are looking to re-lease it and/or sell it.

And the remaining lease terminations, are those – alright not termination, expirations. Are those fourth quarter events, or are those sort of right away through the rest of the year?

They are going to be either at the end of the third quarter or into the fourth quarter, yes.

Thank you. Our next question is from James Allen Villard with Ladenburg Thalmann. Please proceed with your question.

Good morning, guys.

Good morning.

Yes. It’s just kind of two big picture questions for me. Has the recent oscillation or volatility in long-term interest rates impacted the mortgage financing market at all? And are there any changes that you have seen over the past – in second half of 2022?

Now we are seeing the mortgage market is still there. There is plenty of mortgage money still available. Obviously, the rates have gone up. But we haven’t had any trouble in procuring mortgage debt right now. It has been – and to your point, I mean it’s been kind of volatile. I mean we are actually seeing rates come in now. We have seen the 10-year has come in almost more than 30 basis points over the last month. So, I would expect that mortgages would follow. And so we should hopefully see mortgage debt go down over the next quarter.

Yes, that’s helpful. And kind of, I guess looking back towards the remainder of the year, can you give us any color on remaining CapEx for the Austin property and maybe the portfolio as a whole?

On the portfolio as a whole, we do not have a lot of CapEx needs at this point. We might have committed to some. I would have to look to be exact for you. And on the Cognizant transaction, as I referenced, that’s approximately $1.5 million that we will do CapEx in that building. We are looking to reposition that building. We are decommissioning the cafeteria. So, those dollars will be spent here before the end of the year.

Okay. That’s helpful. That’s it for me. Thank you.

Paul, do we have any more questions?

At this time, there are no further questions.

Well, we appreciate everybody calling in and asking questions, and hopefully, we will give you another good quarter this quarter we are in now based on where we think we are going to be at the end of this one. So, thank you all again, and we will see you next quarter at the end of this...

Thank you. This does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.