Greetings. Welcome to Gladstone Commercial Corporation's Year End Conference Call. Please note that this conference is being recorded. At this time, I'll turn the conference over to Mr. David Gladstone, Chief Executive Officer. Mr. Gladstone, you may now begin.

Thank you, Rob. Nice introduction, and we thank all of you for calling in. We certainly enjoy this time we have with you, and we wish there were more time to talk to you. We're going to start off as we always do with Michael LiCalsi, he is our General Counsel and Secretary, to give us the legal and regulatory matters concerning the call today. Michael, go ahead.

Thanks, David. Good morning, everybody. Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based on 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 in our Forms 10-Q and 10-K and the other documents we filed with the SEC. You can find them on our website, gladstonecommercial.com, specifically the Investors page, or on the SEC's website, which is www.sec.gov. 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. Today, we will discuss FFO, which stands for funds from operations. FFO is a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate, and any impairment losses on property, plus depreciation and amortization of real estate assets. We'll also discuss core FFO, which is generally FFO adjusted for certain other non-recurring revenues and expenses. We believe these metrics are a better indication of our operating results and allow better comparability of our period-over-period performance. Please take the opportunity to visit our website, once again, gladstonecommercial.com, and sign up for our email notification service. You can also find us on Facebook, using the keyword 'Gladstone Companies', and on Twitter, our 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 issued yesterday for more detailed information. With that, I'll hand it back to Gladstone Commercial's President, Buzz Cooper. Buzz?

Thank you, Michael. Thank you all for calling in. Today, we will discuss economic and portfolio topics that are top of mind, as well as our recent dividend run rate reduction. This course of action is never desirable. It was a result of a careful decision by the Company and its Board of Directors. We took this step with a forward-looking view in anticipation of a possible turbulent economic environment in 2023. This action will allow us to be prepared for any global economic storms, be more flexible in our ability to increase the customers percentage of our portfolio, and hopefully increase FFO per share even though the prospects of a less forgiving economic circumstance are ahead. Taking a look at how much change has occurred over the past year, we have had to continue addressing the lingering effects of the pandemic on our office portfolio, navigate the unprecedented rise in interest rates, and the negative impact that inflation has placed on the economy. Many economists believe there is a high risk of recession in the near future as interest rates continue to increase and manufacturing activity continues to decrease based on a variety of Fed surveys. The most recent inflation data from January of 2023, which was released in February, revealed that although the rate of inflation is decelerating, it remains well above the Fed's long-term target rate. On February 2, the Federal Reserve raised rates again by 25 basis points rather than the 50 basis points, signaling that the rates will continue to rise, but perhaps at a slower pace. All these factors have had and are expected to continue to have a challenging effect on the commercial real estate market overall. Regarding the economic environment for office properties, throughout the pandemic we originally believed that once the pandemic was over, a broad return to the office environment would bring utilization of office space back towards pre-pandemic levels, albeit impacted by hybrid arrangements and the ongoing fight for quality. Other industry players also anticipated that office spaces would begin to fill back up once COVID-19 was in the rearview mirror. Supporters of return-to-office predicted that companies could not function properly without the collaborative and social benefits of in-person work. However, with increasing layoffs and reluctance among many workers to return to in-office work full-time or part-time, most of us now see a full-scale return to pre-pandemic office utilization and office space leasing demand as unrealistic for the foreseeable future. With these factors in mind, we made the decision to lower the dividend to $0.10 per share per month, effectively a run rate of $1.20 per year. Concerning the dividend adjustment, the company is sensitive to the stockholders' expectations and appreciates the understanding and support we have received from many for the prudent action taken by the company. This is a forward-looking adjustment to improve the company's competitive position in a tight and somewhat unpredictable marketplace. To continue our capital recycling efforts from office into industrial assets, and to bring our dividend payout ratio in line with our REIT peers, we are confident that this action will allow for future equity appreciation, as well as continued strong dividend returns. Notably, the company's external advisor is also aligned with the shareholder, given the non-recoverable contractual waiver of incentive fees through at least June 30 of this year. I would also like to highlight several positive developments. As mentioned on previous calls, we have extended, amended, and upsized our corporate credit facility with the addition of multiple new banks. Since the initial recast, we also added another bank and most recently amended our borrowing base calculation to allow more availability in a higher interest rate environment. With this change, our availability increased by more than $30 million to approximately $84 million. Our overall portfolio remains stable and we continue to see attractive acquisition candidates. Furthermore, we continue to have success with re-tenanting and capital recycling into industrial assets. With these facts in mind, let me move on to a discussion covering results for the last quarter and provide some comments on the state of the portfolio and market outlook before turning the call over to Gary Gerson, our CFO, to review our financial results for the period and our capital liquidity positions. During the fourth quarter of 2022, we continued our focus on industrial acquisitions and improving operations. We acquired a 69,000 square foot industrial building in Denver, Colorado for $12 million in a 20-year sale-leaseback transaction with a GAAP cap rate of 8.2%. We acquired a 65,000 square foot industrial building in Greenville, South Carolina, in a 12-year sale-leaseback transaction with a GAAP cap rate of 9%. We sold our 31,000 square foot office building in Columbus, Ohio, and a 115,200 square foot two-story office building in Allen, Texas. We leased 20,682 square feet at our Mason, Ohio office property for seven years and four months, bringing that property to full occupancy. We extended the lease at our 63,243 square foot Grand Rapids, Michigan office property for seven years, increasing the total lease period to 9.3 years. We extended our lease of 15,816 square feet of industrial space in Bolingbrook, Illinois for two additional years. We extended our lease of 29,626 square feet of office space in Harbor, New Jersey for two additional years. We announced our sale-repurchase program of our 6.625% Series E Cumulative Redeemable Preferred Stock and our 6% Series G Cumulative Redeemable Preferred Stock for up to $20 million of each issue. Further, we collected 100% of cash base rents during the fourth quarter. These investments, disposition, and releasing activities further reinforce our strategy to increase our portfolio's industrial allocation and improve property operations. Acquisition activity in 2022 was strong despite uncertain market conditions driven by rising inflation, a war in Europe, and pandemic challenges. Our team finished the year with $114.4 million in acquisitions totaling 1.2 million square feet, comprised of 13 properties and seven tenants with an average remaining lease term at acquisition of 14.5 years. Our acquisition volume since 2019 has exceeded $465 million, and all assets have been industrial in nature. Our industrial allocation has increased from 32% to 56% during this period, while peer office allocation has been reduced to 40%. The team's near-term objective is to reach an industrial allocation of at least 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, dominated by 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. For the calendar year, the team leased, renewed, and extended 628,499 square feet covering 13 tenants with a weighted average lease term of 7.8 years. The annualized straight-line rent totaled $7.7 million. This compares to 2021, where the team leased, renewed, or extended 1.7 million square feet covering 16 tenants, with an average lease term of eight years. The annualized straight-line rent then totaled $14.7 million. We're also continuing our capital recycling efforts to redeploy sale proceeds into industrial assets. These transactions will benefit our go-forward operating performance. Our rent collection experience continues to be strong: 100% cash rents were collected through January 31, and in fact, into February as well. We are very pleased with our portfolio and with our tenants' performance during these challenging times for all industries. In the fourth quarter, we closed two transactions for a total of $16.9 million. The first was a 20-year sale-leaseback located in Denver, Colorado with a purchase price of $12 million and a cap rate of 8.2%. The second, in South Carolina, had a purchase price of $4.9 million with a GAAP cap rate of 9% and a 12-year term. It's appropriate to mention that since January 2020, the average GAAP cap rate on our $114 million of acquisitions is 7.26%. Transactions currently in due diligence, scheduled to close within the next 45 days, are above 7.5%, which we expect to be very accretive to our shareholders. Market conditions are worthy of comment, particularly with the continued effect of COVID-19 on the office market, elevated inflation, supply chain challenges, rapid and consistent interest rate increases, and the war in Europe. A review of research reports relating to industrial and office statistics for the fourth quarter reflects both some improvement and continued challenges. Most industrial property types continue to outperform expectations and the fundamentals remain strong, despite the economic volatility, creating a disconnection 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 the headwinds indicating an economic slowdown, the national industrial market remains resilient, albeit with slightly slowing fundamentals. Per JLL, the industrial market finished 2022 with 468 million square feet of net absorption, the second highest year on record behind 2021. Demand continues to be strong, fueled by asking rents increasing 19.1% year-over-year. However, due to the record-breaking number of new deliveries, the vacancy rate increased by 10 basis points quarter-over-quarter to 3.4%. There is currently 632 million square feet under construction, a record-breaking number, but mostly unchanged from the previous quarter. We have also begun to see a slowdown in new proposed projects, which could lead to a shrinking pipeline of under-construction assets through 2023. 2022 finished with 480 million square feet delivered, a 35% increase from 2021, but there are currently over 600 million square feet slated for delivery in 2023. Industrial transaction volume totaled $136 billion in 2022 despite a slowdown in the second half of the year due to steep interest rate increases. However, the market has seen a promising start to 2023 as more investors are reengaging as pricing expectations become more realistic. The office market, however, has continued to evolve. Per JLL, the office sector posted negative net absorption of 37 million square feet versus negative 59 million square feet in 2021. Leasing activity totaled over 180 square feet for the year, a 15.1% increase over 2021, and reflects 22% of pre-pandemic leasing volume. Nearly 100 million square feet of product is currently under construction, but only 3.9 million square feet broke ground in the fourth quarter, increasing the total construction volume by 7.5% quarter-over-quarter. Tenants continue to put their space up for sublease to reduce costs. With year-end sublease vacancies totaling 136 million square feet, expectations are for an increase in office vacancy rates as leases roll over the next few years, which will lead to downsizing and lower renewal rates for spaces currently offered for sublease. As it relates to our growth opportunities, we have recently seen a reduction in sale leasing activity, and investment sales brokers are indicating that the number of acquisition candidates on a per-property basis has been reduced. We have seen cap rate expansion in the market due to the continued rise in interest rates and cost of debt. Our pipeline of acquisition candidates is approximately $300 million in volume, representing 20 properties, all of which are industrial. Of the 20 properties, two are in due diligence totaling $20 million, three are in a Letter of Intent 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 as we pursue them. In summary, our fourth quarter activities reflected continued strong leasing and rental collection success, continued active engagement to identify industrial acquisition opportunities, and collectively positioned us well to pursue growth opportunities. Now, let's turn it over to Gary, our CFO, for a report on the financial results, including our capital 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 fourth quarter of 2022. All per share numbers I reference are based on fully diluted weighted average common shares. FFO and core FFO per share available to common stockholders was $0.34 per share for the quarter respectively. FFO and core FFO available to common stockholders during the fourth quarter of 2021 were both $0.40 per share, respectively. FFO available to common stockholders for the year ended December 31, 2022, was $1.54, and core FFO available to common stockholders for the same period was $1.56. FFO adjusted for comparability and core FFO for the year ended December 31, 2021, were $1.60 and $1.57 respectively. Our same-store cash rent in the full year 2022 increased by 1.5% over the full year 2021. Our fourth quarter results reflected total operating revenues of $37.2 million, with operating expenses of $26.8 million, compared to operating revenues of $35.3 million and operating expenses of $25.4 million for the same period in 2021. Moving onto the balance sheet, we continue to grow our assets and focus on reducing our leverage. For the year 2022, we increased real estate before depreciation by $74.3 million. We continue to reduce our debt to gross assets and are now down to 45.3% as of the end of the quarter. We believe we are a few percent away from our target leverage level. As we grow through accretive investments, we also continue to 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, 47.9% is fixed, 49% is hedged floating rate, and 3.1% 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 interest rates and the expensing of hedge-related costs. As of December 31, our effective average SOFR rate was 4.3%; our outstanding bank term loans are hedged with $210 million of interest rate swaps, and the remainder with interest rate caps. In addition, we have $100 million of forward-starting swaps to replace maturing caps in mid-2023. We continue to monitor interest rates closely and update our hedging strategy as needed. As of today, our 2023 and 2024 loan maturities are manageable, with $57.7 million due in 2023 and $11.3 million coming due in 2024. 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 $23.3 million of revolver borrowings outstanding. We ended the first quarter of 2023 with sufficient liquidity. We've been active in issuing equity through our at-the-market or ATM program. During 2022, net of issuance costs, we raised $43.2 million through common stock sales. We also raised net proceeds of $5.4 million from sales of our Series F preferred stock for the year. We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements. We repurchased $180,000 of our 6% Series G preferred stock as of today. We have approximately $4.8 million in cash and $86.4 million of availability under our line of credit. With our current availability, strong portfolio performance, and access to our ATM program, we believe we have sufficient incremental flexibility to fund our current operations in the 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 7.4% as of December 31, which is a significant increase over the last eight 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 continues to grow. Our common stock dividend is $0.30 per share per quarter or $1.20 per year. Our common stock closed on Wednesday at $15.60; the distribution yield on our stock at that price was 7.69%. Now I'll turn the program back to Dave.

Thank you, Gary. That was a good report. Buzz and Michael did reports as well. The team has performed very well and reacted admirably to the various challenges presented by the pandemic and the economy. Overall, it's easy to say it was a nice quarter. I didn't like cutting the dividends; it's the second time in 30 years that I've cut the dividend. The last time we did that, we actually earned it back. It was on a different company that didn't cut it, and this one I think will be back paying a higher dividend in a year or so, and we'll be okay. You've all heard a lot today about the numbers of new transactions and new leases. We acquired two new industrial assets, sold two office properties, and collected 100% of the cash-based rent during the fourth quarter. All of that is good news. We also leased and renewed about 126,000 square feet as part of 628,000 square feet of total leases that renewed for the year. Our commercial team is growing. We continue to add people and grow the business to handle all the assets. So we're in good shape to go forward. I think we've pretty much avoided all the problems of the past two years that crept up on us. The team continues to pursue lots of good opportunities. I think the fact that we had some properties that didn't look as good are now out of the way and done and sold, and we're continuing to grow our existing assets. I know that we all look first at the tenants. These are middle-market companies, many of them. This is what makes us so strong; we're tenant-oriented and then real estate second. Our asset managers are effectively managing the properties that the company owns to maximize their value, both in terms of income and when we need to sell them. I'm going to stop at this point and have our person, Rob, come on and tell everybody how they can ask them good, strong questions for us.

Thank you, Mr. Gladstone. Our first question comes from the line of Gaurav Mehta with EF Hutton. Please proceed with your question.

Good morning. I wanted to ask you about your 2023 lease expirations. Can you maybe provide some color on the leases that are expiring in '23? How much of those leases are office versus industrial? And what are you guys expecting?

Sure. Thanks, Gaurav. We've got seven properties that we are actively working on that do expire here in '23. Of those, we have two under a purchase agreement out for execution that are office, two are in discussions for renewal. We have one lease mentioned that did bring the property to full occupancy, one is out for sale or lease, and one we extended for two months as the tenant has a contract they are working on, with high indication that they will receive this contract, which then we will enter into a long-term lease. So the team is aggressively hitting these properties, keeping an eye on them, but I think we've made good progress on the sale of several as well as re-tenanting the buildings. So we believe we can manage it. Of those, 40% are industrial and 60% are office. The two sales are office.

Okay. Second question on your debt expiration for '23. Can you maybe provide some color on where you would issue new debt if you were to refinance it, and what other sources of capital you may use to take care of the debt?

We have lower expiring debt, that's all mortgage debt. We could refinance, we could finance some that are on the line, or replace those with these properties, put them on the line. We could draw off the line to repay the mortgages, and we could pay some of it with equity raised on the ATM. So we have plenty of resources to repay those mortgages.

The next question is from the line of James Allen Villard with Ladenburg Thalmann.

Good morning, guys.

Good morning, James.

On the waived incentive fee, is there any set date for it to restart, or is there any possibility that you would waive that again in 2023?

Well, over the years we've done a lot of waiving, and I can assure you that we're subordinating that to our dividend payments. I think we can waive it many times if we want to, and we should want to if we can't meet our dividends right away. Over the years, I don't know how much we've waived.

I don’t know.

I know we used to give that to the board a little list of things, but be assured that it's always available.

I hope you don't have to waive it again. But I guess my next question is, will CapEx elevate in Q4? How should we think about that number for 2023?

I'm sorry, you were referencing cap rates?

CapEx.

Capital expenses, obviously, by the sale of some of these office assets, which are more expensive to re-tenant and obviously keep up, we are cutting our exposures related to operating expenses.

What did we have last year? Gary, do you remember what we had in CapEx last year? The year before?

No, I don't have that.

James, do you...

I guess in Q4, $4.4 million, I guess, for supplier around like half a million.

Yes, these industrial leases sometimes have more CapEx than office simply because they're growing and they want to expand, and we're willing to do that. You might also note that generally, when we're doing CapEx, we charge them for the additional money that we are putting into the deal. So it's not a negative to put it in. We're generally not on the hook for much in terms of CapEx.

Okay, that's helpful. That's it for me. Thank you.

The next question is from Craig Kucera with B. Riley. Please proceed with your question.

Yes. Hi, good morning, guys. I think you've had a large tenant in South Carolina that expired in the fourth quarter of last year, and I wanted to know if you had an update there.

Certainly do. It was occupied by a call center by Verizon. As you'd most likely know, they have gone back home or remote. We've had several inquiries on the property. Currently, we have a receiver in place on that property. We have a buyer for that property, and the receiver and buyer need to work out some specifics around the contract in order for that to proceed, and we're very hopeful of that. The receiver bank is taking care of the operating expenses, but we hope to have that completed within hopefully less than three months.

Okay, great. And I appreciate the color on the '23 lease expirations. But can you give us a sense of the cadence of those lease expirations? Are they weighted to the first half or second half? Any color there would be helpful.

Give me one second. They're mostly weighted towards the back end, into December. So we're about 10 months now.

Got it. I know last quarter, you gave an update on the asset in Austin, where you were still trying to maybe lease it up and then sell it. What are your current thoughts there?

Austin has obviously been going through some transitions, both positive and negative. We currently have had some tours through, and we have a couple RFPs out for approximately 70,000 to 80,000 square feet. Not a lot there has changed other than some improvements to the building. Cognizant is in the process of moving in, but we are aggressively pursuing leasing it up, and then we'll make an assessment as to a hold or sale.

And Craig, that's carrying itself now. We just have to put money in every month as we did when it was mostly vacant. So we're not in a negative position. We're just trying to make it more positive.

Got it. I just want to circle back on a housekeeping item related to interest expense. I think in your case, you said your current interest rate cap on term loan C is within a range. Can you just refresh us on what that is on average for term loan C and sort of the relevant spreads on your various floating rate debt that you've kept or swapped?

Okay, so term loan C, we have caps on term loan C. Those are in the, I want to say 310 to 370 range. Those are set to mature in mid-2023 and will be replaced by a forward starting swap, which is at about 370. The spreads on those term loans are 145 over Sofr.

Okay, great. That's very helpful. That's all for me. Thank you.

Okay, any more questions out there?

No questions at this time, Mr. Gladstone.

Okay. Well, glad to hear from everybody. I wish we had more questions. We enjoy the questions. It would be delightful if we could have more questions next time. We'll see you next quarter. And that's the end of this call.

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