Greetings. Welcome to Gladstone Commercial's first quarter earnings call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note 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 begin.
Okay. Thank you, Rob. Nice introduction, and thanks to all of you for calling in this morning. We enjoy this time that we have with you, and, unfortunately, it's on the phone, so we just get to hear your voice when you ask a question. Now, we'll first start with Michael LiCalsi. He's our General Counsel and Secretary to give us the legal and regulatory matters concerning this call that we're doing today. Michael, go ahead.
Thanks, David, and 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. Now, many factors may cause our actual results to be materially different from any future results expressed or implied to these forward-looking statements, including all the risk factors on Forms 10-Q, 10-K, and other documents that we file with the SEC. You can find them on the investors page of our website, www.gladstonecommercial.com, or on the SEC's website at www.sec.gov. The company undertakes 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 is funds from operations. 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'll also discuss core FFO, which are 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. We ask everybody to take the opportunity to visit our website, once again, gladstonecommercial.com. Sign up for our 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.
We will advise everybody to review our press release and Form 10-Q issued yesterday for more detailed information. Again, go to the investors page of our website to check those out. With that, I'll hand the baton over to Gladstone Commercial's Co-Presidents, Bob Cutlip and Buzz Cooper. Bob?
Thank you, Michael. Good morning, everyone. During the first quarter of 2022, we continued our focus on industrial acquisitions and improving our operations. We acquired an 80,000 sq ft industrial facility in Wilkesboro, North Carolina for $7.4 million with 12.7 years remaining lease term. Acquired a 56,000 sq ft industrial facility in Oklahoma City for $5.9 million with seven years of remaining lease term. Renewed and extended the lease and removed the termination option at our 127,400 sq ft industrial facility at the Mercedes-Benz assembly plant in Vance, Alabama, through December of 2032. Renewed and extended the lease at our 50,900 sq ft office facility in New Albany, Ohio, through March of 2037.
Renewed and extended a 73,960 sq ft office lease in the Minneapolis MSA through July 2028. Subsequent to the end of the quarter, we acquired two industrial facilities totaling 260,719 sq ft in Fort Payne, Alabama and Cleveland, Ohio, for $19.3 million with 11.4 years of remaining lease term, and leased 29,500 sq ft in our 92,187 sq ft Blaine, Minnesota industrial building, raising the occupancy in that property to 100%. These investments and re-leasing activity further reinforce our strategy to increase our portfolio's industrial allocation and to 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 $10 million of investments per month with a strong average GAAP cap rate of 6.8%. The acquisition volume since 2019 is approaching $400 million, and all of the assets have been industrial in nature. Our industrial allocation has increased from 32% to 51% during this period. The team's near-term objective is to reach 60% within the next 12 months-18 months. Our success has been with acquisition candidates in the 50,000 sq ft-300,000 sq ft range with a predominance of sale leasebacks, and we expect to continue this focus. Our asset management team continued to deliver on improving our same store operations.
Year to date, in March 31st, the team renewed and extended just under 258,000 sq ft, covering four tenants with a weighted average lease term of 10.6 years. The annualized straight line rent totals $2.9 million. We are also continuing our capital recycling efforts in order to utilize these sale proceeds in industrial asset acquisitions. These transactions are gonna benefit our 2022 operating performance and in the outyears as well. We have 4.2% of our leases 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 experience continues to be strong. 100% of first quarter 2022 cash rent collections were paid plus the month of April as well.
As noted in our prior call, we collected 100% of contractual rents during 2021. We are very pleased with our portfolio and with our tenants' performance during these challenging times for all industries. We want to highlight again with you some important succession planning decisions that we recently announced. Buzz Cooper, sitting next to me here, will become president effective July 1st, 2022. This appointment coincides with my retirement on June 30. As I shared with you on our last call, this role has truly been the pinnacle of my career. I thank David, the board, and the team for their support and their guidance. We've been on a great journey together, improving our metrics and delivering on what we said we would do.
This team that is in place today will take us to the next level under Buzz's and Gary's leadership and will result in increasing shareholder wealth. Believe me, I will miss the competition with our peers, our collective engagement on transactions, and the success we have achieved. I do wish everyone the very best going forward. Now I'd like to ask Buzz to summarize our acquisitions for the first quarter, our assessment of current market conditions, and our acquisition pipeline opportunities. Buzz?
Thank you, Bob. It has been a great experience working with you to grow the company these past many years. We have a great team in place, and I look forward to building upon my more than 20 years with David Gladstone to deliver strong results and grow the company further. As stated, this is reinforced by our first quarter 2022 results, which came on top of a very strong 2021. In the first quarter, we closed two transactions for a total of $13.3 million. The first is in Wilkesboro, North Carolina, and was for $7.4 million. It carries a term of 12.7 years. The GAAP cap rate is 6.54%. The second closing is in Oklahoma City, Oklahoma, and was for $5.9 million and carries a seven-year term.
The GAAP cap rate there, 6.65%. Subsequent to the end of the quarter, we acquired two industrial facilities totaling 260,719 sq ft with the same tenant in Fort Payne, Alabama, and Cleveland, Ohio. The acquisition price was $19.3 million, with 11.4 years remaining of lease term. The GAAP rate was 6.69%. Market conditions are worthy of comment, particularly with the continued effect of COVID-19, rising inflation, supply chain, and world upheaval. A review of research reports relating to industrial and office statistics for the fourth quarter reflects both improvements and continued challenges. Per CBRE, investment sales volume for all property types was approximately $750 billion for 2021 and is the highest since 2007.
Prices for all property types increased by approximately 23% this year, according to Real Capital Analytics, and industrial pricing recorded a 29.2% increase. Industrial overall activity continues to be strong, with vacancy at about 3%-4% level on a national basis. Of course, this depends on which research analyst report one reviews. Net absorption exceeded 100 million sq ft per quarter for the entire year at approximately the same amount Q1 2022, and over 500 million sq ft is currently under construction. Although supply chain disruptions are creating challenges for all product sectors, e-commerce and logistics demand continues to drive the industrial sector. Office vacancy in the fourth quarter of 2021 saw an increased demand. However, it came with a drop in rental rates and an increase in landlord concessions.
Per CBRE, net absorption totaled 18.7 million sq ft in the fourth quarter, with overall vacancy rates dropping 20 basis points to 16.6% quarter-over-quarter. This is the first drop in vacancy since mid-2019 and the first positive absorption compared to the prior six quarters. Vacancy level does not include significant sublease space available on a national basis. New supply activity continues as approximately 90 million sq ft is under construction as of the end of 2021. As it relates to our 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 type basis has been reduced. We continue to monitor the market conditions to see if the increase in interest rates on debt will translate into an expansion of cap rates over time.
Our current pipeline of acquisition candidates is approximately $310 million in volume, representing 19 properties, and all of which are industrial. Of the 19 properties, one property is in due diligence, totaling $18.8 million. Six properties are in the letter of intent stage, totaling $104 million, and the balance are under initial review. Our team is staying actively engaged in the markets as we believe acquisition opportunities will continue to rise, and we can and will pursue. In summary, our first 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's turn it over to Gary for a report on the financial results, including our capital markets activities. Gary?
Thank you, Buzz. Bob, first I want to say it's been great working with you. I've learned a great deal from you, and I wish you all the best in your retirement. Start my remarks regarding our financial results this morning by reviewing our operating results for the first 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 stockholders were $0.39 and $0.40 per share for the quarter, respectively. FFO and Core FFO available to common stockholders during the first quarter of 2021 were $0.40 and $0.42 per share, respectively, which was elevated a bit with termination fees in that quarter. FFO per share was down a little this quarter, primarily due to a one-time charge associated with the expiration of our 2019 shelf registration and prepaid ATM expenses. Our same-store cash rent in the first quarter of 2022 grew at 2.5% over the first quarter of 2021.
Our first quarter results reflected total operating revenues of $35.5 million with operating expenses of $25.7 million, as compared to operating revenues of $34.7 million and operating expenses of $26.9 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 first quarter, we increased total assets by over $11 million, primarily due to the two acquisitions Bob and Buzz described earlier. We continue to reduce our debt to gross assets and are now down to 44.6% as of the end of the quarter, and have reduced this leverage metric for 10 consecutive years. We believe that we are 1%-2% away from our target leverage level.
We continue to use long-term mortgage debt to make acquisitions. As we grow through our disciplined 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, 61% is fixed rate, 33% is hedged floating rate, and 6% is floating rate. As of today, our 2022 and 2023 loan maturities are manageable, with $79 million due in 2022 and $64 million coming due in 2023. We have a number of options and will refinance these amounts at the appropriate time. As of the end of the quarter, we had $34.6 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 first quarter of 2022, and net of issuance costs, we raised $20.3 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 $4.4 million in cash and $21.7 million in availability under our line of credit. With our current availability, the strong performance of our portfolio, and access to our ATM program, we believe we have sufficient incremental flexibility to fund our current operations and meet our loan maturities. 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 49.6% as of March 31st, which is a significant increase over the past 10 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 $1.5048 per year. We have not cut or suspended the dividend since our IPO in 2003. Our common stock closed yesterday at $21.37. The distribution yield on our stock is approximately 7%. Many REITs are trading. Now I'll turn the program back to David.
Well, thank you. Thank you very much. That was a good report, Gary, and certainly a good report from Bob and Buzz and Michael. The team has performed very well. I know this marketplace scares me to death. Inflation is one that's gonna hurt all of us over time. The good news is you get about a 7% yield while you watch us work. Then second of all, you're in a hard asset, and hard assets do perform much better in the kind of inflation that we're expecting over the next couple of years. You've heard a lot today. A number of new transactions, new leases. Quarter's been good. The company collected about 100% of the cash-based rent during the first quarter.
The team acquired two industrial assets during the quarter for a total investment of $13.3 million, as we continue to build that substantial portfolio of hard assets. Company renewed leases on two office properties and one industrial property. Subsequent to the end of the quarter, the team acquired two industrial properties for a total investment of about $19 million. The commercial group here is growing the real estate that we own at a very nice pace. Team is doing a great job of managing the properties that we buy, especially during this pandemic, they performed admirably. As I mentioned, inflation is the biggest asset problem that today, and over time, I think you'll see this hard asset group continue to increase the value of these. In fact, we're looking at a couple of sales. People are bidding up the properties that they're buying these days.
Our team of strong professionals continues to pursue potential quality properties on the list of acquisitions that they're reviewing. Our acquisition team is seeking strong, very strong credit tenants. That's the basis of our whole business here. They know the quality tenants. The real estate makes excellent investments for us. The asset managers are actively managing the properties that the company owns in order to maximize their value. It is a different environment that we're in, but we seem to be away from the big challenges that we've all watched during this pandemic. We are in the middle market business. Like many of our tenants, they've been challenged with previous government restrictions as small and medium-sized business, related to the pandemic and inflation and supply chain disruptions.
We're all looking at what's gonna happen in the future, and I think today, this asset base that we're working with is really in top condition for meeting any kind of inflation or problems that are out there. Now, having Buzz move up to President is one that I've thought was just a wonderful thing, mainly because he's worked with a group of people that we've put together so long. I'm not sure he could do any other kind of deal other than the ones he's been doing for the last 25 years. Missing Bob on the one hand, we all know that people have to retire, although I think I'm immune from that. Bob has been with us a long time.
He's a wonderful personality, and he'll be with us some more because we're working out his retirement, keeping working with us on all the transactions that we look at. He's got a good brain for that. Okay, here, we'll stop. The operator, if you'll come on, we'll listen to some questions and try to answer them.
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question today, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions, and once again, that is star one. Thank you. Thank you. Our first question comes from the line of Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.
Good morning, guys. You basically did a 6.6% cap rate on the first quarter acquisitions. What's the cap rate on the two-property portfolio you closed thus far in the second quarter, and where are cap rates on the acquisition pipeline that Buzz spoke about, roughly?
Give me one moment, Rob.
The one we closed yesterday was at 6.7% on a straight line basis.
Okay. That's helpful.
Rob, just to tell you a little bit, you know, since the beginning of 2021, our average cap rate in 2021 was just over 7% with a weighted average lease term of 13.4 years. But if you go from, let's say, January of 2021 through our most recent acquisition yesterday, the weighted average lease term is a very great 12.8 years, and our cap rate is 6.8%. Very favorable, as I indicated in our comments. Buzz, why don't you add some of that on there too?
Yep. Thank you, Bob. What we're seeing, relative to our market and cap rates, is some compression, and certainly in the port areas and hot areas throughout the country that we actually can't play into the extent we wish. We are having to look more in the secondary markets where cap rates carry a little greater spread for us. We've seen compression, and as Bob mentioned, we are shooting for deals that are north of six on an average basis. The market's very tough right now, so we're being selective. We're underwriting the tenancy, but we also are in the secondary markets looking for long-term sale leaseback transactions because they work the best for us.
You know, given the upward move in interest rates, I mean, is it just time to flow through, or you just think that right now this asset class is gonna wind up being somewhat immune from, you know, the backup in interest rates that we've had here, you know, over the last, call it three months, four months?
Obviously we are seeing rental rates rise. On top of that, bumps that historically may have been at the 1.5%-2%, have jumped up to 2.5%-3% in anticipation, and obviously, as a result of the inflation and interest rate rise. We believe we'll be able to still garner good returns as it relates to that structure.
Okay. Gary, any of these near-term deals, the debt coming from the line in the near term?
No. We have been mortgaging these properties. So-
Okay.
Those have been mortgaged. They have good long-term mortgages on them.
What have you been seeing in terms of term and rate out there if you were, you know, the next few deals that the guys come up with? I mean, what are you expecting there from a rate, and what type of timeframe are you gonna be financing it for?
We do have some in the pipeline that we have actually locked in rates on. I mean, going forward, you could probably see rates in the high fours, low fives for a mortgage debt.
How long? Is that a 10-year? Is that a five-year?
Probably five years -seven years .
Okay. All right. That's very helpful. Just lastly for me, Bob, just wanted to say that you will be missed.
Well, thank you. Thank you, Rob. It's been a great ride. This is a great team, and I really am excited about Buzz and Gary, really taking us to the next level. It will take place.
All right. Thanks guys.
Thank you.
Next question.
Next question is from Craig Kucera with B. Riley Securities.
Hey, good morning. Bob, you had a number of acquisitions that you had mentioned you thought were close to closing in the first quarter, somewhere north of $60 million under LOI. Did market turbulence or rising interest rates cause you to reconsider or renegotiate those, or are those deals still in process and in the pool that's under LOI?
Well, as I indicated right now, we've got six properties that total about just about a little over $100 million that are in letter of intent. Those, I think I feel very good about. As Gary's indicated and Buzz has indicated, you know, there's a lot of pressure out there. Some deals have been returned on deals that we're pursuing, but I still feel very confident about that $104 million. You know, typically and traditionally, we have closed a third of those to maybe closer to 50% of those that reach the letter of intent stage. I don't see that percentage changing.
You know, if suddenly interest rates explode, as Gary indicated, since we use mortgage debt, you know, we will back off because as I've stated in prior, you know, prior calls, you know, we rely on a margin over our cost of capital. Gary and Jay, our treasurer, set that cost of capital for us. Buzz and I have traditionally made sure that we were 25 basis points-50 basis points above that in the going in cap rate, or we walk away from it, because if it's not accretive, it doesn't make sense to do the deal.
Got it. No, I appreciate the color there. You know, last quarter, I think we had thought that you were gonna do maybe close to $140 million of acquisitions this year. First quarter was a little slow and a bit of a pickup here in the second quarter. Just based on your commentary, given pricing and just the change in the transactional environment, are you thinking that 2022 might be a little bit more backloaded and you still feel pretty confident in that $140 number?
Uh-
Buzz-
Craig, this is Buzz. I would say, yes, I do feel confident in that. There was some slippage coming out of the first quarter falling into the second with some PE shops that pulled back a little bit with all the upheaval of approximately two months ago. However, they're back on track, if you will, and proceeding forward. We haven't lost any that we had under the LOI that we've been looking at, to the extent that I'm fearful that we're not gonna be somewhere in the neighborhood of $120-$140 for the year.
Okay, great. It wouldn't be an earnings call if we don't discuss what's going on in Austin. I would appreciate an update on the assets that GM left and then came back to. Thanks.
Sure. I'm happy to give an update there, and it's actually exciting. We've got current tenancy that we're talking to, traded paper a few times for 40,000 sq ft-60,000 sq ft. Obviously with Mr. Musk acquiring Twitter, there's already talk in the market of them coming to Austin, moving out of California. There's a lot of buzz. There's certainly a lot of class A development going on, of which is not really competition for us, but certainly creates a vibrant activity. Beyond the current prospect, we also are hoping to get paper back on another user to generate additional income into the property.
We're taking steps and putting money into the property to position it as it is going to turn into a multi-tenant situation, with amenities in order to be able to compete with our area. It's exciting, and I think it is going to have some good news here in the not too distant future as it relates to greater occupancy.
Okay. Just one more for me. I think two of the three leases you have expiring this year are coming up in the next few months. I think all of the 2022 lease expirations are sort of known move-outs, but can you talk about sort of where things are in that regard?
Sure will. As Bob mentioned, and as certainly I focus on, the asset management team is doing a great job trying to hunt down tenants and/or perhaps dispositions as David referenced. Property in Utah that is coming due here, July 30th 2022. We've had a few active prospects through the building, but nothing that I can tell you is imminent. Verizon in South Carolina, we have two prospects there, both governmental in nature, state government of South Carolina that are. They're slow, but we are in discussions with them in hopes of having one of them occupy our building. One may be a user buyer, the other would just be a tenancy.
Okay. Thanks, I appreciate it.
Thank you.
Do we have any other questions?
Yes. We have a question from the line of Brian Hollenden with Aegis Capital.
Good morning, and thanks for taking my question.
Okay. What you got?
with all the moving parts, how should investors think about FFO per share in 2022? Are we looking at sort of mid-single-digit increases over 2021?
I would say, you know, Gary and I have talked about this the past couple of quarters. Our objective is to raise the FFO per share anywhere from 1.5% to 3% per year. I believe that based on what Buzz has in the pipeline and the activity that we're doing on the renewals and the re-leasing, that we should be able to achieve that objective this year.
Thank you. One follow-up for me. You know, with interest rates, you know, rising, I guess, do you see cap rates moving up with rates, you know, with the rising rates? You know, have you seen any buyers exit the market? Is that something that you would anticipate moving forward?
I actually do believe there will be some buyers. Certainly they may not exit, but are going to pause in the what we call our, some of the gateway markets, the ports and so forth. There's actually been cap rate compression, Dallas, Atlanta, other hot markets, some of which we obviously do not play in an empire and so forth. There has been cap rate compression. However, we believe there will be for the types of properties and locations that we target, hopeful that stops, if you will, and that we're able to garner some better cap rates going forward.
All right. Thanks, guys. That's all for me.
Okay. We have any other questions?
Yes, we have one additional question coming from the line of James Villard with Ladenburg Thalmann.
Good morning, guys.
Morning.
Yeah. I mean, most of my questions have been answered so far. Let's have one more. Have you seen any change in investor appetite on your Series F preferred stock given the recent volatility and interest rates?
No, we really haven't. It's been pretty steady.
Okay. Yeah, that's it for me. Thanks.
Any other questions?
No additional questions, Mr. Gladstone.
Okay. Well, one of the things that people should keep in mind here is that we own hard assets, and in an inflationary environment, we should see the value of these go up with the inflation rates. We've had some inquiries about selling some of our assets and think that's gonna be something you'll see in the future. Right now, we're in good shape, strong asset base, strong group, and I'm looking forward to the next quarter. See you all next quarter. That's the end of this call.
Thank you for your participation, everyone. This concludes today's conference. You may disconnect your lines at this time.