Greetings. Welcome to Gladstone Commercial Corporation's Year End Conference Call. [Operator Instructions] 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 are on the phone and wish there were more time to talk to you and we're going to start off as we always do with Michael LiCalsi, he is our General Counsel and Secretary go 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, 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, and 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, www.gladstonecommercial.com, specifically the Investors page or on the SEC's website, which is www.sec.gov. And 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. 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, sign up for our e-mail notification service. You can also find us on Facebook, keyword there is the Gladstone Companies. And on Twitter, the handle there is at @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. Again, you can find them on the Investors page of our website. With that, I'll hand it back to Gladstone Commercial's President, Buzz Cooper. Buzz?

Thank you, Michael. And 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 in part of the Company and its Board of Directors. We took this step with a forward-looking view and anticipate it possible. Turbulent economic environment in 2023, this action will allow us to be prepared for any global economic storms, be more flexible on 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 circumstances. Taking a look at how much change has occurred over the past year, we have had to confirm to continue to address the lingering effects of the pandemic on our office portfolio, navigate the unprecedented rise in interest rates and the negative impact of inflation is 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 ability -- 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 of 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…

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 a $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 as 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…

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 the pandemic and the economy. Overall, it's easy to say it was a nice quarter didn't like cutting the dividends 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 who didn't cut it and this one. 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 and the numbers of new transactions and new leases and 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's good news. We also leased and renewed about 126,000 square feet - 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 and 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 creped, 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 in order to maximize their value, both in terms of income also, 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. [Operator Instructions] 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 on 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 you guys are expecting?

Sure. Thanks Gaurav. We've got seven properties that we are actively working 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 leases 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 as stated we've got a good progress on the sale of several as well as re-tainting the buildings. So we believe we can manage it. Of those if I could, they are, 40% industrial and 60% office. And the two sales are office.

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

We have of those -- lower expiring debt, that's all mortgage debt. We could -- we have a lot of options here. Some of them, 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 mortgage .

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

Good morning, guys.

Good morning, James.

On the waive incentive fee, is there any -- I guess, is there a set date for it to restart or is there any possibility that you offered waive that again, in 2023?

Well, over the years, we've done a lot of waiving, and so I can assure you that we're subordinating that to our dividend payments. And 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. So over the years, I don't know what -- Gary, you remember 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.

Yes, I hope you don't have to wave it again. But I guess next question is, will CapEx elevate in Q4? I guess how should we think about that number for one right in 2023.

And 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 read tenant and obviously keep up, we are cutting our exposures relates to operating expenses.

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

No, I don't have that.

James, do you [indiscernible].

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 putting into the deal. So it's not a negative meeting 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. They have as you'd most likely know, gone back home or remote. We've had several inquiries on the property - are 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. So we are currently the receiver bank or taking care of the operating expenses, but we hope to have that completed within the next hopefully, less than three months.

Okay, great. And I appreciate the color on the 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 month 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, I guess kind of 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, we have a couple RFPs out for approximately 70,000 to 80,000 square feet. So we -- 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 holder 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. Just want to circle back for a housekeeping item relates 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 kind of 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 four starting swap, which is at about 370. The spreads on those term loans are 145 over so far.

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. Wish we had more questions. We enjoy the questions. So be delightful if we can 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.