My Take on Gladstone Commercial Corp (NASDAQ:GOOD)
Gladstone Commercial Corporation (“Gladstone”) is a real estate investment trust (“REIT”) that owns triple net leased industrial, commercial, and retail properties. It trades on NASDAQ under the ticker symbol GOOD. I’m not sure how you turn GOOD into an acronym for Gladstone Commercial Corporation or otherwise massage the name to get GOOD out of it. The letter D does not appear anywhere in the last part of the name.
STAG Industrial (“STAG”) is also a REIT that owns triple net leased industrial and commercial properties. It trades on NYSE under the ticker symbol STAG. The company is called STAG, the logo is a stag, and the ticker symbol is “STAG.” That makes sense to me.
Gladstone Management (they manage multiple companies including Gladstone Commercial Corp.) has a website (http://www.gladstone.com). It has five pictures on the main page. Two are of the US Capitol Building; one is of the Lincoln Memorial; one is a close up of the statute of Abraham Lincoln; the last one is a stock photo of some people in a conference room (perhaps discussing why Gladstone is infatuated with the US Capitol Building and Abraham Lincoln?). Gladstone does not list what properties they own on their website.
STAG has a website (http://www.stagindustrial.com). It has six pictures of nondescript warehouses on the front page. They are all owned by STAG. The website also has a listing of all properties they own along with a convenient map.
Gladstone has a presentation for potential investors (or current shareholders too, I suppose) on their website. It is dated February 2012. Here is the first page.
The first picture is a shot of Manhattan. Gladstone does not own any properties in Manhattan. The second picture is a shot of the US Capitol Building. Gladstone does not own the US Capitol Building. The third picture is a shot of Chicago. Gladstone does not own any buildings in Chicago. The fourth shot is of a city. Gladstone may own buildings in that city.
STAG also has a presentation for prospective investors. It is from May 2012. Here is the first page.
The first picture looks like a warehouse. It’s probably owned by STAG. The second picture is of a commercial building. It is a warehouse and distribution center in Rogers, Minnesota. It is owned by STAG. The third picture looks like yet another warehouse. It is probably owned by STAG as well. If it isn’t it looks just like all the other warehouses they own anyway.
Gladstone also has a page in their presentation that has a spiffy bar chart of something. The slide is shown below.
It is labeled “When our mortgages and line of credit come due” at the top. Then the subheading changes its mind and says it’s actually about lease expirations. Debt schedules are usually shown in absolute dollar amounts and lease expirations are usually expressed as percentages (of revenue), so I assume it is probably actually lease expirations. I thought I should doublecheck to be sure. Here are the expiring leases expressed as a percentage of annualized base rent from Gladstone’s latest 10-K.
2012: 9.8%
2013: 8.5%
2014: 7.1%
2015: 15.7%
2016: 7.3%
2017: 2.1%
2018: .6%
2019+: 48.9%
Those numbers clearly do not match what is shown on the chart. So now I’m not sure what the chart is about. I do like the pretty blue bars though. Whatever it is, 80% of the blue isn’t until 2019 or later. If you are scared of blue, no worries until then!
STAG also has charts in their presentation. Here is one showing the lease expirations.
There is lots of information on the slide and everything is helpfully labeled. The data series are labeled. The chart axes are labeled. I like labels. They also have footnotes explaining calculations. I like reading footnotes. The chart also matches the SEC filings.
Gladstone is managed by an external advisor, Gladstone Management Corporation. David Gladstone is the Chairman and CEO. Prior to founding Gladstone Management Corporation he used to be chairman of Allied Capital. He left Allied Capital in 1997. Chip Stelljes is President and CIO. He used to be an EVP at Allied Capital. Buzz Cooper is a Managing Director. He used to be a former principal of Allied Commercial Corporation REIT. In 2007 Allied Capital was investigated by the SEC over accounting practices and the valuation of illiquid securities (this happened long after David Gladstone left). David Einhorn also wrote a book I liked about Allied Capital. In 2007 Allied Capital stock traded for over $30 per share. In April of 2010 Allied Capital was bought by Ares Capital for $5 per share.
STAG is managed internally by Benjamin S. Butcher. He is the CEO, President, and Chairman of the Board of STAG (aside: he has quite possibly the best name ever). Prior to running STAG Mr. Butcher worked for Nomura Asset Capital in real estate, Credit Suisse First Boston in real estate, and as a private equity investor. He did not work for Allied Capital. David Einhorn did not write a book about him.
Gladstone has a slide showing how you can invest in their company.
This slide is interesting. Maybe I will call my broker. But considering the other slides in their slide deck, I should double check everything first.
The slide says the common stock, GOOD, pays a dividend of $1.5, which is covered by $1.575 ($1.5 times 1.05 or 105%) in Funds From Operations (“FFO”). Put another way 95% of FFO is paid out as a dividend. FFO is a non-GAAP financial measure, but it is defined by the National Association of Real Estate Investment Trusts (“NAREIT”). You can read a white paper about FFO here. Measures like FFO, AFFO (“Adjusted Funds From Operations”), and Cash Net Operating Income are common to REITs.
Here is what I found when checking the 10-K.
It says the company has only $1.02 in FFO to cover the dividend (or 98% of FFO goes towards the dividend). That is not what the slide says. But, the slide says it’s as of February 29, 2012 and the 10-K data is as of December 31, 2012. I know! I bet Gladstone made more money (FFO) in between the date of the 10-K and the date of the slide. Sweet!
I looked at the 10-Q for 2012 quarter dated March 31, 2012. The relevant portion is shown below.
Alas, they did not. Dividends per common share were $.375 per share, and FFO per common was $.38. The company had $1.01 in FFO to cover every $1 of dividends, or in other words it paid out 99% of FFO as dividends.
I do not understand where the $1.05 coverage ratio or 95% payout ratio in Gladstone’s slide came from.
I do not think I will call and buy any shares.
We are short GOOD. We are long STAG.