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DATE

Thursday, Aug. 6, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

  • Chairman - David Gladstone
  • Director of Investor Relations - Catherine Gerkis
  • Chief Executive Officer and President - Arthur Cooper
  • Chief Financial Officer - Gary Gerson

TAKEAWAYS

  • Core FFO -- $0.38 per diluted share, representing an 8.6% increase from the $0.35 reported in the first quarter of 2026.
  • Total Operating Revenue -- $44.0 million, reflecting a 5.0% increase over the prior quarter driven by increased portfolio size and higher recovery revenues.
  • Net Income -- $8.3 million, a 18.6% increase compared to the $7.0 million reported in the quarter ended March 31, 2026.
  • Industrial Acquisition -- $22.8 million for a 153,890 square foot property in Newport News, Virginia, featuring a 6.8% capitalization rate and supported by Huntington Ingalls Industries.
  • Asset Disposition -- $12.9 million for the sale of a 161,458 square foot industrial building in Monroe, North Carolina, which management characterized as a highly accretive capitalization rate.
  • Lease Termination Fee -- $1.9 million, recognized during the second quarter in connection with the Monroe property sale.
  • Subsequent Acquisition -- $6.6 million for a 146,650 square foot industrial property in Red Bud, Illinois, at a 9.2% capitalization rate on an 8.4-year lease.
  • Industrial Concentration -- 69% of annualized straight-line rent as of June 30, 2026, moving toward management's near-term goal of 70%.
  • Portfolio Occupancy -- 98.7% across the company's 151 properties as of June 30, 2026.
  • Weighted Average Lease Term -- 7.1 years, providing long-term cash flow stability across the 17.7 million square foot portfolio.
  • Common Dividend -- $0.30 per share for the quarter, or an annualized rate of $1.20 per share, which management noted represented a 9.8% yield at the time of the call.
  • Total Assets -- $1.24 billion, a 1.0% increase from the $1.23 billion reported at the end of the prior quarter.
  • Total Debt -- $852.1 million, including mortgage notes, revolver borrowings, and senior unsecured notes.
  • Debt Structure -- 47% fixed rate and 47% hedged floating rate, leaving 6% of debt as floating rate tied to the revolving credit facility.
  • Liquidity Position -- $8.4 million in cash and $68.8 million in availability on the revolving credit facility as of the reporting date.
  • Same-Store Lease Revenue -- 1.2% growth for the first six months of 2026 versus the same period in 2025, driven by higher rental rates and property expense recoveries.
  • Leasing Activity -- 966,057 square feet leased or renewed through the second quarter of 2026 across eight tenants.
  • Austin Office Expansion -- 82,000 square feet leased subsequent to the quarter, which management expects will increase building occupancy from 69% to north of 90%.
  • Clintonville Expansion -- $700,000 land purchase for an 86,000 square foot facility expansion in Wisconsin, scheduled for completion in the second quarter of 2027 with a new 15-year lease term.
  • Dividend Payout Ratio -- Just under 80% of funds from operations during the second quarter of 2026.
  • Loan Maturities -- $17.7 million remaining in 2026 and $51.9 million through the second quarter of 2027.

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RISKS

  • Cooper expressed concern regarding an 80,000 square foot office property in Florida that has a lease maturing in September 2027.
  • Cooper stated, "While we expect to face challenges due to inflation, with a corresponding increase in interest rates, and various geo-political and economic issues, we feel strongly about the depth of our tenant credit underwriting."

SUMMARY

Management for Gladstone Commercial Corporation (GOOD +1.80%) reported a strategic focus on increasing industrial portfolio concentration while utilizing capital recycling to fund acquisitions without issuing common equity at current stock prices. The company executed the sale of a North Carolina industrial asset to fund a higher-yielding acquisition in Virginia, doubling the straight-line rent from the redeployed capital. Management stated that industrial demand remains concentrated in modern, large-format buildings supported by onshoring and supply chain optimization. The company is addressing office vacancy through selective capital expenditures, targeting payback periods between six to nine months for tenant improvements to maintain cash flow.

  • CEO Cooper noted that national industrial vacancy declined 10 basis points to 6.9%, which indicates "the market has passed the peak of this cycle."
  • The company is targeting capitalization rates of 7.5% or higher for new industrial acquisitions, with average rates reaching north of 9% over the full lease term.
  • Management confirmed they have one transaction in the pipeline for approximately $32 million under a letter of intent.
  • CEO Cooper stated, "Our industrial [occupancy] is 99.8%, which we do have lease there that will bring it to 100% occupancy at the end of the year."
  • The company reported that its industrial concentration reached 69% of annualized straight-line rent and expects to exceed 70% during the current year.
  • CFO Gerson noted that the company maintains its REIT status by paying out distributions based on taxable income, which typically exceeds 90% of that figure.
  • Management indicated they are not considering additional preferred stock issuances at this time.

INDUSTRY GLOSSARY

  • ATM (At-the-Market): An equity program that allows a company to sell shares directly into the secondary market at prevailing prices.
  • Capitalization Rate (Cap Rate): The ratio of a property's net operating income to its purchase price, used to estimate the potential return on an investment.
  • FFO (Funds From Operations): A non-GAAP measure used by REITs to define cash flow from their operations, calculated by adding depreciation and amortization to earnings.
  • Mission-Critical: Properties that are essential to a tenant's business operations, making them less likely to be vacated.
  • Net Absorption: The net change in occupied space in a given market over a specific period.
  • Onshoring/Nearshoring: The practice of moving business operations or manufacturing back to the home country or to a nearby country to optimize supply chains.
  • REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-producing real estate and is required to distribute at least 90% of taxable income to shareholders.
  • Same-Store Lease Revenue: A metric comparing the rental income from properties owned for a full year in both the current and prior periods.
  • Straight-line Rent: The average rent over the entire term of a lease, smoothing out any contractual rent steps or abatements.
  • WALT (Weighted Average Lease Term): The average remaining time on all leases in a portfolio, weighted by the amount of rent each tenant pays.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Gladstone Commercial Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Chairman, David Gladstone. Thank you. You may begin.

David Gladstone: Well, thank you, [ Kristen ]. That was a nice introduction, and thank all of you for calling in today. We really do enjoy this time with you guys, and I hope you have a lot of questions for us today. Now we'll hear from Catherine Gerkis. She's our Director of Investor Relations, and she's got a brief disclosure to read to you regarding certain regulatory matters concerning all of these calls and things that we're doing today. Catherine, go ahead.

Catherine Gerkis: Thanks, David, and good morning, all. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecommercial.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information.

You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X @GladstoneComps as well as Facebook and LinkedIn. The keyword for both is The Gladstone Companies. Today, we'll discuss FFO, which is funds from operations, 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 may also discuss core FFO, which is generally FFO adjusted for certain other nonrecurring revenues and expenses.

We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now let's turn the presentation to Buzz Cooper, Gladstone Commercial's CEO and President.

Arthur Cooper: Thank you, Catherine, and thank you all for joining today's call. We are pleased to update you on our results for the quarter ended June 30, 2026, our current portfolio and our future outlook. Before I turn to our results, I'll comment briefly on the market. Starting with the broader market, industrial conditions continued to improve during the quarter. According to Cushman & Wakefield, net absorption rose 21% from the prior quarter to 62.1 million square feet. This brings year-to-date net absorption to 113.6 million square feet, the strongest total since 2023.

National vacancy declined 10 basis points to 6.9%, which Cushman views as a sign the market has passed the peak of this cycle and asking rents rose 2.9% year-over-year. Demand remains concentrated in modern large-format buildings supported by onshoring, nearshoring and ongoing supply chain optimization. New construction deliveries remain below last year's pace. And while the development pipeline has begun to grow again, roughly 1/3 of it are build-to-suits, which keep speculative supply in check. The overall health of the industrial market remains continued competition for assets of all sizes, particularly those assets that are well located and mission-critical. Turning to our results during the quarter.

We acquired 153,890 square foot industrial property in Newport News, Virginia leased to Huntington Ingalls Industries for $22.75 million. This facility supports Huntington's Newport News shipbuilding operation, and we funded the purchase with internally generated cash flow without issuing equity. We sold a 161,458 square foot industrial building in Monroe, North Carolina to the tenant ASSA ABLOY. We acquired this asset in 2021. Over the term of our hold period, the property was 100% occupied and the sale represents a gain on equity and a highly accretive cap rate. This acquisition and sale together illustrate our ability to generate equity and redeploy proceeds into mission-critical industrial assets.

The Newport News acquisition represents nearly double the cash and straight-line rents from our North Carolina assets. We were able to achieve this growth without issuing new shares during a period when our common stock price was not attractive for new issuances. Furthermore, we increased portfolio WALT and added another mission-critical location at a great basis.

With respect to our existing portfolio, we renewed or leased over 126,000 square feet of office, retail and over 34,000 square feet of industrial with an increase in straight-line rent of $169,500 annually purchased a land parcel adjacent to our Clintonville, Wisconsin facility and simultaneously entered into a lease amendment in which we provide the funding for an approximate expansion of 86,000 square feet and significant improvements to the existing 521,000 square foot facility. The completion of these improvements is expected to be in the second quarter of 2027. The lease will commence with a new 15-year term. Also, we've collected 100% of the cash-based rents in this period and this month.

Subsequent, we leased 82,000 square feet or the second floor at our Austin, Texas office property. We also acquired 146,650 square foot industrial property in Red Bud, Illinois for $6.5 million. As it relates to the Austin property and other office properties within our portfolio, we acknowledge that office leasing and re-leasing requires CapEx dollars. When office buildings are as mission-critical and well located as those in our portfolio, we are able to minimize those dollars such that we receive an accretive return on our investment. When we evaluate any office re-leasing, we review payback period, IRR and ROI as well as alternative of selling the property.

We acknowledge that the returns are generally not as attractive to us as industrial properties but they keep a constant stream of cash flow for our shareholders. We are not looking to grow our office portfolio, but until capital markets return fully, capital expenditures are typically more accretive and revenue generating than choosing to sell the asset. Again, we evaluate each opportunity on a case-by-case basis, and we target payback periods between 6 and 9 months. Through the efforts of our asset management team, as of June 30, 2026, the portfolio was 98.7% occupied, and the WALT on that portfolio is over 7.1 years.

These transactions bring our industrial concentration to 69% of annualized straight-line rent as we continue working toward our near-term goal of 70%. Each of these milestones is a testament to the mission-critical nature of the assets in our portfolio, the quality of tenant credit in our portfolio and our underwriting capabilities. As evidenced by our execution during and subsequent to the second quarter, we remain steadfast in several key focus areas, growing our industrial concentration, adding value in our existing portfolio through renewals, extension and strategic capital investments and disposing of noncore assets and strategically redeploying those proceeds into quality industrial assets.

By continuing to execute on these focus areas, we expect to, again, increase our WALT, maintain strong occupancy rates, increase straight-line rent growth across the portfolio and decreased cost of capital. Looking ahead into the second half of 2026, we remain focused on evaluating opportunities to acquire high-quality industrial assets that are mission-critical to tenants and industries and accretive to our long-term strategy. We are working toward our near-term goal of 70% industrial annualized straight-line rents. We will look to achieve this goal and push past it during the year. While we do not have a timeline for the disposition of our office portfolio, we are keenly focused on growing the industrial concentration of all of the overall portfolio.

At the same time, we will continue to work with our existing tenants to extend leases, capture mark-to-market opportunities and support tenant growth through tenant expansions, capital improvement initiatives and build-to-suit opportunities. While we remain aware of the challenging office environment, we will be strategic and intentional in evaluating our specific portfolio, seeking opportune times to dispose of office and noncore industrial as part of our continued capital recycling efforts.

With the availability via our increased line of credit, access to private placement bond market, cash on hand and the ability to raise equity at our ATM, although presently, we believe our current stock price does not reflect the quality of our portfolio, tenant credit or overall shareholder returns, we are positioned to deploy capital into accretive industrial acquisitions and portfolio improvements. In closing, the team executed well in the first half of the year, and we are focused on continuing that momentum through the remainder of 2026. I will now turn the call over to Gary Gerson to review our financial results for the quarter and liquidity position.

Gary Gerson: Thank you, Buzz. I'll start my remarks regarding our financial results this morning by reviewing our operating results for the second quarter of 2026. All per share numbers referenced are based on fully diluted weighted average common shares. FFO and core FFO per share available to common stockholders were both $0.38 per share, respectively, for the quarter. FFO and core FFO available to common stockholders during the same period in 2025 were $0.33 and $0.35, respectively. FFO and core FFO per share for the 6 months ended June 30, 2026, were both $0.72. FFO and core FFO for the same period in 2025 was $0.67 and $0.69 per share, respectively.

Same-store lease revenue increased by 1.2% in the 6 months ended June 30, 2026, over the same period in 2025 due to an increase in recovery revenue from property expenses and an increase in rental rates from leasing activity subsequent to the 6 months ended June 30, 2025. Our second quarter results reflected total operating revenues of $44 million with operating expenses of $26.2 million as compared to operating revenues of $39.5 million and operating expenses of $25.1 million for the same period in 2025. Operating revenues were higher in 2026 due to an increased portfolio size, increased recovery revenues, higher rental rates and a onetime termination fee recognized in relation to the sale of a property.

Expenses were higher in the second quarter of 2026 versus the same period in 2025, mainly due to higher depreciation from a larger portfolio and the payment of the majority of the incentive fee in the second quarter of 2026. At the end of the quarter, we had no properties held for sale. As of today, we have $17.7 million of loan maturities in 2026 and $51.9 million of loan maturities through the second quarter of 2027. As of the end of the quarter, we had $51.57 million of revolver borrowings outstanding.

Looking at our debt profile, as of June 30, 47% was fixed rate, 47% was hedged floating rate and 6% was floating rate, which is the amount drawn on our revolving credit facility. As of June 30, our effective average SOFR was 3.68%. Our outstanding bank term loans are all hedged to maturity with interest rate swaps. We continue to monitor interest rates closely and update our hedging strategy as needed. During the 6 months ended June 30, 2026, we did not sell any shares of common stock under our ATM. We continue to manage our equity activity to ensure that we have sufficient liquidity for all upcoming capital requirements and new acquisitions.

As of today, we have approximately $8.4 million in cash and $68.8 million of availability under our line of credit. We encourage you to review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. Our common stock dividend is $0.30 per share per quarter or $1.20 per year. And now I'll turn the program back to David.

David Gladstone: Well, that was a good report, Gary, and a good one from Buzz and Catherine. The team has performed very well. Overall, again, a very nice quarter. You've heard a lot today in summary, during the second quarter of '26, we acquired 153,000 square foot industrial property in Newport News using proceeds from the sale of an industrial property in Monroe, North Carolina, and that resulted in increase in the straight-line rent and FFO per share. We renewed a lease for 34,000 square feet at an industrial property and 126,000 square feet in office and retail. Again, the company just continues to go along making more money.

Subsequent to the end of the quarter, we acquired 146,000 square foot industrial property in Red Bud, Illinois and that was for $6.55 million. So a small one, but again, just adds to the ability to pay more dividends. Now paying about $1.20 per share per year. It's 9.8% yield. That's a great yield for such solid company like this. Gladstone's commercial team is growing the real estate we own at a good pace. And the team is doing a great job of managing the properties we own, especially during some of these challenging times that comes up. Our team of strong professionals continues to pursue quality properties on the list of acquisitions.

They are reevaluating what we own in order to get us closer to all properties that are for -- projects that are critical to some of the tenants that we have. Our acquisition team is seeking strong credit tenants, and we are getting that done very well. Okay. Let's just stop here for a while and get some questions from our listeners. So operator, if you come on and ask some questions for us.

Operator: [Operator Instructions]Our first question comes from the line of Rob Stevenson with [ Huntington ].

Robert Stevenson: I think Gary said that there was no properties held for sale. How are you guys thinking about funding future transactions given the commentary also about how undervalued the stock price is?

Gary Gerson: Well, Rob, I mean, we did a redeployment this last time around. We had a sale and then we redeployed the assets into a new property. We intend to do that going forward. If we have a potential acquisition that is accretive at the stock price, wherever we are, we would consider selling stock at that price to make that acquisition. But right now, I mean, it's a little tough, but we continue to grow, and we're going to invest more into our existing properties as a way to increase our revenues and capital deployment.

Robert Stevenson: Okay. And at this point, do you think that you guys have any excess preferred capacity to be able to do any issuance there versus the common?

Gary Gerson: We're really not considering doing any more preferred at this time.

Robert Stevenson: Okay. And then you guys have done a good job of maintaining the occupancy level in the portfolio. But can you talk about some of the current vacancy? Are you in process on some of that in terms of signed but not commenced leases? Are you getting close to some new tenants in some places? How should we be thinking about where some of that, I guess, 1.3% of vacancy goes over the next 4 quarters or so?

Arthur Cooper: Sure, Rob. Thank you. And as I've mentioned in the past, our portfolio management and asset management team does a great job staying on top of our tenancies, both obviously occupied, unoccupied and the historical occupancy that we've maintained over the last several years, it's got to be one of the top in the marketplace. So yes, we are actively engaged with everything within the next 24 months. As I mentioned, with the added space taken down in Austin. Our office occupancy is going to be north of 95% here going forward for a period of time. Our industrial is 99.8%, which we do have lease there that will bring it to 100% occupancy at the end of the year.

In remainder of '26, we've got 4 properties that we are working on as it relates to upping tenancy, if you will. And all of those have RFPs or documentation that we are negotiating out. And secondly, going into '27, we have 11%. Again, all have been addressed in conversations with paper going in some cases, back and forth, whether it's an RFP, whether it is nits within a lease. So we feel very confident of those, I see one, and it is an office building that I have concern over, but I believe that we will get something done there before the maturity at the end of 2027.

So I appreciate that question, but we are ahead of the curve as it relates to those properties. And I believe we will maintain a high occupancy going forward.

Operator: Our next question comes from the line of Craig Kucera with Lucid Capital Markets.

Craig Kucera: You made mention that there was a termination fee recognized on the North Carolina disposition sold during the quarter. Can you give us a sense of how much that termination fee was?

Gary Gerson: I believe that was $1.9 million.

Craig Kucera: Okay. That's helpful. And then I think you have in the Q, there's an additional $1.6 million of what you refer to as accelerated rent. None of it's been recognized. When do you expect to recognize that?

Gary Gerson: Over a period of time, this is a termination and this will be through, I think, the mid of next year. So this won't be -- yes, I'm sorry, this is through '29. So this won't be -- because of the straight-line rent requirements, this won't be something you'll see in a block. This will be a small amount every month for a couple of years.

Craig Kucera: Okay. That's helpful. And given the leasing at the Austin asset this quarter, what does that bring occupancy to at that building? Does that bring it up closer to 60% or 70%?

Arthur Cooper: Well, the occupancy currently is at 69%, but this is going to bring it north of 90%.

Craig Kucera: Okay. Perfect. And just given your commentary about capital, the Austin asset that has been out there for a while, it sounds like that's not one that you're looking to sell that you're expecting based on your leasing commentary that, that will be renewed?

Arthur Cooper: We are looking at all opportunities there, whether it be, again, additional tenancy or sale, but we also are looking to get good value out of it. It has been a good asset for us, obviously, troubling with the vacancy within it during COVID, but we will entertain offers, and we are exploring quietly in the marketplace.

Craig Kucera: Okay. That's helpful. And obviously, your cost of capital is a little bit high to do a lot with equity right now, but I'm curious sort of what you're screening as far as your investment pipeline right now and what you're seeing in the marketplace?

Arthur Cooper: We have one deal that we have an LOI out on for approximately $32 million. We should hear about that transaction here in the next few weeks. We, of course, always are evaluating the marketplace. We've got 15 that we currently are digging into their financials upon and looking to see if the property makes sense for us. So we've got a healthy pipeline and having just closed that one deal here subsequent to the end of the quarter. Obviously, we look to backfill that, make it stronger. But we will evaluate, as we always have, making sure that these are accretive transactions.

Operator: Our next question comes from the line of Dave Storms with Stonegate Capital.

David Storms: Sticking with the acquisition pipeline, we're going to get my head maybe around the cap rates in the industrial market. It looks like Newport was high 6s, Red Bud, low 9s. Obviously, there's some variance between those 2 properties. But just any of the puts and takes that we should be thinking about to maybe get a better view on cap rates?

Arthur Cooper: Sure. And as you know, Dave, we are not able to compete down in the 6s at this point in time, although we are -- as we sell noncore assets, able to take the cash from those sales, put them into new deals, obviously, it doesn't cost us to raise that money. So it makes the transaction more accretive for us. But the cap rates that we're seeing are going to be 7.5% north. That 9% that you referenced was an average as it relates over the term of the lease, longer the term, the better for us.

So we are looking at transactions that have a cap rate going in the door approximately 7.5%, looking to get to averages north of 9%.

David Storms: Understood. Very helpful. It also looked like tenant improvements, existing real estate maybe came in a little bit lower. I know you mentioned this in your prepared remarks. Is that mostly a timing thing there? Or is there anything else we should read into that?

Arthur Cooper: I don't believe there's anything else you would read into that. Yes, it is a matter of timing. And as I mentioned, we look to try to -- we're not going to spend money that's not going to be accretive to us at the end of the day. We look to have a payback period on our tenant improvements as a general rule of between 6 to 9 months. We want to make sure those dollars are obviously recaptured because we want to be cognizant. And again, tenancy and cash flow is important.

David Storms: Understood. And then maybe just last one on the land purchase. If I remember right, that was right next to an existing property. Is that the kind of profile that you're looking for in land purchases? Or are there other variables that you try to keep in mind there?

Arthur Cooper: That property, the purchase was, again, for the expansion. It will come along at the end of the day with a 15-year lease. The average cap rate on that transaction is north of 9.5%. I'm not sure because I got a little garbled there exactly if I hit all of your question, but that is a very opportune purchase for us. We'll build it out here and hope to have that completed by second quarter of next year.

Operator: Our next question comes from the line of Gaurav Mehta with Alliance Global Partners.

Gaurav Mehta: I wanted to ask you on the industrial asset that you guys decided to sell. I just want to get some more color on why you sold that asset. And are there any more industrial assets in your portfolio that you may look to sell?

Arthur Cooper: We had that asset. We purchased it in 2021, Gaurav. The reason for the sale is the tenant came to us with a very profitable number, and we were able to redeploy those assets into the Huntington transaction that doubled the straight-line rent and the current rent. So it made all the sense in the world, and we didn't have to raise equity to do the transaction.

Gaurav Mehta: Any more industrial properties in your portfolio that you could look to sell to redeploy that into other industrial assets?

Arthur Cooper: We have certainly within our portfolio, some of the leases carry a purchase option. I don't have any at the moment that I would classify that are going to happen any time imminently. But are there a few out there that could happen? Yes, but nothing that I have today, although certainly, we are looking at some to see if we could sell them at economics that make sense, we would.

Operator: Our next question comes from the line of John Massocca with B. Riley.

John Massocca: Technical one. If I think about the accelerated rent versus the lease termination fee and understanding those are separate things. Is there a GAAP impact from that accelerated rent as well? Or is that like even like the top line impact of that will be kind of over time? I'm just trying to determine if the cash and GAAP -- like different kind of cash and GAAP kind of impact from the accelerated rent. And I'm assuming that is when we can all hit in the current quarter.

Gary Gerson: Yes. The termination fee was a onetime hit in the quarter. The accelerated rent, and you can call that, it's a variation on the same theme. This will be -- this will have a GAAP effect. It will be -- you take the amount of that termination fee, divide it by the total amount of months that you have left on your lease and then you straight line it through. So yes, it will have a small GAAP impact. It's not a significant amount.

John Massocca: But the $1.9 million...

Gary Gerson: The cash has already been received.

John Massocca: The $1.9 million, though, was all impacting in 2Q, correct?

Gary Gerson: Yes, correct.

John Massocca: And then apologies if I missed this earlier in the call, I kind of was cutting in and out. The leasing activity, can you maybe provide a little color on where kind of rents moved for kind of all the leasing activity you discussed and if there is any kind of significant CapEx associated with any of those leases?

Arthur Cooper: As I mentioned, we look for the CapEx to get a payback on that, obviously, as quickly as we can, and we try to keep that CapEx and lease commissions as low as we can. On average, we see a payback of between 6 to 9 months. The approximately $200,000 that we had in leases that were renewed as a plus up prior to the end of the quarter is an average across the portfolio of the leases that we renewed. We always look to do what we can to, I hate to put it this way, get as much as we can. And the market is improving, as referenced in my remarks, that lease rates are going up.

So we are very cognizant of the CapEx dollars needed, but I'd rather have the property occupied and paying and creating cash flow for us versus obviously vacancy.

John Massocca: Okay. And then I guess as we look out on the kind of future lease expiration schedule maybe out over the next 2 years, where do those assets maybe sit versus kind of market roughly? -- exact numbers, just kind of up or down?

Arthur Cooper: They are all positioned and with the numbers that we are discussing with the tenancies, they are all -- gee, except maybe 2 are up. So we've got 15 between this year and next year that we're looking at, 2 of which are going to go vacant. We have had tours within the buildings. So I feel confident that at the end of the day, the net-net, it's going to be a plus up. And again, I have one office building down in Florida that we are working on, and that does not mature until September '27. So I don't want to say we have time, we are aggressively addressing it. But I do worry about that one.

And it's not a large property. It's approximately 80,000 square feet within the portfolio, but we're going to do what we can to keep these buildings occupied and/or sold.

Operator: Our next question comes from the line of [ Francois Swanepoel ], a private investor.

Unknown Attendee: I would like to ask about if you could clarify our current payout ratio. What is our current payout ratio with the dividend at $0.10 a month?

Gary Gerson: It's in the -- we get this for you. It is in the low 80s. Actually, it was what, 79%, I think, this time around, hold on. I believe it was -- our payout ratio is just under 80% this last quarter, yes.

Unknown Attendee: Yes. So my question on that is, as a REIT, shouldn't we be keeping that as a percentage of profit at closer to 90% to keep us at...

Gary Gerson: As a triple net, we typically are paying more than a non-triple net as far as a distribution ratio of dividends over to FFO. But we would like to maintain more internal cash flow. And you see the triple nets are probably in the low -- the mid-70s to low 80s as a general group. We would like to kind of get our distribution ratio a little lower. It's better for the shareholders in the long run as we can redeploy the capital into our portfolio and grow the portfolio and earnings over time. So then eventually, we can then increase the dividend.

But if you can maintain -- if you look at some of the bigger REITs, their yields and they have a much lower distribution than we -- so over time, if you can do that, you can reinvest those proceeds or that cash into new properties without having to sell new equity and thus potentially dilute the shareholders.

Unknown Attendee: I understand that. I understand that. My question on that is according to the IRS rule, what's the rule of keeping that at 90% for us to qualify -- corporation to not pay high taxes on that income?

Gary Gerson: Yes, that's a 90% of taxable income, not of GAAP income. So we probably pay out probably, in many cases, way above the 90% required to maintain REIT status. So we're definitely doing that. Oh yes, absolutely. We will not lose our REIT status there.

Unknown Attendee: Okay. Will the annual increases in rent, if they are implemented and when they are implemented, I'm not sure when you guys implement annual increases on rent. But will that be able -- will we be able to use those proceeds to maybe look at an increase in the dividend?

Gary Gerson: We'll certainly consider it, but that's something to look at in the future.

David Gladstone: Do we have any additional questions -- any questions?

Operator: We have no more questions at this time. Mr. Gladstone, I'd like to turn the floor back to you for closing comments.

David Gladstone: Well, thank you very much, everybody, for listening to this, and we appreciate the questions. Hope you have a lot more questions next quarter. And that's the end of this. So thank you again.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.