GLADSTONE COMMERCIAL CORP

Gladstone Commercial Corporation is an externally-advised real estate investment trust that focuses on acquiring, owning, and managing primarily industrial and office properties. The company targets secondary growth markets that possess favorable economic growth trends, diversified industries, and growing population and employment. As of February 18, 2026, the company owned 151 properties totaling 17.7 million square feet of rentable space, located in 27 states, with an occupancy rate of 99.1% and an average remaining lease term of 7.3 years. The company's properties are geographically diversified and its tenants cover a broad cross section of business sectors and range in size from small to very large private and public companies, many of which are corporations that do not have publicly-rated debt.

The company competes with a number of other real estate investment companies and traditional mortgage lenders, many of whom have greater marketing and financial resources. Principal factors of competition in the primary business of investing in and owning leased industrial and office real property are the quality of properties, leasing terms, attractiveness and convenience of location. As of December 31, 2025, 35% of the company's lease revenues were earned from tenants that were rated by a nationally recognized statistical rating organization. The company's five largest tenants accounted for approximately 17.2% of total lease revenue. The company's Adviser attempts to diversify the portfolio to avoid dependence on any one particular tenant, facility type, geographic location or tenant industry.

The company generates revenue primarily through rental income from net leases on its properties, where the tenant is required to pay most or all operating, maintenance, repair and insurance costs and real estate taxes with respect to the leased property. The company has historically entered into, and intends in the future to enter into, purchase agreements for real estate having net leases with terms of approximately seven to 20 years with built-in rental rate increases. The company's principal investment objectives are to generate income from rental properties, which it uses to fund continuing operations and to pay monthly cash distributions to stockholders. The company may sell some of its real estate assets when its Adviser determines that doing so would be advantageous.

The company's portfolio consists primarily of single-tenant industrial and office real property, with the primary focus currently and going forward being single-tenant industrial properties, although it may continue to acquire select multi-tenant industrial properties and may, from time to time, also acquire office properties, but this is not the primary focus. As of December 31, 2025, the company owned 151 properties and had 143 leases on these properties. The company's lease revenue by industry for the year ended December 31, 2025 included Automotive at 15.2%, Diversified/Conglomerate Services at 12.6%, Buildings and Real Estate at 9.6%, and Telecommunications at 8.7%. The company's lease revenue by state for the year ended December 31, 2025 included Texas at 15.8%, Pennsylvania at 13.3%, Florida at 10.8%, and Ohio at 8.4%.

The company's strategy is to invest in and own a diversified portfolio of leased properties (primarily industrial) that it believes will produce stable cash flow and increase in value. The company actively communicates with private equity funds, real estate brokers and other third parties to locate properties for potential acquisition or to provide mortgage financing. The company's Adviser evaluates each potential tenant or borrower for its creditworthiness, considering factors such as its rating by a national credit rating agency, if any, management experience, industry position and fundamentals, operating history and capital structure. The company generally limits the purchase price of each acquisition to less than 5% of its consolidated total assets.

During the year ended December 31, 2025, the company completed $207.9 million of industrial acquisitions, consisting of ten facilities totaling approximately 1.6 million square feet, with a weighted average capitalization rate of 8.88% and a weighted average lease term of 15.9 years at acquisition. The company also renewed or extended approximately 1.2 million square feet of leases during the year ended 2025, and sold two properties. On September 18, 2025, the company amended its Credit Facility, increasing its Revolver from $125.0 million to $155.0 million. On October 10, 2025, the company amended, extended, and upsized its Credit Facility, increasing the Revolver from $155.0 million to $200.0 million. On December 15, 2025, the company and the Operating Partnership entered into a Note Purchase Agreement for a private placement of $85.0 million of 5.99% senior unsecured notes, maturing on December 15, 2030. During the year ended December 31, 2025, the company sold 4,412,814 shares of common stock, raising approximately $61.0 million in net proceeds under the 2024 Common Stock Sales Agreement, as amended.

Total operating revenues for the year ended December 31, 2025 were $161.336 million, compared to $149.388 million for the year ended December 31, 2024, an increase of 8.0%. Net income for the year ended December 31, 2025 was $19.292 million, compared to $24.040 million for the prior year. Net income available to common stockholders and Non-controlling OP Unitholders was $6.597 million for 2025, compared to $11.166 million for 2024. FFO available to common stockholders and Non-controlling OP Unitholders for 2025 was $64.484 million on a basic basis, compared to $59.245 million for 2024. Basic FFO per weighted average share of common stock and Non-controlling OP Unit was $1.38 for 2025, compared to $1.41 for 2024.

The company's primary growth vector is the acquisition of industrial properties in secondary growth markets. During the year ended December 31, 2025, the company completed $207.9 million of industrial acquisitions, consisting of ten facilities totaling approximately 1.6 million square feet, with a weighted average capitalization rate of 8.88% and a weighted average lease term of 15.9 years at acquisition. The company expects to continue to execute its capital recycling plan and sell properties as reasonable disposition opportunities become available, redeploying proceeds to either fund property acquisitions in target secondary growth markets or repay outstanding debt. The company also continues to evaluate financing options and capital allocation decisions with a focus on maintaining balance sheet flexibility and a conservative liquidity profile.

The company's second growth vector is leasing activity and portfolio management. During the year ended December 31, 2025, the company executed 16 lease extensions and/or modifications covering an aggregate of 1,189,916 square feet with a weighted average remaining lease term of 7.6 years and aggregate annualized GAAP fixed lease payments of $15.860 million. The company also had one lease termination covering 39,417 square feet with aggregate accelerated rent of $1.551 million. The company believes its lease expiration schedule for 2026 is manageable as it equates to 11.8% of annual lease revenue at December 31, 2025. The company continues to actively market the limited remaining vacant space and monitor tenant credit performance across the portfolio.

The company's cost structure is influenced by property operating expenses, which increased for same store properties for the year ended December 31, 2025 as a result of general cost increases due to the inflationary environment and increased repair expenses. The base management fee paid to the Adviser increased for the year ended December 31, 2025 due to an increase in gross tangible real estate from property acquisitions and capital projects. The net incentive fee paid to the Adviser decreased for the year ended December 31, 2025 due to the Adviser unconditionally waiving a larger portion of the incentive fee during the prior period. For the years ended December 31, 2025 and 2024, the Adviser issued a voluntary waiver of a portion of the incentive fee of $1.5 million and $2.3 million, respectively.

The company does not currently have any employees and does not expect to have any employees in the foreseeable future. Services necessary for the business are provided by individuals who are employees of the Adviser and the Administrator. As of December 31, 2025, the Adviser and Administrator collectively had 75 full-time employees. The company expects that a total of 15 to 20 full time employees of the Adviser and the Administrator will spend substantially all or all of their time on the company's matters during calendar year 2026. The company's information technology systems are managed by an independent third-party information technology service provider engaged by the Adviser, which regularly performs cyber assessments and assists in maintaining the company's cyber and information security programs.

The company uses funds from various sources to finance its acquisitions and operations, including common and preferred equity, its Credit Facility, mortgage financing, long-term private debt, and other sources. During the year ended December 31, 2025, the company raised approximately $61.0 million in net proceeds from the sale of 4,412,814 shares of common stock under the 2024 Common Stock Sales Agreement, as amended. The company also sold 15,700 shares of Series F Preferred Stock, raising $0.4 million in net proceeds. As of February 18, 2026, the company had the ability to raise up to $1.0 billion of additional equity capital through the sale and issuance of securities registered under the 2024 Registration Statement. The company's Credit Facility was amended on October 10, 2025, increasing the Revolver to $200.0 million with a term to October 2029. On December 15, 2025, the company issued $85.0 million of 5.99% senior unsecured notes maturing December 15, 2030. The company believes that moderate leverage is prudent and aspires to reduce its leverage over time.

The company faces headwinds from broader economic and geopolitical uncertainty due to recent world events and tariffs, which continue to influence tenant decision making, particularly for industrial users evaluating supply chain resiliency and domestic production needs. The business environment stabilized late in 2025 as interest rate volatility eased, with the Federal Reserve implementing a 25 basis point cut in each of September, October, and December, lowering the federal funds target range in aggregate by 75 basis points to 3.50% to 3.75% by year-end. Lower short-term rates improved sentiment in commercial real estate late in the year, though financing conditions remained selective and transaction activity limited. The company expects conditions to remain generally consistent with those experienced in the fourth quarter of 2025, with interest rates, access to debt capital, and transaction activity remaining key factors.

The company's ability to make new investments depends on its access to capital and financing markets. While lending standards remain selective, the company believes it maintains access to multiple sources of capital, including long-term unsecured notes in the private placement market, long-term mortgage loans secured by properties, bank facilities, and borrowings under its Credit Facility. The company's available liquidity as of December 31, 2025 was $73.6 million, including $10.8 million in cash and cash equivalents and an available borrowing capacity of $62.8 million under its Revolver. The company was in compliance with all covenants under the Credit Facility as of December 31, 2025. The company has balloon payments of $27.6 million payable during the year ending December 31, 2026.

The company's real estate investments have a limited number of tenants and are concentrated in a limited number of industries, with the five largest tenants accounting for approximately 17.2% of total lease revenue as of December 31, 2025 ¹, and 15.2% of lease revenue earned from tenants in the Automotive industry ². The company is subject to the credit risk of its tenants, and any bankruptcy of a tenant could cause loss of lease payments, increase in carrying costs, reduction in the value of securities, or a decrease in distributions. The company's Credit Facility contains various covenants requiring compliance with certain financial ratios, including fixed charge coverage, debt service coverage and a minimum net worth, and limits distributions to stockholders to 95% of Core FFO ³. As of December 31, 2025, the company was in compliance with these covenants. The company faces interest rate risk as the interest rate on its Credit Facility is variable, and although it has entered into interest rate caps and swaps to manage exposure, a significant change in interest rates could have an adverse impact on results of operations. The company's ability to qualify as a REIT involves the application of highly technical and complex rules, and failure to qualify would result in federal income tax at regular corporate rates and disqualification from being taxed as a REIT for the four taxable years following the year during which qualification was lost ⁴, unless entitled to relief.

Management's message emphasizes the company's focus on maintaining high occupancy through lease renewals and releasing activity, managing upcoming lease expirations, and addressing upcoming debt maturities. Management believes the company is well-capitalized and positioned to take advantage of opportunities created by uncertain times. Management states that the company collected 100% of all outstanding base rent for calendar year 2025, reflecting the strength of credit underwriting and ongoing asset management. Management believes the company currently has adequate liquidity in the near term, and that cash on hand combined with availability on the Credit Facility is sufficient to cover all near-term debt obligations and operating expenses and to continue the industrial property focused growth strategy. Management's strategic priorities include strengthening the balance sheet and liquidity position, executing the capital recycling program, and continuing to invest in industrial properties in secondary growth markets.