Gladstone Commercial Corporation
Feb 28, 2012

Gladstone Commercial Corporation Reports Results for the Fourth Quarter and Year Ended December 31, 2011

-- Reported Funds From Operations ("FFO") for the fourth quarter and year ended December 31, 2011 of $3.8 million and $15.7 million, an increase of 23.5% and 11.6% over the same periods in 2010, respectively. -- Acquired seven properties for an aggregate investment of $54.6 million in 2011. -- Issued or assumed four long-term mortgages totaling $31.5 million on four properties. -- Issued common stock for net proceeds totaling $37.0 million.

MCLEAN, Va., Feb. 28, 2012 /PRNewswire/ -- Gladstone Commercial Corporation (NASDAQ: GOOD) (the "Company") today reported financial results for the quarter and year ended December 31, 2011. A description of FFO, a relative non-GAAP (generally accepted accounting principles in the United States) financial measure, is located at the end of this earnings release. All per share references are to fully-diluted weighted average shares of common stock, unless otherwise noted.

(Logo: http://photos.prnewswire.com/prnh/20101005/GLADSTONECOMMERCIAL )

FFO: FFO for the quarter and year ended December 31, 2011 was $3.8 million and $15.7 million, or $0.34 and $1.53 per share, which is a 23.5% and 11.6% increase, respectively, compared to the same periods one year ago. The increase in FFO was primarily because of an increase in operating revenues derived from the seven properties acquired in 2011, coupled with a reduction in general and administrative expense and the net incentive fee. General and administrative expenses decreased because of the write-off of $1.6 million of fees related to the termination of the private offering of unregistered senior common stock in 2010. The net incentive fee decreased due to an increase in common stockholders' equity from the issuance of 2.2 million common shares during 2011, resulting in a higher hurdle rate to overcome. This was partially offset by an increase in due diligence expense during 2011 from acquisitions during the year combined with an increase in the base management fee during 2011.

Net Income: Net income available to common stockholders for the quarter and year ended December 31, 2011 was $0.1 million and $1.6 million, or $0.01 and $0.15 per share, respectively, compared to a net loss to common stockholders for the quarter ended December 31, 2010 of $0.2 million or $0.04 per share, and net income available to common stockholders for the year ended December 31, 2010 of $0.8 million, or $0.09 per share. A reconciliation of FFO to net income for the quarters and years ended December 31, 2011 and 2010, which the Company believes is the most directly comparable GAAP measure to FFO, and a computation of basic and diluted FFO per weighted average share of common stock and basic and diluted net income per weighted average share of common stock is set forth below:


For the three months ended December 31,


For the year ended December 31,


2011


2010


2011


2010


(Dollars in Thousands, Except Per Share Data)


(Dollars in Thousands, Except Per Share Data)









Net income

$ 1,116


$ 808


$ 5,714


$ 4,928

Less: Distributions attributable to preferred and senior common stock

(1,040)


(1,041)


(4,156)


(4,114)

Net income (loss) available to common stockholders

76


(233)


1,558


814









Add: Real estate depreciation and amortization, including discontinued operations

3,676


3,271


14,149


13,264

FFO available to common stockholders

$ 3,752


$ 3,038


$ 15,707


$ 14,078

















Weighted average shares outstanding - basic

10,945


8,638


10,237


8,576

Weighted average shares outstanding - diluted

10,997


8,689


10,289


8,601









Basic & Diluted net income (loss) per weighted average share of common stock

$ 0.01


$ (0.04)


$ 0.15


$ 0.09









Basic & Diluted FFO per weighted average share of common stock

$ 0.34


$ 0.35


$ 1.53


$ 1.64









Distributions declared per share of common stock

$ 0.375


$ 0.375


$ 1.500


$ 1.500









Percentage of FFO paid per share of common stock

108%


107%


98%


91%



Comments from the Company's President and Chief Investment Officer, Chip Stelljes: "Our financial results were positive for 2011 and reflected our ability to invest the proceeds we raised from both debt and equity into solid real estate investments with accretive returns. We continue to focus on maintaining our portfolio and working with our existing tenants to extend the few leases that are scheduled to mature in 2012 and 2013. With the proceeds from the common and preferred stock sales and the expansion of our line of credit in early 2012 [discussed in further detail below], we have positioned ourselves well to buy additional properties and increase our FFO in 2012."

Asset Characteristics: As of December 31, 2011, the Company owned 72 properties totaling 7.1 million square feet for a total net investment of $426.4 million. Currently, 70 of the Company's properties, or 98.7% of the portfolio's total square footage, are fully leased and all tenants at these properties are current and paying in accordance with the terms of their leases.

Mortgage Maturities: The Company has $45.2 million of balloon principal payments due on one of its long-term mortgages in October 2012; however, the mortgage has one remaining annual extension option through October 2013, which the Company currently intends to exercise. The Company has no other balloon principal payments due on any of its mortgages until 2013.

Lease Expirations: The Company was able to re-lease its previously vacant building located in South Hadley, Massachusetts for another year, which expires in January 2013. The Company has two other buildings that remain vacant. Rental income from these two tenants was 2.3% of the Company's total annualized rental income when occupied. The Company is actively working to re-tenant these properties along with the one additional lease that expires in 2012.

Highlights of 2011, the Company:


Subsequent to the End of the Year, the Company:


Conference Call: The Company will hold a conference call on Wednesday, February 29, 2012 at 8:30 a.m. EST to discuss its earnings results. Please call (800) 860-2442 to enter the conference. An operator will monitor the call and set a queue for the questions. The conference call replay will be available one hour after the call and will be accessible through March 30, 2012. To hear the replay, please dial (877) 344-7529 and use conference number 10009320.

The live audio broadcast of Gladstone Commercial's quarterly conference call will also be available online at www.GladstoneCommercial.com. The event will be archived and available for replay on the Company's website through April 30, 2012.

Who we are: Gladstone Commercial Corporation is a publicly-traded real estate investment trust that focuses on investing in and owning triple-net leased industrial, commercial, medical and retail real estate properties. Including payments declared through February 2012, the Company has paid 91 consecutive monthly cash distributions on its common stock, 74 consecutive monthly cash distributions on its Series A preferred stock, 65 consecutive monthly cash distributions on its Series B preferred stock and 22 consecutive monthly cash distributions on its Senior Common Stock. The Company has never skipped, reduced or deferred a monthly distribution since inception, over eight years ago. Information on the business activities of all the Gladstone funds can be found at www.gladstonecompanies.com.

Investor Relations: For Investor Relations inquiries related to any of the monthly dividend paying Gladstone funds, please visit www.gladstone.com.

Non-GAAP Financial Measure – FFO: The National Association of Real Estate Investment Trusts ("NAREIT") developed FFO as a relative non-GAAP supplemental measure of operating performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO, as defined by NAREIT, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an alternative to net income as an indication of the Company's performance or to cash flow from operations as a measure of liquidity or ability to make distributions. The Company believes that FFO per share provides investors with an additional context for evaluating the Company's financial performance and as a supplemental measure to compare the Company to other REITs; however, comparisons of the Company's FFO to the FFO of other REITs may not necessarily be meaningful due to potential differences in the application of the NAREIT definition used by such other REITs. To learn more about FFO, please refer to the Company's Annual Report on Form 10-K (the "Form 10-K") for the year ended December 31, 2011, as filed with the Securities and Exchange Commission (the "SEC") today.

Warning: The financial statements attached below are without footnotes so readers should obtain and carefully review the Form 10-K, including the footnotes to the financial statements contained therein. The Company filed the Form 10-K today with the SEC and the Form 10-K can be retrieved from the SEC's website at www.sec.gov or the Company's website at www.GladstoneCommercial.com.

The statements in this press release regarding the Company's ability, plans or prospects to re-tenant its unoccupied properties, extend the respective maturity dates of its long-term mortgages, grow its portfolio and FFO, renegotiate leases, and raise additional capital are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans that are believed to be reasonable as of the date of this press release. Factors that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, its ability to raise additional capital, the duration of, or further downturns in, the current economic environment, the performance of its tenants, the impact of competition on the Company's efforts to renew existing leases or re-lease space and significant changes in interest rates. Additional factors that could cause actual results to differ materially from those stated or implied by the Company's forward-looking statements are disclosed under the caption "Risk factors" of the Company's Form 10-K for the fiscal year ended December 31, 2011, as filed with the SEC on February 28, 2012. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Gladstone Commercial Corporation

Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Per Share Amounts)



December 31, 2011


December 31, 2010





ASSETS




Real estate, at cost

$ 442,521


$ 401,017

Less: accumulated depreciation

53,784


43,659

Total real estate, net

388,737


357,358





Lease intangibles, net

37,670


26,747

Cash and cash equivalents

3,329


7,062

Restricted cash

2,473


2,288

Funds held in escrow

4,086


2,621

Deferred rent receivable, net

12,403


10,373

Deferred financing costs, net

3,473


3,326

Other assets

976


834





TOTAL ASSETS

$ 453,147


$ 410,609





LIABILITIES AND STOCKHOLDERS’ EQUITY








LIABILITIES




Mortgage notes payable

$ 285,350


$ 259,595

Borrowings under line of credit

18,700


27,000

Deferred rent liability, net

3,851


2,276

Asset retirement obligation liability

3,289


3,063

Accounts payable and accrued expenses

1,956


2,683

Due to Adviser

1,188


965

Other liabilities

3,499


3,652





Total Liabilities

317,833


299,234





STOCKHOLDERS’ EQUITY




Series A and B redeemable preferred stock, $0.001 par value; $25 liquidation preference;




2,300,000 shares authorized and 2,150,000 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively

2


2

Senior common stock, $0.001 par value; 7,500,000 shares authorized and




60,290 and 59,057 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively

-


-

Common stock, $0.001 par value, 40,200,000 shares authorized and




10,945,379 and 8,724,613 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively

11


9

Additional paid in capital

211,553


174,261

Notes receivable - employees

(422)


(963)

Distributions in excess of accumulated earnings

(75,830)


(61,934)





Total Stockholders’ Equity

135,314


111,375





TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 453,147


$ 410,609



Gladstone Commercial Corporation

Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)



For the three


For the three


For the three


For the three


months ended


months ended


months ended


months ended


December 31, 2011


September 30, 2011


June 30, 2011


March 30, 2011

Operating revenues








Rental income

$ 11,383


$ 11,085


$ 10,729


$ 10,435

Interest income from mortgage note receivable

-


-


-


-

Tenant recovery revenue

85


88


87


84

Total operating revenues

11,468


11,173


10,816


10,519









Operating expenses








Depreciation and amortization

3,675


3,629


3,475


3,370

Property operating expenses

236


251


202


297

Due diligence expense

506


201


131


(138)

Base management fee

412


430


435


352

Incentive fee

849


877


840


832

Administration fee

266


242


260


256

General and administrative

305


381


357


454

Total operating expenses before credits from Adviser

6,249


6,011


5,700


5,423









Credit to incentive fee

(354)


(828)


(445)


(486)

Total operating expenses

5,895


5,183


5,255


4,937









Other income (expense)








Interest income - employee loans

8


9


9


10

Other income

3


-


1


44

Interest expense

(4,468)


(4,251)


(4,201)


(4,156)

Total other expense

(4,457)


(4,242)


(4,191)


(4,102)









Net Income

1,116


1,748


1,370


1,480

















Distributions attributable to preferred stock

(1,024)


(1,023)


(1,024)


(1,023)

Distributions attributable to senior common stock

(16)


(16)


(15)


(15)









Net income available to common stockholders

$ 76


$ 709


$ 331


$ 442









Earnings per weighted average share of common stock








Basic & Diluted

$ 0.01


$ 0.06


$ 0.03


$ 0.05









Weighted average shares of common stock outstanding








Basic

10,945


10,936


9,782


9,258

Diluted

10,997


10,988


9,834


9,310









Earnings per weighted average share of senior common stock

$ 0.28


$ 0.26


$ 0.26


$ 0.25

Weighted average shares of senior common stock outstanding - basic

60


59


59


59



Gladstone Commercial Corporation

Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)



For the year ended December 31,


2011


2010


2009

Operating revenues






Rental income

$ 43,632


$ 41,180


$ 41,514

Interest income from mortgage note receivable

-


421


760

Tenant recovery revenue

344


327


335

Total operating revenues

43,976


41,928


42,609







Operating expenses






Depreciation and amortization

14,149


13,264


13,161

Property operating expenses

986


971


915

Due diligence expense

700


412


41

Base management fee

1,629


1,199


1,401

Incentive fee

3,398


3,480


3,239

Administration fee

1,024


1,063


1,016

General and administrative

1,497


3,408


1,494

Total operating expenses before credits from Adviser

23,383


23,797


21,267







Credit to base management fee

-


(225)


-

Credit to incentive fee

(2,113)


(158)


(726)

Total operating expenses

21,270


23,414


20,541







Other income (expense)






Interest income - employee loans

36


151


192

Other income

48


3,326


35

Interest expense

(17,076)


(17,063)


(17,895)

Total other expense

(16,992)


(13,586)


(17,668)







Income from continuing operations

5,714


4,928


4,400







Discontinued operations






Income from discontinued operations

-


-


43

Gain on sale of real estate

-


-


160

Total discontinued operations

-


-


203







Net income

5,714


4,928


4,603







Distributions attributable to preferred stock

(4,094)


(4,094)


(4,094)

Distributions attributable to senior common stock

(62)


(20)


-







Net income available to common stockholders

$ 1,558


$ 814


$ 509







Earnings per weighted average share of common stock - basic & diluted






Income from continuing operations (net of dividends attributable to preferred stock)

$ 0.15


$ 0.09


$ 0.04

Discontinued operations

-


-


0.02







Net income available to common stockholders

$ 0.15


$ 0.09


$ 0.06

Weighted average shares of common stock outstanding






Basic

10,237


8,576


8,563

Diluted

10,289


8,601


8,563







Earnings per weighted average share of senior common stock

$ 1.05


$ 0.81


$ -

Weighted average shares of senior common stock outstanding - basic

59


25


0



Gladstone Commercial Corporation

Consolidated Statements of Cash Flows

(Dollars in Thousands)



For the year ended December 31,


2011


2010


2009







Cash flows from operating activities:






Net income

$ 5,714


$ 4,928


$ 4,603

Adjustments to reconcile net income to net cash






provided by operating activities:






Depreciation and amortization

14,149


13,264


13,172

Amortization of deferred financing costs

918


1,003


1,491

Amortization of deferred rent asset and liability, net

(616)


(684)


(532)

Amortization of discount and premium on assumed debt

94


11


-

Asset retirement obligation expense

157


143


144

Gain on sale of real estate

-


-


(160)

(Increase) decrease in other assets

(142)


389


(960)

Increase in deferred rent liability

1,626


-


-

Increase in deferred rent receivable

(1,394)


(1,652)


(1,177)

(Decrease) increase in accounts payable, accrued expenses, and amount due Adviser

(504)


348


735

(Decrease) increase in other liabilities

(340)


363


(303)

Net cash provided by operating activities

19,662


18,113


17,013







Cash flows from investing activities:






Real estate investments

(44,525)


(2,419)


(1,140)

Leasing commissions paid

(6)


(7)


(441)

Proceeds from sale of real estate

-


-


1,089

Principal repayments on mortgage notes receivable

-


10,000


-

Receipts from lenders for funds held in escrow

1,911


1,618


1,465

Payments to lenders for funds held in escrow

(3,376)


(1,751)


(1,802)

Receipts from tenants for reserves

2,205


2,155


4,454

Payments to tenants from reserves

(2,031)


(2,130)


(4,526)

(Increase) decrease in restricted cash

(185)


345


44

Deposits on future acquisitions

-


-


(250)

Deposits refunded

-


250


200

Net cash (used in) provided by investing activities

(46,007)


8,061


(907)







Cash flows from financing activities:






Proceeds from issuance of equity

39,707


4,127


-

Offering costs

(2,412)


(249)


-

Borrowings under mortgage notes payable

20,052


-


-

Principal repayments on mortgage notes payable

(6,311)


(2,687)


(2,350)

Principal repayments on employee notes receivable

542


1,341


291

Borrowings from line of credit

58,474


32,795


57,600

Repayments on line of credit

(66,774)


(38,995)


(35,900)

Repayment of short-term loan

-


-


(20,000)

Increase (decrease) in security deposits

9


(370)


28

Payments for deferred financing costs

(1,065)


(1,192)


(244)

Distributions paid for common, senior common and preferred

(19,610)


(16,979)


(16,938)

Net cash provided by (used in) financing activities

22,612


(22,209)


(17,513)







Net (decrease) increase in cash and cash equivalents

(3,733)


3,965


(1,407)







Cash and cash equivalents, beginning of period

7,062


3,097


4,504







Cash and cash equivalents, end of period

$ 3,329


$ 7,062


$ 3,097













Cash paid during period for interest

$ 17,076


$ 17,970


$ 16,559







NON-CASH OPERATING, INVESTING AND FINANCING INFORMATION












Increase in asset retirement obligation

$ 69


$ 614


$ -







Fixed rate debt assumed in connection with acquisitions

$ 11,921


$ 10,795


$ -







Forfeiture of common stock in satisfaction of employee note receivable

$ -


$ 244


$ -







Senior common dividend issued in the dividend reinvestment program

$ -


$ 4


$ -







Reclassification of principal on employee note

$ -


$ -


$ 245







Leasing commissions included in accounts payable

$ -


$ 458


$ -





For further information: Gladstone Commercial Corporation, +1-703-287-5893