Gladstone Commercial Corporation
Nov 1, 2011

Gladstone Commercial Corporation Reports Results for the Quarter Ended September 30, 2011

Reported funds from operations ("FFO") for the three and nine months ended September 30, 2011 of $4.3 million and $12.0 million, or $0.39 and $1.19 per share, respectively. - Exercised a one-year renewal option on its $45.2 million mortgage loan to extend the maturity date to October 1, 2012.

MCLEAN, Va., Nov. 1, 2011 /PRNewswire/ -- Gladstone Commercial Corporation (NASDAQ: GOOD) (the "Company") today reported financial results for its quarter ended September 30, 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 three and nine months ended September 30, 2011 was approximately $4.3 million and $12.0 million, or $0.39 and $1.19 per share, respectively, which is a 1.3% and 8.3% 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 three properties acquired subsequent to September 30, 2010, coupled with reduced interest expense, general and administrative expense and a lower net incentive fee.  The net incentive fee decreased because there were more common shares outstanding during 2011. This was partially offset by one-time events that occurred during 2010.   The Company received $3.3 million in additional income during the three months ended September 30, 2010 related to the early repayment of the Company's only mortgage loan, partially offset by a reduction in general and administrative expense from the write-off of $1.6 million of fees related to the termination of the private offering of unregistered senior common stock.  

Net Income: Net income available to common stockholders for the three and nine months ended September 30, 2011 was approximately $0.7 million and $1.5 million, or $0.07 and $0.15 per share, respectively, compared to net income available to common stockholders of approximately $1.0 million or $0.12 per share, respectively, for both the three and nine months ended September 30, 2010.   A reconciliation of FFO to net income for the three and nine months ended September 30, 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 September 30,


For the nine months ended September 30,


2011


2010


2011


2010


(Dollars in Thousands, Except Per Share Data)


(Dollars in Thousands, Except Per Share Data)









Net income

$                          1,748


$                              2,028


$                          4,598


$                    4,121

Less: Distributions attributable to preferred and senior common stock

(1,039)


(1,027)


(3,116)


(3,075)

Net income available to common stockholders

709


1,001


1,482


1,046









Add: Real estate depreciation and amortization

3,629


3,280


10,473


9,992

FFO available to common stockholders

$                          4,338


$                              4,281


$                        11,955


$                    11,038

















Weighted average shares outstanding - basic

10,936


8,563


9,998


8,556

Weighted average shares outstanding - diluted

10,988


8,577


10,050


8,561









Basic net income per weighted average share of common stock

$                            0.07


$                                0.12


$                            0.15


$                      0.12

Diluted net income per weighted average share of common stock

$                            0.07


$                                0.12


$                            0.15


$                      0.12









Basic FFO per weighted average share of common stock

$                            0.40


$                                0.50


$                            1.20


$                            1.29

Diluted FFO per weighted average share of common stock

$                            0.39


$                                0.50


$                            1.19


$                            1.29









Distributions declared per share of common stock

$                          0.375


$                              0.375


$                          1.125


$                    1.125









Percentage of FFO paid per share of common stock

94%


75%


94%


87%



Comments from the President and Chief Investment Officer, Chip Stelljes: "We hoped to close a few transactions during the quarter; however, the closings happened after the end of the quarter.  We are anticipating stronger earnings in the quarter ending December 31, 2011 as we were able to put the equity raised during the first half of the year to work.  We continue to focus on expanding our portfolio, and our existing pipeline remains robust.  We are optimistic about our future and remain pleased with the overall performance of our portfolio and are looking forward to an active 2012."

Asset Characteristics: As of September 30, 2011, the Company owned 67 properties totaling approximately 6.9 million square feet for a total net investment of approximately $400.9 million. Currently, 65 of the Company's properties, or approximately 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 2013, which the Company currently intends and has the ability 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 a period of nine months, which expires in February 2012. 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 all three of these properties.

Highlights for the Quarter ended September 30, 2011:


Activity Subsequent to the end of the Quarter:


Conference Call: The Company will hold a conference call on Wednesday, November 2, 2011 at 8:30 a.m. EDT 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 December 5, 2011.  To hear the replay, please dial (877) 344-7529 and use conference number 10003644.

The live audio broadcast of Gladstone Commercial's quarterly conference call will be available online at www.GladstoneCommercial.com. The event will be archived and available for replay on the Company's website through January 3, 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 December 2011, the Company will have paid 89 consecutive monthly cash distributions on its common stock.  The Company has never skipped, reduced or deferred a monthly distribution since inception, over seven 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 Quarterly Report on Form 10-Q (the "Form 10-Q") for the quarter ended September 30, 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-Q, including the footnotes to the financial statements contained therein. The Company filed the Form 10-Q today with the SEC and the Form 10-Q 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, 2010, as filed with the SEC on March 8, 2011, and under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" (or similar captions) in our quarterly reports on Form 10-Q, and as described in our other filings with the SEC.  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)

(Unaudited)




September 30, 2011


December 31, 2010






ASSETS





Real estate, at cost


$                420,241


$               401,017

Less: accumulated depreciation


51,119


43,659

Total real estate, net


369,122


357,358






Lease intangibles, net


31,791


26,747

Cash and cash equivalents


2,410


7,062

Restricted cash


2,568


2,288

Funds held in escrow


4,051


2,621

Deferred rent receivable


12,151


10,373

Deferred financing costs, net


3,120


3,326

Other assets


1,880


834






TOTAL ASSETS


$                427,093


$               410,609






LIABILITIES AND STOCKHOLDERS’ EQUITY










LIABILITIES





Mortgage notes payable


$                266,008


$               259,595

Borrowings under line of credit


9,100


27,000

Deferred rent liability


3,144


2,276

Asset retirement obligation liability


3,179


3,063

Accounts payable and accrued expenses


1,268


2,683

Due to Adviser


739


965

Other liabilities  


4,363


3,652






Total Liabilities


287,801


299,234






STOCKHOLDERS’ EQUITY





Redeemable preferred stock, $0.001 par value; $25 liquidation preference;





2,300,000 shares authorized and 2,150,000 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively


2


2

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





59,057 shares issued and outstanding at September 30, 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 September 30, 2011 and December 31, 2010, respectively


11


9

Additional paid in capital


211,508


174,261

Notes receivable - employees


(426)


(963)

Distributions in excess of accumulated earnings


(71,803)


(61,934)






Total Stockholders’ Equity


139,292


111,375






TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY


$                427,093


$               410,609



Gladstone Commercial Corporation

Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)

(Unaudited)



For the three months ended September 30,


For the nine months ended September 30,


2011


2010


2011


2010

Operating revenues








      Rental income

$                  11,085


$                10,209


$                32,249


$                  31,034

      Interest income from mortgage note receivable

-


44


-


421

      Tenant recovery revenue

88


81


259


246

            Total operating revenues

11,173


10,334


32,508


31,701









Operating expenses








      Depreciation and amortization

3,629


3,280


10,473


9,992

      Property operating expenses

251


263


750


738

      Due diligence expense

201


-


194


21

      Base management fee

430


298


1,217


907

      Incentive fee

877


1,070


2,549


2,746

      Administration fee

242


357


759


808

      General and administrative

381


2,014


1,193


2,837

            Total operating expenses before credits from Adviser

6,011


7,282


17,135


18,049









Credit to incentive fee

(828)


-


(1,759)


(56)

                 Total operating expenses

5,183


7,282


15,376


17,993









Other income (expense)








      Interest income - employee loans

9


37


28


123

      Other income

-


3,310


45


3,318

      Interest expense

(4,251)


(4,371)


(12,607)


(13,028)

            Total other expense

(4,242)


(1,024)


(12,534)


(9,587)

















Net income

1,748


2,028


4,598


4,121









Distributions attributable to preferred stock

(1,023)


(1,023)


(3,070)


(3,070)

Distributions attributable to senior common stock

(16)


(4)


(46)


(5)









Net income available to common stockholders

$                       709


$                  1,001


$                  1,482


$                    1,046









Earnings per weighted average share of common stock








Basic

$                      0.07


$                    0.12


$                    0.15


$                      0.12

Diluted

$                      0.07


$                    0.12


$                    0.15


$                      0.12









Weighted average shares of common stock outstanding








Basic

10,936


8,563


9,998


8,556

Diluted

10,988


8,577


10,050


8,561









Earnings per weighted average share of senior common stock

$                      0.26


$                    0.26


$                    0.78


$                      0.79

Weighted average shares of senior common stock outstanding - basic

59


16


59


6



Gladstone Commercial Corporation

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)




For the nine months ended September 30,



2011


2010






Cash flows from operating activities:





 Net income


$                     4,598


$                        4,121

Adjustments to reconcile net income to net cash





  provided by operating activities:





  Depreciation and amortization


10,473


9,992

  Amortization of deferred financing costs


684


837

  Amortization of deferred rent asset and liability, net


(513)


(516)

  Amortization of discount and premium on assumed debt


78


-

  Asset retirement obligation expense


116


108

  (Decrease) increase in other assets


(396)


358

  Increase in deferred rent liability


1,626


-

  Increase in deferred rent receivable


(1,051)


(1,235)

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


(1,641)


81

   Increase in other liabilities


430


121

           Net cash provided by operating activities


14,404


13,867






Cash flows from investing activities:





  Real estate investments


(16,333)


(748)

  Leasing commissions paid


-


(7)

  Principal repayments on mortgage notes receivable


-


10,000

  Receipts from lenders for funds held in escrow


1,329


1,082

  Payments to lenders for funds held in escrow


(2,759)


(1,309)

  Receipts from tenants for reserves


1,649


1,615

  Payments to tenants from reserves


(1,320)


(1,216)

  (Increase) decrease in restricted cash


(279)


27

  Deposits on future acquisitions


(900)


-

  Deposits refunded


250


250

           Net cash (used in) provided by investing activities


(18,363)


9,694






Cash flows from financing activities:





  Proceeds from issuance of equity


39,657


1,793

  Offering costs


(2,407)


(150)

  Principal repayments on mortgage notes payable


(5,585)


(1,980)

  Principal repayments on employee notes receivable


537


789

  Borrowings from line of credit


39,374


22,400

  Repayments on line of credit


(57,274)


(32,900)

  Decrease in security deposits


(50)


(426)

  Payments for deferred financing costs


(478)


(254)

  Distributions paid for common, senior common and preferred


(14,467)


(12,699)

           Net cash used in financing activities


(693)


(23,427)






Net (decrease) increase in cash and cash equivalents


(4,652)


134






Cash and cash equivalents, beginning of period


7,062


3,096






Cash and cash equivalents, end of period


$                     2,410


$                        3,230






NON-CASH OPERATING, INVESTING AND FINANCING INFORMATION















Fixed rate debt assumed in connection with acquisitions


$                   11,921


$                                -






Forfeiture of common stock in satisfaction of employee note receivable


$                             -


$                           244






Senior common dividend issued in the dividend reinvestment program


$                             -


$                               2



SOURCE Gladstone Commercial Corporation

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