Gladstone Commercial Corporation
Aug 2, 2011

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

-- Reported funds from operations ("FFO") for the three and six months ended June 30, 2011 of $3.8 million and $7.6 million, an increase of 12.8% and 12.7% over the same periods in 2010, respectively. -- Acquired two properties for an aggregate investment of $26.5 million. -- Assumed $11.6 million of fixed-rate long term debt in connection with the acquisition of one property. -- Extended the term of one lease for three years and re-leased a previously vacant building. -- Issued common stock for net proceeds of approximately $22.7 million.

MCLEAN, Va., Aug. 2, 2011 /PRNewswire/ -- Gladstone Commercial Corporation (NASDAQ: GOOD) (the "Company") today reported financial results for its second quarter ended June 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 for 3 months: FFO for the three months ended June 30, 2011 was approximately $3.8 million, or $0.39 per share, which is a 12.8% increase compared to the same period one year ago.  The increase in FFO for the quarter was primarily a result of an increase in operating revenues derived from the three properties acquired subsequent to June 30, 2010, coupled with reduced interest expense, general and administrative expense and a lower net incentive fee.  The net incentive fee decreased due to the fact that there were more common shares outstanding during the quarter.

FFO for 6 months: FFO for the six months ended June 30, 2011 was approximately $7.6 million, or $0.80 per share, which is a 12.7% increase, compared to the same period one year ago.  The increase in FFO was primarily a result of an out-of-period adjustment recorded during the three months ended March 31, 2011 for $250,000, which related to due diligence costs that were inadvertently expensed related to the Company's acquisition during the quarter ended December 31, 2010, which should have been capitalized into the cost of the property.  These expenses were costs borne by the seller of the property that were inadvertently expensed by us. In addition, there was a decrease in total operating expenses, primarily as a result of the decrease in the net incentive fee.  The net incentive fee decreased due to the $250,000 out-of-period adjustment, coupled with the fact that there were more common shares outstanding during the period.

Net Income: Net income to common stockholders for the three and six months ended June 30, 2011 was approximately $331,000 and $772,000, or $0.04 and $0.08 per share, respectively, compared to net loss to common stockholders of approximately $17,000, or $0.00 per share, for the three months ended June 30, 2010 and net income available to common stockholders of approximately $46,000, or $0.01 per share, for the six months ended June 30, 2010.   A reconciliation of FFO to net income for the three and six months ended June 30, 2011, 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 June 30,


For the six months ended June 30,


2011


2010


2011


2010


(Dollars in Thousands, Except Per Share Data)


(Dollars in Thousands, Except Per Share Data)









Net income

$ 1,370


$ 1,006


$ 2,850


$ 2,093

Less: Distributions attributable to preferred and senior common stock

(1,039)


(1,023)


(2,078)


(2,047)

Net income (loss) available to common stockholders

331


(17)


772


46









Add: Real estate depreciation and amortization

3,475


3,390


6,845


6,712

FFO available to common stockholders

$ 3,806


$ 3,373


$ 7,617


$ 6,758

















Weighted average shares outstanding - basic

9,782


8,545


9,522


8,552

Weighted average shares outstanding - diluted

9,834


8,545


9,573


8,553









Basic net income per weighted average share of common stock

$   0.04


$   0.00


$   0.08


$   0.01

Diluted net income per weighted average share of common stock

$   0.04


$   0.00


$   0.08


$   0.01









Basic FFO per weighted average share of common stock

$   0.39


$   0.39


$   0.80


$   0.79

Diluted FFO per weighted average share of common stock

$   0.39


$   0.39


$   0.80


$   0.79









Distributions declared per share of common stock

$ 0.375


$ 0.375


$ 0.750


$ 0.750









Percentage of FFO paid per share of common stock

95%


95%


94%


95%



Comments from the President and Chief Investment Officer, Chip Stelljes: "During the quarter, we focused on raising additional capital and expanding our portfolio.  We acquired two properties with strong tenants and our existing pipeline is robust.  We are optimistic about our future and continue to see signs of improvement in both the equity and debt capital markets. We remain pleased with the overall performance of our portfolio. We look forward to an active second half of the year."

Asset Characteristics: The Company currently owns 67 properties totaling approximately 6.9 million square feet for a total net investment of approximately $404.0 million. Currently, 65 of the Company's properties, or approximately 98.7% of the portfolio's total square footage, are fully leased and the 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 September 2011; however, the mortgage has two remaining annual extension options 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 six months, which expires in November 2011. The Company has no other leases that expire in 2011; however, it has two other buildings that remain vacant. Rental income from these two tenants was 2.4% 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:


Activity Subsequent to the end of the Quarter:


Conference Call: The Company will hold a conference call on Wednesday, August 3, 2011 at 8:30 a.m. ET 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 September 2, 2011.  To hear the replay, please dial (877) 344-7529 and use conference number 10001385.

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 October 3, 2011.

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 and commercial real estate properties and selectively making long-term mortgage loans. 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 June 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)



June 30, 2011


December 31, 2010





ASSETS




Real estate, at cost

$      419,720


$     401,017

Less: accumulated depreciation

48,537


43,659

Total real estate, net

371,183


357,358


-



Lease intangibles, net

32,804


26,747

Cash and cash equivalents

2,315


7,062

Restricted cash

2,358


2,288

Funds held in escrow

3,305


2,621

Deferred rent receivable

11,905


10,373

Deferred financing costs, net

3,096


3,326

Other assets

1,050


834





TOTAL ASSETS

$      428,016


$     410,609





LIABILITIES AND STOCKHOLDERS’ EQUITY








LIABILITIES




Mortgage notes payable

$      267,124


$     259,595

Borrowings under line of credit

8,200


27,000

Deferred rent liability

3,042


2,276

Asset retirement obligation liability

3,140


3,063

Accounts payable and accrued expenses

1,873


2,683

Due to Adviser

1,091


965

Other liabilities  

3,686


3,652





Total Liabilities

288,156


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 June 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 June 30, 2011 and December 31, 2010, respectively

-


-

Common stock, $0.001 par value, 40,200,000 shares authorized and 10,771,379 and 8,724,613 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively

11


9

Additional paid in capital

208,664


174,261

Notes receivable - employees

(431)


(963)

Distributions in excess of accumulated earnings

(68,386)


(61,934)





Total Stockholders’ Equity

139,860


111,375





TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$      428,016


$     410,609







Gladstone Commercial Corporation

Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)

(Unaudited)



For the three months ended June 30,


For the six months ended June 30,


2011


2010


2011


2010

Operating revenues








      Rental income

$ 10,729


$ 10,410


$ 21,164


$ 20,824

      Interest income from mortgage note receivable

-


189


-


377

      Tenant recovery revenue

87


82


170


165

            Total operating revenues

10,816


10,681


21,334


21,366









Operating expenses








      Depreciation and amortization

3,475


3,390


6,845


6,712

      Property operating expenses

202


230


499


474

      Due diligence expense

131


-


(8)


22

      Base management fee

435


296


787


609

      Incentive fee

840


829


1,672


1,675

      Administration fee

260


219


516


451

      General and administrative

357


442


812


823

            Total operating expenses before credits from Adviser

5,700


5,406


11,123


10,766









Credit to incentive fee

(445)


(56)


(931)


(56)

                 Total operating expenses

5,255


5,350


10,192


10,710









Other income (expense)








      Interest income - employee loans

9


43


19


86

      Other income

1


5


45


8

      Interest expense

(4,201)


(4,373)


(8,356)


(8,657)

            Total other expense

(4,191)


(4,325)


(8,292)


(8,563)

















Net income

1,370


1,006


2,850


2,093









Distributions attributable to preferred stock

(1,024)


(1,023)


(2,047)


(2,047)

Distributions attributable to senior common stock

(15)


-


(31)


-









Net income (loss) available to common stockholders

$      331


$      (17)


$      772


$        46









Earnings per weighted average share of common stock








Basic

$     0.04


$     0.00


$     0.08


$     0.01

Diluted

$     0.04


$     0.00


$     0.08


$     0.01









Weighted average shares of common stock outstanding








Basic

9,782


8,545


9,522


8,552

Diluted

9,834


8,545


9,573


8,553









Earnings per weighted average share of senior common stock

$     0.26


$     0.26


$     0.52


$     0.52

Weighted average shares of senior common stock outstanding - basic

59


1


59


1



Gladstone Commercial Corporation

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)



For the six months ended June 30,


2011


2010





Cash flows from operating activities:




 Net income

$          2,850


$          2,093

Adjustments to reconcile net income to net cash




  provided by operating activities:




  Depreciation and amortization

6,845


6,712

  Amortization of deferred financing costs

456


544

  Amortization of deferred rent asset and liability, net

(335)


(348)

  Amortization of discount on assumed debt

62


-

  Asset retirement obligation expense

77


75

  Increase in other assets

(215)


(963)

  Increase in deferred rent liability

1,255


-

  Increase in deferred rent receivable

(715)


(849)

  Decrease in accounts payable, accrued expenses, and amount due Adviser

(684)


(478)

  (Decrease) increase in other liabilities

(36)


279

           Net cash provided by operating activities

9,560


7,065





Cash flows from investing activities:




  Real estate investments

(15,778)


(575)

  Leasing commissions paid

-


(7)

  Receipts from lenders for reserves held in escrow

1,143


1,016

  Payments to lenders for reserves held in escrow

(1,827)


(873)

  Receipts from tenants for reserves

1,082


1,037

  Payments to tenants from reserves

(962)


(948)

  (Increase) decrease in restricted cash

(69)


338

  Deposits refunded

-


250

           Net cash (used in) provided by investing activities

(16,411)


238





Cash flows from financing activities:




  Proceeds from issuance of equity

36,603


30

  Offering costs

(2,198)


(5)

  Principal repayments on mortgage notes payable

(4,454)


(1,308)

  Principal repayments on employee notes receivable

532


44

  Borrowings from line of credit

27,374


13,400

  Repayments on line of credit

(46,174)


(10,300)

  Decrease in security deposits

(51)


(427)

  Payments for deferred financing costs

(226)


(61)

  Distributions paid for common, senior common and preferred

(9,302)


(8,460)

           Net cash provided by (used in) financing activities

2,104


(7,087)





Net (decrease) increase in cash and cash equivalents

(4,747)


216





Cash and cash equivalents, beginning of period

7,062


3,096





Cash and cash equivalents, end of period

$          2,315


$          3,312





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



SOURCE Gladstone Commercial Corporation

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