Gladstone Commercial Corporation Reports Results for the Fourth Quarter and Year Ended December 31, 2010

- Reported funds from operations ("FFO") for the full year 2010 of approximately $14.1 million, an increase of 4.1% over the prior year.

- Acquired a property in Orange City, Iowa for approximately $12.3 million.

- Issued common stock for net proceeds of approximately $3.4 million.

- Entered into a $50 million senior secured revolving line of credit agreement with Capital One N.A. and Branch Banking and Trust Company as lenders.

Mar 08, 2011, 16:30 ET from Gladstone Commercial Corporation

MCLEAN, Va., March 8, 2011 /PRNewswire/ -- Gladstone Commercial Corporation (Nasdaq: GOOD) (the "Company") today reported financial results for the quarter and year ended December 31, 2010.  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:  https://photos.prnewswire.com/prnh/20101005/GLADSTONECOMMERCIAL )

FFO for the three months ended December 31, 2010 was approximately $3.0 million, or $0.35 per share, which is a 10.1% decrease compared to the same period one year ago.  FFO for the year ended December 31, 2010 was approximately $14.1 million, or $1.64 per share, which is a 4.1% increase over the previous year FFO.  The decrease in FFO for the quarter was a direct result of approximately $386,000 of due diligence fees incurred related to the property acquisition during the quarter, which the Company was required to expense under new accounting guidance rather than capitalize as it had in years past. In addition, there was a decrease in rental revenues as a result of the mid-year expiration of leases on two properties, coupled with the lost interest income from the payoff of the Company's only mortgage loan in July. Professional fees also increased from the write-off of fees associated with the termination of the Company's continuous private offering of unregistered senior common stock.  This was partially offset by a $225,000 credit to the base management fee issued by the Company's Adviser. In addition, interest expense decreased significantly for the quarter because of the over 2% interest rate reduction in connection with the extension of the $48.0 million mortgage loan in September.  FFO increased for the year primarily because of the $3.3 million of additional income and prepayment fees the Company received in connection with the early repayment of its mortgage loan receivable.

Commenting on the results of operations, Chip Stelljes, President and Chief Investment Officer, said, "During the quarter, we focused on managing and expanding the portfolio.  As previously announced, we were excited to acquire a property during the last quarter, and we continue to actively search for additional properties.  We were pleased that we obtained the new line of credit and were able to raise additional equity capital.  We remain optimistic about our future and continue to see signs of economic improvement and stabilization in both the equity and debt capital markets. We continue to work to re-tenant our two vacant buildings and are pleased with the overall performance of our portfolio. We look forward to an active 2011 as the commercial real estate market continues to recover."

Net loss to common stockholders for the three months ended December 31, 2010 was approximately $232,000 or $0.03 per share, and net income available to common stockholders for the year ended December 31, 2010 was approximately $814,000, or $0.09 per share, compared to net income available to common stockholders of approximately $94,000 and $509,000, or $0.01 per share and $0.06 per share, respectively, for the same periods one year ago.   A reconciliation of FFO for the quarters and years ended December 31, 2010 and 2009 to net income, 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,


2010


2009


2010


2009









Net income

$    806,872


$ 1,117,553


$   4,927,908


$   4,603,048

Less: Distributions attributable to preferred and senior common stock

(1,038,831)


(1,023,439)


(4,113,800)


(4,093,750)

Net (loss) income available to common stockholders

(231,959)


94,114


814,108


509,298









Add: Real estate depreciation and amortization, including discontinued operations

3,271,403


3,286,133


13,263,814


13,171,703

Less: Gain on sale of real estate

-


-


-


(160,038)

FFO available to common stockholders

$ 3,039,444


$ 3,380,247


$ 14,077,922


$ 13,520,963

















Weighted average shares outstanding - basic

8,637,981


8,563,264


8,576,303


8,563,264

Weighted average shares outstanding - diluted

8,688,900


8,563,264


8,601,153


8,563,264









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

$        (0.03)


$          0.01


$            0.09


$            0.06

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

$        (0.03)


$          0.01


$            0.09


$            0.06









Basic FFO per weighted average share of common stock

$          0.35


$          0.39


$            1.64


$            1.58

Diluted FFO per weighted average share of common stock

$          0.35


$          0.39


$            1.64


$            1.58









Distributions declared per share of common stock

$        0.375


$        0.375


$          1.500


$          1.500









Percentage of FFO paid per share of common stock

107%


95%


91%


95%



At December 31, 2010, the Company owned 65 properties totaling approximately 6.8 million square feet for a total net investment of approximately $384.1 million.  Currently, 63 of the Company's properties are fully leased, or approximately 97.2% of the portfolio's total square footage and each of these tenants are current and paying in accordance with the terms of their leases.

The Company has $48.0 million of balloon principal payments due under one of its long-term mortgages in 2011; however, the mortgage has two remaining annual extension options through 2013, which the Company currently intends to exercise.  The Company has no other balloon principal payments due under any of its mortgages until 2013.

The Company has no leases that expire in 2011; however, two leases expired during 2010. The Company is currently seeking new tenants for these two properties.  Furthermore, one of the Company's tenants located in Hazelwood, Missouri rejected its lease with the Company as part of the tenant's bankruptcy proceedings.  The Company's lease with this tenant was originally scheduled to expire in January 2012.  Rental income from this tenant is less than 1% of the Company's total annualized rental income.  The Company is taking the appropriate action to re-tenant the property.

Highlights of 2010, the Company:

  • Received full early repayment on its $10.0 million mortgage loan and additional income and prepayment fees of $3.3 million, for total proceeds of $13.3 million;
  • Acquired a 487,121 square foot property in Orange City, Iowa for $12.3 million.  The property is leased to Staples Contract & Commercial, Inc.;
  • Entered into a $50 million senior secured revolving line of credit agreement with Capital One N.A. and Branch Banking and Trust Company as lenders.  The agreement has a three year term with a stated interest rate equal to LIBOR, plus an applicable margin of up to three hundred basis points;
  • Exercised a one-year renewal option on its $48.0 million mortgage loan on September 30, 2010 to extend the maturity date until September 30, 2011;
  • Issued 192,365 shares of common stock at an average price per share of $18.17 under its Open Market Sales Agreement with Jefferies & Company, Inc. for net proceeds of approximately $3.4 million;
  • Extended the terms of the lease of its property located in Grand Rapids, Michigan until 2025, on the lease of its property located in Toledo, Ohio until 2020 and on the lease of its property located in Fridley, Minnesota until 2020; and
  • Paid monthly distributions for the year totaling $1.50 per share on the common stock, $1.94 per share on the Series A Preferred Stock, $1.88 per share on the Series B Preferred Stock, and $0.60 per share on the Senior Common Stock.  Approximately 84% of the common stock distributions paid in 2010 were deemed a return of capital.

Subsequent to year end, the Company:

  • Issued 833,750 shares of common stock through an underwritten public offering for net proceeds of approximately $14.3 million, after deducting underwriting discounts and other offering expenses;
  • Extended the lease with one tenant occupying five of its properties in Georgia until 2031; and
  • Declared monthly cash distributions of $0.125 per share on the common stock, $0.1614583 per share on the Series A Preferred Stock, $0.15625 per share on the Series B Preferred Stock, and $0.085 per share on the Senior Common Stock, for each of the months of January, February and March 2011.  

The financial statements attached below are without footnotes so readers should obtain and carefully review the Company's Annual Report on Form 10-K (the "Form 10-K") for the year ended December 31, 2010, including the footnotes to the financial statements contained therein. The Company filed the Form 10-K today with the Securities and Exchange Commission ("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 Company will hold a conference call on Wednesday, March 9, 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 April 8, 2011.  To hear the replay, please dial (877) 344-7529 and use conference number 447116.

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 May 8, 2011.

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.

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 Form 10-K for the year ended December 31, 2010, as filed with the SEC today.

The statements in this press release regarding the Company's ability, plans or intentions to re-tenant its unoccupied properties, extend the respective maturity dates of  its long-term mortgages, grow its portfolio and FFO, renegotiate leases and make capital improvements to certain of its properties  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 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.  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


December 31, 2010


December 31, 2009





ASSETS




Real estate, at cost

$                    401,016,940


$                    390,753,892

Less: accumulated depreciation

43,659,456


34,111,952

Total real estate, net

357,357,484


356,641,940





Lease intangibles, net

26,746,992


28,177,461

Mortgage note receivable

-


10,000,000

Cash and cash equivalents

7,061,504


3,096,598

Restricted cash

2,288,410


2,633,538

Funds held in escrow

2,621,091


2,487,680

Deferred rent receivable

10,373,508


8,975,196

Deferred financing costs, net

3,325,740


3,136,055

Other assets

833,873


1,716,905





TOTAL ASSETS

$                    410,608,602


$                    416,865,373





LIABILITIES AND STOCKHOLDERS’ EQUITY








LIABILITIES




Mortgage notes payable

$                    260,869,463


$                    252,761,651

Borrowings under line of credit

27,000,000


33,200,000

Deferred rent liability

2,276,033


3,213,195

Asset retirement obligation liability

3,062,768


2,305,644

Accounts payable and accrued expenses

2,682,915


2,086,741

Due to Adviser

965,373


1,213,640

Other liabilities  

2,377,743


3,633,960





Total Liabilities

299,234,295


298,414,831





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 December 31, 2010 and 2009, respectively

2,150


2,150

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




59,057 and 0 shares issued and outstanding at December 31, 2010 and 2009, respectively

59


-

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




8,724,613 and 8,563,264 shares issued and outstanding at December 31, 2010 and 2009, respectively

8,725


8,563

Additional paid in capital

174,260,531


170,622,581

Notes receivable - employees

(963,433)


(2,304,999)

Distributions in excess of accumulated earnings

(61,933,725)


(49,877,753)





Total Stockholders’ Equity

111,374,307


118,450,542





TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$                    410,608,602


$                    416,865,373







Gladstone Commercial Corporation

Consolidated Statements of Operations


For the three


For the three


For the three


For the three


months ended


months ended


months ended


months ended


December 31, 2010


September 30, 2010


June 30, 2010


March 30, 2010

Operating revenues








      Rental income

$                     10,146,240


$                     10,209,211


$                     10,409,519


$                     10,415,066

      Interest income from mortgage note receivable

-


43,750


189,583


187,500

      Tenant recovery revenue

81,054


81,452


82,285


82,410

            Total operating revenues

10,227,294


10,334,413


10,681,387


10,684,976









Operating expenses








      Depreciation and amortization

3,271,403


3,280,048


3,390,492


3,321,871

      Property operating expenses

234,701


262,686


229,733


244,354

      Due diligence expense

389,900


-


-


21,876

      Base management fee

291,619


298,393


296,141


312,564

      Incentive fee

734,460


1,070,145


829,264


846,192

      Administration fee

255,232


356,856


219,119


231,884

      Professional fees

370,428


1,822,683


201,801


175,610

      Insurance expense

47,046


53,219


56,513


56,325

      Directors' fees

43,759


54,533


49,025


49,418

      General and administrative

109,814


83,656


134,186


100,292

            Total operating expenses before credits from Adviser

5,748,362


7,282,219


5,406,274


5,360,386









Credit to base management fee

(225,000)







Credit to incentive fee

(101,596)


-


(56,073)


-

                 Total operating expenses

5,421,766


7,282,219


5,350,201


5,360,386









Other income (expense)








      Interest income from temporary investments

7,543


114


113


265

      Interest income - employee loans

28,650


36,557


42,574


43,101

      Other income

14


3,309,887


5,013


3,316

      Interest expense

(4,034,863)


(4,370,500)


(4,372,435)


(4,284,939)

            Total other expense

(3,998,656)


(1,023,942)


(4,324,735)


(4,238,257)









Net income

806,872


2,028,252


1,006,451


1,086,333









Distributions attributable to preferred stock

(1,023,438)


(1,023,437)


(1,023,437)


(1,023,438)

Distributions attributable to senior common stock

(15,393)


(4,282)


(375)


-









Net income available to common stockholders

$                        (231,959)


$                       1,000,533


$                          (17,361)


$                            62,895









Earnings per weighted average share of common stock - basic








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

$                              (0.03)


$                                0.12


$                                    -


$                                0.01

Discontinued operations

-


-


-


-









Net income available to common stockholders

$                              (0.03)


$                                0.12


$                                    -


$                                0.01









Earnings per weighted average share of common stock - diluted








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

$                              (0.03)


$                                0.12


$                                    -


$                                0.01

Discontinued operations

-


-


-


-









Net income available to common stockholders

$                              (0.03)


$                                0.12


$                                    -


$                                0.01

















          Weighted average shares of common stock outstanding - basic

8,637,981


8,562,777


8,545,264


8,558,664

          Weighted average shares of common stock outstanding- diluted

8,688,900


8,577,173


8,546,529


8,558,664









          Earnings per weighted average share of senior common stock

$                                0.30


$                                0.26


$                                0.26


$                                    -

          Weighted average shares of senior common stock outstanding - basic

50,919


16,286


1,435


0



Gladstone Commercial Corporation

Consolidated Statements of Operations


For the year ended December 31,


2010


2009


2008

Operating revenues






   Rental income

$                     41,180,036


$                   41,513,977


$                   39,572,287

   Interest income from mortgage note receivable

420,833


760,417


898,573

   Tenant recovery revenue

327,201


334,543


336,637

       Total operating revenues

41,928,070


42,608,937


40,807,497







Operating expenses






   Depreciation and amortization

13,263,814


13,161,287


12,679,437

   Property operating expenses

971,474


915,120


875,850

   Due diligence expense

411,776


40,574


1,176,379

   Base management fee

1,198,717


1,401,402


1,637,851

   Incentive fee

3,480,061


3,238,634


2,831,722

   Administration fee

1,063,091


1,015,695


954,635

   Professional fees

2,570,522


649,566


521,410

   Insurance expense

213,103


203,682


173,414

   Directors' fees

196,735


198,882


216,851

   General and administrative

427,948


442,135


493,119

       Total operating expenses before credits from Adviser

23,797,241


21,266,977


21,560,668







Credit to base management fee

(225,000)


-


-

Credit to incentive fee

(157,669)


(726,448)


(2,196,945)

       Total operating expenses

23,414,572


20,540,529


19,363,723







Other income (expense)






   Interest income from temporary investments

8,035


20,748


21,844

   Interest income - employee loans

150,882


192,350


202,097

   Other income

3,318,230


12,978


63,993

   Interest expense

(17,062,737)


(17,894,536)


(16,858,687)

       Total other expense

(13,585,590)


(17,668,460)


(16,570,753)







Income from continuing operations

4,927,908


4,399,948


4,873,021







Discontinued operations






   Income from discontinued operations

-


43,062


39,926

   Gain on sale of real estate

-


160,038


-

       Total discontinued operations

-


203,100


39,926







Net income

4,927,908


4,603,048


4,912,947







Distributions attributable to preferred stock

(4,093,750)


(4,093,750)


(4,093,750)

Distributions attributable to senior common stock

(20,050)


-


-







Net income available to common stockholders

$                          814,108


$                        509,298


$                        819,197







Earnings per weighted average share of common stock - basic






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

$                                0.09


$                              0.04


$                              0.09

Discontinued operations

-


0.02


0.01







Net income available to common stockholders

$                                0.09


$                              0.06


$                              0.10







Earnings per weighted average share of common stock - diluted






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

$                                0.09


$                              0.04


$                              0.09

Discontinued operations

-


0.02


0.01







Net income available to common stockholders

$                                0.09


$                              0.06


$                              0.10













   Weighted average shares of common stock outstanding - basic

8,576,303


8,563,264


8,565,149

   Weighted average shares of common stock outstanding- diluted

8,601,153


8,563,264


8,565,149







   Earnings per weighted average share of senior common stock

$                                0.81


$                                 -


$                                  -

   Weighted average shares of senior common stock outstanding - basic

24,850


0


0









Gladstone Commercial Corporation

Consolidated Statements of Cash Flows


For the year ended December 31,


2010


2009


2008







Cash flows from operating activities:






 Net income

$                          4,927,908


$                          4,603,048


$                          4,912,947

Adjustments to reconcile net income to net cash






  provided by operating activities:






  Depreciation and amortization, including discontinued operations

13,263,814


13,171,703


12,704,641

  Amortization of deferred financing costs

1,002,428


1,491,389


1,283,956

  Amortization of deferred rent asset and liability, net

(683,666)


(532,068)


(532,066)

  Amortization of discount on assumed debt

11,301


-


-

  Asset retirement obligation expense, including discontinued operations

143,060


143,550


133,244

  Gain on sale of real estate

-


(160,038)


-

  Decrease (increase) in other assets

389,133


(959,738)


172,096

  Increase in deferred rent receivable

(1,651,809)


(1,177,167)


(2,387,509)

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

347,908


735,492


1,001,639

  Increase (decrease) in other liabilities

363,366


(302,914)


286,227

           Net cash provided by operating activities

18,113,443


17,013,257


17,575,175







Cash flows from investing activities:






  Real estate investments

(2,418,534)


(1,139,711)


(49,359,852)

  Leasing commissions paid

(7,044)


(441,745)


-

  Proceeds from sale of real estate

-


1,089,269


-

  Principal repayments on mortgage notes receivable

10,000,000


-


-

  Receipts from lenders for reserves held in escrow

1,617,933


1,465,133


874,227

  Payments to lenders for reserves held in escrow

(1,751,344)


(1,801,894)


(1,623,452)

  Decrease (increase) in restricted cash

345,128


44,023


(763,494)

  Deposits on future acquisitions

-


(250,000)


(1,650,000)

  Deposits refunded

250,000


200,000


1,750,000

           Net cash provided by (used in) investing activities

8,036,139


(834,925)


(50,772,571)







Cash flows from financing activities:






  Proceeds from issuance of common and senior common stock

4,126,690


-


-

  Offering costs

(248,829)


-


-

  Borrowings under mortgage notes payable

-


-


48,015,000

  Principal repayments on mortgage notes payable

(2,687,192)


(2,349,522)


(1,485,901)

  Principal repayments on employee notes receivable

1,341,566


290,887


155,637

  Borrowings from line of credit

32,794,746


57,600,000


76,900,000

  Repayments on line of credit

(38,994,746)


(35,900,000)


(69,800,000)

  Repayment of short-term loan

-


(20,000,000)


-

  Receipts from tenants for reserves

2,154,699


4,454,102


2,391,360

  Payments to tenants from reserves

(2,130,232)


(4,526,409)


(2,159,671)

  (Decrease) increase in security deposits

(369,595)


28,282


531,806

  Payments for deferred financing costs

(1,192,113)


(243,999)


(1,262,273)

  Distributions paid for common and preferred

(16,979,670)


(16,938,653)


(16,941,392)

           Net cash (used in) provided by financing activities

(22,184,676)


(17,585,312)


36,344,566







Net increase (decrease) in cash and cash equivalents

3,964,906


(1,406,980)


3,147,170







Cash and cash equivalents, beginning of year

3,096,598


4,503,578


1,356,408







Cash and cash equivalents, end of year

$                          7,061,504


$                          3,096,598


$                          4,503,578













Cash paid during period for interest

$                        17,969,864


$                        16,558,955


$                        14,337,944







NON-CASH OPERATING, INVESTING AND FINANCING INFORMATION


















Increase in asset retirement obligation

$                             614,064


$                                        -


$                             245,196







Fixed rate debt assumed in connection with acquisitions

$                        10,795,004


$                                        -


$                          6,461,603







Obligation under capital lease

$                                        -


$                                        -


$                             225,068







Forfeiture of common stock in satisfaction of employee note receivable

$                             243,900


$                                        -


$                               18,400







Senior common dividend issued in the dividend reinvestment program

$                                 4,210


$                                        -


$                                        -

Reclassification of principal on employee note (Refer to Note 8)

$                                        -


$                             245,000


$                                        -







Leasing commissions included in accounts payable

$                             457,939


$                                        -


$                                        -



SOURCE Gladstone Commercial Corporation



RELATED LINKS

http://www.gladstone.com