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.

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   For the year ended
                        December 31,                 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,   September 30,
                 2010           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