Gladstone Commercial Corporation Reports Results for the Fourth Quarter and Year Ended December 31, 2008

MCLEAN, Va.--(BUSINESS WIRE)-- 2008 Highlights:

    --  Reported revenues for the fourth quarter and full-year 2008 of
        approximately $10.7 million and $40.9 million, respectively:
        o Fourth quarter revenues increased by 19.5% versus the same period last
          year, and
        o Full-year 2008 revenues increased by 24.8% versus last year.
    --  Reported funds from operations ("FFO") for the fourth quarter and
        full-year 2008 of approximately $3.4 million and $13.5 million,
        respectively:
        o Fourth quarter FFO increased by 4.2% versus the same period last year,
          and
        o Full-year 2008 FFO increased by 8.2% versus last year.
    --  Acquired six properties in 2008 for a total investment of approximately
        $53.6 million.
    --  Closed a mortgage financing of 15 properties for approximately $48.0
        million in 2008.

Gladstone Commercial Corp. (NASDAQ:GOOD) (the "Company") today reported financial results for the quarter and year ended December 31, 2008. 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 news release. All per share references are to fully-diluted weighted average common shares, unless otherwise noted.

FFO for the three months ended December 31, 2008 was approximately $3.4 million, or $0.39 per share, compared to approximately $3.2 million, or $0.38 per share, for the same period one year ago, an increase to FFO of approximately 4.2%. FFO for the year ended December 31, 2008 was approximately $13.5 million, or $1.58 per share, compared to approximately $12.5 million, or $1.46 per share, for the same period one year ago, an increase to FFO of approximately 8.2%. FFO, when compared to the same period last year, was affected by the fact that the Company financed all of its acquisitions during 2008 using fixed-rate, long-term debt, which resulted in increased interest expense, as rates on the Company's long-term debt were higher than on its short-term debt. This was partially offset by the increase in the Company's portfolio of investments and the corresponding increase in its revenues. FFO was also affected by partial waivers of incentive fees from the Company's external adviser, Gladstone Management Corporation (the "Adviser"), for the year ended December 31, 2008, of approximately $2.2 million, compared to $2.3 million for the year ended December 31, 2007. In addition, the Company incurred approximately $1.0 million of due diligence expense during the quarter ended December 31, 2008 related to a large potential acquisition that ultimately did not close. Because of these expenses the Adviser chose to voluntarily and irrevocably waive the entire incentive fee for the fourth quarter along with a portion of the incentive fees paid during prior quarters in 2008 in order to allow the Company to maintain distributions to stockholders.

Net income available to common stockholders for the quarter ended December 31, 2008 was approximately $0.1 million, or $0.01 per share, compared to approximately $0.4 million, or $0.05 per share, for the same period one year ago. Net income available to common stockholders for the year ended December 31, 2008 was approximately $0.8 million, or $0.10 per share, compared to approximately $2.0 million, or $0.24 per share, for the same period one year ago.

A reconciliation of net income, which the Company believes is the most directly comparable GAAP measure to FFO, is set forth below:


               For the three   For the three   For the year    For the year
               months ended    months ended    ended           ended
               December 31,    December 31,    December 31,    December 31, 2007
               2008            2007            2008

Net income     $ 1,135,241     $ 1,463,113     $ 4,912,947     $ 6,140,229

Less:
Distributions
attributable     (1,023,439 )    (1,023,438 )    (4,093,750 )    (4,093,750 )
to preferred
stock

Net income
available to     111,802         439,675         819,197         2,046,479
common
stockholders

Add: Real
estate
depreciation     3,268,961       2,806,109       12,704,641      10,528,458
and
amortization

Less: Gain on
sale of real     -               -               -               (78,667    )
estate, net
of taxes paid

FFO available
to common      $ 3,380,763     $ 3,245,784     $ 13,523,838    $ 12,496,270
stockholders

Weighted
average
shares           8,564,807       8,565,264       8,565,149       8,565,264
outstanding -
basic &
diluted

Basic &
diluted net
income per     $ 0.01          $ 0.05          $ 0.10          $ 0.24
weighted
average
common share

Basic &
diluted FFO
per weighted   $ 0.39          $ 0.38          $ 1.58          $ 1.46
average
common share



The weighted average yield on the Company's portfolio as of December 31, 2008 was 9.63% as compared to 9.55% as of December 31, 2007. At December 31, 2008, the Company owned 65 properties totaling approximately 6.3 million square feet, and had one mortgage loan outstanding for a total net investment of approximately $407.3 million. Currently, all of the Company's properties are fully leased and all of its tenants and its borrower are paying as agreed. The Company does not have any balloon principal payments due under any of its long-term mortgages until 2010, and the $48.0 million mortgage that matures in 2010 has three annual extension options through 2013. In addition the Company intends to repay its $20.0 million short-term loan that matures in June 2009, with its existing availability under the line of credit. The Company's line of credit matures in December 2009 and it intends to exercise its option to extend the line of credit through December 2010.

2008 highlights:

    --  Purchased six fully-occupied properties comprised of approximately
        756,000 square feet for approximately $53.6 million, including $6.5
        million of assumed debt on one of the properties;
    --  Made capital improvements to three of its properties located in
        Newburyport, Massachusetts, Arlington, Texas and Duncan, South Carolina
        for approximately $2.2 million;
    --  Extended the terms of the leases on its properties located in Snyder
        Township, Pennsylvania and Lexington, North Carolina until 2014, and the
        lease on its Newburyport, Massachusetts property until 2015; and
    --  Borrowed approximately $48.0 million pursuant to a two-year mortgage
        note payable from GE Commercial Mortgage Financial Corporation (which
        may be extended to five years at the Company's option), collateralized
        by security interests in 15 properties.

"Our results demonstrate that we continue to grow our portfolio with new investments and add value to existing investments; however, we are disappointed by the credit market's impact on the pace of our acquisitions. We felt the effects of the tight credit markets as we were unable to close a large acquisition during the fourth quarter 2008 and had to write off the associated due diligence expense. We continue to consider new investments, but on a very selective basis, as we do not believe that sellers' pricing expectations have fully adjusted to current market realities. Despite these very challenging times, our current portfolio's strength is demonstrated by the fact that all our properties are fully leased and all of our tenants and borrower are current and paying as agreed," said Chip Stelljes, President and Chief Investment Officer.

Subsequent to quarter end, the Company:

    --  Declared monthly distributions of $0.125 per share on the common stock,
        $0.1614583 per share on the Series A Preferred Stock, and $0.15625 per
        share on the Series B Preferred Stock, for each of the months of
        January, February and March 2009.

The financial statements attached below are without footnotes so readers should obtain and carefully review the Company's Form 10-K for the year ended December 31, 2008, including the footnotes to the financial statements contained therein. The Company has 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 Thursday, February 26, 2009 at 8:30 a.m. ET to discuss its earnings results. Please call (877) 407-8031 to enter the conference. An operator will monitor the call and set a queue for the questions.

The conference call replay will be available two hours after the call and will be available through March 26, 2009. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 309394.

Gladstone Commercial Corporation is a publicly traded real estate investment trust ("REIT") that focuses on investing in and owning triple-net leased industrial and commercial real estate properties and selectively making long-term mortgage loans. Additional information can be found at www.GladstoneCommercial.com.

For further information, contact Kerry Finnegan at 703-287-5893.

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 a further 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 Form 10-K for the year ended December 31, 2008, as filed with the SEC today.

This press release may include statements that may constitute "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, including statements with regard to the future performance of the Company. Words such as "believes," "expects," "estimates," "estimated," "projects" and "future" or similar expressions are intended to identify forward-looking statements. 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 the Company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: (1) risks associated with negotiation and consummation of pending and future transactions; and (2) those factors listed under the caption "Risk factors" of the Company's Form 10-K for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange Commission ("SEC") on February 25, 2009. 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, 2008  December 31, 2007

ASSETS

Real estate, at cost                        $ 390,562,138      $ 340,500,406

Less: accumulated depreciation                24,757,576         15,738,634

Total real estate, net                        365,804,562        324,761,772

Lease intangibles, net                        31,533,843         28,989,556

Mortgage notes receivable                     10,000,000         10,000,000

Cash and cash equivalents                     4,503,578          1,356,408

Restricted cash                               2,677,561          1,914,067

Funds held in escrow                          2,150,919          1,401,695

Deferred rent receivable                      7,228,811          5,094,799

Deferred financing costs, net                 4,383,446          4,405,129

Due from adviser                              108,898            -

Prepaid expenses and other assets             707,167            979,263

TOTAL ASSETS                                $ 429,098,785      $ 378,902,689

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Mortgage notes payable                      $ 255,111,173      $ 202,120,471

Short-term loan and borrowings under line     31,500,000         24,400,000
of credit

Deferred rent liability                       3,147,472          3,933,035

Asset retirement obligation liability         2,190,192          1,811,752

Accounts payable and accrued expenses         2,673,787          778,949

Due to adviser                                -                  784,301

Obligation under capital lease                235,378            -

Rent received in advance, security            3,745,523          2,706,113
deposits and funds held in escrow

Total Liabilities                             298,603,525        236,534,621

STOCKHOLDERS' EQUITY

Redeemable preferred stock, $0.001 par
value; $25 liquidation preference;            2,150              2,150
2,300,000 shares authorized and 2,150,000
shares issued and outstanding

Common stock, $0.001 par value, 47,700,000
shares authorized and 8,563,264 and           8,563              8,565
8,565,264 shares issued and outstanding,
respectively

Additional paid in capital                    170,622,581        170,640,979

Notes receivable - employees                  (2,595,886  )      (2,769,923  )

Distributions in excess of accumulated        (37,542,148 )      (25,513,703 )
earnings

Total Stockholders' Equity                    130,495,260        142,368,068

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $ 429,098,785      $ 378,902,689




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,   June 30, 2008   March 31, 2008
                2008            2008

Operating
revenues

Rental income   $ 10,406,752    $ 10,157,553    $ 9,922,018     $ 9,189,465

Interest
income from       225,025         216,446         218,805         238,297
mortgage notes
receivable

Tenant
recovery          83,139          83,144          84,635          85,719
revenue

Total
operating         10,714,916      10,457,143      10,225,458      9,513,481
revenues

Operating
expenses

Depreciation
and               3,268,961       3,262,903       3,185,017       2,987,760
amortization

Property
operating         210,910         222,862         203,818         239,483
expenses

Due diligence     1,172,096       2,158           40              2,085
expense

Base              382,018         404,108         419,857         431,868
management fee

Incentive fee     531,436         793,787         801,832         704,667

Administration    229,657         238,241         274,541         212,196
fee

Professional      158,826         117,857         147,065         97,662
fees

Insurance         46,466          43,354          41,797          41,797

Directors fees    55,648          54,702          52,251          54,250

Stockholder
related           26,954          42,232          102,775         126,423
expenses

Asset
retirement        34,855          35,157          32,764          30,468
obligation
expense

General and       22,670          10,079          18,332          12,182
administrative

Total
operating
expenses          6,140,497       5,227,440       5,280,089       4,940,841
before credit
from Adviser

Credit to         (1,255,017 )    (205,876   )    (173,697   )    (562,355   )
incentive fee

Total
operating         4,885,480       5,021,564       5,106,392       4,378,486
expenses

Other expense

Interest
income from       1,048           4,559           6,689           9,548
temporary
investments

Interest
income -          49,477          49,624          50,852          52,144
employee loans

Other income      7,500           7,500           39,697          9,296

Interest          (4,751,800 )    (4,354,381 )    (3,996,453 )    (3,756,053 )
expense

Total other       (4,693,775 )    (4,292,698 )    (3,899,215 )    (3,685,065 )
expense

Income from
continuing        1,135,661       1,142,881       1,219,851       1,449,930
operations

Loss from
discontinued      (420       )    (1,322     )    (406       )    (33,228    )
operations

Net income        1,135,241       1,141,559       1,219,445       1,416,702

Distributions
attributable      (1,023,439 )    (1,023,437 )    (1,023,437 )    (1,023,437 )
to preferred
stock

Net income
available to    $ 111,802       $ 118,122       $ 196,008       $ 393,265
common
stockholders

Earnings per
weighted
average common
share - basic
& diluted

Income from
continuing
operations
(net of         $ 0.01          $ 0.01          $ 0.02          $ 0.05
distributions
attributable
to preferred
stock)

Discontinued      0.00            0.00            0.00            0.00
operations

Net income
available to    $ 0.01          $ 0.01          $ 0.02          $ 0.05
common
stockholders

Weighted
average shares
outstanding

Basic &           8,564,807       8,565,264       8,565,264       8,565,264
Diluted




Gladstone Commercial Corporation

Consolidated Statements of Operations

                                For the year ended December 31,

                                  2008             2007             2006

Operating revenues

Rental income                   $ 39,675,788     $ 31,469,297     $ 23,964,035

Interest income from mortgage     898,573          1,013,889        1,845,231
notes receivable

Tenant recovery revenue           336,637          310,353          136,280

Total operating revenues          40,910,998       32,793,539       25,945,546

Operating expenses

Depreciation and amortization     12,704,641       10,528,458       8,297,174

Property operating expense        877,073          800,822          636,427

Due diligence expense             1,176,379        20,968           9,365

Base management fee               1,637,851        1,858,120        2,902,053

Incentive fee                     2,831,722        2,564,365        -

Administration fee                954,635          837,898          -

Professional fees                 521,410          625,349          953,066

Insurance                         173,414          214,141          211,562

Directors fees                    216,851          229,000          140,000

Stockholder related expenses      298,384          244,629          311,049

Asset retirement obligation       133,244          116,478          129,142
expense

General and administrative        63,263           102,999          82,847

Stock option compensation         -                -                394,411
expense

Total operating expenses          21,588,867       18,143,227       14,067,096
before credit from Adviser

Credit to incentive fee           (2,196,945  )    (2,321,597  )    -

Total operating expenses          19,391,922       15,821,630       14,067,096

Other income (expense)

Interest income from temporary    21,844           354,249          76,772
investments

Interest income - employee        202,097          222,051          125,788
loans

Other income                      63,993           47,847           380,915

Interest expense                  (16,858,687 )    (11,564,541 )    (9,104,894 )

Total other expense               (16,570,753 )    (10,940,394 )    (8,521,419 )

Income from continuing            4,948,323        6,031,515        3,357,031
operations

Discontinued operations

(Loss) income from                (35,376     )    (3,312      )    112,145
discontinued operations

Net realized income (loss)
from foreign currency             -                33,359           (202,938   )
transactions

Gain on sale of real estate       -                -                1,422,026

Taxes refunded (paid) on sale     -                78,667           (315,436   )
of real estate

Total discontinued operations     (35,376     )    108,714          1,015,797

Net income                        4,912,947        6,140,229        4,372,828

Distributions attributable to     (4,093,750  )    (4,093,750  )    (2,186,890 )
preferred stock

Net income available to common  $ 819,197        $ 2,046,479      $ 2,185,938
stockholders

Earnings per weighted average
common share - basic

Income from continuing
operations (net of              $ 0.10           $ 0.23           $ 0.15
distributions attributable to
preferred stock)

Discontinued operations           0.00             0.01             0.13

Net income available to common  $ 0.10           $ 0.24           $ 0.28
stockholders

Earnings per weighted average
common share - diluted

Income from continuing
operations (net of              $ 0.10           $ 0.23           $ 0.14
distributions attributable to
preferred stock)

Discontinued operations           0.00             0.01             0.13

Net income available to common  $ 0.10           $ 0.24           $ 0.27
stockholders

Weighted average shares
outstanding

Basic                             8,565,149        8,565,264        7,827,781

Diluted                           8,565,149        8,565,264        7,986,690




Gladstone Commercial Corporation

Consolidated Statements of Cash Flows

                             For the year ended December 31,

                               2008             2007              2006

Cash flows from operating
activities:

Net income                   $ 4,912,947      $ 6,140,229       $ 4,372,828

Adjustments to reconcile
net income to net cash

provided by operating
activities:

Depreciation and
amortization, including        12,704,641       10,528,458        8,349,474
discontinued operations

Amortization of deferred
financing costs, including     1,283,956        717,195           1,207,198
discontinued operations

Amortization of deferred       (532,066    )    (532,068     )    (442,765     )
rent asset and liability

Accretion of obligation        10,311           -                 -
under capital lease

Asset retirement obligation
expense, including             133,244          116,478           139,074
discontinued operations

Stock compensation             -                -                 394,411

Increase in mortgage notes
payable due to change in       -                -                 202,066
value of foreign currency

Value of building acquired
in excess of mortgage note     -                -                 (335,701     )
satisfied, applied to
interest income

Gain on sale of real estate    -                -                 (1,422,026   )

Decrease (increase) in
prepaid expenses and other     172,096          64,990            (62,880      )
assets

Increase in deferred rent      (2,387,509  )    (1,741,016   )    (1,270,159   )
receivable

Increase in accounts
payable, accrued expenses,     1,001,639        625,398           196,294
and amount due adviser, net

Increase in rent received      275,916          176,145           268,037
in advance

Net cash provided by           17,575,175       16,095,809        11,595,851
operating activities

Cash flows from investing
activities:

Real estate investments        (49,359,852 )    (105,599,587 )    (48,339,307  )

Proceeds from sales of real    -                -                 2,102,567
estate

Principal repayments on        -                -                 44,742
mortgage notes receivable

Receipts from lenders for      874,227          1,603,309         1,127,753
reserves held in escrow

Payments to lenders for        (1,623,452  )    (1,369,186   )    (1,722,280   )
reserves held in escrow

(Increase) decrease in         (763,494    )    (688,905     )    749,274
restricted cash

Deposits on future             (1,650,000  )    (2,110,000   )    (900,000     )
acquisitions

Deposits applied against       1,750,000        2,110,000         1,200,000
real estate investments

Net cash used in investing     (50,772,571 )    (106,054,369 )    (45,737,251  )
activities

Cash flows from financing
activities:

Proceeds from share            -                -                 65,089,026
issuance

Redemption of shares for       -                -                 (457,634     )
payment of taxes

Offering costs                 -                -                 (2,654,279   )

Borrowings under mortgage      48,015,000       48,521,690        68,055,000
notes payable

Principal repayments on        (1,485,901  )    (895,657     )    (604,318     )
mortgage notes payable

Principal repayments on        155,637          431,399           914
employee notes receivable

Borrowings from short-term     76,900,000       65,500,000        71,400,400
loan and line of credit

Repayments on line of          (69,800,000 )    (41,100,000  )    (114,960,400 )
credit

Receipts from tenants for      2,391,360        2,023,019         2,099,506
reserves

Payments to tenants from       (2,159,671  )    (1,710,685   )    (3,276,731   )
reserves

Increase in security           531,806          376,572           427,951
deposits

Payments for deferred          (1,262,273  )    (1,409,320   )    (3,242,881   )
financing costs

Distributions paid for         (16,941,392 )    (16,427,736  )    (13,469,627  )
common and preferred

Net cash provided by           36,344,566       55,309,282        68,406,927
financing activities

Net increase (decrease) in     3,147,170        (34,649,278  )    34,265,527
cash and cash equivalents

Cash and cash equivalents,     1,356,408        36,005,686        1,740,159
beginning of year

Cash and cash equivalents,   $ 4,503,578      $ 1,356,408       $ 36,005,686
end of year

Cash paid during period for  $ 14,337,944     $ 10,693,440      $ 8,045,342
interest

NON-CASH OPERATING,
INVESTING AND FINANCING
INFORMATION

Additions to real estate
included in accounts         $ -              $ 81,400          $ -
payable, accrued expenses,
and amount due adviser

Increase in asset            $ 245,196        $ 180,458         $ 1,631,294
retirement obligation

Fixed rate debt assumed in
connection with              $ 6,461,603      $ 4,506,689       $ 30,129,654
acquisitions

Obligation under capital     $ 225,068        $ -               $ -
lease

Assumption of mortgage       $ -              $ -               $ 4,846,925
notes payable by buyer

Acquisition of building in
satisfaction of mortgage     $ -              $ -               $ 11,316,774
note receivable

Notes receivable issued in
exchange for common stock
associated with the
exercise of

employee stock options       $ -              $ -               $ 2,769,954

Forfeiture of common stock
in satisfaction of employee  $ 18,400         $ -               $ -
note receivable




    Source: Gladstone Commercial Corp.