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.
Released February 25, 2009