Exhibit 99.1 Gladstone Commercial Corporation Announces Financial Results for the Third Quarter Ended September 30, 2005 MCLEAN, Va.--(BUSINESS WIRE)--October 31, 2005--Gladstone Commercial Corp. (NASDAQ:GOOD): -- Net income increased to $867,411 or $0.11 per diluted common share -- Funds from Operations ("FFO") increased to $2.0 million or $0.26 per diluted common share -- The Company completed five acquisitions, consisting of seven properties, for total investment of $39.5 million Gladstone Commercial Corp. (NASDAQ:GOOD) (the "Company") today reported financial results for the quarter ended September 30, 2005. Net income for the quarter ended September 30, 2005 was $867,411, or $0.11 per basic and diluted weighted average common share, compared to $685,038, or $0.09 per basic and diluted weighted average common share for the third quarter one year ago. For the nine months ended September 30, 2005 net income was $2,552,128 or $0.33 per basic and diluted weighted average common share, compared to net income for the nine months ended September 30, 2004 of $624,009, or $0.08 per basic and diluted weighted average common share. Funds from Operations ("FFO") for the quarter ended September 30, 2005 was $2,007,592 or $0.26 per diluted weighted average common share, compared to $998,070 or $0.13 per diluted weighted average common share for the same period one year ago. For the nine months ending September 30, 2005 FFO was $4,927,040 or $0.64 per diluted weighted average common share, compared to $1,143,142 or $0.15 per diluted weighted average common share for the same period one year ago. For the three and nine months ended September 30, 2005, $3,007 and $5,943, respectively, was recorded as a realized foreign currency loss and, $221,562 or $0.03 per basic and diluted share and $224,562 or $0.03 per basic and diluted share respectively, was recorded as unrealized depreciation on translation of assets and liabilities. The unrealized depreciation was primarily a result of the valuation of the mortgage notes payable for two Canadian held properties, due to a decrease in the value of the US dollar relative to the Canadian dollar by approximately 5% between the date the notes were issued, July 19, 2005, and September 30, 2005. The unrealized depreciation on translation of assets and liabilities is not deductible for income tax purposes and these amounts must be distributed to stockholders or the Company could be subject to federal corporate income tax on these losses. In the third quarter of 2005, the Company added seven additional properties with 696,523 square feet for an aggregate purchase price of approximately $39.5 million. The Company also entered into long-term notes, collateralized by seven of its properties, for a total of approximately $39.0 million, the proceeds of which were used to pay down the Company's line of credit. Subsequent to the end of the quarter, the Company acquired two properties; a 70,598 square foot industrial building purchased for $7.8 million and a 291,142 square foot industrial building purchased for $5.2 million. Subsequent to the end of the quarter, on October 3, 2005, the Company filed a shelf registration statement on Form S-3 (the "Registration Statement") with the U.S. Securities and Exchanges Commission (the "SEC") to allow the Company to issue additional equity securities in one or more offerings up to an aggregate dollar amount of $75 million. The Registration Statement was declared effective by the SEC on October 24, 2005. The registration statement provides for the issuance of both common stock and preferred stock, the terms of which would be determined in the future by the Company's board of directors. The Company has no current plans to conduct an offering under the registration statement. The Company expects to use the net proceeds from any offerings pursuant to the shelf registration statement to make additional investments and fund its continuing operations. To read the Registration Statement in its entirety please visit the SEC filings page on our website at www.gladstonecommercial.com. "Our third quarter results were lower than expected due to the loss from foreign currency translations. This loss is a non-cash loss based on the dollar currency conversion from the Canadian dollar and does not impact dividends," said Chip Stelljes, Executive Vice President and Chief Investment Officer. "During the quarter, we were very successful in growing our portfolio with the addition of seven new properties for an aggregate investment of $39.5 million and we believe that we will continue building upon our portfolio performance. As of the end of the quarter, all tenants were paying as agreed and all portfolio properties were 100% occupied." The National Association of Real Estate Investment Trusts (NAREIT) developed FFO, as a relative non-GAAP (Generally Accepted Accounting Principles) 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 (loss) (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 in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income (loss)), and should not be considered an alternative to either net income (loss) as an indication of our performance or to cash flow from operations as a measure of liquidity or ability to make distributions. A reconciliation of net income, which we believe is the most directly comparable GAAP measure, to FFO is set forth below: For the For the three three For the nine For the nine months ended months ended months ended months ended September September September September 30, 2005 30, 2004 30, 2005 30, 2004 ------------ ------------ ------------ ------------ Net income $867,411 $685,038 $2,552,128 $624,009 Real estate depreciation and amortization 1,140,181 313,032 2,374,912 519,133 ------------ ------------ ------------ ------------ Funds from operations 2,007,592 998,070 4,927,040 1,143,142 ------------ ------------ ------------ ------------ Weighted average shares outstanding - basic 7,672,000 7,648,250 7,669,619 7,644,099 Weighted average shares outstanding - diluted 7,725,667 7,697,079 7,718,441 7,703,504 Basic net income per weighted average common share $0.11 $0.09 $0.33 $0.08 ============ ============ ============ ============ Diluted net income per weighted average common share $0.11 $0.09 $0.33 $0.08 ============ ============ ============ ============ Basic funds from operations per weighted average common share $0.26 $0.13 $0.64 $0.15 ============ ============ ============ ============ Diluted funds from operations per weighted average common share $0.26 $0.13 $0.64 $0.15 ============ ============ ============ ============ To learn more about our FFO please refer to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. The financial statements attached below are without footnotes so readers should obtain and carefully review our Form 10-Q for the quarter ended September 30, 2005, including the footnotes to the financial statements contained therein. We have filed the Form 10-Q today with the SEC and the Form 10-Q can be retrieved from the SEC website at www.SEC.gov or our website at www.GladstoneCommercial.com. Gladstone Commercial will have a conference call at 9:30 am EST, November 1, 2005. To enter the call please dial (866) 814-1917 and use the confirmation code 795651. An operator will monitor the call and set a queue for questions. To hear the replay of the call please dial (888) 266-2081 and use the confirmation code 795561. The conference call will also be broadcast on the internet through a link on Gladstone Commercial's web site and at www.InvestorCalendar.com. 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 through sale/leaseback transactions and selectively making long-term mortgage loans. Additional information can be found at www.GladstoneCommercial.com. For further information contact our Investor Relations Manager, Kelly Sargent at 703-287-5835. 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 and the closing of any transaction. Words such as "believe," "anticipates," "intends," "expects," "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 include, among others, those factors listed under the caption "Risk factors" of the Company's Annual Report on Form 10-K/A for the year ended, December 31, 2004, as filed with the Securities and Exchange Commission on October 21, 2005. 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 (Unaudited) September 30, December 31, 2005 2004 --------------------------- ASSETS Real estate, net $129,028,346 $60,466,330 Lease intangibles, net of accumulated amortization of $826,865 and $194,047, respectively 11,062,110 3,230,146 Mortgage notes receivable 21,047,274 11,107,717 Cash and cash equivalents 364,282 29,153,987 Funds held in escrow 1,723,782 1,060,977 Replacement reserve 1,088,242 - Interest receivable - mortgage note 67,511 64,795 Interest receivable - employees 4,681 4,792 Deferred rent receivable 2,460,616 210,846 Deferred financing costs 1,486,841 - Prepaid expenses 234,108 170,685 Deposits on real estate 200,000 50,000 Other assets 78,338 64,819 ------------- ------------- TOTAL ASSETS $168,846,131 $105,585,094 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Due to Adviser $164,189 $129,231 Accounts payable and accrued expenses 435,962 168,389 Dividends payable - 920,040 Mortgage notes payable 42,158,247 - Borrowings under line of credit 23,810,000 - Rent received in advance, security deposits and funds held in escrow 2,078,037 1,674,741 ------------- ------------- Total Liabilities 68,646,435 2,892,401 ------------- ------------- STOCKHOLDERS' EQUITY Common stock, $0.001 par value, 20,000,000 shares authorized and 7,672,000 and 7,667,000 shares issued and outstanding, respectively 7,672 7,667 Additional paid in capital 105,502,544 105,427,549 Notes receivable - employees (432,906) (375,000) Distributions in excess of accumulated earnings (4,877,614) (2,367,523) ------------- ------------- Total Stockholders' Equity 100,199,696 102,692,693 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $168,846,131 $105,585,094 ============= ============= Gladstone Commercial Corporation Consolidated Statements of Operations (Unaudited) For the For the three three For the nine For the nine months ended months ended months ended months ended September September September September 30, 2005 30, 2004 30, 2005 30, 2004 ------------ ------------ ------------ ------------ OPERATING REVENUES Rental income $3,453,777 $1,066,076 $7,536,025 $1,667,538 Interest income from mortgage notes receivable 553,968 284,659 1,351,197 697,059 Tenant recovery revenue 28,208 - 69,808 - ------------ ------------ ------------ ------------ Total operating revenues 4,035,953 1,350,735 8,957,030 2,364,597 ------------ ------------ ------------ ------------ OPERATING EXPENSES Depreciation and amortization 1,140,181 313,032 2,374,912 519,133 Management advisory fee 609,171 333,825 1,564,826 843,360 Professional fees 99,799 38,373 447,802 313,804 Taxes and licenses 37,399 973 191,112 13,543 Insurance 70,244 59,579 207,648 188,554 Interest 895,775 - 1,186,798 - General and administrative 107,059 74,881 337,722 352,145 ------------ ------------ ------------ ------------ Total operating expenses 2,959,628 820,663 6,310,820 2,230,539 ------------ ------------ ------------ ------------ Income from operations 1,076,325 530,072 2,646,210 134,058 ------------ ------------ ------------ ------------ Interest income Interest income from temporary investments 10,093 153,716 117,806 488,701 Interest income - employee loans 5,562 1,250 15,483 1,250 ------------ ------------ ------------ ------------ Total interest income 15,655 154,966 133,289 489,951 Realized and unrealized loss from foreign currency Net realized loss from foreign currency transactions (3,007) - (5,943) - Net unrealized appreciation (depreciation) on translation of assets and liabilities in a foreign currency (221,562) - (221,428) - ------------ ------------ ------------ ------------ Total net realized and unrealized loss from foreign currency (224,569) - (227,371) - ------------ ------------ ------------ ------------ NET INCOME $867,411 $685,038 $2,552,128 $624,009 ============ ============ ============ ============ Earnings per weighted average common share Basic $0.11 $0.09 $0.33 $0.08 ============ ============ ============ ============ Diluted $0.11 $0.09 $0.33 $0.08 ============ ============ ============ ============ Weighted average shares outstanding Basic 7,672,000 7,648,250 7,669,619 7,644,099 ============ ============ ============ ============ Diluted 7,725,667 7,697,079 7,718,441 7,703,504 ============ ============ ============ ============ Gladstone Commercial Corporation Consolidated Statements of Cash Flows (Unaudited) For the nine For the nine months ended months ended September September 30, 2005 30, 2004 ------------ ------------ Cash flows from operating activities: Net income $2,552,128 $624,009 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,374,912 519,133 Changes in assets and liabilities: Amortization of deferred financing costs 158,457 - Amortization of deferred rent asset 114,700 - Increase in mortgage interest receivable (2,716) (61,840) Decrease (increase) in employee interest receivable 111 (1,250) Increase in prepaid expenses (63,423) (37,293) Increase in other assets (13,520) (25,319) Increase in deferred rent receivable (369,624) (100,110) Increase in replacement reserve (1,088,242) - Increase in accounts payable and accrued expenses 267,574 11,898 Increase (decrease) in due to Adviser 34,958 (124,656) (Decrease) increase in rent received in advance and security deposits (259,509) 475,515 ------------ ------------ Net cash provided by operating activities 3,705,806 1,280,087 ------------ ------------ Cash flows from investing activities: Acquisition of real estate (80,763,736) (45,756,858) Issuance of mortgage note receivable (10,000,000) (11,170,000) Deposit on future acquisition (200,000) (200,000) Principal repayments on mortgage note receivable 60,443 38,950 ------------ ------------ Net cash used in investing activities (90,903,293) (57,087,908) ------------ ------------ Cash flows from financing activities: Offering costs - (7,730) Proceeds from borrowings under mortgage note payable 42,190,283 - Principal repayments on mortgage note payable (32,036) - Borrowings from line of credit 69,410,000 - Repayments on the line of credit (45,600,000) - Principal repayments on employee loans 17,094 - Payments for deferred financing costs (1,595,299) - Dividends paid (5,982,260) (1,910,500) ------------ ------------ Net cash provided by (used in) financing activities 58,407,782 (1,918,230) ------------ ------------ Net decrease in cash and cash equivalents (28,789,705) (57,726,051) Cash and cash equivalents, beginning of period 29,153,987 99,075,765 ------------ ------------ Cash and cash equivalents, end of period $364,282 $41,349,714 ============ ============ Cash paid during period for interest $1,028,341 $- ------------ ------------ NON-CASH FINANCING ACTIVITIES Notes receivable issued in exchange for common stock associated with the exercise of employee stock options $75,000 $375,000 ------------ ------------ CONTACT: Gladstone Commercial Corporation Kelly Sargent, 703-287-5835