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Gladstone Commercial Corporation Reports Results for the Quarter Ended

September 30, 2011

 

   

Reported funds from operations (“FFO”) for the three and nine months ended September 30, 2011 of $4.3 million and $12.0 million, or $0.39 and $1.19 per share, respectively.

 

   

Exercised a one-year renewal option on its $45.2 million mortgage loan to extend the maturity date to October 1, 2012.

 

 

McLean, VA, November 1, 2011: Gladstone Commercial Corporation (NASDAQ: GOOD) (the “Company”) today reported financial results for its quarter ended September 30, 2011. 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.

FFO: FFO for the three and nine months ended September 30, 2011 was approximately $4.3 million and $12.0 million, or $0.39 and $1.19 per share, respectively, which is a 1.3% and 8.3% increase, respectively, compared to the same periods one year ago. The increase in FFO was primarily because of an increase in operating revenues derived from the three properties acquired subsequent to September 30, 2010, coupled with reduced interest expense, general and administrative expense and a lower net incentive fee. The net incentive fee decreased because there were more common shares outstanding during 2011. This was partially offset by one-time events that occurred during 2010. The Company received $3.3 million in additional income during the three months ended September 30, 2010 related to the early repayment of the Company’s only mortgage loan, partially offset by a reduction in general and administrative expense from the write-off of $1.6 million of fees related to the termination of the private offering of unregistered senior common stock.

Net Income: Net income available to common stockholders for the three and nine months ended September 30, 2011 was approximately $0.7 million and $1.5 million, or $0.07 and $0.15 per share, respectively, compared to net income available to common stockholders of approximately $1.0 million or $0.12 per share, respectively, for both the three and nine months ended September 30, 2010. A reconciliation of FFO to net income for the three and nine months ended September 30, 2011 and 2010, 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 September 30,     For the nine months ended September 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands, Except Per Share Data)     (Dollars in Thousands, Except Per Share Data)  

Net income

  $ 1,748      $ 2,028      $ 4,598      $ 4,121   

Less: Distributions attributable to preferred and senior common stock

    (1,039     (1,027     (3,116     (3,075
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

    709        1,001        1,482        1,046   

Add: Real estate depreciation and amortization

    3,629        3,280        10,473        9,992   
 

 

 

   

 

 

   

 

 

   

 

 

 

FFO available to common stockholders

  $ 4,338      $ 4,281      $ 11,955      $ 11,038   

Weighted average shares outstanding - basic

    10,936        8,563        9,998        8,556   

Weighted average shares outstanding - diluted

    10,988        8,577        10,050        8,561   

Basic net income per weighted average share of common stock

  $ 0.07      $ 0.12      $ 0.15      $ 0.12   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per weighted average share of common stock

  $ 0.07      $ 0.12      $ 0.15      $ 0.12   
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic FFO per weighted average share of common stock

  $ 0.40      $ 0.50      $ 1.20      $ 1.29   
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted FFO per weighted average share of common stock

  $ 0.39      $ 0.50      $ 1.19      $ 1.29   
 

 

 

   

 

 

   

 

 

   

 

 

 

Distributions declared per share of common stock

  $ 0.375      $ 0.375      $ 1.125      $ 1.125   
 

 

 

   

 

 

   

 

 

   

 

 

 

Percentage of FFO paid per share of common stock

    94     75     94     87
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Comments from the President and Chief Investment Officer, Chip Stelljes: “We hoped to close a few transactions during the quarter; however, the closings happened after the end of the quarter. We are anticipating stronger earnings in the quarter ending December 31, 2011 as we were able to put the equity raised during the first half of the year to work. We continue to focus on expanding our portfolio, and our existing pipeline remains robust. We are optimistic about our future and remain pleased with the overall performance of our portfolio and are looking forward to an active 2012.”

Asset Characteristics: As of September 30, 2011, the Company owned 67 properties totaling approximately 6.9 million square feet for a total net investment of approximately $400.9 million. Currently, 65 of the Company’s properties, or approximately 98.7% of the portfolio’s total square footage, are fully leased and all tenants at these properties are current and paying in accordance with the terms of their leases.

Mortgage Maturities: The Company has $45.2 million of balloon principal payments due on one of its long-term mortgages in October 2012; however, the mortgage has one remaining annual extension option through 2013, which the Company currently intends and has the ability to exercise. The Company has no other balloon principal payments due on any of its mortgages until 2013.

Lease Expirations: The Company was able to re-lease its previously vacant building located in South Hadley, Massachusetts for a period of nine months, which expires in February 2012. The Company has two other buildings that remain vacant. Rental income from these two tenants was 2.3% of the Company’s total annualized rental income when occupied. The Company is actively working to re-tenant all three of these properties.

Highlights for the Quarter ended September 30, 2011:

 

 

Debt Extended: Exercised a one-year renewal option on its $45.2 million mortgage loan on September 30, 2011 to extend the maturity date until October 1, 2012; and

 

 

Distributions: Paid monthly distributions for the quarter totaling $0.375 per share on the common stock, $0.484 per share on the Series A Preferred Stock, $0.469 per share on the Series B Preferred Stock and $0.263 per share on the Senior Common Stock.

Activity Subsequent to the end of the Quarter:

 

 

Properties Acquired: Purchased two fully-occupied properties comprised of approximately 85,111 square feet for an aggregate purchase price of approximately $15.5 million. Please refer to the Form 10Q filed today with the SEC for further details on these acquisitions;

 

 

Debt Issued: Issued $7.2 million of 10-year debt on one of the properties acquired in October; and

 

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Distributions: 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 $0.0875 per share on the Senior Common Stock, for each of the months of October, November and December 2011.

Conference Call: The Company will hold a conference call on Wednesday, November 2, 2011 at 8:30 a.m. EDT 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 December 5, 2011. To hear the replay, please dial (877) 344-7529 and use conference number 10003644.

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 January 3, 2012.

Who we are: Gladstone Commercial Corporation is a publicly-traded real estate investment trust that focuses on investing in and owning triple-net leased industrial, commercial, medical and retail real estate properties. Including payments declared through December 2011, the Company will have paid 89 consecutive monthly cash distributions on its common stock. The Company has never skipped, reduced or deferred a monthly distribution since inception, over seven years ago. Information on the business activities of all the Gladstone funds can be found at www.gladstonecompanies.com.

Investor Relations: 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 Quarterly Report on Form 10-Q (the “Form 10-Q”) for the quarter ended September 30, 2011, as filed with the Securities and Exchange Commission (the “SEC”) today.

Warning: The financial statements attached below are without footnotes so readers should obtain and carefully review the Form 10-Q, including the footnotes to the financial statements contained therein. The Company filed the Form 10-Q today with the SEC and the Form 10-Q can be retrieved from the SEC’s website at www.sec.gov or the Company’s website at www.GladstoneCommercial.com.

The statements in this press release regarding the Company’s ability, plans or prospects to re-tenant its unoccupied properties, extend the respective maturity dates of its long-term mortgages, grow its portfolio and FFO, renegotiate leases, 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

 

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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, the impact of competition on the Company’s efforts to renew existing leases or re-lease space 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, and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (or similar captions) in our quarterly reports on Form 10-Q, and as described in our other filings with the SEC. 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.

Source: Gladstone Commercial Corporation, +1-703-287-5893

 

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Gladstone Commercial Corporation

Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

     September 30, 2011     December 31, 2010  

ASSETS

    

Real estate, at cost

   $ 420,241      $ 401,017   

Less: accumulated depreciation

     51,119        43,659   
  

 

 

   

 

 

 

Total real estate, net

     369,122        357,358   

Lease intangibles, net

     31,791        26,747   

Cash and cash equivalents

     2,410        7,062   

Restricted cash

     2,568        2,288   

Funds held in escrow

     4,051        2,621   

Deferred rent receivable

     12,151        10,373   

Deferred financing costs, net

     3,120        3,326   

Other assets

     1,880        834   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 427,093      $ 410,609   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

LIABILITIES

    

Mortgage notes payable

   $ 266,008      $ 259,595   

Borrowings under line of credit

     9,100        27,000   

Deferred rent liability

     3,144        2,276   

Asset retirement obligation liability

     3,179        3,063   

Accounts payable and accrued expenses

     1,268        2,683   

Due to Adviser

     739        965   

Other liabilities

     4,363        3,652   
  

 

 

   

 

 

 

Total Liabilities

     287,801        299,234   
  

 

 

   

 

 

 

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 September 30, 2011 and December 31, 2010, respectively

     2        2   

Senior common stock, $0.001 par value; 7,500,000 shares authorized and 59,057 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

     —          —     

Common stock, $0.001 par value, 40,200,000 shares authorized and 10,945,379 and 8,724,613 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

     11        9   

Additional paid in capital

     211,508        174,261   

Notes receivable - employees

     (426     (963

Distributions in excess of accumulated earnings

     (71,803     (61,934
  

 

 

   

 

 

 

Total Stockholders’ Equity

     139,292        111,375   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 427,093      $ 410,609   
  

 

 

   

 

 

 

 

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Gladstone Commercial Corporation

Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 

     For the three months ended September 30,     For the nine months ended September 30,  
     2011     2010     2011     2010  

Operating revenues

        

Rental income

   $ 11,085      $ 10,209      $ 32,249      $ 31,034   

Interest income from mortgage note receivable

     —          44        —          421   

Tenant recovery revenue

     88        81        259        246   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues

     11,173        10,334        32,508        31,701   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

        

Depreciation and amortization

     3,629        3,280        10,473        9,992   

Property operating expenses

     251        263        750        738   

Due diligence expense

     201        —          194        21   

Base management fee

     430        298        1,217        907   

Incentive fee

     877        1,070        2,549        2,746   

Administration fee

     242        357        759        808   

General and administrative

     381        2,014        1,193        2,837   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses before credits from Adviser

     6,011        7,282        17,135        18,049   
  

 

 

   

 

 

   

 

 

   

 

 

 

Credit to incentive fee

     (828     —          (1,759     (56
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     5,183        7,282        15,376        17,993   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

        

Interest income - employee loans

     9        37        28        123   

Other income

     —          3,310        45        3,318   

Interest expense

     (4,251     (4,371     (12,607     (13,028
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (4,242     (1,024     (12,534     (9,587
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1,748        2,028        4,598        4,121   
  

 

 

   

 

 

   

 

 

   

 

 

 

Distributions attributable to preferred stock

     (1,023     (1,023     (3,070     (3,070

Distributions attributable to senior common stock

     (16     (4     (46     (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income available to common stockholders

   $ 709      $ 1,001      $ 1,482      $ 1,046   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per weighted average share of common stock

        

Basic

   $ 0.07      $ 0.12      $ 0.15      $ 0.12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.07      $ 0.12      $ 0.15      $ 0.12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock outstanding

        

Basic

     10,936        8,563        9,998        8,556   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     10,988        8,577        10,050        8,561   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per weighted average share of senior common stock

   $ 0.26      $ 0.26      $ 0.78      $ 0.79   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of senior common stock outstanding - basic

     59        16        59        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Gladstone Commercial Corporation

Consolidated Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

 

     For the nine months ended September 30,  
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 4,598      $ 4,121   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     10,473        9,992   

Amortization of deferred financing costs

     684        837   

Amortization of deferred rent asset and liability, net

     (513     (516

Amortization of discount and premium on assumed debt

     78        —     

Asset retirement obligation expense

     116        108   

(Decrease) increase in other assets

     (396     358   

Increase in deferred rent liability

     1,626        —     

Increase in deferred rent receivable

     (1,051     (1,235

(Decrease) increase in accounts payable, accrued expenses, and amount due Adviser

     (1,641     81   

Increase in other liabilities

     430        121   
  

 

 

   

 

 

 

Net cash provided by operating activities

     14,404        13,867   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Real estate investments

     (16,333     (748

Leasing commissions paid

     —          (7

Principal repayments on mortgage notes receivable

     —          10,000   

Receipts from lenders for funds held in escrow

     1,329        1,082   

Payments to lenders for funds held in escrow

     (2,759     (1,309

Receipts from tenants for reserves

     1,649        1,615   

Payments to tenants from reserves

     (1,320     (1,216

(Increase) decrease in restricted cash

     (279     27   

Deposits on future acquisitions

     (900     —     

Deposits refunded

     250        250   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (18,363     9,694   
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from issuance of equity

     39,657        1,793   

Offering costs

     (2,407     (150

Principal repayments on mortgage notes payable

     (5,585     (1,980

Principal repayments on employee notes receivable

     537        789   

Borrowings from line of credit

     39,374        22,400   

Repayments on line of credit

     (57,274     (32,900

Decrease in security deposits

     (50     (426

Payments for deferred financing costs

     (478     (254

Distributions paid for common, senior common and preferred

     (14,467     (12,699
  

 

 

   

 

 

 

Net cash used in financing activities

     (693     (23,427
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (4,652     134   

Cash and cash equivalents, beginning of period

     7,062        3,096   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 2,410      $ 3,230   
  

 

 

   

 

 

 

NON-CASH OPERATING, INVESTING AND FINANCING INFORMATION

    

Fixed rate debt assumed in connection with acquisitions

   $ 11,921      $ —     
  

 

 

   

 

 

 

Forfeiture of common stock in satisfaction of employee note receivable

   $ —        $ 244   
  

 

 

   

 

 

 

Senior common dividend issued in the dividend reinvestment program

   $ —        $ 2   
  

 

 

   

 

 

 

 

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