Gladstone Commercial Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Equity and Mezzanine Equity

Equity and Mezzanine Equity

12 Months Ended

Dec. 31, 2018

Equity [Abstract]

Equity and Mezzanine Equity

Distributions

We paid the following distributions per share for the years ended December 31, 2018, 2017, and 2016:



	For the year ended December 31,
	2018		2017		2016
Common Stock and Non-controlling OP Units	$	1.500	$	1.500	$	1.500
Senior Common Stock	1.0500		1.0500		1.0500
Series A Preferred Stock	1.9374996		1.9374996		1.9374996
Series B Preferred Stock	1.8750		1.8750		1.8750
Series C Preferred Stock	—		—		1.1330		(1)
Series D Preferred Stock	1.7500		1.7500		1.0538


(1)	We fully redeemed our Series C Preferred Stock on August 19, 2016, and paid all outstanding shareholders a prorated dividend for the month of August.

For federal income tax purposes, distributions paid to stockholders may be characterized as ordinary income, capital gains, return of capital or a combination of the foregoing. The characterization of distributions during each of the last three years is reflected in the table below:



	Ordinary Income		Return of Capital		Long-Term Capital Gains
Common Stock and OP Units
For the year ended December 31, 2016	28.81758	%	71.18242	%	—	%
For the year ended December 31, 2017	39.63189	%	60.36811	%	—	%
For the year ended December 31, 2018	24.46913	%	75.53087	%	—	%
Senior Common Stock
For the year ended December 31, 2016	100.00000	%	—	%	—	%
For the year ended December 31, 2017	100.00000	%	—	%	—	%
For the year ended December 31, 2018	100.00000	%	—	%	—	%
Series A Preferred Stock
For the year ended December 31, 2016	100.00000	%	—	%	—	%
For the year ended December 31, 2017	100.00000	%	—	%	—	%
For the year ended December 31, 2018	100.00000	%	—	%	—	%
Series B Preferred Stock
For the year ended December 31, 2016	100.00000	%	—	%	—	%
For the year ended December 31, 2017	100.00000	%	—	%	—	%
For the year ended December 31, 2018	100.00000	%	—	%	—	%
Series C Preferred Stock
For the year ended December 31, 2016	100.00000	%	—	%	—	%
For the year ended December 31, 2017	—	%	—	%	—	%
For the year ended December 31, 2018	—	%	—	%	—	%
Series D Preferred Stock
For the year ended December 31, 2016	100.00000	%	—	%	—	%
For the year ended December 31, 2017	100.00000	%	—	%	—	%
For the year ended December 31, 2018	100.00000	%	—	%	—	%

Recent Activity

Common Stock ATM Program

In February 2016, we amended our common stock ATM program. The amendment increased the amount of shares of common stock that we may offer and sell through Cantor Fitzgerald to $160.0 million. All other terms of the common ATM program remained unchanged. During the year ended December 31, 2018, we sold 0.8 million shares of common stock, raising $16.1 million in net proceeds under the program. As of December 31, 2018, we had a remaining capacity to sell up to $69.9 million of common stock under the program. The proceeds from these issuances were used to acquire real estate, repay outstanding debt and for other general corporate purposes.

Series A and B Preferred Stock ATM Programs

Under another open market sales agreement with Cantor Fitzgerald (the “Series A and B Preferred ATM Program”), we may, from time to time, offer to sell (i) shares of our 7.75% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”), and (ii) shares of our 7.50% Series B Cumulative Redeemable Preferred Stock, (“Series B Preferred Stock”), having an aggregate offering price of up to $40.0 million, through Cantor Fitzgerald, acting as sales agent and/or principal. We did not sell any shares of our Series A or Series B Preferred Stock during the year ended December 31, 2018. As of December 31, 2018, we had remaining capacity to sell up to $37.2 million of preferred stock under the Series A and B Preferred ATM Program.

Mezzanine Equity

Our 7.00% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”), is classified as mezzanine equity in our consolidated balance sheet because it is redeemable at the option of the shareholder upon a change of control of greater than 50% in accordance with ASC 480-10-S99 “Distinguishing Liabilities from Equity,” which requires mezzanine equity classification for preferred stock issuances with redemption features which are outside of the control of the issuer. A change in control of our company, outside of our control, is only possible if a tender offer is accepted by over 90% of our shareholders. All other change in control situations would require input from our Board of Directors. We will periodically evaluate the likelihood that a change of control of greater than 50% will take place, and if we deem this probable, we would adjust the Series D Preferred Stock presented in mezzanine equity to their redemption value, with the offset to gain (loss) on extinguishment. We currently believe the likelihood of a change of control of greater than 50% is remote.

Under a third open market sales agreement with Cantor Fitzgerald (the “Series D Preferred ATM Program”), we may, from time to time, offer to sell shares of our Series D Preferred Stock, having an aggregate offering price of up to $50.0 million through Cantor Fitzgerald, acting as sales agent and/or principal. During the year ended December 31, 2018, we sold 0.1 million shares of our Series D Preferred Stock for net proceeds of $2.2 million under our Series D Preferred ATM Program. As of December 31, 2018, we had a remaining capacity to sell up to $18.6 million of Series D Preferred Stock under the program.

Amendment to Articles of Incorporation

On April 11, 2018, we filed with the Maryland State Department of Assessments and Taxation (“SDAT”) an Articles Supplementary reclassifying 3,500,000 authorized but unissued shares of Senior Common Stock as authorized but unissued shares our common stock. As a result of the reclassification, there are 57,969 authorized shares of Senior Common Stock remaining outstanding as of the date hereof. On the same day, we filed with SDAT an Articles of Amendment to increase our authorized common stock to 87,700,000.

Non-controlling Interests in Operating Partnership

As of December 31, 2018 and 2017, we owned approximately 97.5% and 100%, respectively, of the outstanding OP Units. On October 30, 2018, we issued 742,937 OP units as partial consideration to acquire a 218,703 square foot, two property portfolio located in Detroit, Michigan for $21.7 million.

The Operating Partnership is required to make distributions on each OP Unit in the same amount as those paid on each share of the Company’s common stock, with the distributions on the OP Units held by the Company being utilized to make distributions to the Company’s common stockholders.

As of December 31, 2018 and 2017, there were 742,937 and 0 outstanding OP Units held by Non-controlling OP Unitholders, respectively, none of which were eligible to be tendered for redemption for both years.