Gladstone Commercial Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets (Tables)

Real Estate and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2013

Property Plant And Equipment [Abstract]

Company's Investments in Real Estate, Including Capitalized Leases

The following table sets forth the components of our investments in real estate as of September 30, 2013 and December 31, 2012 (in thousands):


	September 30, 2013			December 31, 2012
Real estate:
Land	$	77,299		$	69,126
Building and improvements		511,335			442,451
Tenant improvements		33,847			22,176
Accumulated depreciation		(76,923	)		(65,730	)

Real estate, net	$	545,558		$	468,023

Summary of Properties Acquired

During the nine months ended September 30, 2013, we acquired five properties and completed an expansion of one property, which are summarized below (dollars in thousands):


Location	Acquisition/ Expansion Date		Square Footage		Lease Term	Renewal Options		Total Purchase/ Expansion Price		Acquisition Expenses		Annualized Straight Line Rent		Debt Issued
Egg Harbor Township, NJ		3/28/2013		29,257	10 years		1 (5 years)	$	5,650	$	152	$	490	$	3,700
Clintonville, WI ⁽¹⁾		4/11/2013		102,400	15 years		N/A		3,250		N/A		961		—
Vance, AL		5/8/2013		170,000	10 years		2 (5 year options)		13,388		186		1,173		—
Blaine, MN		5/10/2013		92,275	6.9 years		2 (5 year options)		14,450		79		1,475		8,200
Austin, TX		7/9/2013		320,000	8 years		3 (3 year options)		57,000		155		4,641		35,300
Allen, TX		7/10/2013		115,200	11.5 years		2 (5 year options)		15,150		81		1,478		8,900

Total				829,132				$	108,888	$	653	$	10,218	$	56,100

⁽¹⁾	The Clintonville, WI property was originally acquired in November 2005 for $5.3 million. After the expansion completed in April 2013, the total investment in the property is $8.6 million.

During the nine months ended September 30, 2012, we acquired six properties, which are summarized below (dollars in thousands):


Location	Acquisition Date		Square Footage		Lease Term	Renewal Options	Total Purchase Price		Acquisition Expenses		Annualized Straight Line Rent		Debt Issued / Assumed
Ashburn, VA		1/25/2012		52,130	15 years	2 (5 years each)	$	10,775	$	102	$	989		N/A
Ottumwa, IA		5/30/2012		352,860	11.5 years	3 (5 years each)		7,100		47		684		5,000
New Albany, OH		6/5/2012		89,000	10.5 years	2 (5 years each)		13,333		188		1,361		N/A
Columbus, GA		6/21/2012		32,000	11.5 years	2 (5 years each)		7,320		126		656		4,750
Columbus, OH		6/28/2012		31,293	10 years	N/A		4,037		59		342		N/A
Jupiter, FL		9/26/2012		60,000	10.5 years	2 (5 years each)		15,500		55		1,372		10,758

				617,283			$	58,065	$	577	$	5,404	$	20,508

Fair Value of Acquired Assets and Liabilities Assumed

In accordance with ASC 805, we determined the fair value of the acquired assets related to the five properties acquired during the nine months ended September 30, 2013 as follows (in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			Total Purchase Price
Egg Harbor Township, NJ	$	1,627	$	2,735	$	282	$	558	$	189	$	259	$	—	$	—		$	5,650
Vance, AL		457		9,721		808		1,097		678		627		—		—			13,388
Blaine, MN		1,060		9,347		1,172		1,361		694		816		—		—			14,450
Austin, TX		2,330		37,207		6,814		6,118		1,906		3,793		—		(1,168	)		57,000
Allen, TX		2,699		5,758		2,187		1,525		1,146		1,499		336		—			15,150

	$	8,173	$	64,768	$	11,263	$	10,659	$	4,613	$	6,994	$	336	$	(1,168	)	$	105,638

In accordance with ASC 805, we determined the fair value of acquired assets related to the six properties acquired during the nine months ended September 30, 2012 as follows (in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			Discount on Assumed Debt			Total Purchase Price
Ashburn, VA	$	706	$	6,551	$	1,307	$	804	$	908	$	499	$	—	$	—		$	—		$	10,775
Ottumwa, IA		212		4,743		329		940		484		499		—		(107	)		—			7,100
New Albany, OH		1,658		7,511		1,235		1,122		857		903		47		—			—			13,333
Columbus, GA		1,378		3,894		626		574		473		375		—		—			—			7,320
Columbus, OH		542		1,856		597		391		213		325		113		—			—			4,037
Jupiter, FL		1,160		11,249		745		1,603		701		909		—		—			(867	)		15,500

	$	5,656	$	35,804	$	4,839	$	5,434	$	3,636	$	3,510	$	160	$	(107	)	$	(867	)	$	58,065

Schedule of Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the five properties acquired during the nine months ended September 30, 2013 (dollars in thousands):


			Rental Revenue				Net Income
Location	Acquisition Date		For the three months ended September 30, 2013		For the nine months ended September 30, 2013		For the three months ended September 30, 2013⁽¹⁾		For the nine months ended September 30, 2013⁽¹⁾
Egg Harbor Township, NJ		3/28/2013	$	122	$	250	$	61	$	130
Vance, AL		5/8/2013		293		464		147		218
Blaine, MN		5/10/2013		369		579		161		256
Austin, TX		7/9/2013		1,098		1,098		297		297
Allen, TX		7/10/2013		325		325		136		136

			$	2,207	$	2,716	$	802	$	1,037

⁽¹⁾	Earnings is calculated as net income less interest expense and acquisition related costs that are required to be expensed under ASC 805.

Below is a summary of the total revenue and earnings recognized on the six properties acquired during the nine months ended September 30, 2012 (dollars in thousands):


			Rental Revenue				Net Income
Location	Acquisition Date		For the three months ended September 30, 2012		For the nine months ended September 30, 2012		For the three months ended September 30, 2012⁽¹⁾		For the nine months ended September 30, 2012⁽¹⁾
Ashburn, VA		1/25/2012	$	247	$	678	$	147	$	409
Ottumwa, IA		5/30/2012		173		235		85		116
New Albany, OH		6/5/2012		339		437		197		248
Columbus, GA		6/21/2012		164		182		88		98
Columbus, OH		6/28/2012		83		86		31		34
Jupiter, FL		9/26/2012		19		19		10		10

			$	1,025	$	1,637	$	558	$	915

⁽¹⁾	Earnings is calculated as net income less interest expense and acquisition related costs that are required to be expensed under ASC 805

Pro-forma Condensed Consolidated Statements of Operations

The pro-forma earnings for the three and nine months ended September 30, 2013, were adjusted to exclude $0.2 million and $0.6 million, respectively, of acquisition-related costs incurred during 2013 (dollars in thousands, except per share data):


	For the three months ended September 30,						For the nine months ended September 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Operating Data:
Total operating revenue	$	16,314		$	15,720		$	48,744		$	47,109
Total operating expenses		(8,502	)		(8,066	)		(25,901	)		(24,861	)
Other expenses		(7,287	)		(6,718	)		(21,520	)		(19,659	)

Net income		525			936			1,323			2,589
Dividends attributable to preferred and senior common stock		(1,106	)		(1,053	)		(3,275	)		(3,141	)

Net (loss) income available to common stockholders	$	(581	)	$	(117	)	$	(1,952	)	$	(552	)

Share and Per Share Data:
Basic & diluted (loss) earnings per share of common stock	$	(0.04	)	$	(0.01	)	$	(0.15	)	$	(0.05	)
Diluted earnings per share of common stock	$	(0.04	)	$	(0.01	)	$	(0.15	)	$	(0.05	)
Weighted average shares outstanding-basic		14,196,423			10,945,379			12,613,354			10,945,379
Weighted average shares outstanding-diluted		14,196,423			10,945,379			12,613,354			10,945,379

Weighted Average Amortization Period for Intangible Assets Acquired and Liabilities Assumed

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the nine months ended September 30, 2013 and 2012, respectively, were as follows:


Intangible Assets & Liabilities	2013		2012
In-place leases		8.8		10.7
Leasing costs		8.8		10.7
Customer relationships		13.5		15.1
Above market leases		8.8		10.1
Below market leases		7.2		11.3

All intangible assets & liabilities		9.9		12.1

Future Operating Lease Payments from Tenants under Non-Cancelable Leases

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the remainder of 2013 and each of the five succeeding fiscal years and thereafter is as follows (in thousands):


Year	Tenant Lease Payments
Three Months ending December 31, 2013	$	14,727
2014		59,940
2015		59,267
2016		56,272
2017		54,641
2018		52,850
Thereafter		279,421

Value of Intangible Assets and Accumulated Amortization

The following table summarizes the carrying value of intangible assets and the accumulated amortization for each intangible asset class (in thousands):


	September 30, 2013					December 31, 2012
	Lease Intangibles		Accumulated Amortization			Lease Intangibles		Accumulated Amortization
In-place leases	$	44,743	$	(14,237	)	$	34,085	$	(12,125	)
Leasing costs		29,692		(8,694	)		24,071		(7,103	)
Customer relationships		33,664		(9,823	)		26,671		(8,345	)

	$	108,099	$	(32,754	)	$	84,827	$	(27,573	)

Estimated Aggregate Amortization Expense

The estimated aggregate amortization expense for the remainder of 2013 and for each of the five succeeding fiscal years and thereafter is as follows (in thousands):


Year	Estimated Amortization Expense
Three Months ending December 31, 2013	$	2,456
2014		9,643
2015		9,077
2016		8,278
2017		8,078
2018		7,510
Thereafter		30,303