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

Quarterly report pursuant to Section 13 or 15(d)

Equity and Mezzanine Equity

Equity and Mezzanine Equity

3 Months Ended

Mar. 31, 2020

Stockholders’ Equity

The following table summarizes the changes in our equity for the three months ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31,
Series A and B Preferred Stock	2020			2019
Balance, beginning of period	$	—		$	2
Issuance of Series A and B preferred stock, net	—			—
Balance, end of period	$	—		$	2
Senior Common Stock
Balance, beginning of period	$	1		$	1
Issuance of senior common stock, net	—			—
Balance, end of period	$	1		$	1
Common Stock
Balance, beginning of period	$	32		$	29
Issuance of common stock, net	2			1
Balance, end of period	$	34		$	30
Additional Paid in Capital
Balance, beginning of period	$	571,205		$	559,977
Issuance of common stock, net	27,930			14,111
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	97			(220		)
Balance, end of period	$	599,232		$	573,868
Accumulated Other Comprehensive Income
Balance, beginning of period	$	(2,126	)	$	(148	)
Comprehensive income	(2,528		)	(722		)
Balance, end of period	$	(4,654	)	$	(870	)
Distributions in Excess of Accumulated Earnings
Balance, beginning of period	$	(360,978	)	$	(310,117	)
Distributions declared to common, senior common, and preferred stockholders	(15,548		)	(13,913		)
Net income attributable to the Company	2,267			4,628
Balance, end of period	$	(374,259	)	$	(319,402	)
Total Stockholders' Equity
Balance, beginning of period	$	208,134		$	249,744
Issuance of common stock, net	27,932			14,112
Distributions declared to common, senior common, and preferred stockholders	(15,548		)	(13,913		)
Comprehensive income	(2,528		)	(722		)
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	97			(220		)
Net income attributable to the Company	2,267			4,628
Balance, end of period	$	220,354		$	253,629
Non-Controlling Interest
Balance, beginning of period	$	2,903		$	4,675
Distributions declared to Non-controlling OP Unit holders	(189		)	(278		)
Issuance of Non-controlling OP Units as consideration in real estate acquisitions, net	502			—
Adjustment to OP Units held by Non-controlling OP Unitholders resulting from changes in ownership of the Operating Partnership	(97		)	220
Net (loss) income (attributable) available to OP units held by Non-controlling OP Unitholders	(9		)	45
Balance, end of period	$	3,110		$	4,662
Total Equity	$	223,464		$	258,291

Distributions

We paid the following distributions per share for the three months ended March 31, 2020 and 2019:



	For the three months ended March 31,
	2020			2019
Common Stock and Non-controlling OP Units	$	0.37545		$	0.37500
Senior Common Stock	0.2625			0.2625
Series A Preferred Stock	—		(1)	0.4843749
Series B Preferred Stock	—		(1)	0.46875
Series D Preferred Stock	0.4374999			0.4374999
Series E Preferred Stock	0.414063			—


(1)	We fully redeemed all outstanding shares of both Series A Preferred Stock and Series B Preferred Stock on October 28, 2019.

Recent Activity

Common Stock ATM Program

During the three months ended March 31, 2020, we sold 1.3 million shares of common stock, raising $27.9 million in net proceeds under our At-the-Market Equity Offering Sales Agreements (the “Common Stock Sales Agreement”), with Robert W. Baird & Co. Incorporated (“Baird”), Goldman Sachs & Co. LLC (“Goldman Sachs”), Stifel, Nicolaus & Company, Incorporated (“Stifel”), BTIG, LLC, and Fifth Third Securities, Inc. (“Fifth Third”) (collectively, the “Common Stock Sales Agents”), pursuant to which we may sell shares of our common stock in an aggregate offering price of up to $250.0 million (the “Common Stock ATM Program”). As of March 31, 2020, we had remaining capacity to sell up to $209.2 million of common stock under the Common Stock ATM Program.

Mezzanine Equity

Our 7.00% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) and 6.625% Series E Cumulative Redeemable Preferred Stock (“Series E Preferred Stock”) are classified as mezzanine equity on our condensed consolidated balance sheets because both are 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. In addition, our Series E Preferred Stock is redeemable at the option of the shareholder in the event a delisting event occurs. We will periodically evaluate the likelihood that a delisting event or change of control of greater than 50% will take place, and if we deem this probable, we would adjust the Series D Preferred Stock and Series E 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 greater than 50%, or a delisting event, is remote.

We have an At-the-Market Equity Offering Sales Agreement (the “Series E Preferred Stock Sales Agreement”) with Baird, Goldman Sachs, Stifel, Fifth Third, and U.S. Bancorp Investments, Inc. (the “Series E Preferred Stock Sales Agents”), pursuant to which we may, from time to time, offer to sell shares of our Series E Preferred Stock in an aggregate offering price of up to $100.0 million. We did not sell any of our Series E Preferred Stock pursuant to the Series E Preferred Stock Sales Agreement during the three months ended March 31, 2020. We do not have an active At-the-Market program for our Series D Preferred Stock.

Universal Shelf Registration Statements

On January 11, 2019, we filed a universal registration statement on Form S-3, File No. 333-229209, and an amendment thereto on Form S-3/A on January 24, 2019 (collectively referred to as the “2019 Universal Shelf”). The 2019 Universal Shelf became effective on February 13, 2019 and replaced our prior universal shelf registration statement. The 2019 Universal Shelf allows us to issue up to $500.0 million of securities. As of March 31, 2020, we had the ability to issue up to $409.7 million under the 2019 Universal Shelf.

On January 29, 2020, we filed an additional universal registration statement on Form S-3, File No. 333-236143 (the “2020 Universal Shelf”). The 2020 Universal Shelf was declared effective on February 11, 2020 and is in addition to the 2019 Universal Shelf. the 2020 Universal Shelf allows us to issue up to an additional $800.0 million of securities. Of the $800.0 million of available capacity under our 2020 Universal Shelf, approximately $636.5 million is reserved for the sale of our Series F Preferred Stock. As of March 31, 2020, we had the ability to issue up to $800.0 million of securities under the 2020 universal shelf, as we have not sold any securities under the 2020 Universal Shelf.

Series F Preferred Stock

On February 20, 2020, the Company filed with the Maryland Department of Assessments and Taxation Articles Supplementary (i) setting forth the rights, preferences and terms of the Series F Preferred Stock and (ii) reclassifying and designating 26,000,000 shares of the Company’s authorized and unissued shares of common stock as shares of Series F Preferred Stock. The reclassification decreased the number of shares classified as common stock from 86,290,000 shares immediately prior to the reclassification to 60,290,000 shares immediately after the reclassification. Currently, there are no shares of the Series F Preferred Stock outstanding.

Amendment to Operating Partnership Agreement

In connection with the authorization of the Series F Preferred Stock, the Operating Partnership controlled by the Company through its ownership of GCLP Business Trust II, the general partner of the Operating Partnership, adopted the Second Amendment to its Second Amended and Restated Agreement of Limited Partnership, including Exhibit SFP thereto (collectively, the “Amendment”), as amended from time to time, establishing the rights, privileges and preferences of 6.00% Series F Cumulative Redeemable Preferred Units, a newly-designated class of limited partnership interests (the “Series F Preferred Units”). The Amendment provides for the Operating Partnership’s establishment and issuance of an equal number of Series F Preferred Units as are issued shares of Series F Preferred Stock by the Company in connection with the Offering upon the Company’s contribution to the Operating Partnership of the net proceeds of the Offering. Generally, the Series F Preferred Units provided for under the Amendment have preferences, distribution rights and other provisions substantially equivalent to those of the Series F Preferred Stock.