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)

6 Months Ended

Jun. 30, 2015

Components of Investments in Real Estate

The following table sets forth the components of our investments in real estate as of June 30, 2015 and December 31, 2014 (dollars in thousands):


	June 30, 2015 ⁽¹⁾			December 31, 2014
Real estate:
Land	$	95,948		$	88,394
Building and improvements		620,924			593,155
Tenant improvements		46,959			41,016
Accumulated depreciation		(102,243	)		(92,133	)

Real estate, net	$	661,588		$	630,432

⁽¹⁾	Does not include real estate held for sale as of June 30, 2015.

Summary of Properties Acquired

2015 Real Estate Activity

During the six months ended June 30, 2015, we acquired four properties, which are summarized below (dollars in thousands):


Location	Acquisition Date		Square Footage (unaudited)		Lease Term		Renewal Options		Total Purchase Price		Acquisition Expenses		Annualized GAAP Rent		Debt Issued
Richardson, TX ⁽¹⁾		3/6/2015		155,984		9.5 Years		2 (5 years each)	$	24,700	$	104	$	2,708	$	14,573
Birmingham, AL		3/20/2015		30,850		8.5 Years		1 (5 years)		3,648		71		333		N/A
Columbus, OH		5/28/2015		78,033		15.0 Years		2 (5 years each)		7,700		72		637		4,466
Salt Lake City, UT ⁽¹⁾		5/29/2015		86,409		6.5 Years		1 (5 years)		22,200		144		2,411		13,000

Total				351,276					$	58,248	$	391	$	6,089	$	32,039

⁽¹⁾	The tenant occupying this property is subject to a gross lease.

2014 Real Estate Activity

During the six months ended June 30, 2014, we acquired six properties, which are summarized in the table below (dollars in thousands):


Location	Acquisition Date		Square Footage		Lease Term		Renewal Options		Total Purchase Price		Acquisition Expenses		Annualized GAAP Rent		Debt Issued & Assumed
Allen, TX		3/27/2014		21,154		12 Years		4 (5 years each)	$	5,525	$	29	$	570	$	3,481
Colleyville, TX		3/27/2014		20,355		12 Years		4 (5 years each)		4,523		29		467		2,849
Rancho Cordova, CA		4/22/2014		61,358		10 Years		1 (5 year)		8,225		65		902		4,935
Coppell, TX		5/8/2014		21,171		12 Years		4 (5 years each)		5,838		22		601		3,816
Columbus, OH		5/13/2014		114,786		9.5 Years		N/A		11,800		65		1,278		N/A
Taylor, PA		6/9/2014		955,935		10 Years		4 (5 years each)		39,000		714		3,400		22,600

Total				1,194,759					$	74,911	$	924	$	7,218	$	37,681

Fair Value of Acquired Assets

In accordance with Accounting Standards Codification, or ASC, 805, “Business Combinations,” we determined the fair value of the acquired assets related to the four properties acquired during the six months ended June 30, 2015, as follows (dollars in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			Total Purchase Price
Richardson, TX	$	2,709	$	12,503	$	2,761	$	2,046	$	1,791	$	1,915	$	975	$	—		$	24,700
Birmingham, AL		650		1,683		351		458		146		360		—		—			3,648
Columbus, OH		1,338		3,511		1,547		1,144		672		567		—		(1,079	)		7,700
Salt Lake City, UT		3,248		11,861		1,268		2,396		981		1,678		821		(53	)		22,200

	$	7,945	$	29,558	$	5,927	$	6,044	$	3,590	$	4,520	$	1,796	$	(1,132	)	$	58,248

In accordance with ASC 805, we determined the fair value of the acquired assets related to the six properties acquired during the six months ended June 30, 2014 as follows (in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			Premium on Assumed Debt			Total Purchase Price
Allen, TX	$	874	$	3,509	$	125	$	598	$	273	$	218	$	—	$	—		$	(72	)	$	5,525
Colleyville, TX		1,277		2,307		117		486		220		181		—		(6	)		(59	)		4,523
Rancho Cordova, CA		752		5,898		278		473		546		278		—		—			—			8,225
Coppell, TX		1,448		3,221		128		636		293		230		—		—			(118	)		5,838
Columbus, OH		990		6,080		1,937		823		719		990		261		—			—			11,800
Taylor, PA		3,102		24,449		956		6,171		1,452		2,870		—		—			—			39,000

	$	8,443	$	45,464	$	3,541	$	9,187	$	3,503	$	4,767	$	261	$	(6	)	$	(249	)	$	74,911

Schedule of Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the four properties acquired during the six months ended June 30, 2015 (dollars in thousands):


			For the three months ended June 30,					For the six months ended June 30,
			2015					2015
Location	Acquisition Date		Rental Revenue		Earnings ⁽¹⁾			Rental Revenue		Earnings ⁽¹⁾
Richardson, TX		3/6/2015	$	657	$	90		$	839	$	328
Birmingham, AL		3/20/2015		83		(22	)		94		106
Columbus, OH		5/28/2015		67		149			67		149
Salt Lake City, UT		5/29/2015		207		278			207		278

			$	1,014	$	495		$	1,207	$	861

⁽¹⁾	Earnings is calculated as net income exclusive of both 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 three and six months ended June 30, 2014 (dollars in thousands):


			For the three months ended June 30,				For the six months ended June 30,
	Acquisition Date		2014				2014
Location	Acquisition Date		Rental Revenue		Earnings (1)		Rental Revenue		Earnings (1)
Allen, TX		3/27/2014	$	142	$	81	$	150	$	86
Colleyville, TX		3/27/2014		117		67		123		71
Rancho Cordova, CA		4/22/2014		173		65		173		65
Coppell, TX		5/8/2014		89		52		89		52
Columbus, OH		5/13/2014		167		68		167		68
Taylor, PA		6/9/2014		208		98		208		98

			$	896	$	431	$	910	$	440

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

Pro-Forma Condensed Consolidated Statements of Operations

The following table reflects pro-forma consolidated statements of operations as if the properties acquired during the three and six months ended June 30, 2015 and the twelve months ended December 31, 2014, respectively were acquired as of January 1, 2014. The pro-forma earnings for the three and six months ended June 30, 2015 and 2014 were adjusted to assume that acquisition-related costs were incurred as of the previous period (dollars in thousands, except per share amounts):


	For the three months ended June 30, (unaudited)						For the six months ended June 30, (unaudited)
	2015			2014			2015			2014
Operating Data:
Total operating revenue	$	21,122		$	21,938		$	42,114		$	43,395
Total operating expenses		(12,697	)		(13,033	)		(25,113	)		(25,851	)
Other expenses		(7,775	)		(6,860	)		(15,495	)		(28,907	)⁽¹⁾

Net income (loss)		650			2,045			1,506			(11,363	)
Dividends attributable to preferred and senior common stock		(1,284	)		(1,133	)		(2,532	)		(2,257	)

Net loss attributable to common stockholders	$	(634	)	$	912		$	(1,026	)	$	(13,620	)

Share and Per Share Data:
Basic (loss) earnings per share of common stock - pro forma	$	(0.03	)	$	0.06		$	(0.05	)	$	(0.84	)
Diluted (loss) earnings per share of common stock - pro forma	$	(0.03	)	$	0.05		$	(0.05	)	$	(0.84	)
Basic (loss) earnings per share of common stock - actual	$	(0.04	)	$	0.01		$	(0.07	)	$	(0.90	)
Diluted (loss) earnings per share of common stock - actual	$	(0.04	)	$	0.01		$	(0.07	)	$	(0.90	)
Weighted average shares outstanding-basic		20,833,787			16,547,793			20,524,101			16,149,467
Weighted average shares outstanding-diluted		20,833,787			16,894,973			20,524,101			16,149,467

(1)	$14.0 million of other expenses relates to the impairment charge recorded in operating expenses during the six months ended June 30, 2014.

Carrying Value of Intangible Assets, Liabilities and Accumulated Amortization

The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of June 30, 2015 and December 31, 2014 respectively (in thousands):


	June 30, 2015 ⁽¹⁾					December 31, 2014
	Lease Intangibles		Accumulated Amortization			Lease Intangibles		Accumulated Amortization
In-place leases	$	65,177	$	(19,997	)	$	59,233	$	(17,379	)
Leasing costs		42,083		(13,038	)		38,305		(11,411	)
Customer relationships		45,777		(13,109	)		41,243		(11,177	)

	$	153,037	$	(46,144	)	$	138,781	$	(39,967	)


	Deferred Rent Receivable/(Liability)		Accumulated Amortization			Deferred Rent Receivable/(Liability)		Accumulated Amortization
Above market leases	$	9,548	$	(6,194	)	$	8,314	$	(6,384	)
Below market leases		17,071		(7,793	)		15,939		(7,345	)

	$	26,619	$	(13,987	)	$	24,253	$	(13,729	)

Total	$	179,656	$	(60,131	)	$	163,034	$	(53,696	)

⁽¹⁾	Does not include real estate held for sale as of June 30, 2015.

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 six months ended June 30, 2015 and 2014, respectively, were as follows:


Intangible Assets & Liabilities	2015		2014
In-place leases		10.9		10.7
Leasing costs		10.9		10.7
Customer relationships		15.6		15.6
Above market leases		18.9		8.2
Below market leases		12.4		11.9

All intangible assets & liabilities		12.5		12.2