Gladstone Commercial Corporation Reports Results for the Third Quarter Ended September 30, 2008

-- Increased revenues by 25.1% to approximately $10.5 million for the third quarter ended September 30, 2008 from the same period last year, and by 26.7% to approximately $30.2 million for the nine months ended September 30, 2008 from the same period last year.

-- Increased funds from operations ("FFO") by 4.5% to approximately $3.4 million for the third quarter ended September 30, 2008 from the same period last year, and by 9.6% to approximately $10.1 million for the nine months ended September 30, 2008 from the same period last year.

-- Acquired two properties for a total investment of approximately $16.5 million.

-- Closed the financing of 15 properties through a two-year mortgage (which may be extended to five years) with GE Commercial Mortgage Financial Corporation for approximately $48.0 million.

MCLEAN, Va.--(BUSINESS WIRE)--

Gladstone Commercial Corp. (NASDAQ:GOOD) (the "Company") today reported financial results for the quarter ended September 30, 2008. 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 news release. All per share references are to fully-diluted weighted average common shares, unless otherwise noted.

Net income available to common stockholders for the quarter ended September 30, 2008 was approximately $0.1 million, or $0.01 per share, compared to approximately $0.6 million, or $0.07 per share, for the same period one year ago. Net income available to common stockholders for the nine months ended September 30, 2008 was approximately $0.7 million, or $0.08 per share, compared to approximately $1.6 million, or $0.18 per share, for the same period one year ago. Net income results when compared to the same period last year were negatively affected by increased interest expense from the growing number of properties with long-term financing, but were partially offset by the increase in the Company's portfolio of investments and the corresponding increase in its revenues. Net income results were also affected by partial waivers of incentive fees from the Company's external adviser, Gladstone Management Corporation, for the three and nine months ended September 30, 2008, of approximately $0.2 million and $0.9 million, respectively, compared to net income results for the three and nine months ended September 30, 2007, which included partial waivers of incentive fees of approximately $0.5 million and $1.7 million, respectively.

FFO for the quarter ended September 30, 2008 was approximately $3.4 million, or $0.395 per share, compared to approximately $3.2 million, or $0.378 per share, for the same period one year ago, an increase of approximately 4.5%. FFO for the nine months ended September 30, 2008 was approximately $10.1 million, or $1.184 per share, compared to approximately $9.3 million or $1.080 per share, for the same period one year ago, an increase of approximately 9.7%. A reconciliation of net income, which the Company believes is the most directly comparable GAAP measure to FFO, is set forth below:


                     For the three months    For the nine months ended
                      ended September 30,          September 30,
                   ------------------------- -------------------------
                       2008         2007         2008         2007
                   ------------ ------------ ------------ ------------

Net income         $ 1,141,559  $ 1,590,460  $ 3,777,707  $ 4,677,115
Less: Dividends
 attributable to
 preferred stock    (1,023,437)  (1,023,438)  (3,070,312)  (3,070,312)
                   ------------ ------------ ------------ ------------
Net income
 available to
 common
 stockholders          118,122      567,022      707,395    1,606,803

Add: Real estate
 depreciation and
 amortization        3,262,903    2,668,383    9,435,690    7,722,349
Less: Gain on sale
 of real estate,
 net of taxes paid           -            -            -      (78,667)
                   ------------ ------------ ------------ ------------
FFO available to
 common
 stockholders      $ 3,381,025  $ 3,235,405  $10,143,085  $ 9,250,485


Weighted average
 shares
 outstanding -
 basic & diluted     8,565,264    8,565,264    8,565,264    8,565,264

Basic & diluted
 net income per
 weighted average
 common share      $      0.01  $      0.07  $      0.08  $      0.19
                   ============ ============ ============ ============
Basic & diluted
 FFO per weighted
 average common
 share             $     0.395  $     0.378  $     1.184  $     1.080
                   ============ ============ ============ ============

Dividends declared
 per common share  $     0.375  $     0.360  $     1.125  $     1.080
                   ============ ============ ============ ============

Percentage of FFO
 paid per common
 share                      95%          95%          95%         100%
                   ============ ============ ============ ============

At September 30, 2008, the Company owned 65 properties totaling approximately 6.3 million square feet, and had one mortgage loan outstanding for a total net investment of approximately $410.2 million. Currently, all of the Company's properties are fully leased and all but one of its tenants is current.

    Third quarter highlights:

    --  Purchased two fully-occupied properties comprised of
        approximately 291,000 square feet for approximately $16.5
        million, including $6.5 million of assumed debt on one of the
        properties;

    --  Borrowed approximately $48.0 million pursuant to a two-year
        mortgage note payable from GE Commercial Mortgage Financial
        Corporation (which may be extended to five years),
        collateralized by security interests in 15 properties; and

    --  Declared monthly cash dividends of $0.125 per share on the
        common stock, $0.1614583 per share on the Series A Preferred
        Stock, and $0.15625 per share on the Series B Preferred Stock,
        for each of the months of July, August, and September 2008.

"Although our results demonstrate that we continue to grow our portfolio with new investments and add value to previous investments, we are disappointed by the credit market's impact on the pace of our acquisitions. We continue to consider new investments, but on a very selective basis. Although our pipeline remains very large, seller pricing expectations have not fully adjusted to current market realities. In some cases, this pricing spread has recently grown even larger. In other cases, sellers have accepted higher offers from other buyers, only to learn that the alternative buyers cannot perform, which has driven a significant amount of 'call back' business to us due to our reputation for performance. In the face of this slower transaction cycle, we continue to actively pursue stable assets with the same long-term, conservative mindset," said Chip Stelljes, President and Chief Investment Officer.

    Subsequent to quarter end, the Company:

    --  Declared monthly cash dividends of $0.125 per share on the
        common stock, $0.1614583 per share on the Series A Preferred
        Stock, and $0.15625 per share on the Series B Preferred Stock,
        for each of the months of October, November and December 2008.

The financial statements attached below are without footnotes so readers should obtain and carefully review the Company's Form 10-Q for the quarter ended September 30, 2008, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-Q today with the Securities and Exchange Commission ("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 Company will hold a conference call on Thursday, November 6, 2008 at 8:30 a.m. ET to discuss its earnings results. Please call (877) 407-8031 to enter the conference. An operator will monitor the call and set a queue for the questions.

The conference call replay will be available two hours after the call and will be available through December 6, 2008. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 299201.

Gladstone Commercial Corporation is a publicly traded real estate investment trust ("REIT") that focuses on investing in and owning triple-net leased industrial, commercial and retail real estate properties and selectively making long-term mortgage loans. Additional information can be found at www.GladstoneCommercial.com.

    For further information, contact Kerry Finnegan at 703-287-5893.

    NON-GAAP FINANCIAL MEASURE

    Funds from Operations

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 a further 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 Form 10-Q for the quarter ended September 30, 2008, as filed with the SEC today.

This press release may include statements that may constitute "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, including statements with regard to the future performance of the Company, the closing of any transaction and the Company's ability to secure alternative sources of financing. Words such as "may," "continue," "will," "believes," "anticipates," "intends," "expects," "projects," "estimates" and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans, expectations and beliefs that are believed to be reasonable as of the date of this press release. Factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements include, among others, those factors listed under the caption "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the SEC on February 27, 2008 and the Company's Quarterly Report on Form 10-Q for the quarters ended June 30, 2008 and September 30, 2008, as filed on August 5, 2008 and November 5, 2008, respectively. The risk factors set forth in the Form 10-K and Form 10-Qs under the caption "Risk Factors" are specifically incorporated by reference into this press release. All forward-looking statements are based on current plans, expectations and beliefs and speak only as of the date of such statements. 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.


                   Gladstone Commercial Corporation
                     Consolidated Balance Sheets
                             (Unaudited)

                                           September 30, December 31,
                                                2008          2007
                                           ------------- -------------

ASSETS
Real estate, net                           $367,715,344  $324,761,772
Lease intangibles, net                       32,467,191    28,989,556
Mortgage notes receivable                    10,000,000    10,000,000
Cash and cash equivalents                     3,064,675     1,356,408
Restricted cash                               2,637,531     1,914,067
Funds held in escrow                          1,988,558     1,401,695
Deferred rent receivable                      6,667,829     5,094,799
Deferred financing costs, net                 4,752,282     4,405,129
Prepaid expenses and other assets               989,645       979,263
                                           ------------- -------------

TOTAL ASSETS                               $430,283,055  $378,902,689
                                           ============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Mortgage notes payable                     $255,425,225  $202,120,471
Short-term loan and borrowings under line
 of credit                                   30,200,000    24,400,000
Deferred rent liability                       3,343,863     3,933,035
Asset retirement obligation liability         2,155,341     1,811,752
Accounts payable and accrued expenses           514,222       778,949
Due to adviser                                1,231,722       784,301
Obligation under capital lease                  232,301             -
Rent received in advance, security
 deposits and tenant funds held in escrow     3,600,768     2,706,113
                                           ------------- -------------

Total Liabilities                           296,703,442   236,534,621
                                           ------------- -------------

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                    2,150         2,150
Common stock, $0.001 par value, 47,700,000
 shares authorized and 8,565,264 shares
 issued and outstanding                           8,565         8,565
Additional paid in capital                  170,640,979   170,640,979
Notes receivable - employees                 (2,629,846)   (2,769,923)
Distributions in excess of accumulated
 earnings                                   (34,442,235)  (25,513,703)
                                           ------------- -------------

Total Stockholders' Equity                  133,579,613   142,368,068
                                           ------------- -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $430,283,055  $378,902,689
                                           ============= =============

                   Gladstone Commercial Corporation
                Consolidated Statements of Operations
                             (Unaudited)

                    For the three months    For the nine months ended
                     ended September 30,           September 30,
                  ------------------------- --------------------------
                      2008         2007         2008          2007
                  ------------ ------------ ------------- ------------
Operating
 revenues
  Rental income   $10,157,553  $ 8,024,305  $ 29,269,036  $22,834,663
  Interest income
   from mortgage
   notes
   receivable         216,446      255,555       673,548      758,333
  Tenant recovery
   revenue             83,144       80,648       253,495      230,851
                  ------------ ------------ ------------- ------------
    Total
     operating
     revenues      10,457,143    8,360,508    30,196,079   23,823,847
                  ------------ ------------ ------------- ------------

Operating
 expenses
  Depreciation
   and
   amortization     3,262,903    2,668,383     9,435,690    7,722,349
  Property
   operating
   expenses           225,020      204,972       670,442      597,273
  Base management
   fee                404,108      459,202     1,255,833    1,412,337
  Incentive fee       793,787      677,104     2,300,286    1,896,677
  Administration
   fee                238,241      175,852       724,978      592,996
  Professional
   fees               117,857      118,371       362,584      442,479
  Insurance            43,354       53,943       126,947      171,275
  Directors fees       54,702       66,250       161,202      174,750
  Stockholder
   related
   expenses            42,232       40,991       271,430      215,969
  Asset
   retirement
   obligation
   expense             35,157       29,440        98,394       86,542
  General and
   administrative     105,999       17,452       139,151       79,119
                  ------------ ------------ ------------- ------------
    Total
     operating
     expenses
     before
     credit from
     Adviser        5,323,360    4,511,960    15,546,937   13,391,766
                  ------------ ------------ ------------- ------------

  Credit to
   incentive fee     (205,876)    (526,991)     (941,928)  (1,746,564)
                  ------------ ------------ ------------- ------------
     Total
      operating
      expenses      5,117,484    3,984,969    14,605,009   11,645,202
                  ------------ ------------ ------------- ------------

Other income
 (expense)
  Interest income
   from temporary
   investments          4,559       33,105        20,796      325,390
  Interest income
   - employee
   loans               49,624       52,728       152,620      169,608
  Other income          7,500        9,896        56,493       28,127
  Interest
   expense         (4,258,461)  (2,920,270)  (12,008,316)  (8,137,343)
                  ------------ ------------ ------------- ------------
    Total other
     expense       (4,196,778)  (2,824,541)  (11,778,407)  (7,614,218)
                  ------------ ------------ ------------- ------------

Income from
 continuing
 operations         1,142,881    1,550,998     3,812,663    4,564,427
                  ------------ ------------ ------------- ------------

Discontinued
 operations
  (Loss) income
   from
   discontinued
   operations          (1,322)       5,975       (34,956)         471
  Net realized
   income from
   foreign
   currency
   transactions             -       33,487             -       33,550
  Taxes refunded
   on sale of
   real estate              -            -             -       78,667
                  ------------ ------------ ------------- ------------
    Total
     discontinued
     operations        (1,322)      39,462       (34,956)     112,688
                  ------------ ------------ ------------- ------------

Net income          1,141,559    1,590,460     3,777,707    4,677,115
                  ------------ ------------ ------------- ------------

Dividends
 attributable to
 preferred stock   (1,023,437)  (1,023,438)   (3,070,312)  (3,070,312)
                  ------------ ------------ ------------- ------------

Net income
 available to
 common
 stockholders     $   118,122  $   567,022  $    707,395  $ 1,606,803
                  ============ ============ ============= ============

Earnings per
 weighted average
 common share -
 basic & diluted
   Income from
    continuing
    operations
    (net of
    dividends
    attributable
    to preferred
    stock)        $      0.01  $      0.07  $       0.08  $      0.18
   Discontinued
    operations           0.00         0.00          0.00         0.01
                  ------------ ------------ ------------- ------------

   Net income
    available to
    common
    stockholders  $      0.01  $      0.07  $       0.08  $      0.19
                  ============ ============ ============= ============

   Weighted
    average
    shares
    outstanding-
    basic &
    diluted         8,565,264    8,565,264     8,565,264    8,565,264
                  ============ ============ ============= ============

                   Gladstone Commercial Corporation
                Consolidated Statements of Cash Flows
                             (Unaudited)

                                           For the nine months ended
                                                  September 30,
                                           ---------------------------
                                               2008          2007
                                           ------------- -------------

Cash flows from operating activities:
Net income                                 $  3,777,707  $  4,677,115
Adjustments to reconcile net income to net
 cash provided by operating activities:
    Depreciation and amortization             9,435,690     7,722,349
    Amortization of deferred financing
     costs                                      806,075       509,990
    Amortization of deferred rent asset
     and liability, net                        (399,049)     (399,051)
    Accretion of obligation under capital
     lease                                        7,234             -
    Asset retirement obligation expense          98,394        86,542
    Decrease (increase) in prepaid
     expenses                                  (110,382)       28,815
    Increase in deferred rent receivable     (1,763,153)   (1,247,345)
    Increase in accounts payable, accrued
     expenses, and amount due adviser           182,694       516,996
    Increase in rent received in advance        171,191       137,534
                                           ------------- -------------
            Net cash provided by operating
             activities                      12,206,401    12,032,945
                                           ------------- -------------

Cash flows from investing activities:
   Real estate investments                  (48,935,032)  (85,742,539)
   Receipts from lenders for reserves held
    in escrow                                   630,033     1,007,684
   Payments to lenders for reserves held
    in escrow                                (1,216,896)   (1,010,385)
   Increase in restricted cash                 (723,464)     (275,696)
   Deposits on future acquisitions           (1,650,000)   (1,310,000)
   Deposits applied against real estate
    investments                               1,750,000     1,610,000
                                           ------------- -------------
            Net cash used in investing
             activities                     (50,145,359)  (85,720,936)
                                           ------------- -------------

Cash flows from financing activities:
  Borrowings under mortgage notes payable    48,015,000    32,521,691
  Principal repayments on mortgage notes
   payable                                   (1,171,849)     (599,328)
  Principal repayments on employee notes
   receivable from sale of common stock         140,077       400,598
  Borrowings from line of credit             62,600,000    24,200,000
  Repayments on line of credit              (56,800,000)   (4,200,000)
  Receipts from tenants from reserves         1,746,804     1,446,577
  Payments to tenants from reserves          (1,555,146)   (1,311,406)
  Increase in security deposits                 531,806       140,525
  Payments for deferred financing costs      (1,153,228)     (770,761)
  Dividends paid for common and preferred   (12,706,239)  (12,320,797)
                                           ------------- -------------
            Net cash provided by financing
             activities                      39,647,225    39,507,099
                                           ------------- -------------

Net increase (decrease) in cash and cash
 equivalents                                  1,708,267   (34,180,892)

Cash and cash equivalents, beginning of
 period                                       1,356,408    36,005,686

                                           ------------- -------------
Cash and cash equivalents, end of period   $  3,064,675  $  1,824,794
                                           ============= =============

NON-CASH OPERATING, INVESTING AND
 FINANCING INFORMATION

Additions to real estate included in
 accounts payable, accrued expenses, and
 amount due adviser                        $          -  $    409,000
                                           ------------- -------------

Increase in asset retirement obligation    $    245,195  $    150,523
                                           ------------- -------------

Fixed rate debt assumed in connection with
 acquisitions                              $  6,461,603  $  4,506,689
                                           ------------- -------------

Source: Gladstone Commercial Corporation