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
Released November 5, 2008