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

Quarterly report pursuant to Section 13 or 15(d)

Real Estate Dispositions, Held for Sale and Impairment Charges

Real Estate Dispositions, Held for Sale and Impairment Charges

9 Months Ended

Sep. 30, 2019

Real Estate Dispositions, Held for Sale and Impairment Charges

Real Estate Dispositions

During the nine months ended September 30, 2019, we continued to execute our capital recycling program, whereby we sell properties outside of our core markets and redeploy proceeds to either fund property acquisitions in our target secondary growth markets, or repay outstanding debt. We expect to continue to execute our capital recycling plan and sell non-core properties as reasonable disposition opportunities become available. On January 31, 2019, we sold one non-core property, located in Maitland, Florida, which is detailed in the table below (dollars in thousands):



Square Footage Sold	Sales Price		Sales Costs		Gain on Sale of Real Estate, net
50,000	$	6,850	$	532	$	2,952

Our disposition during the nine months ended September 30, 2019 was not classified as a discontinued operation because it did not represent a strategic shift in operations, nor will it have a major effect on our operations and financial results. Accordingly, the operating results of this property is included within continuing operations for all periods reported.

The table below summarizes the components of operating income from the real estate and related assets disposed of during the three and nine months ended September 30, 2019, and 2018 (dollars in thousands):



	For the three months ended September 30,						For the nine months ended September 30,
	2019			2018			2019			2018
Operating revenue	$	—		$	254		$	245		$	749
Operating expense	1			269			786			810
Other income, net	—			(84		)	2,614		(1)	(251		)
(Expense) income from real estate and related assets sold	$	(1	)	$	(99	)	$	2,073		$	(312	)


(1)	Includes a $3.0 million gain on sale of real estate, net on one property.

Real Estate Held for Sale

At September 30, 2019, we did not have any properties classified as held for sale. At December 31, 2018, we had one property classified as held for sale, located in Maitland, Florida. This property was sold during the nine months ended September 30, 2019.

The table below summarizes the components of the assets and liabilities held for sale reflected on the accompanying condensed consolidated balance sheets (dollars in thousands):



	December 31, 2018
Assets Held for Sale
Real estate, at cost	$	3,173
Less: accumulated depreciation	218
Total real estate held for sale, net	2,955
Lease intangibles, net	1,105
Deferred rent receivable, net	91
Total Assets Held for Sale	$	4,151

Impairment Charges

We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the nine months ended September 30, 2019 and did not identify any held and used assets which were impaired. We also did not recognize an impairment charge during the nine months ended September 30, 2018.

The property we classified as held for sale was reviewed through our held for sale carrying value analysis, during the three and nine months ended September 30, 2018, and we concluded that the fair market value less selling costs was greater than the carrying value of the property. We sold this property during the nine months ended September 30, 2019.

We continue to evaluate our properties on a quarterly basis for changes that could create the need to record impairment. Future impairment losses may result, and could be significant, should market conditions deteriorate in the markets in which we hold our assets or should we be unable to secure leases at terms that are favorable to us, which could impact the estimated cash flow of our properties over the period in which we plan to hold our properties. Additionally, changes in management’s decisions to either own and lease long-term or sell a particular asset will have an impact on this analysis.