Gladstone Commercial Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Real Estate and Intangible Assets (Tables)

Real Estate and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2020

Components of Investments in Real Estate

The following table sets forth the components of our investments in real estate as of December 31, 2020 and 2019, respectively, excluding real estate held for sale as of December 31, 2020 and 2019, respectively (dollars in thousands):


	December 31, 2020		December 31, 2019
Real estate:
Land (1)	$	142,853	$	137,532
Building and improvements	916,601		851,245
Tenant improvements	69,229		68,201
Accumulated depreciation	(228,468)		(207,523)
Real estate, net	$	900,215	$	849,455

(1)This amount includes $4,436 of land value subject to land lease agreements which we may purchase at our option for a nominal fee.

Summary of Properties Acquired

During the year ended December 31, 2020 and 2019 we acquired nine and 18 properties, respectively, which are summarized below (dollars in thousands):


Year Ended		Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Capitalized Acquisition Costs
December 31, 2020	(1)	1,717,502	12.2 years	$	129,974	$	814	(3)
December 31, 2019	(2)	2,562,483	12.8 years	$	130,313	$	1,231	(3)

(1)On January 8, 2020, we acquired a 64,800 square foot property in Indianapolis, Indiana for $5.3 million. The property is leased to three tenants, with a weighted average lease term of 7.2 years. On January 27, 2020, we acquired a 320,838 square foot, three-property portfolio in Houston, Texas, Charlotte, North Carolina, and St. Charles, Missouri for $34.7

million. The portfolio has a weighted average lease term of 20.0 years. On March 9, 2020, we acquired a 504,400 square foot property in Crandall, Georgia for $32.0 million. This property is fully leased to one tenant for 10.5 years. On September 1, 2020, we acquired a 153,600 square foot property in Terre Haute, Indiana for $10.6 million. This property is fully leased to one tenant for 9.7 years. On October 14, 2020, we acquired a 240,714 square foot property in Montgomery, Alabama for $14.3 million. This property is fully leased to one tenant for 7.2 years. On December 18, 2020, we acquired a 277,883 square foot property in Huntsville, Alabama for $20.0 million. This property is fully leased to one tenant for 9.2 years. On December 21, 2020, we acquired a 155,267 square foot property in Pittsburgh, Pennsylvania for $13.0 million. This property is fully leased to one tenant for 10.0 years.

(2)On February 8, 2019, we acquired a 26,050 square foot property in Moorestown, New Jersey for $2.7 million. This property is fully leased to one tenant for 15.1 years. On February 28, 2019, we acquired a 34,800 square foot property in Indianapolis, Indiana for $3.6 million. This property is fully leased to one tenant for 10.0 years. On April 5, 2019, we acquired a 383,000 square foot, two property portfolio located in Ocala, Florida for $19.2 million. This portfolio is leased to one tenant, and has a weighted average lease term of 20.1 years. On April 30, 2019, we acquired a 54,430 square foot property in Columbus, Ohio for $3.2 million. This property is fully leased to one tenant for 7.0 years. On June 18, 2019, we acquired a 676,031 square foot property in Tifton, Georgia, for $17.9 million. This property is fully leased to one tenant for 8.5 years. On July 30, 2019, we acquired a 78,452 square foot property in Denton, Texas, for $6.6 million. This property is fully leased to one tenant for 11.9 years. On September 26, 2019, we acquired a 211,000 square foot two property portfolio in Temple, Texas, for $14.1 million. This portfolio is leased to one tenant, and has a weighted average lease term of 20.0 years. On November 14, 2019, we acquired a 231,509 square foot property in Indianapolis, Indiana, for $8.2 million. This property is fully leased to one tenant for 13.5 years. On December 16, 2019, we acquired a 241,000 square foot property in Jackson, Tennessee, for $9.1 million. This property is fully leased to one tenant for 9.7 years. On December 17, 2019, we acquired a 117,000 square foot property in Carrollton, Georgia, for $8.1 million. This property is fully leased to one tenant for 12.0 years. On December 17, 2019, we acquired a 509,211 square foot six property portfolio, for $37.6 million. The portfolio is fully leased to one tenant, and has a weighted average lease term of 10.0 years.

(3)During the years ended December 31, 2020 and 2019, we capitalized $0.8 million and $1.2 million, respectively, of acquisition costs.

Fair Value of Acquired Assets and Liabilities Assumed

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the year ended December 31, 2020 and 2019, respectively, as follows (dollars in thousands):


	Year ended December 31, 2020			Year ended December 31, 2019
Acquired assets and liabilities	Purchase price			Purchase price
Land	$	11,264	(1)	$	12,351
Building	97,101			93,502
Tenant Improvements	2,684			3,119
In-place Leases	9,076			9,013
Leasing Costs	6,352			7,274
Customer Relationships	5,239			5,019
Above Market Leases	529		(2)	1,950
Below Market Leases	(2,271)		(3)	(1,915)		(4)


Total Purchase Price	$	129,974		$	130,313

(1)This amount includes $2,711 of land value subject to a land lease agreement, which we may purchase for a nominal fee.

(2)This amount includes $53 of loans receivable included in Other assets on the consolidated balance sheets.

(3)This amount includes $62 of prepaid rent included in Other liabilities on the consolidated balance sheets.

(4)This amount includes $187 of prepaid rent included in Other liabilities on the consolidated balance sheets.

Future Operating Lease Payments from Tenants under Non-Cancelable Leases

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Tenant Lease Payments
2021	$	110,417
2022	106,438
2023	99,170
2024	91,083
2025	83,418
Thereafter	323,814
	$	814,340

Lease Revenue

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the years ended December 31, 2020 and 2019, respectively (dollars in thousands):


	For the twelve months ended December 31,
	(Dollars in Thousands)
Lease revenue reconciliation	2020		2019		$ Change		% Change
Fixed lease payments	$	117,248	$	110,273	$	6,975	6.3	%
Variable lease payments	15,904		4,114		11,790		286.6	%
	$	133,152	$	114,387	$	18,765	16.4	%

Carrying Value of Intangible Assets 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 December 31, 2020 and 2019, excluding real estate held for sale as of December 31, 2020 and 2019, respectively (dollars in thousands):


	December 31, 2020				December 31, 2019
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	99,254	$	(54,168)	$	92,906	$	(48,468)
Leasing costs	73,707		(37,801)		68,256		(33,705)
Customer relationships	68,268		(31,881)		65,363		(28,887)
	$	241,229	$	(123,850)	$	226,525	$	(111,060)
	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	15,076	$	(10,670)	$	16,502	$	(10,005)
Below market leases and deferred revenue	(38,319)		17,686		(34,322)		15,000
	$	(23,243)	$	7,016	$	(17,820)	$	4,995

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 years ended December 31, 2020 and 2019, respectively, were as follows:


Intangible Assets & Liabilities	2020	2019
In-place leases	14.2	13.6
Leasing costs	14.2	13.6
Customer relationships	17.8	19.0
Above market leases	14.8	10.7
Below market leases	13.3	10.3
All intangible assets & liabilities	15.0	15.0

Estimated Aggregate Amortization Expense

The estimated aggregate amortization expense to be recorded for in-place leases, leasing costs and customer relationships for each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of December 31, 2020 (dollars in thousands):


Year	Estimated Amortization Expense of In-Place Leases, Leasing Costs and Customer Relationships
2021	$	19,828
2022	17,890
2023	15,435
2024	13,211
2025	11,467
Thereafter	39,548
	$	117,379

Summary of Estimated Aggregate Rental Income

The estimated aggregate rental income to be recorded for the amortization of both above and below market leases for each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of December 31, 2020 (dollars in thousands):


Year	Net Increase to Rental Income Related to Above and Below Market Leases (1)
2021	$	3,527
2022	2,575
2023	2,154
2024	2,009
2025	1,626
Thereafter	4,160
	$	16,051

(1)Does not include ground lease amortization of $176.