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, 2013

Property Plant And Equipment [Abstract]

Company's Investments in Real Estate, Including Capitalized Leases

The following table sets forth the components of our investments in real estate as of June 30, 2013 and December 31, 2012 (in thousands):


	June 30, 2013			December 31, 2012
Real estate:
Land	$	72,271		$	69,126
Building and improvements		468,243			442,451
Tenant improvements		24,438			22,176
Accumulated depreciation		(72,712	)		(65,730	)

Real estate, net	$	492,240		$	468,023

Summary of Properties Acquired

During the six months ended June 30, 2013, we acquired three properties and completed an expansion of one property, which are summarized below (dollars in thousands):


Location	Acquisition/ Expansion Date		Square Footage		Lease Term		Renewal Options			Total Purchase/ Expansion Price		Acquistion Expenses		Annualized Straight Line Rent		Debt Issued
Egg Harbor Township, NJ		3/28/2013		29,257		10 years		1 (5 years	)	$	5,650	$	152	$	490	$	3,700
Clintonville, WI ⁽¹⁾		4/11/2013		102,400		15 years		N/A			3,250		N/A		961		—
Vance, AL		5/8/2013		170,000		10 years		2 (5 year options	)		13,388		186		1,173		—
Blaine, MN		5/10/2013		92,275		6.9 years		2 (5 year options	)		14,450		79		1,475		—

Total				393,932						$	36,738	$	417	$	4,099	$	3,700

⁽¹⁾	The Clintonville, WI property was originally acquired in November 2005 for $5.3 million. After the expansion completed in April 2013, the total investment in the property is $8.6 million.

During the six months ended June 30, 2012, we acquired five properties, which are summarized below (dollars in thousands):


Location	Acquisition Date		Square Footage		Lease Term		Renewal Options			Total Purchase Price		Acquistion Expenses		Annualized Straight Line Rent		Debt Issued
Ashburn, VA		1/25/2012		52,130		15 years		2 (5 years each	)	$	10,775	$	102	$	989	$	N/A
Ottumwa, IA		5/30/2012		352,860		11.5 years		3 (5 years each	)		7,100		47		684		5,000
New Albany, OH		6/5/2012		89,000		10.5 years		2 (5 years each	)		13,333		188		1,361		N/A
Columbus, GA		6/21/2012		32,000		11.5 years		2 (5 years each	)		7,320		126		656		4,750
Columbus, OH		6/28/2012		31,293		10 years		N/A			4,037		59		342		N/A

Total				557,283						$	42,565	$	522	$	4,032	$	9,750

Fair Value of Acquired Assets and Liabilities Assumed

In accordance with ASC 805, we determined the fair value of the acquired assets related to the three properties acquired during the six months ended June 30, 2013 as follows (in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Total Purchase Price
Egg Harbor Township, NJ	$	1,627	$	2,735	$	282	$	558	$	189	$	259	$	5,650
Brookwood, AL		457		9,721		808		1,097		678		627		13,388
Blaine, MN		1,060		9,347		1,172		1,361		694		816		14,450

	$	3,144	$	21,803	$	2,262	$	3,016	$	1,561	$	1,702	$	33,488

In accordance with ASC 805, we determined the fair value of acquired assets related to the properties acquired during the six months ended June 30, 2012 as follows (in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			Total Purchase Price
Ashburn, VA	$	706	$	6,551	$	1,307	$	804	$	908	$	499	$	—	$	—		$	10,775
Ottumwa, IA		212		4,743		329		940		484		499		—		(107	)		7,100
New Albany, OH		1,658		7,511		1,235		1,122		857		903		47		—			13,333
Columbus, GA		1,378		3,894		626		574		473		375		—		—			7,320
Columbus, OH		542		1,856		597		391		213		325		113		—			4,037

	$	4,496	$	24,555	$	4,094	$	3,831	$	2,935	$	2,601	$	160	$	(107	)	$	42,565

Schedule of Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the three properties acquired during the six months ended June 30, 2013 (dollars in thousands):


	Acquisition		For the three months ended June 30, 2013				For the six months ended June 30, 2013
Location	Date		Rental Revenue		Earnings ⁽¹⁾		Rental Revenue		Earnings ⁽¹⁾
Egg Harbor Township, NJ		3/28/2013	$	122	$	69	$	128	$	72
Vance, AL		5/8/2013		170		70		170		70
Blaine, MN		5/10/2013		210		94		210		94

			$	502	$	233	$	508	$	236

⁽¹⁾	Earnings is calculated as net income less 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 properties acquired during the six months ended June 30, 2012 (dollars in thousands):


			For the three months ended June 30, 2012				For the six months ended June 30, 2012
Location	Acquisition Date		Rental Revenue		Earnings ⁽¹⁾		Rental Revenue		Earnings ⁽¹⁾
Ashburn, VA		1/25/2012	$	247	$	147	$	431	$	160
Ottumwa, IA		5/30/2012		61		30		61		30
New Albany, OH		6/5/2012		98		51		98		51
Columbus, GA		6/21/2012		18		11		18		11
Columbus, OH		6/28/2012		3		3		3		3

			$	427	$	242	$	611	$	255

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

Pro-forma Condensed Consolidated Statements of Operations

The pro-forma earnings for the three and six months ended June 30, 2013, were adjusted to exclude $0.3 million and $0.4 million, respectively, of acquisition-related costs incurred during 2013 (dollars in thousands, except per share data):


	For the three months ended June 30,						For the six months ended June 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Operating Data:
Total operating revenue	$	14,548		$	13,071		$	29,374		$	26,073
Total operating expenses		(7,284	)		(6,036	)		(14,922	)		(12,273	)
Other expenses		(6,574	)		(5,658	)		(13,141	)		(10,837	)

Net income		690			1,377			1,311			2,963
Dividends attributable to preferred and senior common stock		(1,092	)		(1,046	)		(2,168	)		(2,088	)

Net (loss) income available to common stockholders	$	(402	)	$	331		$	(857	)	$	875

Share and Per Share Data:
Basic & diltued (loss) earnings per share of common stock	$	(0.03	)	$	0.03		$	(0.07	)	$	0.08
Diluted earnings per share of common stock	$	(0.03	)	$	0.03		$	(0.07	)	$	0.08
Weighted average shares outstanding-basic		12,380,402			10,945,379			11,808,701			10,945,379
Weighted average shares outstanding-diluted		12,380,402			11,018,870			11,808,701			11,011,259

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, 2013 and 2012, respectively, were as follows:


Intangible Assets & Liabilities	2013		2012
In-place leases		9.3		11.0
Leasing costs		9.3		11.0
Customer relationships		14.2		15.2
Above market leases		—		10.4
Below market leases		—		11.6

All intangible assets & liabilities		10.9		12.4

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 the remainder of 2013 and each of the five succeeding fiscal years and thereafter is as follows (in thousands):


Year	Tenant Lease Payments
Six Months ending December 31, 2013	$	27,152
2014		54,022
2015		52,560
2016		49,330
2017		47,279
2018		45,230
Thereafter		255,699

Value of Intangible Assets and Accumulated Amortization

The following table summarizes the carrying value of intangible assets and the accumulated amortization for each intangible asset class (in thousands):


	June 30, 2013					December 31, 2012
	Lease Intangibles		Accumulated Amortization			Lease Intangibles		Accumulated Amortization
In-place leases	$	37,101	$	(13,366	)	$	34,085	$	(12,125	)
Leasing costs		26,035		(8,087	)		24,071		(7,103	)
Customer relationships		28,373		(9,259	)		26,671		(8,345	)

	$	91,509	$	(30,712	)	$	84,827	$	(27,573	)

Estimated Aggregate Amortization Expense

The estimated aggregate amortization expense for the remainder of 2013 and for each of the five succeeding fiscal years and thereafter is as follows (in thousands):


Year	Estimated Amortization Expense
Six Months ending December 31, 2013	$	4,001
2014		7,361
2015		6,838
2016		6,084
2017		5,890
2018		5,327
Thereafter		25,296