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, 2023

Components of Investments in Real Estate

The following table sets forth the components of our investments in real estate as of December 31, 2023 and 2022, respectively, excluding real estate held for sale as of December 31, 2023 (dollars in thousands):


	December 31, 2023		December 31, 2022
Real estate:
Land (1)	$	143,442	$	152,916
Building and improvements	1,020,661		1,069,407
Tenant improvements	57,261		64,974
Accumulated depreciation	(299,662)		(286,150)
Real estate, net	$	921,702	$	1,001,147

(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 years ended December 31, 2023 and 2022, we acquired five and 13 properties, respectively, which are summarized below (dollars in thousands):


Year Ended		Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Aggregate Capitalized Acquisition Costs
December 31, 2023	(1)	321,432	19.3 years	$	30,018	$	528
December 31, 2022	(2)	1,238,680	14.5 years	$	115,364	$	1,014

(1)On April 14, 2023, we acquired a 76,089 square foot property in Riverdale, Illinois for $5.4 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On July 10, 2023, we acquired a 7,714 square foot property in Dallas-Fort Worth, Texas for $3.0 million. The property is fully leased to one tenant and had 9.9 years of remaining lease term at the time we acquired the property. On July 28, 2023, we acquired a 100,000 square foot property in Dallas-Fort Worth, Texas for $9.2 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On October 12, 2023, we acquired a 69,920 square foot property in Allentown, Pennsylvania for $7.9 million. The property is fully leased to one tenant and had 20.1 years of remaining lease term at the time we acquired the property. On November 3, 2023, we acquired a 67,709 square

foot property in Indianapolis, Indiana for $4.6 million. The property is fully leased to one tenant and had 20.1 years of remaining lease term at the time we acquired the property.

(2)On February 24, 2022, we acquired an 80,000 square foot property in Wilkesboro, North Carolina for $7.5 million. The property is fully leased to one tenant and had 12.7 years of remaining lease term at the time we acquired the property. On March 11, 2022, we acquired a 56,000 square foot property portfolio in Oklahoma City, Oklahoma for $6.0 million. The property is fully leased to one tenant and had 7.0 years of remaining lease term at the time we acquired the portfolio. On May 4, 2022, we acquired a 260,719 square foot, two-property portfolio in Cleveland, Ohio and Fort Payne, Alabama for $19.5 million. On May 12, 2022, we acquired a 345,584 square foot, three-property portfolio in Wilmington, North Carolina, for $18.9 million. These properties are fully leased to one tenant and had 13.1 years of remaining lease term at the time we acquired the portfolio. On August 5, 2022, we acquired a 246,000 square foot, two-property portfolio in Bridgeton, New Jersey and Vineland, New Jersey for $32.7 million. These properties are fully leased to one tenant and had 15.1 years of remaining lease term at the time we acquired the property. On September 16, 2022, we acquired a 67,328 square foot property in Jacksonville, Florida for $8.1 million. This property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On September 20, 2022, we acquired a 49,375 square foot property in Fort Payne, Alabama for $5.6 million. This property is fully leased to one tenant and had 14.8 years of remaining lease term at the time we acquired the property. On October 26, 2022, we acquired a 68,674 square foot property in Denver, Colorado for $12.1 million. This property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property. On December 21, 2022, we acquired a 65,000 square foot property in Greenville, South Carolina for $5.0 million. The property is fully leased to one tenant and had 12.0 years of remaining lease term at the time we acquired the property.

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 years ended December 31, 2023 and 2022, respectively, as follows (dollars in thousands):


	Year ended December 31, 2023			Year ended December 31, 2022
Acquired assets and liabilities	Purchase price			Purchase price
Land	$	4,629		$	11,587
Building	19,726			85,774
Tenant Improvements	997			1,939
In-place Leases	1,642			5,927
Leasing Costs	2,733			6,888
Customer Relationships	684			3,352
Above Market Leases	—			500		(1)
Below Market Leases	(393)		(2)	(603)		(2)


Total Purchase Price	$	30,018		$	115,364

(1)This amount includes $181 of loans receivable included in Other assets on the consolidated balance sheets.

(2)This amount includes $393 and $32 of prepaid rent included in Other liabilities on the consolidated balance sheets, respectively.

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
2024	$	113,627
2025	111,796
2026	106,207
2027	90,925
2028	77,945
Thereafter	389,670
	$	890,170

Lease Revenue

The table below sets forth the allocation of lease revenue between fixed contractual lease payments and variable lease payments for the years ended December 31, 2023, 2022, and 2021, respectively (dollars in thousands):


	For the year ended December 31,
	(Dollars in Thousands)
Lease revenue reconciliation	2023		2022		2021
Fixed lease payments	$	130,551	$	132,032	$	121,303
Variable lease payments	17,033		16,949		16,385
	$	147,584	$	148,981	$	137,688

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, 2023 and 2022, excluding real estate held for sale as of December 31, 2023 (dollars in thousands):


	December 31, 2023				December 31, 2022
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	98,615	$	(63,269)	$	104,394	$	(63,240)
Leasing costs	84,844		(46,096)		85,038		(45,501)
Customer relationships	63,185		(36,231)		69,586		(38,655)
	$	246,644	$	(145,596)	$	259,018	$	(147,396)
	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	13,431	$	(10,675)	$	15,371	$	(11,909)
Below market leases and deferred revenue	(59,411)		30,087		(66,138)		26,141

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, 2023 and 2022, respectively, were as follows:


Intangible Assets & Liabilities	2023	2022
In-place leases	18.9	14.8
Leasing costs	18.9	14.8
Customer relationships	26.3	20.5
Above market leases	0.0	16.3
Below market leases	20.1	13.0
All intangible assets & liabilities	21.1	16.2

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, 2023 (dollars in thousands):


Year	Estimated Amortization Expense of In-Place Leases, Leasing Costs and Customer Relationships
2024	$	16,225
2025	14,201
2026	12,490
2027	10,853
2028	8,818
Thereafter	38,461
	$	101,048

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, 2023 (dollars in thousands):


Year	Net Increase to Rental Income Related to Above and Below Market Leases (1)
2024	$	6,188
2025	6,006
2026	3,814
2027	2,522
2028	2,525
Thereafter	5,372
	$	26,427

(1)Does not include ground lease amortization of $141.