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)

3 Months Ended

Mar. 31, 2014

Property Plant And Equipment [Abstract]

The following table sets forth the components of our investments in real estate as of March 31, 2014 and December 31, 2013 (dollars in thousands):


	March 31, 2014 ⁽¹⁾			December 31, 2013
Real estate:
Land	$	78,570		$	79,153
Building and improvements		526,117			527,230
Tenant improvements		36,212			35,970
Accumulated depreciation		(96,914	)		(81,241	)

Real estate, net	$	543,985		$	561,112

(1)	Does not include real estate held for sale as of March 31, 2014.

Summary of Properties Acquired

2014 Real Estate Activity

During the three months ended March 31, 2014, we acquired two properties, which are summarized in the table below (dollars in thousands):


Location	Acquisition Date		Square Footage		Lease Term		Renewal Options	Total Purchase Price		Acquistion Expenses		Annualized Straight Line Rent		Debt Assumed
Allen, TX		3/27/2014		21,154		12 Years	4 (5 years each)	$	5,525	$	26	$	570	$	3,481
Colleyville, TX		3/27/2014		20,355		12 Years	4 (5 years each)		4,523		26		467		2,849

Total				41,509				$	10,048	$	52	$	1,037	$	6,330

2013 Real Estate Activity

During the three months ended March 31, 2013, we acquired one property, which is 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

Egg Harbor Township, NJ

3/28/2013

29,257

10 years

1 (5 years)

5,650

149

490

3,700

Fair Value of Acquired Assets and Assumed Liabilities

In accordance with ASC 805, we determined the fair value of the acquired assets related to the two properties acquired during the three months ended March 31, 2014 as follows (in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Below Market Leases		Discount on Assumed Debt		Total Purchase Price
Allen, TX	$	874	$	3,509	$	125	$	598	$	273	$	218	$	—	$	72	$	5,525
Colleyville, TX		1,277		2,307		117		486		220		181		6		59	$	4,523

	$	2,151	$	5,816	$	242	$	1,084	$	493	$	399	$	6	$	131	$	10,048

In accordance with ASC 805, we determined the fair value of acquired assets related to the one property acquired during the three months ended March 31, 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

Schedule of Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the two properties acquired during the three months ended March 31, 2014 (dollars in thousands):


			For the three months ended March 31,
			2014
Location	Acquisition Date		Rental Revenue		Earnings ⁽¹⁾
Allen, TX		3/27/2014	$	8	$	5
Colleyville, TX		3/27/2014		6		4

			$	14	$	9

⁽¹⁾	Earnings is calculated as net income exclusive of both 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 one property acquired during the three months ended March 31, 2013 (dollars in thousands):


			For the three months ended March 31, 2013
Location	Acquisition Date		Rental Revenue		Earnings ⁽¹⁾
Egg Harbor Township, NJ		3/28/2013	$	5	$	3

			$	5	$	3

⁽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 following table reflects pro-forma consolidated statements of operations as if the two properties acquired during the three months ended March 31, 2014 were acquired as of the beginning of the previous period. The pro-forma earnings for the three months ended March 31, 2014 and 2013 were adjusted to assume that acquisition-related costs were incurred as of the beginning of the previous period (dollars in thousands, except per share amounts):


	For the three months ended March 31,
	2014			2013
	(unaudited)
Operating Data:
Total operating revenue	$	17,436		$	17,297
Total operating expenses		(23,831	)⁽¹⁾		(9,586	)
Other expenses		(7,000	)		(7,327	)

Net (loss) income		(13,395	)		384
Dividends attributable to preferred and senior common stock		(1,123	)		(1,076	)

Net loss attributable to common stockholders	$	(14,518	)	$	(692	)

Share and Per Share Data:
Basic & diluted loss per share of common stock	$	(0.92	)	$	(0.06	)
Weighted average shares outstanding-basic & diluted		15,746,714			11,230,647

⁽¹⁾	$14.0 million relates to the impairment charge recorded in operating expenses during the three months ended March 31, 2014.

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 2014 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Tenant Lease Payments⁽¹⁾
Nine Months ending December 31, 2014	$	46,572
2015		59,564
2016		55,853
2017		55,356
2018		53,551
2019		53,776
Thereafter		240,010

(1)	Does not include real estate held for sale as of March 31, 2014.

Carrying 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 (dollars in thousands):


	March 31, 2014					December 31, 2013
	Lease Intangibles ⁽¹⁾		Accumulated Amortization ⁽¹⁾			Lease Intangibles		Accumulated Amortization
In-place leases	$	48,526	$	(16,352	)	$	47,442	$	(15,158	)
Leasing costs		31,864		(10,460	)		31,339		(9,323	)
Customer relationships		36,138		(11,432	)		35,739		(10,407	)

	$	116,528	$	(38,244	)	$	114,520	$	(34,888	)

(1)	Does not include real estate held for sale as of March 31, 2014.

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 three months ended March 31, 2014 and 2013, respectively, were as follows


Intangible Assets & Liabilities	2014		2013
In-place leases		11.9		10.2
Leasing costs		11.9		10.2
Customer relationships		16.9		15.2
Below market leases		11.9		—

All intangible assets & liabilities		13.3		11.9

Estimated Aggregate Amortization Expense

The estimated aggregate amortization expense for the remainder of 2014 and for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Estimated Amortization Expense
Nine Months ending December 31, 2014	$	7,880
2015		9,892
2016		8,995
2017		8,811
2018		8,523
2019		8,515
Thereafter		25,668