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, 2014

Property Plant And Equipment [Abstract]

The following table sets forth the components of our investments in real estate as of June 30, 2014 and December 31, 2013 (dollars in thousands):


	June 30, 2014			December 31, 2013
Real estate:
Land	$	83,352		$	79,153
Building and improvements		561,138			527,230
Tenant improvements		39,511			35,970
Accumulated depreciation		(88,520	)		(81,241	)

Real estate, net	$	595,481		$	561,112

Summary of Properties Acquired

2014 Real Estate Activity

During the six months ended June 30, 2014, we acquired six properties, which are summarized in the table below (dollars in thousands):


Location	Acquisition Date		Square Footage		Lease Term	Renewal Options	Total Purchase Price		Acquisition Expenses		Annualized Straight Line Rent		Debt Issued & Assumed

Allen, TX		3/27/2014		21,154	12 Years	4 (5 years each)	$	5,525	$	29	$	570	$	3,481
Colleyville, TX		3/27/2014		20,355	12 Years	4 (5 years each)		4,523		29		467		2,849
Rancho Cordova, CA		4/22/2014		61,358	10 Years	1 (5 year)		8,225		65		902		4,935
Coppell, TX		5/8/2014		21,171	12 Years	4 (5 years each)		5,838		22		601		3,816
Columbus, OH		5/13/2014		114,786	9.5 Years	N/A		11,800		65		1,278		N/A
Taylor, PA		6/9/2014		955,935	10 Years	4 (5 years each)		39,000		714		3,400		22,600

Total				1,194,759			$	74,911	$	924	$	7,218	$	37,681

2013 Real Estate Activity

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.

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 six properties acquired during the six months ended June 30, 2014 as follows (in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			Premium 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
Rancho Cordova, CA		752		5,898		278		473		546		278		—		—			—			8,225
Coppell, TX		1,448		3,221		128		636		293		230		—		—			(118	)		5,838
Columbus, OH		990		6,080		1,937		823		719		990		261		—			—			11,800
Taylor, PA		3,102		24,449		956		6,171		1,452		2,870		—		—			—			39,000

	$	8,443	$	45,464	$	3,541	$	9,187	$	3,503	$	4,767	$	261	$	(6	)	$	(249	)	$	74,911

In accordance with ASC 805, we determined the fair value of 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
Vance, 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

Schedule of Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the six properties acquired during the three and six months ended June 30, 2014 (dollars in thousands):


			For the three months ended June 30,				For the six months ended June 30,
			2014				2014
Location	Acquisition Date		Rental Revenue		Earnings ⁽¹⁾		Rental Revenue		Earnings ⁽¹⁾

Allen, TX		3/27/2014	$	142	$	81	$	150	$	86
Colleyville, TX		3/27/2014		117		67		123		71
Rancho Cordova, CA		4/22/2014		173		65		173		65
Coppell, TX		5/8/2014		89		52		89		52
Columbus, OH		5/13/2014		167		68		167		68
Taylor, PA		6/9/2014		208		98		208		98


			$	896	$	431	$	910	$	440

⁽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 three properties acquired during the six months ended June 30, 2013 (dollars in thousands):


Location	Acquisition Date		For the three months ended June 30, 2013				For the six months ended June 30, 2013
Location	Acquisition 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.

Pro-Forma Condensed Consolidated Statements of Operations

The following table reflects pro-forma consolidated statements of operations as if the six properties acquired during the three and six months ended June 30, 2014 were acquired as of the beginning of the previous period. The pro-forma earnings for the three and six months ended June 30, 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 June 30,						For the six months ended June 30,
	2014			2013			2014			2013
	(unaudited)						(unaudited)

Operating Data:
Total operating revenue	$	19,339		$	18,822		$	38,316		$	37,628
Total operating expenses		(10,986	)		(11,090	)		(35,799	)⁽¹⁾		(21,608	)
Other expenses		(6,202	)		(7,566	)		(13,655	)		(15,355	)

Net income (loss)		2,151			166			(11,138	)		665
Dividends attributable to preferred and senior common stock		(1,133	)		(1,092	)		(2,257	)		(2,169	)

Net income (loss) available (attributable) to common stockholders	$	1,018		$	(926	)	$	(13,395	)	$	(1,504	)


Share and Per Share Data:
Basic and diluted earnings (loss) per share of common stock	$	0.06		$	(0.07	)	$	(0.83	)	$	(0.13	)
Weighted average shares outstanding-basic		16,547,793			12,380,402			16,149,467			11,808,701
Weighted average shares outstanding-diluted		16,894,973			12,380,402			16,149,467			11,808,701

⁽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
Six Months ending December 31, 2014	$	34,255
2015		65,830
2016		63,228
2017		62,763
2018		61,125
2019		61,469
Thereafter		274,216

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):


	June 30, 2014					December 31, 2013
	Lease Intangibles		Accumulated Amortization			Lease Intangibles		Accumulated Amortization

In-place leases	$	56,521	$	(17,205	)	$	47,442	$	(15,158	)
Leasing costs		35,251		(10,680	)		31,339		(9,323	)
Customer relationships		39,896		(11,654	)		35,739		(10,407	)

	$	131,668	$	(39,539	)	$	114,520	$	(34,888	)

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, 2014 and 2013, respectively, were as follows


Intangible Assets & Liabilities	2014		2013
In-place leases		10.7		9.3
Leasing costs		10.7		9.3
Customer relationships		15.6		14.2
Above market leases		8.2		—
Below market leases		11.9		—

All intangible assets & liabilities		12.2		10.9

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
Six Months ending December 31, 2014	$	5,834
2015		11,395
2016		10,732
2017		10,539
2018		10,251
2019		10,243
Thereafter		33,135