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, 2013

Property Plant And Equipment [Abstract]

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


	December 31, 2013			December 31, 2012
Real estate:
Land	$	79,153		$	69,126
Building and improvements		527,230			442,451
Tenant improvements		35,970			22,176
Accumulated depreciation		(81,241	)		(65,730	)

Real estate, net	$	561,112		$	468,023

Summary of Properties Acquired

2013 Real Estate Activity

During the year ended December 31, 2013, we acquired seven 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		5/9/2013		170,000	10 years		2 (5 years)		13,388		186		1,173		—

Blaine, MN		5/10/2013		92,275	7 years		2 (5 years)		14,450		79		1,475		8,200

Austin, TX		7/9/2013		320,000	7 years		3 (3 years)		57,000		155		4,641		35,300

Allen, TX		7/10/2013		115,200	9 years		2 (5 years)		15,150		81		1,478		8,900

Englewood, CO		12/11/2013		99,797	8 years		2 (5 years)		18,250		66		1,497		11,315

Novi, MI		12/27/2013		156,200	10 years		1 (5 years)		7,300		42		684		4,380


Total				1,085,129				$	134,438	$	761	$	12,399	$	71,795

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

During the year ended December 31, 2012, we acquired eight 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 / Assumed

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		49		684		5,000
New Albany, OH		6/5/2012		89,000	10.5 years		2 (5 years each)		13,333		196		1,361		N/A
Columbus, GA		6/21/2012		32,000	11.5 years		2 (5 years each)		7,320		71		656		4,750
Columbus, OH		6/28/2012		31,293	10 years		N/A		4,037		66		342		N/A
Jupiter, FL		9/26/2012		60,000	10.5 years		2 (5 years each)		15,500		61		1,372		10,758	⁽¹⁾
Fort Worth, TX		11/8/2012		208,234	14 years		N/A		19,950		128		1,628		14,168	⁽¹⁾
Columbia, SC		11/21/2012		146,483	10 years		3 (5 years each)		29,150		105		2,614		19,000


Total				972,000				$	107,165	$	778	$	9,646	$	53,676

⁽¹⁾	Debt assumed as part of acquisition.

Fair Value of Acquired Assets and Assumed Liabilities

In accordance with ASC 805, we determined the fair value of the acquired assets and assumed liabilities related to the seven properties acquired during the year ended December 31, 2013 as follows (dollars in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			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
Austin, TX		2,330		37,207		6,814		6,118		1,906		3,793		—		(1,168	)		57,000
Allen, TX		2,699		5,758		2,187		1,525		1,146		1,499		336		—			15,150
Englewood, CO		1,503		9,889		1,850		2,036		1,178		1,850		—		(56	)		18,250
Novi, MI		352		5,354		272		663		434		225		—		—			7,300

	$	10,028	$	80,011	$	13,385	$	13,358	$	6,225	$	9,069	$	336	$	(1,224	)	$	131,188

In accordance with ASC 805, we determined the fair value of acquired assets related to the eight properties acquired during the year ended December 31, 2012 as follows (dollars in thousands):


	Land		Building		Tenant Improvements		In-place Leases		Leasing Costs		Customer Relationships		Above Market Leases		Below Market Leases			Discount/ (Premium) on Assumed Debt			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
Jupiter, FL		1,160		11,249		745		1,603		701		909		—		—			(867	)		15,500
Fort Worth, TX		963		15,507		140		1,579		2,107		517		—		—			(863	)		19,950
Columbia, SC		1,905		17,765		2,883		2,454		1,490		1,919		734		—			—			29,150

	$	8,524	$	69,076	$	7,862	$	9,467	$	7,233	$	5,946	$	894	$	(107	)	$	(1,730	)	$	107,165

Schedule of Revenue and Earnings Recognized on Properties Acquired

Below is a summary of the total revenue and earnings recognized on the seven properties acquired during the year ended December 31, 2013 (dollars in thousands):


			For the year ended December 31,
			2013
Location	Acquisition Date		Rental Revenue		Earnings ⁽¹⁾

Egg Harbor Township, NJ		3/28/2013	$	373	$	209
Vance, AL		5/9/2013		757		363
Blaine, MN		5/10/2013		947		424
Austin, TX		7/9/2013		2,299		655
Allen, TX		7/10/2013		685		300
Englewood, CO		12/11/2013		85		25
Novi, MI		12/27/2013		9		5


			$	5,155	$	1,981

⁽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 eight properties acquired during the year ended December 31, 2012 (dollars in thousands):


			For the Year Ended December 31,
			2012
Location	Acquisition Date		Rental Revenue		Earnings ⁽¹⁾

Ashburn, VA		1/25/2012	$	925	$	555
Ottumwa, IA		5/30/2012		408		200
New Albany, OH		6/5/2012		776		445
Columbus, GA		6/21/2012		346		186
Columbus, OH		6/28/2012		168		65
Jupiter, FL		9/26/2012		362		191
Fort Worth, TX		11/8/2012		240		118
Columbia, SC		11/21/2012		282		123


			$	3,507	$	1,883

Pro-forma Condensed Consolidated Statements of Operations

The following table reflects pro-forma consolidated statements of operations as if the properties were acquired as of the beginning of the previous period. The pro-forma earnings for the years ended December 31, 2013, 2012 and 2011 were adjusted assume that acquisition-related costs were incurred as of the beginning of the previous period (dollars in thousands, except per share data):


	For the year ended December 31,
	2013			2012			2011
	(unaudited)

Operating Data:
Total operating revenue	$	67,818		$	68,940		$	56,954
Total operating expenses		(36,979	)		(37,457	)		(29,013	)
Other expenses		(29,283	)		(28,754	)		(21,797	)

Net income		1,556			2,729			6,144
Dividends attributable to preferred and senior common stock		(4,394	)		(4,206	)		(4,156	)

Net (loss) income available to common stockholders	$	(2,838	)	$	(1,477	)		1,988


Share and Per Share Data:
Basic (loss) earnings per share of common stock	$	(0.22	)	$	(0.13	)	$	0.19
Diluted (loss) earnings per share of common stock	$	(0.22	)	$	(0.13	)	$	0.19
Weighted average shares outstanding-basic		13,164,244			10,953,325			10,236,859
Weighted average shares outstanding-diluted		13,164,244			10,953,325			10,288,711

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
2014	$	62,160
2015		59,885
2016		56,004
2017		54,332
2018		52,527
Thereafter		286,016

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 (in thousands):


	December 31, 2013					December 31, 2012
	Lease Intangibles		Accumulated Amortization			Lease Intangibles		Accumulated Amortization

In-place leases	$	47,442	$	(15,158	)	$	34,085	$	(12,125	)
Leasing costs		31,339		(9,323	)		24,071		(7,103	)
Customer relationships		35,739		(10,407	)		26,671		(8,345	)

	$	114,520	$	(34,888	)	$	84,827	$	(27,573	)

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, 2013 and 2012, respectively, were as follows:


Intangible Assets & Liabilities	2013		2012
In-place leases		8.9		11.2
Leasing costs		8.9		11.2
Customer relationships		13.7		14.6
Above market leases		8.8		10.1
Below market leases		7.5		11.3

All intangible assets & liabilities		10.0		12.1

Estimated Aggregate Amortization Expense

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


Year	Estimated Amortization Expense
2014	$	10,490
2015		9,903
2016		9,075
2017		8,898
2018		8,330
Thereafter		32,936