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

Real Estate and Intangible Assets

3 Months Ended

Mar. 31, 2024

Real Estate

The following table sets forth the components of our investments in real estate as of March 31, 2024 and December 31, 2023, respectively, excluding real estate held for sale as of March 31, 2024 and December 31, 2023 (dollars in thousands):


	March 31, 2024		December 31, 2023
Real estate:
Land (1)	$	140,873	$	143,442
Building and improvements	1,013,348		1,020,661
Tenant improvements	55,711		57,261
Accumulated depreciation	(304,000)		(299,662)
Real estate, net	$	905,932	$	921,702

(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.

Real estate depreciation expense on building and tenant improvements was $9.8 million for the three months ended March 31, 2024. Real estate depreciation expense on building and tenant improvements was $10.6 million for the three months ended March 31, 2023.

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the nine months ending December 31, 2024 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Tenant Lease Payments
Nine Months Ending December 31, 2024	$	85,646
2025	112,521
2026	106,922
2027	91,632
2028	78,866
2029	70,194
Thereafter	330,221

In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant directly, or reimbursed to us from the tenant; however, we would be required to pay operating expenses on the respective properties in the event the tenants fail to pay them.

Lease Revenue Reconciliation

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the three months ended March 31, 2024 and 2023, respectively (dollars in thousands):


	For the three months ended March 31,
Lease revenue reconciliation	2024		2023		$ Change		% Change
Fixed lease payments	$	31,789	$	32,141	$	(352)	(1.1)	%
Variable lease payments	3,932		4,413		(481)		(10.9)	%
	$	35,721	$	36,554	$	(833)	(2.3)	%

Intangible Assets

The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of March 31, 2024 and December 31, 2023, respectively, excluding real estate held for sale as of March 31, 2024 and December 31, 2023 (dollars in thousands):


	March 31, 2024				December 31, 2023
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	95,661	$	(61,765)	$	98,615	$	(63,269)
Leasing costs	83,850		(46,253)		84,844		(46,096)
Customer relationships	61,274		(35,104)		63,185		(36,231)
	$	240,785	$	(143,122)	$	246,644	$	(145,596)

	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	12,747	$	(10,235)	$	13,431	$	(10,675)
Below market leases and deferred revenue	(59,326)		31,775		(59,411)		30,087

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $3.5 million for the three months ended March 31, 2024, and $4.1 million for the three months ended March 31, 2023, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income.

Total amortization related to above-market lease values was $0.1 million for the three months ended March 31, 2024 and $0.2 million for the three months ended March 31, 2023, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $1.7 million for the three months ended March 31, 2024 and $1.9 million for the three months ended March 31, 2023, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income.