Gladstone Commercial Announces First Quarter 2007 Results

Gladstone Commercial Corp. (NASDAQ:GOOD) (the "Company”) today reported financial results for the quarter ended March 31, 2007. A description of FFO, a relative non–GAAP ("Generally Accepted Accounting Principles in the United States”) financial measure, is located at the end of this news release. All per share references are fully diluted weighted average common shares, unless otherwise noted. Net income available to common stockholders for the quarter ended March 31, 2007 was $506,905, or $0.06 per share, compared to $502,356, or $0.06 per share, for the same period one year ago. Net income results when compared to the same period last year were affected by increased revenues related to the acquisition of 11 properties since March 31, 2006, partially offset by increased expenses attributable to the 11 properties, interest expense associated with the leveraging of the Company’s properties and dividends paid on the Company’s preferred stock. Net income results for the quarter ended March 31, 2007 include a full waiver of the incentive fee, approximately $586,000, from the Company’s Adviser, Gladstone Management Corporation. FFO for the quarter ended March 31, 2007 was $2,924,717, or $0.34 per share, compared to $2,337,096, or $0.30 per share, for the same period one year ago. A reconciliation of net income, which the Company believes is the most directly comparable GAAP measure to FFO, is set forth below: For the threemonths endedMarch 31, 2007   For the threemonths endedMarch 31, 2006   Net income $ 1,530,342  $ 846,800  Less: Dividends attributable to preferred stock (1,023,437) (344,444) Net income available to common stockholders $ 506,905  $ 502,356    Add: Real estate depreciation and amortization, including discontinued operations 2,417,812  1,834,740  FFO available to common stockholders $ 2,924,717  $ 2,337,096      Weighted average shares outstanding - basic 8,565,264  7,672,000  Weighted average shares outstanding - diluted 8,565,264  7,821,658    Basic net income per weighted average common share $ 0.06  $ 0.07  Diluted net income per weighted average common share $ 0.06  $ 0.06  Basic FFO per weighted average common share $ 0.34  $ 0.30  Diluted FFO per weighted average common share $ 0.34  $ 0.30  First quarter highlights: Purchased three properties and one leasehold interest with an aggregate of approximately 546,000 square feet for an aggregate purchase price of approximately $41.8 million; Borrowed $13.8 million pursuant to a long-term note payable collateralized by security interests in 3 properties, which accrues interest at a rate of 6.0% per year; Implemented the amended advisory agreement with its Adviser and an administration agreement with its Administrator, Gladstone Administration; and Declared monthly cash dividends of $0.12 per share on the common stock, $0.1614583 per share on the Series A Preferred Stock, and $0.15625 per share on the Series B Preferred Stock, for each of the months of January, February and March 2007. "Our first quarter results were positively impacted by the four acquisitions completed during the quarter. With the termination of our stock option plan, the implementation of our amended advisory agreement, and the number of acquisitions we currently have in our pipeline, we believe that our earnings in 2007 can grow significantly,” said Chip Stelljes, Executive Vice President and Chief Investment Officer. Subsequent to quarter end, the Company: Declared monthly cash dividends of $0.12 per share on the common stock, $0.1614583 per share on the Series A Preferred Stock, and $0.15625 per share on the Series B Preferred Stock, for each of the months of April, May and June 2007. The financial statements attached below are without footnotes so readers should obtain and carefully review the Company’s Form 10-Q for the quarter ended March 31, 2007, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-Q today with the Securities and Exchange Commission ("SEC”) and the Form 10-Q can be retrieved from the SEC’s website at www.sec.gov or the Company’s website at www.GladstoneCommercial.com. The Company will hold a conference call Wednesday, May 2, 2007 at 8:30 a.m. ET to discuss its earnings results. Please call (877) 407-8031 to enter the conference. An operator will monitor the call and set a queue for the questions. The conference call replay will be available two hours after the call and will be available through June 2, 2007. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 239213. Gladstone Commercial Corporation is a publicly traded real estate investment trust that focuses on investing in and owning triple-net leased industrial, commercial and retail real estate properties and selectively making long-term mortgage loans. Additional information can be found at www.GladstoneCommercial.com. For further information, contact Robert Johnson at 703-287-5835. NON-GAAP FINANCIAL MEASURES Funds from Operations The National Association of Real Estate Investment Trusts ("NAREIT”) developed FFO, as a relative non-GAAP supplemental measure of operating performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO, as defined by NAREIT, is net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash flows from operating activities determined in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income), and should not be considered an alternative to net income as an indication of the Company’s performance or to cash flow from operations as a measure of liquidity or ability to make distributions. The Company believes that FFO per share provides investors with a further context for evaluating the Company’s financial performance and as a supplemental measure to compare the Company to other REITs; however, comparisons of the Company’s FFO to the FFO of other REITs may not necessarily be meaningful due to potential differences in the application of the NAREIT definition used by such other REITs. To learn more about FFO please refer to the Form 10-Q for the quarter ended March 31, 2007, as filed with the SEC today. This press release may include statements that may constitute "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements with regard to the future performance of the Company and the closing of any transaction. Words such as "may,” "will,” "believes,” "anticipates,” "intends,” "expects,” "projects,” "estimates” and "future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company’s current plans, expectations and beliefs that are believed to be reasonable as of the date of this press release. Factors that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements include, among others, those factors listed under the caption "Risk Factors" of the Company’s Annual Report on Form 10-K for the year ended, December 31, 2006, as filed with the SEC on February 27, 2007, and the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, as filed today. The risk factors set forth in the Form 10-K and Form 10-Q under the caption "Risk Factors” are specifically incorporated by reference into this press release. All forward-looking statements are based on current plans, expectations and beliefs and speak only as of the date of such statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Gladstone Commercial Corporation Consolidated Balance Sheets (Unaudited)   March 31, 2007 December 31, 2006   ASSETS Real estate, net of accumulated depreciation of $10,189,209 and $8,595,419, respectively $ 272,001,341  $ 235,118,123  Lease intangibles, net of accumulated amortization of $4,999,702 and $4,175,685, respectively 25,958,470  23,416,696  Mortgage notes receivable 10,000,000  10,000,000  Cash and cash equivalents 7,086,594  36,005,686  Restricted cash 1,354,961  1,225,162  Funds held in escrow 1,633,184  1,635,819  Interest receivable – mortgage note 86,111  -  Interest receivable – employees 60,422  43,716  Deferred rent receivable 3,914,132  3,607,279  Deferred financing costs, net of accumulated amortization of $1,631,759 and $1,467,297, respectively 3,927,288  3,713,004  Prepaid expenses 337,777  521,290  Deposits on real estate 450,000  300,000  Accounts receivable 379,055  179,247    TOTAL ASSETS $ 327,189,335  $ 315,766,022    LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES Mortgage notes payable $ 168,074,478  $ 154,494,438  Deferred rent liability 4,522,208  4,718,599  Asset retirement obligation liability 1,723,437  1,631,294  Accounts payable and accrued expenses 457,332  673,410  Due to adviser 689,062  183,042  Rent received in advance, security deposits and funds held in escrow 2,050,220  1,841,063    Total Liabilities 177,516,737  163,541,846    STOCKHOLDERS’ EQUITY Redeemable preferred stock, $0.001 par value; $25 liquidation preference; 2,300,000 shares authorized and 2,150,000 shares issued and outstanding, respectively 2,150  2,150  Common stock, $0.001 par value, 17,700,000 shares authorized and 8,565,264 shares issued and outstanding, respectively 8,565  8,565  Additional paid in capital 170,640,979  170,640,979  Notes receivable - employees (3,176,310) (3,201,322) Distributions in excess of accumulated earnings (17,802,786) (15,226,196)   Total Stockholders’ Equity 149,672,598  152,224,176    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 327,189,335  $ 315,766,022  Gladstone Commercial Corporation Consolidated Statements of Operations (Unaudited)   For the three months ended March 31, 2007  2006  Operating revenues Rental income $ 7,078,036  $ 4,867,075  Interest income from mortgage notes receivable 250,000  552,913  Tenant recovery revenue 55,735  5,623  Total operating revenues 7,383,771  5,425,611    Operating expenses Depreciation and amortization 2,417,812  1,799,201  Base management fee 482,044  652,742  Administration fee 207,018  -  Incentive fee 585,768  -  Professional fees 149,431  198,459  Taxes and licenses 15,007  50,894  Insurance 146,252  82,998  General and administrative 111,902  47,817  Directors fees 54,250  33,500  Stockholder related expenses 99,617  64,469  Asset retirement obligation expense 28,160  46,702  Stock option compensation expense -  46,216  Total operating expenses before credit from Adviser 4,297,261  3,022,998    Credit to incentive fee (585,768) -  Total expenses net of credit to incentive fee 3,711,493  3,022,998    Other income (expense) Interest income from temporary investments 229,016  7,373  Interest income - employee loans 60,422  5,548  Other income 8,414  -  Interest expense (2,514,461) (1,618,571) Total other expense (2,216,609) (1,605,650)   Income from continuing operations 1,455,669  796,963    Discontinued operations (Loss) income from discontinued operations (4,001) 38,038  Net realized income (loss) from foreign currency transactions 7  (816) Net unrealized gain from foreign currency transactions -  12,615  Taxes on sale of real estate 78,667  -  Total discontinued operations 74,673  49,837    Net income 1,530,342  846,800    Dividends attributable to preferred stock (1,023,437) (344,444)   Net income available to common stockholders $ 506,905  $ 502,356    Earnings per weighted average common share - basic Income from continuing operations (net of dividends attributable to preferred stock) $ 0.05  $ 0.06  Discontinued operations 0.01  0.01    Net income available to common stockholders $ 0.06  $ 0.07    Earnings per weighted average common share - diluted Income from continuing operations (net of dividends attributable to preferred stock) $ 0.05  $ 0.06  Discontinued operations 0.01  0.00    Net income available to common stockholders $ 0.06  $ 0.06    Weighted average shares outstanding Basic 8,565,264  7,672,000  Diluted 8,565,264  7,821,658  Gladstone Commercial Corporation Consolidated Statements of Cash Flows (Unaudited)   For the three months ended March 31, 2007  2006    Cash flows from operating activities: Net income $ 1,530,342  $ 846,800  Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including discontinued operations 2,417,812  1,834,740  Amortization of deferred financing costs, including discontinued operations 164,462  121,871  Amortization of deferred rent asset 63,374  63,374  Amortization of deferred rent liability (196,391) (80,290) Asset retirement obligation expense, including discontinued operations 28,160  55,143  Increase in deferred rent receivable (370,227) (224,386) Stock compensation -  46,216  Increase in mortgage notes payable due to change in value of foreign currency -  (12,615) (Increase) decrease in mortgage interest receivable (86,111) 163  Increase in employee interest receivable (16,706) (5,548) Increase in prepaid expenses and other assets (16,295) (126,847) Increase in accounts payable, accrued expenses, and amount due adviser 289,942  282,551  Increase in rent received in advance 79,357  204,757  Net cash provided by operating activities 3,887,719  3,005,929    Cash flows from investing activities: Real estate investments (41,778,821) (18,302,939) Principal repayments on mortgage notes receivable -  25,360  Net payments to lenders for reserves held in escrow (214,107) (1,251,385) (Increase) decrease in restricted cash (129,799) 38,695  Deposits on future acquisitions (610,000) (350,000) Deposits applied against real estate investments 460,000  750,000  Net cash used in investing activities (42,272,727) (19,090,269)   Cash flows from financing activities: Proceeds from share issuance -  25,000,000  Offering costs -  (1,302,006) Borrowings under mortgage notes payable 13,775,000  17,000,000  Principal repayments on mortgage notes payable (194,961) (117,486) Borrowings from line of credit -  35,200,000  Repayments on line of credit -  (56,500,000) Increase in reserves from tenants 346,542  523,636  Principal repayments on employee loans 25,012  -  Payments for deferred financing costs (378,745) (1,073,561) Dividends paid for common and preferred (4,106,932) (3,106,364) Net cash provided by financing activities 9,465,916  15,624,219    Net decrease in cash and cash equivalents (28,919,092) (460,121)   Cash and cash equivalents, beginning of period 36,005,686  1,740,159      Cash and cash equivalents, end of period $ 7,086,594  $ 1,280,038    NON-CASH INVESTING ACTIVITIES   Increase in asset retirement obligation $ 92,143  $ 1,373,820    NON-CASH FINANCING ACTIVITIES   Fixed rate debt assumed in connection with acquisitions $ -  $ 30,129,654