Gladstone Commercial Announces Second Quarter 2007 Results

Gladstone Commercial Corp. (NASDAQ:GOOD) (the "Company”) today reported financial results for the quarter ended June 30, 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 June 30, 2007 was $532,875, or $0.06 per share, compared to $368,390, or $0.04 per share, for the same period one year ago, an increase of 45%. Net income available to common stockholders for the six months ended June 30, 2007 was $1,039,780, or $0.12 per share, compared to $870,746, or $0.11 per share, for the same period one year ago, an increase of 19%. Net income results when compared to the same period last year were affected by increased revenues related to the acquisition of 10 properties since June 30, 2006, partially offset by increased expenses attributable to the 10 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 three and six months ended June 30, 2007 include a full waiver of the incentive fee, approximately $1.2 million for the six month period, from the Company’s Adviser, Gladstone Management Corporation. FFO for the quarter ended June 30, 2007 was approximately $3.2 million, or $0.37 per share, compared to approximately $2.4 million, or $0.31 per share, for the same period one year ago, an increase of 29%. FFO for the six months ended June 30, 2007 was approximately $6.1 million, or $0.71 per share, compared to approximately $4.8 million, or $0.61 per share, for the same period one year ago, an increase of 27%. A reconciliation of net income, which the Company believes is the most directly comparable GAAP measure to FFO, is set forth below:   For the three months ended June 30, For the six months ended June 30, 2007 2006 2007 2006   Net income $ 1,556,312 $ 852,765 $ 3,086,654 $ 1,699,565 Less: Dividends attributable to preferred stock (1,023,437 ) (484,375 ) (2,046,874 ) (828,819 ) Net income available to common stockholders $ 532,875 $ 368,390 $ 1,039,780 $ 870,746   Add: Real estate depreciation and amortization, including discontinued operations 2,636,154   2,081,072   5,053,966   3,915,819   FFO available to common stockholders $ 3,169,029 $ 2,449,462 $ 6,093,746 $ 4,786,565     Weighted average shares outstanding - basic 8,565,264 7,762,503 8,565,264 7,717,501 Weighted average shares outstanding - diluted 8,565,264 7,911,871 8,565,264 7,858,146   Basic net income per weighted average common share $ 0.06   $ 0.05   $ 0.12   $ 0.11   Diluted net income per weighted average common share $ 0.06   $ 0.04   $ 0.12   $ 0.11   Basic FFO per weighted average common share $ 0.37   $ 0.32   $ 0.71   $ 0.62   Diluted FFO per weighted average common share $ 0.37   $ 0.31   $ 0.71   $ 0.61   Second quarter highlights: Purchased one property with approximately 102,000 square feet for approximately $11.2 million; and Borrowed approximately $14.2 million pursuant to a long-term note payable collateralized by security interests in three properties, which accrues interest at a rate of 6.11% per year. "Our results were positively impacted by the five acquisitions completed in 2007, and we expect our earnings to continue grow throughout the remainder of 2007. We are excited about the opportunities that are currently available in the marketplace and our pipeline remains very strong,” said Chip Stelljes, President and Chief Investment Officer. Subsequent to quarter end, the Company: Purchased one property with approximately 21,000 square feet for approximately $6.8 million; 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 July, August and September 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 June 30, 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, August 1, 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 September 1, 2007. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 249134. 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 Investor Relations 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 June 30, 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 on May 1, 2007. 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)   June 30, 2007 December 31, 2006   ASSETS Real estate, net of accumulated depreciation of $11,947,461 and $8,595,419, respectively $ 280,541,611 $ 235,118,123 Lease intangibles, net of accumulated amortization of $5,877,604 and $4,175,685, respectively 26,038,291 23,416,696 Mortgage notes receivable 10,000,000 10,000,000 Cash and cash equivalents 9,681,885 36,005,686 Restricted cash 1,469,750 1,225,162 Funds held in escrow 1,789,814 1,635,819 Interest receivable – mortgage note 83,333 - Interest receivable – employees 52,735 43,716 Deferred rent receivable 4,277,061 3,607,279 Deferred financing costs, net of accumulated amortization of $1,800,471 and $1,467,297, respectively 4,067,858 3,713,004 Prepaid expenses 456,354 521,290 Deposits on real estate 300,000 300,000 Accounts receivable 387,747   179,247     TOTAL ASSETS $ 339,146,439   $ 315,766,022     LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES Mortgage notes payable $ 182,124,367 $ 154,494,438 Deferred rent liability 4,325,817 4,718,599 Asset retirement obligation liability 1,752,378 1,631,294 Accounts payable and accrued expenses 588,581 673,410 Due to adviser 682,481 183,042 Rent received in advance, security deposits and funds held in escrow 2,175,708   1,841,063     Total Liabilities 191,649,332   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 2,150 2,150 Common stock, $0.001 par value, 17,700,000 shares authorized and 8,565,264 shares issued and outstanding 8,565 8,565 Additional paid in capital 170,640,979 170,640,979 Notes receivable - employees (2,801,180 ) (3,201,322 ) Distributions in excess of accumulated earnings (20,353,407 ) (15,226,196 )   Total Stockholders’ Equity 147,497,107   152,224,176     TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 339,146,439   $ 315,766,022   Gladstone Commercial Corporation Consolidated Statements of Operations (Unaudited)   For the three monthsended June 30, For the six monthsended June 30, 2007 2006 2007 2006 Operating revenues Rental income $ 7,732,322 $ 6,027,830 $ 14,810,358 $ 10,894,906 Interest income from mortgage notes receivable 252,778 558,434 502,778 1,111,346 Tenant recovery revenue 94,468   43,798   150,203   49,420   Total operating revenues 8,079,568   6,630,062   15,463,339   12,055,672     Operating expenses Depreciation and amortization 2,636,154 2,064,312 5,053,966 3,863,519 Base management fee 471,091 719,392 953,135 1,372,134 Administration fee 210,126 - 417,144 - Incentive fee 633,805 - 1,219,573 - Professional fees 174,677 232,960 324,108 431,418 Taxes and licenses 50,178 39,069 65,185 89,963 Insurance 114,556 102,845 260,808 185,842 General and administrative 133,406 95,602 245,308 143,420 Directors fees 54,250 27,500 108,500 61,000 Stockholder related expenses 75,361 183,596 174,978 248,065 Asset retirement obligation expense 28,942 24,940 57,102 71,641 Stock option compensation expense -   33,602   -   79,818   Total operating expenses before credit from Adviser 4,582,546   3,523,818   8,879,807   6,546,820     Credit to incentive fee (633,805 ) -   (1,219,573 ) -   Total operating expenses 3,948,741   3,523,818   7,660,234   6,546,820     Other income (expense) Interest income from temporary investments 63,269 4,057 292,285 11,431 Interest income - employee loans 56,458 28,589 116,880 34,137 Other income 9,817 10,400 18,231 10,400 Interest expense (2,702,612 ) (2,155,968 ) (5,217,073 ) (3,774,536 ) Total other expense (2,573,068 ) (2,112,922 ) (4,789,677 ) (3,718,568 )   Income from continuing operations 1,557,759   993,322   3,013,428   1,790,284     Discontinued operations (Loss) income from discontinued operations (1,503 ) 71,215 (5,504 ) 109,253 Net realized income (loss) from foreign currency transactions 56 167 63 (649 ) Net unrealized loss from foreign currency transactions - (211,939 ) - (199,323 ) Taxes paid on sale of real estate -   -   78,667   -   Total discontinued operations (1,447 ) (140,557 ) 73,226   (90,719 )   Net income 1,556,312   852,765   3,086,654   1,699,565     Dividends attributable to preferred stock (1,023,437 ) (484,375 ) (2,046,874 ) (828,819 )   Net income available to common stockholders $ 532,875   $ 368,390   $ 1,039,780   $ 870,746     Earnings per weighted average common share - basic Income from continuing operations (net of dividends attributable to preferred stock) $ 0.06 $ 0.07 $ 0.11 $ 0.12 Discontinued operations -   (0.02 ) 0.01   (0.01 )   Net income available to common stockholders $ 0.06   $ 0.05   $ 0.12   $ 0.11     Earnings per weighted average common share - diluted Income from continuing operations (net of dividends attributable to preferred stock) $ 0.06 $ 0.06 $ 0.11 $ 0.12 Discontinued operations -   (0.02 ) 0.01   (0.01 )   Net income available to common stockholders $ 0.06   $ 0.04   $ 0.12   $ 0.11     Weighted average shares outstanding Basic 8,565,264   7,762,503   8,565,264   7,717,501   Diluted 8,565,264   7,911,871   8,565,264   7,858,146   Gladstone Commercial Corporation Consolidated Statements of Cash Flows (Unaudited)   For the six months ended June 30, 2007 2006   Cash flows from operating activities: Net income $ 3,086,654 $ 1,699,565 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including discontinued operations 5,053,966 3,915,819 Amortization of deferred financing costs, including discontinued operations 333,174 289,300 Amortization of deferred rent asset 126,748 126,748 Amortization of deferred rent liability (392,782 ) (303,478 ) Asset retirement obligation expense, including discontinued operations 57,102 81,573 Increase in deferred rent receivable (796,530 ) (720,712 ) Stock compensation - 79,818 Increase in mortgage notes payable due to change in value of foreign currency - 199,323 (Increase) decrease in mortgage interest receivable (83,333 ) 3,609 Increase in employee interest receivable (9,019 ) (28,589 ) (Increase) decrease in prepaid expenses and other assets (143,564 ) 297,354 Increase in accounts payable, accrued expenses, and amount due adviser 414,610 65,606 Increase in rent received in advance 90,057   163,407   Net cash provided by operating activities 7,737,083   5,869,343     Cash flows from investing activities: Real estate investments (53,035,069 ) (40,506,626 ) Principal repayments on mortgage notes receivable - 44,742 Principal repayments on employee loans 400,142 - Net payments to lenders for reserves held in escrow (868,679 ) (1,899,416 ) Increase in restricted cash (244,588 ) (412,074 ) Deposits on future acquisitions (810,000 ) (500,000 ) Deposits applied against real estate investments 810,000   1,100,000   Net cash used in investing activities (53,748,194 ) (42,173,374 )   Cash flows from financing activities: Proceeds from share issuance - 25,485,010 Offering costs - (1,302,004 ) Borrowings under mortgage notes payable 28,015,000 31,900,000 Principal repayments on mortgage notes payable (385,070 ) (302,410 ) Borrowings from line of credit 4,200,000 60,000,400 Repayments on line of credit (4,200,000 ) (73,900,400 ) Increase in reserves from tenants 818,745 1,093,252 Increase in security deposits 140,525 562,500 Payments for deferred financing costs (688,025 ) (1,650,237 ) Dividends paid for common and preferred (8,213,865 ) (6,390,679 ) Net cash provided by financing activities 19,687,310   35,495,432     Net decrease in cash and cash equivalents (26,323,801 ) (808,599 )   Cash and cash equivalents, beginning of period 36,005,686 1,740,159     Cash and cash equivalents, end of period $ 9,681,885   $ 931,560     NON-CASH INVESTING ACTIVITIES   Increase in asset retirement obligation $ 121,084   $ 1,510,330     NON-CASH FINANCING ACTIVITIES   Fixed rate debt assumed in connection with acquisitions $ -   $ 30,129,654     Notes receivable issued in exchange for common stock associated with the exercise of employee stock options $ -   $ 1,826,754