Gladstone Commercial Reports Results for the Fourth Quarter and Year Ended December 31, 2007

Gladstone Commercial Corp. (NASDAQ:GOOD) (the "Company”) today reported financial results for the quarter and year ended December 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 the narrative portion of this news release. All per share references are to fully-diluted weighted average common shares, unless otherwise noted. For the year ended December 31, 2007, there were no options outstanding to dilute outstanding shares. Net income available to common stockholders for the quarter ended December 31, 2007 increased approximately 1,100% per share to $439,675, or $0.052 per share, compared to $22,157, or $0.004 per share, for the same period one year ago. Net income available to common stockholders for the year ended December 31, 2007 decreased approximately 11% per share to $2,046,479, or $0.24 per share, compared to $2,185,938, or $0.27 per share, for the same period one year ago. Net income results when compared to the same period last year were affected by increased expenses attributable to the acquisition of 14 properties and 1 leasehold interest during 2007, interest expense associated with leveraging the Company’s properties, dividends paid on the Company’s preferred stock and the gain on the sale of the Company’s two Canadian properties in July 2006, partially offset by increased revenues related to the 15 acquisitions. The per share numbers were impacted by the dilution of shares in 2006 related to the termination of the Company’s stock option plan and the corresponding exercise of stock options, which increased its outstanding shares by approximately 890,000 in 2006. FFO for the quarter ended December 31, 2007 increased approximately 36% per share to $3.2 million, or $0.38 per share, compared to $2.3 million, or $0.28 per share, for the same period one year ago. FFO for the year ended December 31, 2007 increased approximately 24% per share to $12.5 million, or $1.46 per share, compared to approximately $9.4 million, or $1.18 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 three months ended December 31, 2007 For the three months ended December 31, 2006 For the year ended December 31, 2007 For the year ended December 31, 2006   Net income $ 1,463,113 $ 895,844 $ 6,140,229 $ 4,372,828 Less: Dividends attributable to preferred stock   (1,023,438 )   (873,696 )   (4,093,750 )   (2,186,890 ) Net income available to common stockholders   439,675     22,148     2,046,479     2,185,938     Add: Real estate depreciation and amortization, including discontinued operations 2,806,109 2,271,021 10,528,458 8,349,474 Less: Gain on sale of real estate, net of taxes paid   -     -     (78,667 )   (1,106,590 ) FFO available to common stockholders $ 3,245,784 $ 2,293,169 $ 12,496,270 $ 9,428,822     Weighted average shares outstanding - basic 8,565,264 8,052,148 8,565,264 7,827,781 Weighted average shares outstanding - diluted 8,565,264 8,196,605 8,565,264 7,986,690   Basic net income per weighted average common share $ 0.05   $ 0.00   $ 0.24   $ 0.28   Diluted net income per weighted average common share $ 0.05   $ 0.00   $ 0.24   $ 0.27   Basic FFO per weighted average common share $ 0.38   $ 0.28   $ 1.46   $ 1.20   Diluted FFO per weighted average common share $ 0.38   $ 0.28   $ 1.46   $ 1.18   For the year-ended December 31, 2007, the Company reported the following activity: Purchased 14 properties and 1 leasehold interest, which were all fully occupied, with approximately 930,000 square feet for an aggregate of approximately $104.2 million; Borrowed approximately $48.5 million, collateralized by security interests in 10 of its properties; Increased the availability under its line of credit from $75.0 million to $95.0 million; and Closed a one-year term loan with Key Bank National Association for $20.0 million. "We are proud of the fact that we were able to complete 15 acquisitions during the year, which was a 33% increase over the aggregate total investment of our 2006 acquisitions, despite the upheaval in the credit markets. Even though the credit markets are currently very tumultuous, we are confident that we will be able to continue to grow our portfolio during 2008 by securing alternative sources of financing. We remain excited about the opportunities that are currently available in the marketplace and our pipeline remains healthy,” said Chip Stelljes, President and Chief Investment Officer. Subsequent to year end, the Company: Purchased two, fully occupied, properties with approximately 117,000 square feet for an aggregate of approximately $17.8 million; and Increased the monthly cash dividends on the common stock to $0.125 per share, declared a dividend of $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 of 2008. The financial statements attached below are without footnotes so readers should obtain and carefully review the Company’s Form 10-K for the year ended December 31, 2007, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-K today with the Securities and Exchange Commission ("SEC”) and the Form 10-K 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 on Thursday, February 28, 2008 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 March 28, 2008. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 273773. Gladstone Commercial Corporation is a publicly traded real estate investment trust ("REIT”) 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 Kerry Finnegan at 703-287-5893. NON-GAAP FINANCIAL MEASURE 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 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-K for the year ended December 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, the closing of any transaction and the Company’s ability to secure alternative sources of financing. 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, 2007, as filed with the SEC on February 27, 2008. The risk factors set forth in the Form 10-K 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       December 31, 2007 December 31, 2006   ASSETS   Real estate, net of accumulated depreciation of $15,738,634 and $8,595,419, respectively $ 324,761,772 $ 235,118,123 Lease intangibles, net of accumulated amortization of $7,560,928 and $4,175,685, respectively 28,989,556 23,416,696 Mortgage notes receivable 10,000,000 10,000,000 Cash and cash equivalents 1,356,408 36,005,686 Restricted cash 1,914,067 1,225,162 Funds held in escrow 1,401,695 1,635,819 Interest receivable – mortgage note 86,111 - Interest receivable – employees 39,280 43,716 Deferred rent receivable 5,094,799 3,607,279   Deferred financing costs, net of accumulated amortization of $2,184,492 and $1,467,297, respectively 4,405,129 3,713,004 Prepaid expenses 522,348 521,290 Deposits on real estate 300,000 300,000 Accounts receivable   31,524     179,247   TOTAL ASSETS $ 378,902,689   $ 315,766,022   LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Mortgage notes payable $ 202,120,471 $ 154,494,438 Short-term loan and borrowings under line of credit 24,400,000 - Deferred rent liability 3,933,035 4,718,599 Asset retirement obligation liability 1,811,752 1,631,294 Accounts payable and accrued expenses 778,949 673,410 Due to adviser 784,301 183,042 Rent received in advance, security deposits and funds held in escrow   2,706,113     1,841,063     Total Liabilities   236,534,621     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 (2,769,923 ) (3,201,322 ) Distributions in excess of accumulated earnings   (25,513,703 )   (15,226,196 )   Total Stockholders’ Equity   142,368,068     152,224,176     TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 378,902,689   $ 315,766,022   Gladstone Commercial Corporation Consolidated Statements of Operations           For the three months ended December 31, 2007 For the three months ended September 30, 2007 For the three months ended June 30, 2007 For the three months ended March 31, 2007   Operating revenues Rental income $ 8,634,634 $ 8,024,305 $ 7,732,322 $ 7,078,036 Interest income from mortgage notes receivable 255,556 255,555 252,778 250,000 Tenant recovery revenue   79,502     80,648     94,468     55,735   Total operating revenues   8,969,692     8,360,508     8,079,568     7,383,771     Operating expenses Depreciation and amortization 2,806,109 2,668,383 2,636,154 2,417,812 Property operating expenses 224,517 204,972 215,483 176,818 Base management fee 445,783 459,202 471,091 482,044 Incentive fee 667,688 677,104 633,805 585,768 Administration fee 244,902 175,852 210,126 207,018 Professional fees 182,870 118,371 174,677 149,431 Insurance 42,866 53,943 58,697 58,635 Directors fees 54,250 66,250 54,250 54,250 Stockholder related expenses 28,660 40,991 75,361 99,617 Asset retirement obligation expense 29,936 29,440 28,942 28,160 General and administrative   23,881     17,452     23,960     37,706   Total operating expenses before credit from Adviser   4,751,462     4,511,960     4,582,546     4,297,259     Credit to incentive fee   (575,033 )   (526,991 )   (633,805 )   (585,768 ) Total operating expenses   4,176,429     3,984,969     3,948,741     3,711,491     Other income (expense) Interest income from temporary investments 28,859 33,105 63,269 229,016 Interest income - employee loans 52,443 52,728 56,458 60,422 Other income 19,720 9,896 9,817 8,414 Interest expense   (3,427,198 )   (2,920,270 )   (2,702,612 )   (2,514,461 ) Total other income (expense)   (3,326,176 )   (2,824,541 )   (2,573,068 )   (2,216,609 )   Income from continuing operations   1,467,087     1,550,998     1,557,759     1,455,671     Discontinued operations Income from discontinued operations (3,783 ) 5,975 (1,503 ) (4,001 ) Net realized (loss) gain from foreign currency transactions (191 ) 33,487 56 7 Gain on sale of real estate - - - - Taxes on sale of real estate   -     -     -     78,667   Total discontinued operations   (3,974 )   39,462     (1,447 )   74,673     Net income   1,463,113     1,590,460     1,556,312     1,530,344     Dividends attributable to preferred stock   (1,023,438 )   (1,023,438 )   (1,023,437 )   (1,023,437 )   Net income available to common stockholders $ 439,675   $ 567,022   $ 532,875   $ 506,907     Earnings per weighted average common share - basic Income from continuing operations (net of dividends attributable to preferred stock) $ 0.05 $ 0.07 $ 0.06 $ 0.05 Discontinued operations   0.00     0.00     0.00     0.01     Net income available to common stockholders $ 0.05   $ 0.07   $ 0.06   $ 0.06     Earnings per weighted average common share - diluted Income from continuing operations (net of dividends attributable to preferred stock) $ 0.05 $ 0.07 $ 0.06 $ 0.05 Discontinued operations   0.00     0.00     0.00     0.01     Net income available to common stockholders $ 0.05   $ 0.07   $ 0.06   $ 0.06     Weighted average shares outstanding Basic   8,565,264     8,565,264     8,565,264     8,565,264   Diluted   8,565,264     8,565,264     8,565,264     8,565,264   Gladstone Commercial Corporation Consolidated Statements of Operations       For the year ended December 31,   2007     2006     2005   Operating revenues Rental income $ 31,469,297 $ 23,964,035 $ 10,853,903 Interest income from mortgage notes receivable 1,013,889 1,845,231 1,915,795 Tenant recovery revenue   310,353     136,280     111,808   Total operating revenues   32,793,539     25,945,546     12,881,506     Operating expenses Depreciation and amortization 10,528,458 8,297,174 3,521,128 Property operating expenses 821,790 645,792 406,277 Base management fee 1,858,120 2,902,053 2,118,040 Incentive fee 2,564,365 - - Administration fee 837,898 - - Professional fees 625,349 953,066 563,205 Insurance 214,141 211,562 196,657 Directors fees 229,000 140,000 96,219 Stockholder related expenses 244,629 311,049 215,907 Asset retirement obligation expense 116,478 129,142 - General and administrative 102,999 82,847 67,607 Stock option compensation expense   -     394,411     -   Total operating expenses before credit from Adviser   18,143,227     14,067,096     7,185,040     Credit to incentive fee   (2,321,597 )   -     -   Total operating expenses   15,821,630     14,067,096     7,185,040     Other income (expense) Interest income from temporary investments 354,249 76,772 126,826 Interest income - employee loans 222,051 125,788 21,041 Other income 47,847 380,915 - Interest expense   (11,564,541 )   (9,104,894 )   (2,333,376 ) Total other expense   (10,940,394 )   (8,521,419 )   (2,185,509 )   Income from continuing operations   6,031,515     3,357,031     3,510,957     Discontinued operations (Loss) income from discontinued operations (3,312 ) 112,145 309,545 Net realized income (loss) from foreign currency transactions 33,359 (202,938 ) (6,278 ) Net unrealized loss from foreign currency transactions - - (212,279 ) Gain on sale of real estate - 1,422,026 - Taxes refunded (paid) on sale of real estate   78,667     (315,436 )   -   Total discontinued operations   108,714     1,015,797     90,988     Net income   6,140,229     4,372,828     3,601,945     Dividends attributable to preferred stock   (4,093,750 )   (2,186,890 )   -     Net income available to common stockholders $ 2,046,479   $ 2,185,938   $ 3,601,945     Earnings per weighted average common share - basic Income from continuing operations (net of dividends attributable to preferred stock) $ 0.23 $ 0.15 $ 0.46 Discontinued operations   0.01     0.13     0.01     Net income available to common stockholders $ 0.24   $ 0.28   $ 0.47     Earnings per weighted average common share - diluted Income from continuing operations (net of dividends attributable to preferred stock) $ 0.23 $ 0.14 $ 0.46 Discontinued operations   0.01     0.13     0.01     Net income available to common stockholders $ 0.24   $ 0.27   $ 0.47     Weighted average shares outstanding Basic   8,565,264     7,827,781     7,670,219   Diluted   8,565,264     7,986,690     7,723,220   Gladstone Commercial Corporation Consolidated Statements of Cash Flows       For the year ended December 31,   2007     2006     2005     Cash flows from operating activities: Net income $ 6,140,229 $ 4,372,828 $ 3,601,945 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including discontinued operations 10,528,458 8,349,474 3,651,119 Amortization of deferred financing costs, including discontinued operations 717,195 1,207,198 260,099 Amortization of deferred rent asset 253,496 253,496 178,070 Amortization of deferred rent liability (785,564 ) (696,261 ) - Asset retirement obligation expense, including discontinued operations 116,478 139,074 - Stock compensation - 394,411 - Increase in mortgage notes payable due to change in value of foreign currency - 202,066 209,395 Value of building acquired in excess of mortgage note satisfied, applied to interest income - (335,701 ) - Gain on sale of real estate - (1,422,026 ) - (Increase) decrease in mortgage interest receivable (86,111 ) 70,749 (5,954 ) Decrease (increase) in employee interest receivable 4,436 (43,716 ) 4,792 Increase in deferred rent receivable (1,741,016 ) (1,270,159 ) (562,133 ) Decrease (increase) in prepaid expenses and other assets 146,665 (89,913 ) (425,120 ) Increase in accounts payable, accrued expenses, and amount due adviser 625,398 196,294 359,537 Increase in rent received in advance   176,145     268,037     133,798   Net cash provided by operating activities   16,095,809     11,595,851     7,405,548     Cash flows from investing activities: Real estate investments (105,599,587 ) (48,339,307 ) (117,531,731 ) Proceeds from sales of real estate - 2,102,567 - Issuance of mortgage note receivable - - (10,000,000 ) Principal repayments on mortgage notes receivable - 44,742 81,902 Net payments to lenders for reserves held in escrow (1,338,904 ) (3,346,216 ) (1,041,292 ) (Decrease) increase in restricted cash (688,905 ) 749,274 (513,761 ) Deposits on future acquisitions (2,110,000 ) (900,000 ) (2,686,000 ) Deposits applied against real estate investments 2,110,000 1,200,000 1,986,000 Refunds of deposits on real estate   -     -     150,000   Net cash used in investing activities   (107,627,396 )   (48,488,940 )   (129,554,882 )   Cash flows from financing activities: Proceeds from share issuance - 65,089,026 - Redemption of shares for payment of taxes - (457,634 ) - Offering costs - (2,654,279 ) - Borrowings under mortgage notes payable 48,521,690 68,055,000 61,419,179 Principal repayments on mortgage notes payable (895,657 ) (604,318 ) (70,479 ) Principal repayments on employee notes receivable from sale of common stock 431,399 914 17,718 Borrowings from short-term loan and line of credit 65,500,000 71,400,400 85,460,000 Repayments on line of credit (41,100,000 ) (114,960,400 ) (41,900,000 ) Increase in reserves from tenants 1,885,361 1,574,464 158,646 Increase in security deposits 376,572 427,951 355,115 Payments for deferred financing costs (1,409,320 ) (3,242,881 ) (2,021,115 ) Dividends paid for common and preferred   (16,427,736 )   (13,469,627 )   (8,283,860 ) Net cash provided by financing activities   56,882,309     71,158,616     95,135,204     Net (decrease) increase in cash and cash equivalents (34,649,278 ) 34,265,527 (27,014,130 )   Cash and cash equivalents, beginning of period 36,005,686 1,740,159 28,754,289       Cash and cash equivalents, end of period $ 1,356,408   $ 36,005,686   $ 1,740,159       Cash paid during period for interest $ 10,693,440   $ 8,045,342   $ 2,014,236     NON-CASH INVESTING ACTIVITIES   Increase in asset retirement obligation $ 180,458   $ 1,631,294   $ -     Additions to real estate included in accounts payable, accrued expenses, and amount due adviser $ 81,400   $ -   $ -     NON-CASH FINANCING ACTIVITIES   Fixed rate debt assumed in connection with acquisitions $ 4,506,689   $ 30,129,654   $ -     Assumption of mortgage notes payable by buyer $ -   $ 4,846,925   $ -     Notes receivable issued in exchange for common stock associated with the exercise of employee stock options $ -   $ 2,769,954   $ 75,000     Acquisition of building in satisfaction of mortgage note receivable $ -   $ 11,316,774   $ -