-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HMJsBII7XlFDY8uh1tod/wj8qXulG4gIkYxqbuIS3BMwEwZK6ra9a3jw5j78BGAh Zg40Kg5r+/HRybwtpNQLXA== 0001157523-07-002094.txt : 20070227 0001157523-07-002094.hdr.sgml : 20070227 20070227161105 ACCESSION NUMBER: 0001157523-07-002094 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070227 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070227 DATE AS OF CHANGE: 20070227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLADSTONE COMMERCIAL CORP CENTRAL INDEX KEY: 0001234006 STANDARD INDUSTRIAL CLASSIFICATION: LESSORS OF REAL PROPERTY, NEC [6519] IRS NUMBER: 020681276 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33097 FILM NUMBER: 07653449 BUSINESS ADDRESS: STREET 1: 1521 WESTBRANCH DRIVE CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 703-287-5800 MAIL ADDRESS: STREET 1: 1521 WESTBRANCH DRIVE CITY: MCLEAN STATE: VA ZIP: 22102 8-K 1 a5343671.txt GLADSTONE COMMERCIAL CORPORATION 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 27, 2007 Gladstone Commercial Corporation (Exact name of registrant as specified in its charter) Maryland 0-50363 020681276 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1521 Westbranch Drive, Suite 200 McLean, Virginia 22102 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 287-5800 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Item 2.02 Results of Operations and Financial Condition. On February 27, 2007, Gladstone Commercial Corporation issued a press release announcing its financial results for the year ended December 31, 2006. The text of the press release is included as an exhibit to this Form 8-K. Pursuant to the rules and regulations of the Securities and Exchange Commission, such exhibit and the information set forth therein and herein are deemed to be furnished and shall not be deemed to be filed. Item 9.01 Financial Statements and Exhibits. (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) Exhibits. Exhibit No. Description ----------- ----------- 99.1 Press release dated February 27, 2007 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Gladstone Commercial Corporation (Registrant) February 27, 2007 By:/s/ Harry Brill ------------------ (Harry Brill, Chief Financial Officer) EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Press release dated February 27, 2007 EX-99.1 2 a5343671-ex991.txt EXHIBIT 99.1 EXHIBIT 99.1 Gladstone Commercial Announces 2006 Year-End Results -- Reports net income available to common stockholders of approximately $2.2 million or $0.27 per diluted weighted average common share -- Reports funds from operations ("FFO") of approximately $9.4 million or $1.18 per diluted weighted average common share -- Purchased nine properties for a total investment of approximately $78.5 million -- Sold two properties for a net gain on sale after taxes of approximately $1.1 million or $0.14 per diluted weighted average common share -- Acquired one property in satisfaction of a mortgage loan for approximately $11.3 million MCLEAN, Va.--(BUSINESS WIRE)--Feb. 27, 2007--Gladstone Commercial Corp. (NASDAQ:GOOD) (the "Company") today reported financial results for the year ended December 31, 2006. 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 year ended December 31, 2006 was $2,185,938, or $0.27 per share, compared to $3,601,945, or $0.47 per share, for the same period one year ago. Net income results when compared to the same period last year were affected by increased interest expense associated with the leveraging of the Company's properties, stock option expense associated with the amendment of options granted under the Company's 2003 Equity Incentive Plan, as amended (the "2003 Plan"), the write-off of deferred financing fees related to the termination of the line of credit with Branch Banking & Trust ("BB&T"), and dividends paid on the Company's preferred stock, partially offset by the gain on the sale of the two Canadian properties in July. FFO for the year ended December 31, 2006 was $9,428,822, or $1.18 per share, compared to $7,253,064, or $0.94 per share, for the same period one year ago. FFO for the quarter ended December 31, 2006 was $2,293,178, or $0.28 per share, compared to $2,326,026, 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 three For the three For the year For the year months ended months ended ended ended December 31, December 31, December 31, December 31, 2006 2005 2006 2005 ------------- ------------- ------------- ------------- Net income $895,853 $1,049,819 $4,372,828 $3,601,945 Less: Dividends attributable to preferred stock (873,696) - (2,186,890) - ------------- ------------- ------------- ------------- Net income available to common stockholders 22,157 1,049,819 2,185,938 3,601,945 ------------- ------------- ------------- ------------- Add: Real estate depreciation and amortization, including discontinued operations 2,271,021 1,276,207 8,349,474 3,651,119 Less: Gain on sale of real estate, net of taxes paid - - (1,106,590) - ------------- ------------- ------------- ------------- FFO available to common stockholders $2,293,178 $2,326,026 $9,428,822 $7,253,064 Weighted average shares outstanding - basic 8,052,148 7,672,000 7,827,781 7,670,219 Weighted average shares outstanding - diluted 8,196,605 7,737,297 7,986,690 7,723,220 Basic net income per weighted average common share $0.00 $0.14 $0.28 $0.47 ============= ============= ============= ============= Diluted net income per weighted average common share $0.00 $0.14 $0.27 $0.47 ============= ============= ============= ============= Basic FFO per weighted average common share $0.28 $0.30 $1.20 $0.95 ============= ============= ============= ============= Diluted FFO per weighted average common share $0.28 $0.30 $1.18 $0.94 ============= ============= ============= ============= Year-end highlights: -- Purchased nine properties with an aggregate of approximately 979,000 square feet for an aggregate purchase price of approximately $78.5 million; -- Sold two properties for a net gain on sale after taxes of approximately $1.1 million; and -- Acquired one property in satisfaction of the mortgage loan on the Sterling Heights, Michigan property for approximately $11.3 million. In August 2006, the Company ceased accruing revenues on its mortgage loan secured by an industrial property in Sterling Heights, Michigan, placed the borrower in default and began pursuing available remedies under its mortgage, including instituting foreclosure proceedings on the property. At the foreclosure sale on September 22, 2006, the Company was the successful bidder. The Company recorded the real estate asset at approximately $11.3 million, which equaled the outstanding principal balance and accrued, non-default interest due under the mortgage loan to the Company. On October 20, 2006, the Company executed a lease with a new tenant for the property, with a term of ten years. The lease provides for annual rents of approximately $1.1 million in 2007, with prescribed escalations thereafter. The Company also pursued its deficiency relating to default interest, expenses and prepayment fees of approximately $650,000 against the borrower and its affiliated tenant who had filed for bankruptcy protection and collected approximately $655,000 from the tenant and borrower in October 2006. On August 31, 2006, all the holders of outstanding stock options accepted the Company's offer to amend their stock options and accelerate the expiration date of the outstanding options to December 31, 2006. All outstanding stock options were exercised before December 31, 2006. The acceptance of the offer allowed the Company to enter into an amended and restated investment advisory agreement (the "Amended Advisory Agreement") with the Company's external investment adviser, Gladstone Management Corporation (the "Adviser"), and an administration agreement (the "Administration Agreement") between the Company and Gladstone Administration, LLC, a wholly-owned subsidiary of the Adviser. The Company terminated the 2003 Plan on December 31, 2006. Upon termination of the 2003 Plan, the Company implemented the Amended Advisory Agreement and Administration Agreement effective on January 1, 2007. On December 29, 2006, the Company entered into a $75 million senior revolving credit agreement with a syndicate of banks led by KeyBank National Association, which matures on December 29, 2009 with an option to extend for an additional year. The new revolving credit facility replaces a previous facility led by BB&T, which was terminated upon the closing of the new line. "Our year end results were affected by several non-recurring items, including stock option expense associated with the amendment of options granted under the 2003 Plan and the write-off of deferred financing fees related to the termination of the line of credit with BB&T totaling approximately $985,000 or $0.12 per share," said Chip Stelljes, Executive Vice President and Chief Investment Officer. "These non-recurring expenses were positively offset by the nine properties acquired during the year, along with the sale of the two Canadian properties. We also signed a ten year lease with a new tenant for our Sterling Heights, Michigan property, allowing us to create an income producing asset from the previously defaulted mortgage loan on the property. We believe the property dispositions, the successful leasing of the Michigan property, along with the acquisition of nine properties during the year will benefit our shareholders over the long term and will result in a stronger and more focused portfolio in 2007." Subsequent to year end, the Company: -- Declared monthly cash dividends on common stock of $0.12 per common share for each of the months of January, February and March 2007; -- Declared monthly cash dividends on Series A Cumulative Redeemable Preferred Stock of $0.1614583 per share for the months of January, February and March 2007; -- Declared monthly cash dividends on Series B Cumulative Redeemable Preferred Stock of $0.15625 per share for the months of January, February and March 2007; and -- Acquired two properties with an aggregate of 175,500 square feet for a purchase price of approximately $15.7 million. 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, 2006, including the footnotes to the financial statements contained therein. The Company has filed the Form 10-K today with the 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 Wednesday, February 28, 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 March 28, 2007. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 230522. 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-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission 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 Securities and Exchange Commission on February 27, 2007. The risk factors set forth in the Form 10-K for the year ended December 31, 2006 under the caption "Risk Factors" are specifically incorporated by references 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, December 31, 2006 2005 ------------- ------------- ASSETS Real estate, net of accumulated depreciation of $8,595,419 and $3,408,878, respectively $235,118,123 $161,634,761 Lease intangibles, net of accumulated amortization of $4,175,685 and $1,221,413, respectively 23,416,696 13,947,484 Mortgage notes receivable 10,000,000 21,025,815 Cash and cash equivalents 36,005,686 1,740,159 Restricted cash 1,225,162 1,974,436 Funds held in escrow 1,635,819 1,041,292 Interest receivable - mortgage note - 70,749 Interest receivable - employees 43,716 - Deferred rent receivable 3,607,279 2,590,617 Deferred financing costs, net of accumulated amortization of $1,467,297 and $260,099, respectively 3,713,004 1,811,017 Prepaid expenses 521,290 385,043 Deposits on real estate 300,000 600,000 Accounts receivable 179,247 225,581 ------------- ------------- TOTAL ASSETS $315,766,022 $207,046,954 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Mortgage notes payable $154,494,438 $61,558,961 Borrowings under line of credit - 43,560,000 Deferred rent liability 4,718,599 - Asset retirement obligation liability 1,631,294 - Accounts payable and accrued expenses 673,410 493,002 Due to adviser 183,042 164,155 Rent received in advance, security deposits and funds held in escrow 1,841,063 2,322,300 ------------- ------------- Total Liabilities 163,541,846 108,098,418 ------------- ------------- 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 at December 31, 2006 2,150 - Common stock, $0.001 par value, 17,700,000 shares authorized and 8,565,264 and 7,672,000 shares issued and outstanding, respectively 8,565 7,672 Additional paid in capital 170,640,979 105,502,544 Notes receivable - employees (3,201,322) (432,282) Distributions in excess of accumulated earnings (15,226,196) (6,129,398) ------------- ------------- Total Stockholders' Equity 152,224,176 98,948,536 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $315,766,022 $207,046,954 ============= ============= Gladstone Commercial Corporation Consolidated Statements of Operations For the year ended December 31, -------------------------------------- 2006 2005 2004 ------------ ------------ ------------ Operating revenues Rental income $23,964,035 $10,853,903 $3,210,142 Interest income from mortgage notes receivable 1,845,231 1,915,795 981,187 Tenant recovery revenue 136,280 111,808 - ------------ ------------ ------------ Total operating revenues 25,945,546 12,881,506 4,191,329 ------------ ------------ ------------ Operating expenses Depreciation and amortization 8,297,174 3,521,128 946,971 Management advisory fee 2,902,053 2,118,040 1,187,776 Professional fees 953,066 563,205 448,969 Taxes and licenses 193,032 242,803 13,603 Insurance 417,909 274,166 250,816 General and administrative 469,260 249,791 276,192 Shareholder related expenses 311,049 215,907 152,408 Asset retirement obligation expense 129,142 - - Stock option compensation expense 394,411 - - ------------ ------------ ------------ Total operating expenses 14,067,096 7,185,040 3,276,735 ------------ ------------ ------------ Other income (expense) Interest income from temporary investments 76,772 126,826 608,617 Interest income - employee loans 125,788 21,041 6,042 Other income 380,915 - - Interest expense (9,104,894) (2,333,376) - ------------ ------------ ------------ Total other income (expense) (8,521,419) (2,185,509) 614,659 ------------ ------------ ------------ Income from continuing operations 3,357,031 3,510,957 1,529,253 ------------ ------------ ------------ Discontinued operations Income from discontinued operations 112,145 309,545 94,675 Net realized loss from foreign currency transactions (202,938) (6,278) - Net unrealized loss from foreign currency transactions - (212,279) - Gain on sale of real estate 1,422,026 - - Taxes on sale of real estate (315,436) - - ------------ ------------ ------------ Total discontinued operations 1,015,797 90,988 94,675 ------------ ------------ ------------ Net income 4,372,828 3,601,945 1,623,928 ------------ ------------ ------------ Dividends attributable to preferred stock (2,186,890) - - ------------ ------------ ------------ Net income available to common stockholders $2,185,938 $3,601,945 $1,623,928 ============ ============ ============ Earnings per weighted average common share - basic Income from continuing operations (net of dividends attributable to preferred stock) $0.15 $0.46 $0.20 Discontinued operations 0.13 0.01 0.01 ------------ ------------ ------------ Net income available to common stockholders $0.28 $0.47 $0.21 ============ ============ ============ Earnings per weighted average common share - diluted Income from continuing operations (net of dividends attributable to preferred stock) $0.14 $0.46 $0.20 Discontinued operations 0.13 0.01 0.01 ------------ ------------ ------------ Net income available to common stockholders $0.27 $0.47 $0.21 ============ ============ ============ Weighted average shares outstanding Basic 7,827,781 7,670,219 7,649,855 ============ ============ ============ Diluted 7,986,690 7,723,220 7,708,534 ============ ============ ============ Gladstone Commercial Corporation Consolidated Statements of Cash Flows For the year ended December 31, ----------------------------------------- 2006 2005 2004 ------------- ------------- ------------- Cash flows from operating activities: Net income $4,372,828 $3,601,945 $1,623,928 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, including discontinued operations 8,349,474 3,651,119 973,345 Amortization of deferred financing costs, including discontinued operations 1,207,198 260,099 - Amortization of deferred rent asset 253,496 178,070 - Amortization of deferred rent liability (696,261) - - Asset retirement obligation expense, including discontinued operations 139,074 - - Increase in deferred rent receivable (1,270,159) (562,133) (210,846) 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) - - Decrease (increase) in mortgage interest receivable 70,749 (5,954) (64,795) (Increase) decrease in employee interest receivable (43,716) 4,792 (4,792) Increase in prepaid expenses and other assets (89,913) (425,120) 5,928 Increase in accounts payable, accrued expenses, and amount due adviser 196,294 359,537 63,325 Increase in rent received in advance and security deposits 695,988 488,913 214,066 ------------- ------------- ------------- Net cash provided by operating activities 12,023,802 7,760,663 2,600,159 ------------- ------------- ------------- Cash flows from investing activities: Real estate investments (48,339,307) (117,531,731) (58,875,648) Proceeds from sales of real estate 2,102,567 - - Issuance of mortgage note receivable - (10,000,000) (11,170,000) Principal repayments on mortgage notes receivable 44,742 81,902 62,283 Net payments to lenders for reserves held in escrow (3,346,216) (1,041,292) - Increase in reserves from tenants 1,574,464 158,646 - Deposits on future acquisitions (900,000) (2,686,000) (775,000) Deposits applied against real estate investments 1,200,000 1,986,000 725,000 Refunds of deposits on real estate - 150,000 - ------------- ------------- ------------- Net cash used in investing activities (47,663,750) (128,882,475) (70,033,365) ------------- ------------- ------------- 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) - (7,730) Borrowings under mortgage notes payable 68,055,000 61,419,179 - Principal repayments on mortgage notes payable (604,318) (70,479) - Borrowings from line of credit 71,400,400 85,460,000 - Repayments on line of credit (114,960,400) (41,900,000) - Increase (decrease) in restricted cash 749,274 (513,761) - Principal repayments on employee loans 914 17,718 - Payments for deferred financing costs (3,242,881) (2,021,115) (50,000) Dividends paid for common and preferred (13,469,627) (8,283,860) (2,830,540) ------------- ------------- ------------- Net cash provided by (used in) financing activities 69,905,475 94,107,682 (2,888,270) ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents 34,265,527 (27,014,130) (70,321,476) Cash and cash equivalents, beginning of period 1,740,159 28,754,289 99,075,765 ------------- ------------- ------------- Cash and cash equivalents, end of period $36,005,686 $1,740,159 $28,754,289 ============= ============= ============= Cash paid during period for interest $8,045,342 $2,014,236 $- ------------- ------------- ------------- NON-CASH INVESTING ACTIVITIES Increase in asset retirement obligation $1,631,294 $- $- ------------- ------------- ------------- NON-CASH FINANCING ACTIVITIES Fixed rate debt assumed in connection with acquisitions $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 $375,000 ------------- ------------- ------------- Acquisition of building in satisfaction of mortgage note receivable $11,316,774 $- $- ------------- ------------- ------------- CONTACT: Gladstone Commercial Corp. Robert Johnson, 703-287-5835 -----END PRIVACY-ENHANCED MESSAGE-----