þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
MARYLAND | 02-0681276 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Securities registered pursuant to Section 12(b) of the Act: | ||
Common Stock, par value $0.001 per share | NASDAQ Global Select Market | |
7.75% Series A Cumulative Redeemable Preferred Stock, par value $0.001 per share | NASDAQ Global Select Market | |
7.50% Series B Cumulative Redeemable Preferred Stock, par value $0.001 per share | NASDAQ Global Select Market |
(Title of Each Class) | (Name of exchange on which registered) |
Large accelerated filero | Accelerated filerþ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting companyo |
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• | Credit Evaluation. Our Adviser evaluates each potential tenant for its creditworthiness, considering factors such as management experience, industry position and fundamentals, operating history and capital structure. A prospective tenant that is deemed creditworthy does not necessarily mean that we will consider the tenant’s property to be “investment grade.” Our Adviser seeks tenants that range from small businesses, many of which do not have publicly rated debt, to large public companies. Our Adviser’s investment professionals have substantial experience in locating and financing these types of companies. By leasing properties to these tenants, we believe that we will generally be able to charge rent that is higher than the rent charged to tenants with unleveraged balance sheets and recognized credit, thereby enhancing current return from these properties as compared with properties leased to companies whose credit potential has already been recognized by the market. Furthermore, if a tenant’s credit does improve, the value of our lease or investment will likely increase (if all other factors affecting value remain unchanged). In |
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evaluating a possible investment, we believe that the creditworthiness of a prospective tenant is normally a more significant factor than the unleased value of the property itself. While our Adviser selects tenants it believes to be creditworthy, tenants are not required to meet any minimum rating established by an independent credit rating agency. Our Adviser’s standards for determining whether a particular tenant is creditworthy vary in accordance with a variety of factors relating to specific prospective tenants. The creditworthiness of a tenant is determined on a tenant by tenant and case by case basis. Therefore, general standards for creditworthiness cannot be applied. | ||
• | Leases with Increasing Rent. Our Adviser seeks to include a clause in each lease that provides for annual rent escalations over the term of the lease. These increases will generally be fixed, however certain leases are tied to increases in indices such as the consumer price index. | |
• | Diversification. Our Adviser attempts to diversify our portfolio to avoid dependence on any one particular tenant, facility type, geographic location or tenant industry. By diversifying our portfolio, our Adviser intends to reduce the adverse effect on our portfolio of a single under-performing investment or a downturn in any particular industry or geographic region. Total rental income consisted of the following tenant industry classifications as of December 31, |
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December 31, 2008 | December 31, 2007 | December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||
Percentage of | Percentage of | Percentage of | Percentage of | |||||||||||||||||||||||||||||
Industry Classification | Rental Income | Rental Income | Rental Income | Rental Income | Rental Income | Rental Income | Rental Income | Rental Income | ||||||||||||||||||||||||
Automobile | $ | 1,166,654 | 2.9 | % | $ | 1,166,654 | 3.7 | % | $ | 1,166,654 | 2.8 | % | $ | 1,166,654 | 2.9 | % | ||||||||||||||||
Beverage, Food & Tobacco | 2,079,113 | 5.2 | % | 1,284,210 | 4.1 | % | 2,188,755 | 5.3 | % | 2,079,113 | 5.3 | % | ||||||||||||||||||||
Buildings and Real Estate | 2,013,515 | 5.1 | % | 1,226,196 | 3.9 | % | 2,025,668 | 4.9 | % | 2,013,515 | 5.1 | % | ||||||||||||||||||||
Chemicals, Plastics & Rubber | 2,452,628 | 6.2 | % | 1,853,217 | 5.9 | % | 3,173,514 | 7.6 | % | 2,452,628 | 6.2 | % | ||||||||||||||||||||
Containers, Packaging & Glass | 2,288,909 | 5.8 | % | 2,232,221 | 7.1 | % | 2,330,246 | 5.6 | % | 2,288,909 | 5.8 | % | ||||||||||||||||||||
Diversified/Conglomerate Manufacturing | 3,165,747 | 8.0 | % | 2,478,816 | 7.9 | % | 3,664,686 | 8.8 | % | 3,165,747 | 8.0 | % | ||||||||||||||||||||
Diversified/Conglomerate Services | 308,105 | 0.8 | % | 308,105 | 1.0 | % | 308,105 | 0.7 | % | 308,105 | 0.8 | % | ||||||||||||||||||||
Electronics | 6,165,789 | 15.5 | % | 5,699,152 | 18.1 | % | 6,164,789 | 14.9 | % | 6,165,789 | 15.7 | % | ||||||||||||||||||||
Healthcare, Education & Childcare | 5,719,016 | 14.4 | % | 2,463,808 | 7.8 | % | 6,145,415 | 14.8 | % | 5,719,016 | 14.5 | % | ||||||||||||||||||||
Home & Office Furnishings | 529,743 | 1.3 | % | 169,223 | 0.5 | % | 529,743 | 1.3 | % | 529,743 | 1.3 | % | ||||||||||||||||||||
Insurance | 722,866 | 1.8 | % | 722,866 | 2.3 | % | 722,866 | 1.7 | % | 722,866 | 1.8 | % | ||||||||||||||||||||
Machinery | 2,241,752 | 5.7 | % | 1,442,223 | 4.6 | % | 2,389,607 | 5.8 | % | 2,241,752 | 5.7 | % | ||||||||||||||||||||
Oil & Gas | 1,152,443 | 2.9 | % | 1,152,443 | 3.7 | % | 1,138,136 | 2.7 | % | 1,152,443 | 2.9 | % | ||||||||||||||||||||
Personal & Non-Durable Consumer Products | 1,355,061 | 3.4 | % | 1,166,453 | 3.7 | % | 1,354,721 | 3.3 | % | 1,355,061 | 3.4 | % | ||||||||||||||||||||
Personal, Food & Miscellaneous Services | 575,006 | 1.4 | % | 575,006 | 1.8 | % | 575,006 | 1.4 | % | 575,006 | 1.5 | % | ||||||||||||||||||||
Printing & Publishing | 2,293,103 | 5.8 | % | 2,007,554 | 6.4 | % | 2,189,033 | 5.3 | % | 2,189,602 | 5.5 | % | ||||||||||||||||||||
Telecommunications | 5,446,338 | 13.8 | % | 5,521,150 | 17.5 | % | 5,447,033 | 13.1 | % | 5,446,338 | 13.6 | % | ||||||||||||||||||||
$ | 39,675,788 | 100.0 | % | $ | 31,469,297 | 100.0 | % | $ | 41,513,977 | 100.0 | % | $ | 39,572,287 | 100.0 | % | |||||||||||||||||
• | Property Valuation. The business prospects and the financial strength of the tenant are important aspects of the evaluation of any sale and leaseback of property, or acquisition of property subject to a net lease, particularly a property that is specifically suited to the needs of the tenant. We generally require quarterly unaudited and annual audited financial statements of the tenant in order to continuously monitor the financial performance of the property. We evaluate the financial capability of the tenant and its ability to perform per the terms of the lease. We may also examine the available operating results of prospective investment properties to determine whether or not projected rental levels are likely to be met. We then compute the value of the property based on historical and projected operating results. In addition, each property that we propose to purchase will be appraised by an independent appraiser. These appraisals may take into consideration, among other things, the terms and conditions of the particular lease transaction, the quality of the tenant’s credit and the conditions of the credit markets at the time the lease transaction is negotiated. The appraised value may be greater than the construction cost or the replacement cost of a property, and the actual sale price of a property, if we resell the property in the future, may be greater or less than its appraised value. We generally limit our property acquisition cost or value to between $3 million and $30 million | |
• | Properties Important to Tenant Operations. Our Adviser generally seeks to acquire investment properties that are essential or important to the ongoing operations of the prospective tenant. We believe that these investment properties provide better protection in the event a tenant becomes bankrupt, since leases on properties essential or important to the operations of a bankrupt tenant are typically less likely to be rejected in the bankruptcy or otherwise terminated. | |
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• | Lease Provisions that Enhance and Protect Value. When appropriate, our Adviser attempts to include provisions in our leases that require our consent to specified tenant activity or require the tenant to satisfy specific operating tests. These provisions may include, for example, operational or financial covenants of the tenant, as well as indemnification of us by the tenant against environmental and other contingent liabilities. We believe that these provisions serve to protect our investments from changes in the operating and financial characteristics of a tenant that may impact its ability to satisfy its obligations to us or that could reduce the value of our properties. We generally also seek covenants requiring tenants to receive our consent prior to any change in control of the tenant. | |
• | Credit Enhancement.Our Adviser may also seek to enhance the likelihood of a tenant’s lease obligations being satisfied through a cross-default with other tenant obligations, a letter of credit or a guaranty of lease obligations from each tenant’s corporate parent. We believe that this type of credit enhancement, if obtained, provides us with additional financial security. |
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• | The comparable value of similar real estate in the same general area of the prospective property. In this regard, comparable property is hard to define since each piece of real estate has its own distinct characteristics. But to the extent possible, comparable property in the area that has sold or is for sale will be used to determine if the price being paid for the property is reasonable. The question of comparable properties’ sale prices is particularly relevant if a property might be sold by us at a later date. | ||
• | The comparable real estate rental rates for similar properties in the same area of the prospective property. | ||
• | Alternative property uses that may offer higher value. | ||
• | The cost of replacing the property if it were to be sold. | ||
• | The assessed value as determined by the local real estate taxing authority. |
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• | the acquisition of any property; | ||
• | the refinancing of the debt upon any property; or | ||
• | the leveraging of any previously unleveraged property. |
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• | invest in real property owned by our Adviser, any of its affiliates or any business in which our Adviser or any of its subsidiaries have invested except that we may lease property to existing and prospective portfolio companies of current or future affiliates, such as Gladstone Capital Corporation, Gladstone Investment Corporation and entities advised by our Adviser, so long as that entity does not control the portfolio company and the transaction is approved by both companies’ board of directors (this policy may not be changed without the approval of our stockholders); | ||
• | invest in commodities or commodity futures contracts, with this limitation not being applicable to futures contracts when used solely for the purpose of hedging in connection with our ordinary business of investing in properties and making mortgage loans; | ||
• | invest in contracts for the sale of real estate unless the contract is appropriately recorded in the chain of title; | ||
• | invest in any individual property with a cost in excess of 20% of our total assets at the time of investment; | ||
• | make investments in unimproved property or indebtedness secured by a deed of trust or mortgage loans on unimproved property in excess of 10% of our total assets. “Unimproved real property” is property which has the following three characteristics: |
the property was not acquired for the purpose of producing rental or other operating income; | |||
no development or construction is in process on the property; and | |||
no development or construction on the property is planned in good faith to commence on the property within one year of acquisition; |
• | issue equity securities on a deferred payment basis or other similar arrangement; | ||
• | issue debt securities in the absence of adequate cash flow to cover debt service; | ||
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• | issue “redeemable securities” as defined in Section 2(a)(32) of the 1940 Act; | ||
• | grant warrants or options to purchase shares of our stock to our Adviser or its affiliates; | ||
• | engage in trading, as compared with investment activities, or engage in the business of underwriting, or the agency distribution of, securities issued by other persons; | ||
• | acquire securities in any company holding investments or engaging in activities prohibited in the foregoing clauses; or | ||
• | make or invest in mortgage loans that are subordinate to any mortgage or equity interest of any of our affiliates. |
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• | acquire from or sell to any of our officers, directors or employees, or any entity in which any of our officers, directors or employees has an interest of more than 5%, any assets or other property; | ||
• | borrow from any of our directors, officers or employees, or any entity, other than Gladstone Land Corporation or Gladstone Management Corporation, our Adviser, in which any of our officers, directors or employees has an interest of more than 5% | ||
• | engage in any other transaction with any of our directors, officers or employees, or any entity in which any of our directors, officers or employees has an interest of more than 5% (except that our Adviser may lease office space in a building that we own, provided that the rental rate under the lease is determined by our independent directors to be at a fair market rate). |
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• | no incentive fee in any calendar quarter in which our pre-incentive fee FFO does not exceed the hurdle rate of 1.75% (7% annualized); | ||
• | 100% of the amount of the pre-incentive fee FFO that exceeds the hurdle rate, but is less than 2.1875% in any calendar quarter (8.75% annualized); and | ||
• | 20% of the amount of our pre-incentive fee FFO that exceeds 2.1875% in any calendar quarter (8.75% annualized). |
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• | finds, evaluates, and enters into contracts to purchase real estate and make mortgage loans on our behalf in compliance with our investment procedures, objectives and policies, subject to approval of our board of directors, where required; | ||
• | provides advice to us and acts on our behalf with respect to the negotiation, acquisition, financing, refinancing, holding, leasing and disposition of real estate investments; | ||
• | takes the actions and obtains the services necessary to effect the negotiation, acquisition, financing, refinancing, holding, leasing and disposition of real estate investments; and | ||
• | provides day-to-day management of our business activities and other administrative services for us as requested by our board of directors. |
• | our Adviser has obtained an independent appraisal for the property indicating that the total cost of the property does not exceed its appraised value; and | ||
• | our Adviser has concluded that the property, in conjunction with our other investments and proposed investments, is reasonably expected to fulfill our investment objectives and policies as established by our board of directors then in effect. |
• | loans not secured or otherwise supported by real property; | ||
• | any acquisition or mortgage loan which at the time of investment would have a cost exceeding 20% of our total assets; | ||
• | transactions that involve conflicts of interest with our Adviser (other than reimbursement of expenses in accordance with the | ||
• | the lease of assets to our Adviser, its affiliates or any of our officers or directors. |
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Number of | ||
Individuals | Functional Area | |
11 | Executive Management | |
Investment Management, Portfolio Management and Due Diligence | ||
Administration, Accounting, Compliance, Human Resources, Legal and Treasury |
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• | changes in the general economic climate; | ||
• | changes in local conditions such as an oversupply of space or reduction in demand for real estate; | ||
• | changes in interest rates and the availability of financing; | ||
• | competition from other available space; and | ||
• | changes in laws and governmental regulations, including those governing real estate usage, zoning and taxes. |
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• | the loss of lease or mortgage payments to us; | ||
• | an increase in the costs we incur to carry the property occupied by such tenant; | ||
• | a reduction in the value of our securities; or | ||
• | a decrease in distributions to our stockholders. |
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• | Small and medium-sized businesses may have limited financial resources | ||
and may not be able to make their lease or mortgage payments on a timely basis, or at all.A small or medium-sized tenant or borrower is more likely to have difficulty making its lease or mortgage payments when it experiences adverse events, such as the failure to meet its business plan, a downturn in its industry or negative economic conditions. In addition, because of the lack of available credit in the current marketplace, as discussed further in “Risk related to the economy”above, our tenants might not be able to obtain the financing necessary to fund their working capital, which could hinder their ability to make their lease or mortgage payment on a timely basis, or at all. | |||
• | Small and medium-sized businesses typically have narrower product lines and smaller market shares than large businesses.Because our target tenants and borrowers are smaller businesses, they will tend to be more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. In addition, our target tenants and borrowers may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and other capabilities and a larger number of qualified managerial and technical personnel. | ||
• | There is generally little or no publicly available information about our target tenants and borrowers.Many of our tenants and borrowers are likely to be privately owned businesses, about which there is generally little or no publicly available operating and financial information. As a result, we will rely on our Adviser to perform due diligence investigations of these tenants and borrowers, their operations and their prospects. We may not learn all of the material information we need to know regarding these businesses through our investigations. | ||
• | Small and medium-sized businesses generally have less predictable operating results.We expect that many of our tenants and borrowers may experience significant fluctuations in their operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, to finance expansion or to maintain their competitive positions, may otherwise have a weak financial position or may be adversely affected by changes in the business cycle. Our tenants and borrowers may not meet net income, cash flow and other coverage tests typically imposed by their senior lenders. The failure of a tenant or borrower to satisfy financial or operating covenants imposed by senior lenders could lead to defaults and, potentially, foreclosure on credit facilities, which could additionally trigger cross-defaults in other agreements. If this were to occur, it is possible that the ability of the tenant or borrower to make required payments to us would be jeopardized. | ||
• | Small and medium-sized businesses are more likely to be dependent on one or two persons.Typically, the success of a small or medium-sized business also depends on the management talents and efforts of one or two persons or a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on our tenant or borrower and, in turn, on us. |
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• | Small and medium-sized businesses may have limited operating histories.While we intend to target as tenants and borrowers stable companies with proven track records, we may lease properties or lend money to new companies that meet our other investment criteria. Tenants or borrowers with limited operating histories will be exposed to all of the operating risks that new businesses face and may be particularly susceptible to, among other risks, market downturns, competitive pressures and the departure of key executive officers. |
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• | responsibility and liability for the cost of removal or remediation of hazardous substances released on our properties, generally without regard to our knowledge of or responsibility for the presence of the contaminants; | ||
• | liability for the costs of removal or remediation of hazardous substances at disposal facilities for persons who arrange for the disposal or treatment of these substances; and | ||
• | potential liability for common law claims by third parties for damages resulting from environmental contaminants. |
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• | our Adviser may realize substantial compensation on account of its activities on our behalf, and may, therefore, be motivated to approve acquisitions solely on the basis of increasing compensation to itself; | ||
• | we may experience competition with our affiliates for financing transactions; | ||
• | our Adviser may earn fee income from our borrowers or tenants; and | ||
• | our Adviser and other affiliates such as Gladstone Capital, Gladstone Investment and Gladstone Land could compete for the time and services of our officers and directors. |
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• | we would not be allowed a deduction for distributions to stockholders in computing our taxable income, we would be subject to federal income tax at regular corporate rates and we might need to borrow money or sell assets in order to pay any such tax; | ||
• | we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and | ||
• | unless we are entitled to relief under statutory provisions, we would be prevented from re-qualifying to be taxed as a REIT for the four taxable years following the year during which we ceased to qualify. |
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• | 85% of our ordinary income for that year; | ||
• | 95% of our capital gain net income for that year; and | ||
• | 100% of our undistributed taxable income from prior years. |
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• | Our articles of incorporation prohibit ownership of more than 9.8% of the outstanding shares of our capital stock by one person. This restriction may discourage a change of control and may deter individuals or entities from making tender offers for our capital stock, which offers might otherwise be financially attractive to our stockholders or which might cause a change in our management. | ||
• | Our board of directors | ||
• | Certain provisions of Maryland law applicable to us prohibit business combinations with: |
• | any person who beneficially owns 10% or more of the voting power of our common stock, referred to as an “interested stockholder;” | ||
• | an affiliate of ours who, at any time within the two-year period prior to the date in question, was an interested stockholder; or | ||
• | an affiliate of an interested stockholder. |
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• | price and volume fluctuations in the stock market from time to time, which are often unrelated to the operating performance of particular companies; | ||
• | significant volatility in the market price and trading volume of shares of REITs, real estate companies or other companies in our sector, which is not necessarily related to the performance of those companies; | ||
• | price and volume fluctuations in the stock market as a result of terrorist attacks, or speculation regarding future terrorist attacks, in the United States or abroad; | ||
• | actual or anticipated variations in our quarterly operating results or | ||
• | changes in our funds from operations or earnings estimates or the publication of research reports about us or the real estate industry generally; | ||
• | actions by institutional stockholders; | ||
• | speculation in the press or investment community; | ||
• | changes in regulatory policies or tax guidelines, particularly with respect to REITs; and | ||
• | investor confidence in the stock market. |
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Total Annualized Rental | Total Annualized | Total Rental | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Rental Income for | Income for the Year | Rental Income per | Total Rental Income for | Income per | Year of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year Built/ | Rentable | the Year Ended | Ended | Occupied Square | Year of Lease | Year Built/ | Rentable | the Year Ended | Occupied Square | Lease | ||||||||||||||||||||||||||||||||||||||||||||||||||
Property | Improvements | Date of Purchase | Square Feet | Occupancy | December 31, 2008 | December 31, 2008(1) | Foot(2) | Expiration | Improvements | Date of Purchase | Square Feet | Occupancy | December 31, 2009 | Foot | Expiration | |||||||||||||||||||||||||||||||||||||||||||||
208 South Rogers Lane (Raleigh NC) | 1997 | 12/23/2003 | 58,926 | 100 | % | $ | 624,118 | $ | 624,118 | $ | 10.59 | 2015 | 1997 | 12/23/2003 | 58,926 | 100 | % | $ | 624,118 | $ | 10.59 | 2015 | ||||||||||||||||||||||||||||||||||||||
3874 Highland Park NW (Canton, OH) | 1994 | 1/30/2004 | 54,018 | 100 | % | $ | 347,843 | $ | 347,843 | $ | 6.44 | 2014 | 1994 | 1/30/2004 | 54,018 | 100 | % | $ | 337,625 | $ | 6.25 | 2014 | ||||||||||||||||||||||||||||||||||||||
260 Springside Drive (Akron, OH) | 1968/1999 | 4/29/2004 | 83,891 | 100 | % | $ | 1,077,943 | $ | 1,077,943 | $ | 12.85 | 2009/2015 | (3) | 1968/1999 | 4/29/2004 | 83,891 | 100 | % | $ | 1,063,216 | $ | 12.67 | 2015 | (1) | ||||||||||||||||||||||||||||||||||||
5815 Westpark Drive (Charlotte, NC) | 1984/1995 | 6/30/2004 | 64,500 | 100 | % | $ | 984,331 | $ | 984,331 | $ | 15.26 | 2019 | 1984/1995 | 6/30/2004 | 64,500 | 100 | % | $ | 996,484 | $ | 15.45 | 2019 | ||||||||||||||||||||||||||||||||||||||
171 Great Oak Drive (Canton, NC) | 1998 | 7/6/2004 | 228,000 | 100 | % | $ | 600,145 | $ | 600,145 | $ | 2.63 | 2024 | 1998 | 7/6/2004 | 228,000 | 100 | % | $ | 600,145 | $ | 2.63 | 2024 | ||||||||||||||||||||||||||||||||||||||
Rt. 219, Tax Parcel No. 33-251-0246, (Snyder Township, PA) | 1991 | 8/5/2004 | 290,000 | 100 | % | $ | 905,304 | $ | 905,304 | $ | 3.12 | 2014 | 1991 | 8/5/2004 | 290,000 | 100 | % | $ | 930,522 | $ | 3.21 | 2014 | ||||||||||||||||||||||||||||||||||||||
9698 Old US Hwy. 52 (Lexington, NC) | 1986 | 8/5/2004 | 154,000 | 100 | % | $ | 413,447 | $ | 413,447 | $ | 2.68 | 2014 | 1986 | 8/5/2004 | 154,000 | 100 | % | $ | 424,964 | $ | 2.76 | 2014 | ||||||||||||||||||||||||||||||||||||||
9100 Highway 290 East (Austin, TX) | 2001 | 9/16/2004 | 51,933 | 100 | % | $ | 751,333 | $ | 751,333 | $ | 14.47 | 2015 | 2001 | 9/16/2004 | 51,933 | 100 | % | $ | 751,333 | $ | 14.47 | 2015 | ||||||||||||||||||||||||||||||||||||||
3701 E. Virginia Beach Blvd (Norfolk, VA) | 1967 | 10/15/2004 | 25,797 | 100 | % | $ | 103,501 | $ | 103,501 | $ | 4.01 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
13 Industrial Park Drive (Mt. Pocono, PA) | 1995-1999 | 10/15/2004 | 223,275 | 100 | % | $ | 628,904 | $ | 628,904 | $ | 2.82 | 2021 | 1995-1999 | 10/15/2004 | 223,275 | 100 | % | $ | 638,554 | $ | 2.86 | 2021 | ||||||||||||||||||||||||||||||||||||||
6550 First Park Ten Boulevard (San Antonio, TX) | 1999 | 2/10/2005 | 60,245 | 100 | % | $ | 769,793 | $ | 769,793 | $ | 12.78 | 2014 | 1999 | 2/10/2005 | 60,245 | 100 | % | $ | 769,793 | $ | 12.78 | 2014 | ||||||||||||||||||||||||||||||||||||||
4630 Journal Street (Columbus, OH) | 1995 | 2/10/2005 | 39,000 | 100 | % | $ | 308,105 | $ | 308,105 | $ | 7.90 | 2015 | 1995 | 2/10/2005 | 39,000 | 100 | % | $ | 308,105 | $ | 7.90 | 2015 | ||||||||||||||||||||||||||||||||||||||
199 Sing Sing Road (Big Flats, NY) | 2001 | 4/15/2005 | 120,000 | 100 | % | $ | 644,252 | $ | 644,252 | $ | 5.37 | 2013 | 2001 | 4/15/2005 | 120,000 | 100 | % | $ | 644,252 | $ | 5.37 | 2013 | ||||||||||||||||||||||||||||||||||||||
2525 North Woodlawn Avenue (Wichita, KS) | 2000 | 5/18/2005 | 69,287 | 100 | % | $ | 1,109,217 | $ | 1,109,217 | $ | 16.01 | 2012 | 2000 | 5/18/2005 | 69,287 | 100 | % | $ | 1,109,217 | $ | 16.01 | 2012 | ||||||||||||||||||||||||||||||||||||||
725 & 737 Great Southwest Pkwy (Arlington, TX) | 1966 | 5/26/2005 | 64,000 | 100 | % | $ | 578,163 | $ | 578,163 | $ | 9.03 | 2013 | 1966 | 5/26/2005 | 64,000 | 100 | % | $ | 580,596 | $ | 9.07 | 2013 | ||||||||||||||||||||||||||||||||||||||
4032 Linden Avenue (Dayton, OH) | 1956 | 6/30/2005 | 59,894 | 100 | % | $ | 268,042 | $ | 268,042 | $ | 4.48 | 2018 | 1956 | 6/30/2005 | 59,894 | 100 | % | $ | 268,042 | $ | 4.48 | 2018 | ||||||||||||||||||||||||||||||||||||||
81 Corbett Way (Eatontown, NJ) | 1991 | 7/7/2005 | 30,268 | 100 | % | $ | 536,324 | $ | 536,324 | $ | 17.72 | 2011 | 1991 | 7/7/2005 | 30,268 | 100 | % | $ | 536,989 | $ | 17.74 | 2024 | ||||||||||||||||||||||||||||||||||||||
17 & 20 Veronica Avenue (Franklin Township, NJ) | 1978 | 7/11/2005 | 183,000 | 100 | % | $ | 970,158 | $ | 970,158 | $ | 5.30 | 2020 | 1978 | 7/11/2005 | 183,000 | 100 | % | $ | 974,760 | $ | 5.33 | 2020 | ||||||||||||||||||||||||||||||||||||||
150 & 170 Ridgeview Center Drive (Duncan, SC) | 1984/2001/2007 | 7/14/2005 | 222,670 | 100 | % | $ | 1,539,286 | $ | 1,539,286 | $ | 6.91 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
150 & 170 Ridgeview Center Drive (Duncan, SC) | 1984/2001/2007 | 7/14/2005 | 55,350 | 100 | % | $ | 382,627 | $ | 382,627 | $ | 6.91 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
150 Ridgeview Center Drive (Duncan, SC) | 1984/2001/2007 | 7/14/2005 | 222,670 | 100 | % | $ | 1,539,286 | $ | 6.91 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
170 Ridgeview Center Drive (Duncan, SC) | 1984/2001/2007 | 7/14/2005 | 55,350 | 100 | % | $ | 382,627 | $ | 6.91 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
5656 Campus Parkway (Hazelwood, MO) | 1977 | 8/5/2005 | 51,155 | 100 | % | $ | 289,928 | $ | 289,928 | $ | 5.67 | 2012 | 1977 | 8/5/2005 | 51,155 | 100 | % | $ | 289,928 | $ | 5.67 | 2012 | ||||||||||||||||||||||||||||||||||||||
914 Wohlert Street (Angola, IN) | 1982 | 9/2/2005 | 52,080 | 100 | % | $ | 125,202 | $ | 125,202 | $ | 2.40 | 2020 | 1982 | 9/2/2005 | 52,080 | 100 | % | $ | 125,202 | $ | 2.40 | 2020 | ||||||||||||||||||||||||||||||||||||||
800 Growth Parkway (Angola, IN) | 1998 | 9/2/2005 | 50,000 | 100 | % | $ | 125,202 | $ | 125,202 | $ | 2.50 | 2020 | 1998 | 9/2/2005 | 50,000 | 100 | % | $ | 125,202 | $ | 2.50 | 2020 | ||||||||||||||||||||||||||||||||||||||
802 East 11th Street (Rock Falls, IL) | 1988 | 9/2/2005 | 52,000 | 100 | % | $ | 125,202 | $ | 125,202 | $ | 2.41 | 2020 | 1988 | 9/2/2005 | 52,000 | 100 | % | $ | 125,202 | $ | 2.41 | 2020 |
31
Total Annualized Rental | Total Annualized | Total Rental | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Rental Income for | Income for the Year | Rental Income per | Total Rental Income for | Income per | Year of | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year Built/ | Rentable | the Year Ended | Ended | Occupied Square | Year of Lease | Year Built/ | Rentable | the Year Ended | Occupied Square | Lease | ||||||||||||||||||||||||||||||||||||||||||||||||||
Property | Improvements | Date of Purchase | Square Feet | Occupancy | December 31, 2008 | December 31, 2008(1) | Foot(2) | Expiration | Improvements | Date of Purchase | Square Feet | Occupancy | December 31, 2009 | Foot | Expiration | |||||||||||||||||||||||||||||||||||||||||||||
2 Opportunity Way (Newburyport, MA) | 1994 | 10/17/2005 | 86,308 | 100 | % | $ | 840,153 | $ | 840,153 | $ | 9.73 | 2015 | 1994 | 10/17/2005 | 86,308 | 100 | % | $ | 891,492 | $ | 10.33 | 2015 | ||||||||||||||||||||||||||||||||||||||
255 Spring Street (Clintonville, WI) | 1992 | 10/31/2005 | 291,142 | 100 | % | $ | 575,006 | $ | 575,006 | $ | 1.98 | 2020 | 1992 | 10/31/2005 | 291,142 | 100 | % | $ | 575,006 | $ | 1.98 | 2020 | ||||||||||||||||||||||||||||||||||||||
5700 Lee Road (Maple Heights, OH) | 1974 | 12/21/2005 | 347,218 | 100 | % | $ | 1,152,443 | $ | 1,152,443 | $ | 3.32 | 2015 | 1974 | 12/21/2005 | 347,218 | 100 | % | $ | 1,138,136 | $ | 3.28 | 2015 | ||||||||||||||||||||||||||||||||||||||
7545 Midlothian Turnpike (Richmond, VA) | 1972 | 12/30/2005 | 42,213 | 100 | % | $ | 722,866 | $ | 722,866 | $ | 17.12 | 2010 | 1972 | 12/30/2005 | 42,213 | 100 | % | $ | 722,866 | $ | 17.12 | 2010 | ||||||||||||||||||||||||||||||||||||||
3930 Sunforest Court (Toledo, OH) | 1979 | 12/30/2005 | 23,368 | 100 | % | $ | 327,152 | $ | 327,152 | $ | 14.00 | 2010 | 1979 | 12/30/2005 | 23,368 | 100 | % | $ | 327,152 | $ | 14.00 | 2010 | ||||||||||||||||||||||||||||||||||||||
75 Canal Street (South Hadley, MA) | 1978 | 2/15/2006 | 150,000 | 100 | % | $ | 359,673 | $ | 359,673 | $ | 2.40 | 2010 | 1978 | 2/15/2006 | 150,000 | 100 | % | $ | 359,673 | $ | 2.40 | 2010 | ||||||||||||||||||||||||||||||||||||||
2101 Fox Drive (Champaign, IL) | 1996 | 2/21/2006 | 20,400 | 100 | % | $ | 295,220 | $ | 295,220 | $ | 14.47 | 2013 | 1996 | 2/21/2006 | 20,400 | 100 | % | $ | 295,220 | $ | 14.47 | 2013 | ||||||||||||||||||||||||||||||||||||||
2109 Fox Drive (Champaign, IL) | 1996 | 2/21/2006 | 40,000 | 100 | % | $ | 578,863 | $ | 578,863 | $ | 14.47 | 2013 | 1996 | 2/21/2006 | 40,000 | 100 | % | $ | 578,863 | $ | 14.47 | 2013 | ||||||||||||||||||||||||||||||||||||||
2215 Fox Drive (Champaign, IL) | 1996 | 2/21/2006 | 25,000 | 100 | % | $ | 361,790 | $ | 361,790 | $ | 14.47 | 2013 | 1996 | 2/21/2006 | 25,000 | 100 | % | $ | 361,790 | $ | 14.47 | 2013 | ||||||||||||||||||||||||||||||||||||||
2301 Fox Drive (Champaign, IL) | 1996 | 2/21/2006 | 22,862 | 100 | % | $ | 330,849 | $ | 330,849 | $ | 14.47 | 2013 | 1996 | 2/21/2006 | 22,862 | 100 | % | $ | 330,849 | $ | 14.47 | 2013 | ||||||||||||||||||||||||||||||||||||||
2470 Highcrest Road (Roseville, MN) | 1964 | 2/21/2006 | 359,540 | 100 | % | $ | 3,030,458 | $ | 3,030,458 | $ | 8.43 | 2012 | 1964 | 2/21/2006 | 359,540 | 100 | % | $ | 3,030,460 | $ | 8.43 | 2012 | ||||||||||||||||||||||||||||||||||||||
12000 Portland Avenue South (Burnsville, MN) | 1984 | 5/10/2006 | 114,100 | 100 | % | $ | 1,234,632 | $ | 1,234,632 | $ | 10.82 | 2015 | 1984 | 5/10/2006 | 114,100 | 100 | % | $ | 1,234,662 | $ | 10.82 | 2015 | ||||||||||||||||||||||||||||||||||||||
14701 Anthony Avenue (Menomonee Falls, WI) | 1986/2000 | 6/30/2006 | 125,692 | 100 | % | $ | 775,274 | $ | 775,274 | $ | 6.17 | 2016 | 1986/2000 | 6/30/2006 | 125,692 | 100 | % | $ | 775,274 | $ | 6.17 | 2016 | ||||||||||||||||||||||||||||||||||||||
1025 Birdsong Drive (Baytown, TX) | 1997 | 7/11/2006 | 12,000 | 100 | % | $ | 254,121 | $ | 254,121 | $ | 21.18 | 2013 | 1997 | 7/11/2006 | 12,000 | 100 | % | $ | 254,121 | $ | 21.18 | 2013 | ||||||||||||||||||||||||||||||||||||||
42400 Merrill Road (Sterling Heights, MI) | 1979/1989 | 9/22/2006 | 532,869 | 100 | % | $ | 1,166,654 | $ | 1,166,654 | $ | 2.19 | 2016 | 1979/1989 | 9/22/2006 | 532,869 | 100 | % | $ | 1,166,654 | $ | 2.19 | 2016 | ||||||||||||||||||||||||||||||||||||||
2150, 2200 Pinson Valley Parkway (Birmingham, AL) | 1961/1980 | 9/29/2006 | 63,514 | 100 | % | $ | 271,163 | $ | 271,163 | $ | 4.27 | 2016 | 1961/1980 | 9/29/2006 | 63,514 | 100 | % | $ | 271,164 | $ | 4.27 | 2016 | ||||||||||||||||||||||||||||||||||||||
2325 West Fairview Avenue (Montgomery, AL) | 1962/1989 | 9/29/2006 | 29,472 | 100 | % | $ | 125,826 | $ | 125,826 | $ | 4.27 | 2016 | 1962/1989 | 9/29/2006 | 29,472 | 100 | % | $ | 125,827 | $ | 4.27 | 2016 | ||||||||||||||||||||||||||||||||||||||
5221 N Highway 763 (Columbia, MO) | 1978 | 9/29/2006 | 16,275 | 100 | % | $ | 69,483 | $ | 69,483 | $ | 4.27 | 2016 | 1978 | 9/29/2006 | 16,275 | 100 | % | $ | 69,484 | $ | 4.27 | 2016 | ||||||||||||||||||||||||||||||||||||||
4690 Parkway Drive (Mason, OH) | 2002 | 1/5/2007 | 60,000 | 100 | % | $ | 681,270 | $ | 681,270 | $ | 11.35 | 2013 | 2002 | 1/5/2007 | 60,000 | 100 | % | $ | 681,270 | $ | 11.35 | 2013 | ||||||||||||||||||||||||||||||||||||||
201 South Rogers Lane (Raleigh, NC) | 1994 | 2/16/2007 | 115,500 | 100 | % | $ | 717,203 | $ | 717,203 | $ | 6.21 | 2015 | 1994 | 2/16/2007 | 115,500 | 100 | % | $ | 717,203 | $ | 6.21 | 2015 | ||||||||||||||||||||||||||||||||||||||
1110 West Tenkiller (Tulsa, OK) | 2004 | 3/1/2007 | 238,310 | 100 | % | $ | 1,565,794 | $ | 1,565,794 | $ | 6.57 | 2019 | 2004 | 3/1/2007 | 238,310 | 100 | % | $ | 1,565,794 | $ | 6.57 | 2019 | ||||||||||||||||||||||||||||||||||||||
3725 East 10th Court (Hialeah, FL) | 1956/1992 | 3/9/2007 | 132,337 | 100 | % | $ | 995,388 | $ | 995,388 | $ | 7.52 | 2022 | 1956/1992 | 3/9/2007 | 132,337 | 100 | % | $ | 995,048 | $ | 7.52 | 2022 | ||||||||||||||||||||||||||||||||||||||
554 Clark Road (Tewksbury, MA) | 1985/1989 | 5/17/2007 | 102,200 | 100 | % | $ | 922,927 | $ | 922,927 | $ | 9.03 | 2017 | 1985/1989 | 5/17/2007 | 102,200 | 100 | % | $ | 922,926 | $ | 9.03 | 2017 | ||||||||||||||||||||||||||||||||||||||
5324 Natorp Boulevard (Mason, OH) | 2007 | 7/1/2007 | 21,264 | 100 | % | $ | 583,131 | $ | 583,131 | $ | 27.42 | 2027 | 2007 | 7/1/2007 | 21,264 | 100 | % | $ | 583,131 | $ | 27.42 | 2027 |
32
�� | Total Annualized Rental | Total Annualized | ||||||||||||||||||||||||||||||
Total Rental Income for | Income for the Year | Rental Income per | ||||||||||||||||||||||||||||||
Year Built/ | Rentable | the Year Ended | Ended | Occupied Square | Year of Lease | |||||||||||||||||||||||||||
Property | Improvements | Date of Purchase | Square Feet | Occupancy | December 31, 2008 | December 31, 2008(1) | Foot(2) | Expiration | ||||||||||||||||||||||||
7282 Willam Barry Boulevard (Cicero, NY) | 2005 | 9/6/2007 | 71,880 | 100 | % | $ | 529,743 | $ | 529,743 | $ | 7.37 | 2020 | ||||||||||||||||||||
1515 Arboretum Drive SE (Grand Rapids, MI) | 2001 | 9/28/2007 | 63,235 | 100 | % | $ | 1,029,184 | $ | 1,029,184 | $ | 16.28 | 2016 | ||||||||||||||||||||
4 Territorial Court (Bollingbrook, IL) | 2002 | 9/28/2007 | 55,869 | 100 | % | $ | 619,296 | $ | 619,296 | $ | 11.08 | 2014 | ||||||||||||||||||||
2349 Lawrenceville Highway (Decatur, GA) | 1989 | 12/13/2007 | 16,740 | 100 | % | $ | 404,159 | $ | 404,159 | $ | 24.14 | 2026 | ||||||||||||||||||||
2341 Lawrenceville Highway (Decatur, GA) | 1989 | 12/13/2007 | 4,372 | 100 | % | $ | 105,555 | $ | 105,555 | $ | 24.14 | 2026 | ||||||||||||||||||||
2339 Lawrenceville Highway (Decatur, GA) | 1989 | 12/13/2007 | 5,488 | 100 | % | $ | 132,498 | $ | 132,498 | $ | 24.14 | 2026 | ||||||||||||||||||||
311 Phillip Boulevard (Lawrenceville, GA) | 2005 | 12/13/2007 | 12,412 | 100 | % | $ | 349,871 | $ | 349,871 | $ | 28.19 | 2026 | ||||||||||||||||||||
2096 McGee Road (Snellville, GA) | 1986 | 12/13/2007 | 3,800 | 100 | % | $ | 90,815 | $ | 90,815 | $ | 23.90 | 2026 | ||||||||||||||||||||
7174 Wheat Street (Covington, GA) | 2000 | 12/13/2007 | 5,000 | 100 | % | $ | 119,493 | $ | 119,493 | $ | 23.90 | 2026 | ||||||||||||||||||||
1055 Haw Creek Parkway (Cumming, GA) | 2004 | 12/13/2007 | 13,919 | 100 | % | $ | 380,410 | $ | 380,410 | $ | 27.33 | 2026 | ||||||||||||||||||||
1293 Wellbrook Circle (Conyers, GA) | 1994 | 12/13/2007 | 6,400 | 100 | % | $ | 152,951 | $ | 152,951 | $ | 23.90 | 2026 | ||||||||||||||||||||
425 Gateway Drive (Reading, PA) | 2007 | 1/29/2008 | 42,900 | 100 | % | $ | 660,797 | $ | 716,664 | $ | 16.71 | 2028 | ||||||||||||||||||||
6499 University Avenue NE (Fridley, MN) | 1985/2006 | 2/26/2008 | 74,160 | 100 | % | $ | 799,528 | $ | 946,380 | $ | 12.76 | 2013 | ||||||||||||||||||||
7528 Auburn Road (Concord Township, OH) | 1957/2008 | 3/31/2008 | 273,300 | 100 | % | $ | 1,297,734 | $ | 1,724,136 | $ | 6.31 | 2028 | ||||||||||||||||||||
10021 Rodney Street (Pineville, NC) | 1985 | 4/30/2008 | 74,950 | 100 | % | $ | 293,265 | $ | 438,072 | $ | 5.84 | 2028 | ||||||||||||||||||||
28305 State Route 7 (Marietta, OH) | 1992/2007 | 8/29/2008 | 223,458 | 100 | % | $ | 306,146 | $ | 896,748 | $ | 4.01 | 2028 | ||||||||||||||||||||
400 Highpoint Drive (Chalfont, PA) | 1987 | 8/29/2008 | 67,200 | 100 | % | $ | 258,632 | $ | 757,572 | $ | 11.27 | 2016 | ||||||||||||||||||||
Totals | 6,329,956 | $ | 39,675,788 | $ | 41,539,258 | |||||||||||||||||||||||||||
Total Rental | ||||||||||||||||||||||||||||
Total Rental Income for | Income per | Year of | ||||||||||||||||||||||||||
Year Built/ | Rentable | the Year Ended | Occupied Square | Lease | ||||||||||||||||||||||||
Property | Improvements | Date of Purchase | Square Feet | Occupancy | December 31, 2009 | Foot | Expiration | |||||||||||||||||||||
7282 Willam Barry Boulevard (Cicero, NY) | 2005 | 9/6/2007 | 71,880 | 100 | % | $ | 529,743 | $ | 7.37 | 2020 | ||||||||||||||||||
1515 Arboretum Drive SE (Grand Rapids, MI) | 2001 | 9/28/2007 | 63,235 | 100 | % | $ | 1,029,184 | $ | 16.28 | 2016 | ||||||||||||||||||
4 Territorial Court (Bollingbrook, IL) | 2002 | 9/28/2007 | 55,869 | 100 | % | $ | 619,296 | $ | 11.08 | 2014 | ||||||||||||||||||
2349 Lawrenceville Highway (Decatur, GA) | 1989 | 12/13/2007 | 16,740 | 100 | % | $ | 404,159 | $ | 24.14 | 2026 | ||||||||||||||||||
2341 Lawrenceville Highway (Decatur, GA) | 1989 | 12/13/2007 | 4,372 | 100 | % | $ | 105,555 | $ | 24.14 | 2026 | ||||||||||||||||||
2339 Lawrenceville Highway (Decatur, GA) | 1989 | 12/13/2007 | 5,488 | 100 | % | $ | 132,498 | $ | 24.14 | 2026 | ||||||||||||||||||
311 Phillip Boulevard (Lawrenceville, GA) | 2005 | 12/13/2007 | 12,412 | 100 | % | $ | 349,871 | $ | 28.19 | 2026 | ||||||||||||||||||
2096 McGee Road (Snellville, GA) | 1986 | 12/13/2007 | 3,800 | 100 | % | $ | 90,815 | $ | 23.90 | 2026 | ||||||||||||||||||
7174 Wheat Street (Covington, GA) | 2000 | 12/13/2007 | 5,000 | 100 | % | $ | 119,493 | $ | 23.90 | 2026 | ||||||||||||||||||
1055 Haw Creek Parkway (Cumming, GA) | 2004 | 12/13/2007 | 13,919 | 100 | % | $ | 380,410 | $ | 27.33 | 2026 | ||||||||||||||||||
1293 Wellbrook Circle (Conyers, GA) | 1994 | 12/13/2007 | 6,400 | 100 | % | $ | 152,951 | $ | 23.90 | 2026 | ||||||||||||||||||
425 Gateway Drive (Reading, PA) | 2007 | 1/29/2008 | 42,900 | 100 | % | $ | 716,667 | $ | 16.71 | 2028 | ||||||||||||||||||
6499 University Avenue NE (Fridley, MN) | 1985/2006 | 2/26/2008 | 74,160 | 100 | % | $ | 946,380 | $ | 12.76 | 2013 | ||||||||||||||||||
7528 Auburn Road (Concord Township, OH) | 1957/2008 | 3/31/2008 | 273,300 | 100 | % | $ | 1,724,133 | $ | 6.31 | 2028 | ||||||||||||||||||
10021 Rodney Street (Pineville, NC) | 1985 | 4/30/2008 | 74,950 | 100 | % | $ | 438,282 | $ | 5.85 | 2028 | ||||||||||||||||||
28305 State Route 7 (Marietta, OH) | 1992/2007 | 8/29/2008 | 223,458 | 100 | % | $ | 896,743 | $ | 4.01 | 2028 | ||||||||||||||||||
400 Highpoint Drive (Chalfont, PA) | 1987 | 8/29/2008 | 67,200 | 100 | % | $ | 757,570 | $ | 11.27 | 2016 | ||||||||||||||||||
Totals | 6,304,159 | $ | 41,513,977 | |||||||||||||||||||||||||
(1) | ||
Two tenants occupy this building, each with separate leases ending in |
33
Year of Lease | Annualized Base | % of Annualized | ||||||||||||||
Expiration | Square Feet | Number of Leases | Rental Revenue | Base Rent | ||||||||||||
2010 | 215,581 | 3 | $ | 1,409,691 | 3.4 | % | ||||||||||
2011 | — | 0 | — | 0.0 | % | |||||||||||
2012 | 479,982 | 3 | 4,429,605 | 10.7 | % | |||||||||||
2013 | 438,422 | 6 | 4,673,341 | 11.3 | % | |||||||||||
2014 | 614,132 | 5 | 3,082,200 | 7.4 | % | |||||||||||
2015 | 896,876 | 8 | 6,728,265 | 16.2 | % | |||||||||||
2016 | 898,257 | 5 | 4,195,157 | 10.1 | % | |||||||||||
2017 | 102,200 | 1 | 922,926 | 2.2 | % | |||||||||||
2018 | 59,894 | 1 | 268,042 | 0.7 | % | |||||||||||
2019+ | 2,598,815 | 18 | 15,804,750 | 38.0 | % | |||||||||||
Total | 6,304,159 | 50 | $ | 41,513,977 | 100 | % | ||||||||||
Number of | Annualized Base | % of Annualized | ||||||||||||||
State | Square Feet | Leases | Rental Revenue | Base Rent | ||||||||||||
Ohio | 1,185,411 | 11 | $ | 7,327,553 | 17.7 | % | ||||||||||
Minnesota | 547,800 | 3 | 5,211,502 | 12.6 | % | |||||||||||
North Carolina | 695,876 | 6 | 3,801,196 | 9.2 | % | |||||||||||
Pennsylvania | 623,375 | 4 | 3,043,313 | 7.3 | % | |||||||||||
Texas | 188,178 | 4 | 2,355,843 | 5.7 | % | |||||||||||
Michigan | 596,104 | 2 | 2,195,838 | 5.3 | % | |||||||||||
Illinois | 164,131 | 2 | 2,186,018 | 5.3 | % | |||||||||||
Massachusetts | 338,508 | 3 | 2,174,091 | 5.2 | % | |||||||||||
All Other States | 1,964,776 | 15 | 13,218,623 | 31.7 | % | |||||||||||
Total | 6,304,159 | 50 | $ | 41,513,977 | 100 | % | ||||||||||
3334
Market Price Per Share | Distributions Paid | |||||||||||
Quarter Ended | High | Low | Per Share | |||||||||
03/31/07 | $ | 20.63 | $ | 19.06 | $ | 0.360 | ||||||
06/30/07 | 20.40 | 19.01 | 0.360 | |||||||||
09/30/07 | 20.10 | 17.40 | 0.360 | |||||||||
12/31/07 | 19.45 | 15.75 | 0.360 | |||||||||
03/31/08 | 18.00 | 15.01 | 0.375 | |||||||||
06/30/08 | 18.29 | 15.75 | 0.375 | |||||||||
09/30/08 | 17.00 | 14.40 | 0.375 | |||||||||
12/31/08 | 15.79 | 7.30 | 0.375 |
Market price per share | Distributions | |||||||||||
Quarter Ended | High | Low | Declared Per Share | |||||||||
3/31/2008 | $ | 18.50 | $ | 14.81 | $ | 0.375 | ||||||
6/30/2008 | $ | 18.50 | $ | 15.36 | $ | 0.375 | ||||||
9/30/2008 | $ | 17.38 | $ | 13.96 | $ | 0.375 | ||||||
12/31/2008 | $ | 15.89 | $ | 6.37 | $ | 0.375 | ||||||
3/31/2009 | $ | 10.20 | $ | 5.36 | $ | 0.375 | ||||||
6/30/2009 | $ | 16.21 | $ | 8.20 | $ | 0.375 | ||||||
9/30/2009 | $ | 14.50 | $ | 11.26 | $ | 0.375 | ||||||
12/31/2009 | $ | 14.19 | $ | 11.85 | $ | 0.375 |
• | the sum of (A) 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and capital gain) and (B) 90% of the net income (after tax), if any, from foreclosure property, less | ||
• | the sum of certain non-cash items. |
3435
Year ended | Year ended | Year ended | Year ended | Year ended | Year ended | Year ended | Year ended | Year ended | Year ended | |||||||||||||||||||||||||||||||
December 31, 2008 | December 31, 2007 | December 31, 2006 | December 31, 2005 | December 31, 2004 | December 31, 2009 | December 31, 2008 | December 31, 2007 | December 31, 2006 | December 31, 2005 | |||||||||||||||||||||||||||||||
Operating Data: | ||||||||||||||||||||||||||||||||||||||||
Total operating revenue | $ | 40,910,998 | $ | 32,793,539 | $ | 25,945,546 | $ | 12,881,506 | $ | 4,191,329 | $ | 42,608,937 | $ | 40,807,497 | $ | 32,690,038 | $ | 25,842,045 | $ | 12,778,005 | ||||||||||||||||||||
Total operating expenses | (19,391,922 | ) | (15,821,630 | ) | (14,067,096 | ) | (7,185,040 | ) | (3,276,735 | ) | (20,540,529 | ) | (19,363,723 | ) | (15,791,430 | ) | (14,035,669 | ) | (7,156,347 | ) | ||||||||||||||||||||
Other expense | (16,570,753 | ) | (10,940,394 | ) | (8,521,419 | ) | (2,185,509 | ) | 614,659 | (17,668,460 | ) | (16,570,753 | ) | (10,940,394 | ) | (8,521,419 | ) | (2,185,509 | ) | |||||||||||||||||||||
Income from continuing operations | 4,948,323 | 6,031,515 | 3,357,031 | 3,510,957 | 1,529,253 | 4,399,948 | 4,873,021 | 5,958,214 | 3,284,957 | 3,436,149 | ||||||||||||||||||||||||||||||
Discontinued operations | (35,376 | ) | 108,714 | 1,015,797 | 90,988 | 94,675 | 203,100 | 39,926 | 182,015 | 1,087,871 | 165,796 | |||||||||||||||||||||||||||||
Net income | $ | 4,912,947 | $ | 6,140,229 | $ | 4,372,828 | $ | 3,601,945 | $ | 1,623,928 | $ | 4,603,048 | $ | 4,912,947 | $ | 6,140,229 | $ | 4,372,828 | $ | 3,601,945 | ||||||||||||||||||||
Distributions attributable to preferred stock | (4,093,750 | ) | (4,093,750 | ) | (2,186,890 | ) | — | — | ||||||||||||||||||||||||||||||||
Dividends attributable to preferred stock | (4,093,750 | ) | (4,093,750 | ) | (4,093,750 | ) | (2,186,890 | ) | — | |||||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 819,197 | $ | 2,046,479 | $ | 2,185,938 | $ | 3,601,945 | $ | 1,623,928 | $ | 509,298 | $ | 819,197 | $ | 2,046,479 | $ | 2,185,938 | $ | 3,601,945 | ||||||||||||||||||||
Share and Per Share Data: | ||||||||||||||||||||||||||||||||||||||||
Earnings per weighted average common share — basic | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations (net of distributions attributable to preferred stock) | $ | 0.10 | $ | 0.23 | $ | 0.15 | $ | 0.46 | $ | 0.20 | ||||||||||||||||||||||||||||||
Income from continuing operations (net of dividends attributable to preferred stock) | $ | 0.04 | $ | 0.09 | $ | 0.22 | $ | 0.14 | $ | 0.45 | ||||||||||||||||||||||||||||||
Discontinued operations | 0.00 | 0.01 | 0.13 | 0.01 | 0.01 | 0.02 | 0.01 | 0.02 | 0.14 | 0.02 | ||||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 0.10 | $ | 0.24 | $ | 0.28 | $ | 0.47 | $ | 0.21 | $ | 0.06 | $ | 0.10 | $ | 0.24 | $ | 0.28 | $ | 0.47 | ||||||||||||||||||||
Earnings per weighted average common share — diluted | ||||||||||||||||||||||||||||||||||||||||
Income from continuing operations (net of distributions attributable to preferred stock) | $ | 0.10 | $ | 0.23 | $ | 0.14 | $ | 0.46 | $ | 0.20 | ||||||||||||||||||||||||||||||
Income from continuing operations (net of dividends attributable to preferred stock) | $ | 0.04 | $ | 0.09 | $ | 0.22 | $ | 0.14 | $ | 0.45 | ||||||||||||||||||||||||||||||
Discontinued operations | 0.00 | 0.01 | 0.13 | 0.01 | 0.01 | 0.02 | 0.01 | 0.02 | 0.13 | 0.02 | ||||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 0.10 | $ | 0.24 | $ | 0.27 | $ | 0.47 | $ | 0.21 | $ | 0.06 | $ | 0.10 | $ | 0.24 | $ | 0.27 | $ | 0.47 | ||||||||||||||||||||
Weighted average shares outstanding-basic | 8,565,149 | 8,565,264 | 7,827,781 | 7,670,219 | 7,649,855 | 8,563,264 | 8,565,149 | 8,565,264 | 7,827,781 | 7,670,219 | ||||||||||||||||||||||||||||||
Weighted average shares outstanding-diluted | 8,565,149 | 8,565,264 | 7,986,690 | 7,723,220 | 7,708,534 | 8,563,264 | 8,565,149 | 8,565,264 | 7,986,690 | 7,723,220 | ||||||||||||||||||||||||||||||
Cash distributions declared per common share | $ | 1.50 | $ | 1.44 | $ | 1.44 | $ | 0.96 | $ | 0.48 | ||||||||||||||||||||||||||||||
Cash dividends declared per common share | $ | 1.50 | $ | 1.50 | $ | 1.44 | $ | 1.44 | $ | 0.96 | ||||||||||||||||||||||||||||||
Supplemental Data: | ||||||||||||||||||||||||||||||||||||||||
Net income available to common stockholders | $ | 819,197 | $ | 2,046,479 | $ | 2,185,938 | $ | 3,601,945 | $ | 1,623,928 | $ | 509,298 | $ | 819,197 | $ | 2,046,479 | $ | 2,185,938 | $ | 3,601,945 | ||||||||||||||||||||
Real estate depreciation and amortization, including discontinued operations | 12,704,641 | 10,528,458 | 8,349,474 | 3,651,119 | 973,345 | 13,171,703 | 12,704,641 | 10,528,458 | 8,349,474 | 3,651,119 | ||||||||||||||||||||||||||||||
Less: Gain on sale of real estate, net of taxes paid | — | (78,667 | ) | (1,106,590 | ) | — | — | (160,038 | ) | — | (78,667 | ) | (1,106,590 | ) | — | |||||||||||||||||||||||||
Funds from operations available to common stockholders(1) | 13,523,838 | 12,496,270 | 9,428,822 | 7,253,064 | 2,597,273 | 13,520,963 | 13,523,838 | 12,496,270 | 9,428,822 | 7,253,064 | ||||||||||||||||||||||||||||||
Ratio of earnings to combined fixed charges and preferred distributions(2) | 1.0 | x | 1.1 | x | 1.1 | x | 2.4 | x | 60.8 | x | ||||||||||||||||||||||||||||||
Ratio of earnings to combined fixed charges and preferred dividends(2) | 1.0x | 1.0x | 1.1x | 1.1x | 2.4x | |||||||||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||||
Real estate, before accumulated depreciation | $ | 390,562,138 | $ | 340,500,406 | $ | 243,713,542 | $ | 165,043,639 | $ | 61,251,455 | $ | 390,753,892 | $ | 390,562,138 | $ | 340,500,406 | $ | 243,713,542 | $ | 165,043,639 | ||||||||||||||||||||
Total assets | $ | 429,098,785 | $ | 378,902,689 | $ | 315,766,022 | $ | 207,046,954 | $ | 105,585,094 | $ | 416,865,373 | $ | 429,098,785 | $ | 378,902,689 | $ | 315,766,022 | $ | 207,046,954 | ||||||||||||||||||||
Mortgage notes payable, term loan and borrowings under the line of credit | $ | 286,611,173 | $ | 226,520,471 | $ | 154,494,438 | $ | 105,118,961 | $ | — | $ | 285,961,651 | $ | 286,611,173 | $ | 226,520,471 | $ | 154,494,438 | $ | 105,118,961 | ||||||||||||||||||||
Total stockholders’ equity | $ | 130,495,260 | $ | 142,368,068 | $ | 152,224,176 | $ | 98,948,536 | $ | 102,692,693 | $ | 118,450,542 | $ | 130,495,260 | $ | 142,368,068 | $ | 152,224,176 | $ | 98,948,536 | ||||||||||||||||||||
Total common shares outstanding | 8,563,264 | 8,565,264 | 8,565,264 | 7,672,000 | 7,667,000 | 8,563,264 | 8,565,149 | 8,565,264 | 8,565,264 | 7,672,000 |
(1) | Funds from Operations (“FFO”) was developed by The National Association of Real Estate Investment Trusts (“NAREIT”), as a relative non-GAAP (“Generally Accepted Accounting Principles in the United States”) 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 (loss) (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 in accordance with GAAP and should not be considered an alternative to either net income (loss) as an indication of our performance or to cash flow from operations as a measure of liquidity or ability to make |
3536
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||||||||||||||||
For the year ended December 31, | December 31, 2009 | December 31, 2008 | December 31, 2007 | December 31, 2006 | December 31, 2005 | |||||||||||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||||||||||||||||||
Net income | $ | 4,912,947 | $ | 6,140,229 | $ | 4,372,828 | $ | 3,601,945 | $ | 1,623,928 | $ | 4,603,048 | $ | 4,912,947 | $ | 6,140,229 | $ | 4,372,828 | $ | 3,601,945 | ||||||||||||||||||||
Less: Distributions attributable to preferred stock | (4,093,750 | ) | (4,093,750 | ) | (2,186,890 | ) | — | — | (4,093,750 | ) | (4,093,750 | ) | (4,093,750 | ) | (2,186,890 | ) | — | |||||||||||||||||||||||
Net income available to common stockholders | 819,197 | 2,046,479 | 2,185,938 | 3,601,945 | 1,623,928 | 509,298 | 819,197 | 2,046,479 | 2,185,938 | 3,601,945 | ||||||||||||||||||||||||||||||
Add: Real estate depreciation and amortization, including discontinued operations | 12,704,641 | 10,528,458 | 8,349,474 | 3,651,119 | 973,345 | 13,171,703 | 12,704,641 | 10,528,458 | 8,349,474 | 3,651,119 | ||||||||||||||||||||||||||||||
Less: Gain on sale of real estate, net of taxes paid | — | (78,667 | ) | (1,106,590 | ) | — | — | |||||||||||||||||||||||||||||||||
Less: Gain on sale of real estate | (160,038 | ) | — | (78,667 | ) | (1,106,590 | ) | — | ||||||||||||||||||||||||||||||||
FFO available to common stockholders | $ | 13,523,838 | $ | 12,496,270 | $ | 9,428,822 | $ | 7,253,064 | $ | 2,597,273 | $ | 13,520,963 | $ | 13,523,838 | $ | 12,496,270 | $ | 9,428,822 | $ | 7,253,064 | ||||||||||||||||||||
Weighted average shares outstanding — basic | 8,565,149 | 8,565,264 | 7,827,781 | 7,670,219 | 7,649,855 | 8,563,264 | 8,565,149 | 8,565,264 | 7,827,781 | 7,670,219 | ||||||||||||||||||||||||||||||
Weighted average shares outstanding — diluted | 8,565,149 | 8,565,264 | 7,986,690 | 7,723,220 | 7,708,534 | 8,563,264 | 8,565,149 | 8,565,264 | 7,986,690 | 7,723,220 | ||||||||||||||||||||||||||||||
Basic net income per weighted average common share | $ | 0.10 | $ | 0.24 | $ | 0.28 | $ | 0.47 | $ | 0.21 | $ | 0.06 | $ | 0.10 | $ | 0.24 | $ | 0.28 | $ | 0.47 | ||||||||||||||||||||
Diluted net income per weighted average common share | $ | 0.10 | $ | 0.24 | $ | 0.27 | $ | 0.47 | $ | 0.21 | $ | 0.06 | $ | 0.10 | $ | 0.24 | $ | 0.27 | $ | 0.47 | ||||||||||||||||||||
Basic FFO per weighted average common share | $ | 1.58 | $ | 1.46 | $ | 1.20 | $ | 0.95 | $ | 0.34 | $ | 1.58 | $ | 1.58 | $ | 1.46 | $ | 1.20 | $ | 0.95 | ||||||||||||||||||||
Diluted FFO per weighted average common share | $ | 1.58 | $ | 1.46 | $ | 1.18 | $ | 0.94 | $ | 0.34 | $ | 1.58 | $ | 1.58 | $ | 1.46 | $ | 1.18 | $ | 0.94 | ||||||||||||||||||||
Distributions declared per common share | $ | 1.50 | $ | 1.44 | $ | 1.44 | $ | 0.96 | $ | 0.48 | $ | 1.50 | $ | 1.50 | $ | 1.44 | $ | 1.44 | $ | 0.96 | ||||||||||||||||||||
Percentage of FFO paid per common share | 95 | % | 99 | % | 120 | % | 102 | % | 141 | % | 95 | % | 95 | % | 99 | % | 120 | % | 102 | % | ||||||||||||||||||||
(2) | The calculation of the ratio of earnings to combined fixed charges and preferred distributions is below. “Earnings” consist of net income from continuing operations before fixed charges. “Fixed charges” consist of interest expense, amortization of deferred financing fees and the portion of operating lease expense that represents interest. The portion of operating lease expense that represents interest is calculated by dividing the amount of rent expense, allocated to us by our Adviser as part of the administration fee payable under the |
For the year ended | For the year ended | For the year ended | For the year ended | For the year ended | ||||||||||||||||||||||||||||||||||||
For the year ended | For the year ended | For the year ended | For the year ended | For the year ended | December 31, 2009 | December 31, 2008 | December 31, 2007 | December 31, 2006 | December 31, 2005 | |||||||||||||||||||||||||||||||
December 31, 2008 | December 31, 2007 | December 31, 2006 | December 31, 2005 | December 31, 2004 | ||||||||||||||||||||||||||||||||||||
Net income from continuing operations | $ | 4,948,323 | $ | 6,031,515 | $ | 3,357,031 | $ | 3,510,957 | $ | 1,529,253 | $ | 4,399,948 | $ | 4,873,021 | $ | 5,958,214 | $ | 3,284,957 | $ | 3,436,149 | ||||||||||||||||||||
Add: fixed charges | 20,283,961 | 15,670,067 | 11,490,476 | 2,494,245 | 25,565 | 22,000,728 | 20,963,484 | 15,670,067 | 11,490,476 | 2,494,245 | ||||||||||||||||||||||||||||||
Less: preferred distributions | (4,093,750 | ) | (4,093,750 | ) | (2,186,890 | ) | — | — | (4,093,750 | ) | (4,093,750 | ) | (4,093,750 | ) | (2,186,890 | ) | — | |||||||||||||||||||||||
Earnings | $ | 21,138,534 | $ | 17,607,832 | $ | 12,660,617 | $ | 6,005,202 | $ | 1,554,818 | $ | 22,306,926 | $ | 21,742,755 | $ | 17,534,531 | $ | 12,588,543 | $ | 5,930,394 | ||||||||||||||||||||
Fixed charges: | ||||||||||||||||||||||||||||||||||||||||
Fixed Charges: | ||||||||||||||||||||||||||||||||||||||||
Interest expense | 15,574,731 | 10,847,346 | 8,041,412 | 2,187,586 | — | 16,398,938 | 15,574,735 | 10,847,346 | 8,041,412 | 2,187,586 | ||||||||||||||||||||||||||||||
Amortization of deferred financing fees | 604,433 | 717,195 | 1,207,198 | 260,098 | — | 1,495,598 | 1,283,952 | 717,195 | 1,207,198 | 260,098 | ||||||||||||||||||||||||||||||
Estimated interest component of rent | 11,047 | 11,776 | 54,976 | 46,561 | 25,565 | 12,442 | 11,047 | 11,776 | 54,976 | 46,561 | ||||||||||||||||||||||||||||||
Preferred distributions | 4,093,750 | 4,093,750 | 2,186,890 | — | — | 4,093,750 | 4,093,750 | 4,093,750 | 2,186,890 | — | ||||||||||||||||||||||||||||||
Total fixed charges and preferred distributions | 20,283,961 | 15,670,067 | 11,490,476 | 2,494,245 | 25,565 | 22,000,728 | 20,963,484 | 15,670,067 | 11,490,476 | 2,494,245 | ||||||||||||||||||||||||||||||
Ratio of earnings to combined fixed charges and preferred distributions | 1.0 | 1.1 | 1.1 | 2.4 | 60.8 | 1.0 | 1.0 | 1.1 | 1.1 | 2.4 |
3637
Item 7. |
38
37
3839
December 31, 2009 | December 31, 2008 | |||||||||||||||
Percentage of | Percentage of | |||||||||||||||
Industry Classification | Rental Income | Rental Income | Rental Income | Rental Income | ||||||||||||
Automobile | $ | 1,166,654 | 2.8 | % | $ | 1,166,654 | 2.9 | % | ||||||||
Beverage, Food & Tobacco | 2,188,755 | 5.3 | % | 2,079,113 | 5.3 | % | ||||||||||
Buildings and Real Estate | 2,025,668 | 4.9 | % | 2,013,515 | 5.1 | % | ||||||||||
Chemicals, Plastics & Rubber | 3,173,514 | 7.6 | % | 2,452,628 | 6.2 | % | ||||||||||
Containers, Packaging & Glass | 2,330,246 | 5.6 | % | 2,288,909 | 5.8 | % | ||||||||||
Diversified/Conglomerate Manufacturing | 3,664,686 | 8.8 | % | 3,165,747 | 8.0 | % | ||||||||||
Diversified/Conglomerate Services | 308,105 | 0.7 | % | 308,105 | 0.8 | % | ||||||||||
Electronics | 6,164,789 | 14.9 | % | 6,165,789 | 15.7 | % | ||||||||||
Healthcare, Education & Childcare | 6,145,415 | 14.8 | % | 5,719,016 | 14.5 | % | ||||||||||
Home & Office Furnishings | 529,743 | 1.3 | % | 529,743 | 1.3 | % | ||||||||||
Insurance | 722,866 | 1.7 | % | 722,866 | 1.8 | % | ||||||||||
Machinery | 2,389,607 | 5.8 | % | 2,241,752 | 5.7 | % | ||||||||||
Oil & Gas | 1,138,136 | 2.7 | % | 1,152,443 | 2.9 | % | ||||||||||
Personal & Non-Durable Consumer Products | 1,354,721 | 3.3 | % | 1,355,061 | 3.4 | % | ||||||||||
Personal, Food & Miscellaneous Services | 575,006 | 1.4 | % | 575,006 | 1.5 | % | ||||||||||
Printing & Publishing | 2,189,033 | 5.3 | % | 2,189,602 | 5.5 | % | ||||||||||
Telecommunications | 5,447,033 | 13.1 | % | 5,446,338 | 13.6 | % | ||||||||||
$ | 41,513,977 | 100.0 | % | $ | 39,572,287 | 100.0 | % | |||||||||
40
• | no incentive fee in any calendar quarter in which our pre-incentive fee FFO does not exceed the hurdle rate of 1.75% (7% annualized); | ||
• | 100% of the amount of the pre-incentive fee FFO that exceeds the hurdle rate, but is less than 2.1875% in any calendar quarter (8.75% annualized); and | ||
• | 20% of the amount of our pre-incentive fee FFO that exceeds 2.1875% in any calendar quarter (8.75% annualized). |
41
39
42
40
• | The amount of | ||
• | The amounts allocated to the value of above-market and below-market lease values are amortized to rental income over the remaining non-cancelable terms of the respective leases. The amounts allocated to all other tangible and intangible assets are amortized to depreciation or amortization expense. Thus, changes in the purchase price allocation among our assets could have a material impact on our FFO, depending on the amounts allocated between land and other depreciable assets, which is used by many REIT investors | ||
• | The period of time that tangible and intangible assets are depreciated over varies greatly and thus, changes in the amounts allocated to these assets will have a direct impact on our results of operations. Intangible assets are generally amortized over the respective life of the leases, which normally range from 10 to 15 years, we depreciate our buildings over 39 years, and land is not depreciated. These differences in timing could have a material impact on our results of operations. |
43
41
44
For the year ended December 31, | ||||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||||
Operating revenues | ||||||||||||||||
Rental income | $ | 41,513,977 | $ | 39,572,287 | $ | 1,941,690 | 5 | % | ||||||||
Interest income from mortgage notes receivable | 760,417 | 898,573 | (138,156 | ) | -15 | % | ||||||||||
Tenant recovery revenue | 334,543 | 336,637 | (2,094 | ) | -1 | % | ||||||||||
Total operating revenues | 42,608,937 | 40,807,497 | 1,801,440 | 4 | % | |||||||||||
Operating expenses | ||||||||||||||||
Depreciation and amortization | 13,161,287 | 12,679,437 | 481,850 | 4 | % | |||||||||||
Property operating expenses | 915,120 | 875,850 | 39,270 | 4 | % | |||||||||||
Due diligence expense | 40,574 | 1,176,379 | (1,135,805 | ) | -97 | % | ||||||||||
Base management fee | 1,401,402 | 1,637,851 | (236,449 | ) | -14 | % | ||||||||||
Incentive fee | 3,238,634 | 2,831,722 | 406,912 | 14 | % | |||||||||||
Administration fee | 1,015,695 | 954,635 | 61,060 | 6 | % | |||||||||||
Professional fees | 649,566 | 521,410 | 128,156 | 25 | % | |||||||||||
Insurance | 203,682 | 173,414 | 30,268 | 17 | % | |||||||||||
Directors fees | 198,882 | 216,851 | (17,969 | ) | -8 | % | ||||||||||
Stockholder related expense | 236,160 | 298,384 | (62,224 | ) | -21 | % | ||||||||||
Asset retirement obligation expense | 143,089 | 131,472 | 11,617 | 9 | % | |||||||||||
General and administrative | 62,886 | 63,263 | (377 | ) | -1 | % | ||||||||||
Total operating expenses before credit from Adviser | 21,266,977 | 21,560,668 | (293,691 | ) | -1 | % | ||||||||||
Credit to incentive fee | (726,448 | ) | (2,196,945 | ) | 1,470,497 | -67 | % | |||||||||
Total operating expenses | 20,540,529 | 19,363,723 | 1,176,806 | 6 | % | |||||||||||
Other income (expense) | ||||||||||||||||
Interest income from temporary investments | 20,748 | 21,844 | (1,096 | ) | -5 | % | ||||||||||
Interest income — employee loans | 192,350 | 202,097 | (9,747 | ) | -5 | % | ||||||||||
Other income | 12,978 | 63,993 | (51,015 | ) | -80 | % | ||||||||||
Interest expense | (17,894,536 | ) | (16,858,687 | ) | (1,035,849 | ) | 6 | % | ||||||||
Total other expense | (17,668,460 | ) | (16,570,753 | ) | (1,097,707 | ) | 7 | % | ||||||||
Income from continuing operations | 4,399,948 | 4,873,021 | (473,073 | ) | -10 | % | ||||||||||
Discontinued operations | ||||||||||||||||
Income from discontinued operations | 43,062 | 39,926 | 3,136 | 8 | % | |||||||||||
Gain on sale of real estate | 160,038 | — | 160,038 | 100 | % | |||||||||||
Total discontinued operations | 203,100 | 39,926 | 163,174 | 409 | % | |||||||||||
Net income | 4,603,048 | 4,912,947 | (309,899 | ) | -6 | % | ||||||||||
Distributions attributable to preferred stock | (4,093,750 | ) | (4,093,750 | ) | — | 0 | % | |||||||||
Net income available to common stockholders | $ | 509,298 | $ | 819,197 | $ | (309,899 | ) | -38 | % | |||||||
4245
46
47
For the year ended December 31, | For the year ended December 31, | |||||||||||||||||||||||||||||||
2008 | 2007 | $ Change | % Change | 2008 | 2007 | $ Change | % Change | |||||||||||||||||||||||||
Operating revenues | ||||||||||||||||||||||||||||||||
Rental income | $ | 39,675,788 | $ | 31,469,297 | $ | 8,206,491 | 26 | % | $ | 39,572,287 | $ | 31,365,796 | $ | 8,206,491 | 26 | % | ||||||||||||||||
Interest income from mortgage notes receivable | 898,573 | 1,013,889 | (115,316 | ) | -11 | % | 898,573 | 1,013,889 | (115,316 | ) | -11 | % | ||||||||||||||||||||
Tenant recovery revenue | 336,637 | 310,353 | 26,284 | 8 | % | 336,637 | 310,353 | 26,284 | 8 | % | ||||||||||||||||||||||
Total operating revenues | 40,910,998 | 32,793,539 | 8,117,459 | 25 | % | 40,807,497 | 32,690,038 | 8,117,459 | 25 | % | ||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 12,704,641 | 10,528,458 | 2,176,183 | 21 | % | 12,679,437 | 10,503,258 | 2,176,179 | 21 | % | ||||||||||||||||||||||
Property operating expenses | 877,073 | 800,822 | 76,251 | 10 | % | 875,850 | 798,939 | 76,911 | 10 | % | ||||||||||||||||||||||
Due diligence expense | 1,176,379 | 20,968 | 1,155,411 | 5510 | % | 1,176,379 | 20,968 | 1,155,411 | 5510 | % | ||||||||||||||||||||||
Base management fee | 1,637,851 | 1,858,120 | (220,269 | ) | -12 | % | 1,637,851 | 1,858,120 | (220,269 | ) | -12 | % | ||||||||||||||||||||
Incentive fee | 2,831,722 | 2,564,365 | 267,357 | 10 | % | 2,831,722 | 2,564,365 | 267,357 | 10 | % | ||||||||||||||||||||||
Administration fee | 954,635 | 837,898 | 116,737 | 14 | % | 954,635 | 837,898 | 116,737 | 14 | % | ||||||||||||||||||||||
Professional fees | 521,410 | 625,349 | (103,939 | ) | -17 | % | 521,410 | 625,349 | (103,939 | ) | -17 | % | ||||||||||||||||||||
Insurance | 173,414 | 214,141 | (40,727 | ) | -19 | % | 173,414 | 214,141 | (40,727 | ) | -19 | % | ||||||||||||||||||||
Directors fees | 216,851 | 229,000 | (12,149 | ) | -5 | % | 216,851 | 229,000 | (12,149 | ) | -5 | % | ||||||||||||||||||||
Stockholder related expense | 298,384 | 244,629 | 53,755 | 22 | % | 298,384 | 244,629 | 53,755 | 22 | % | ||||||||||||||||||||||
Asset retirement obligation expense | 133,244 | 116,478 | 16,766 | 14 | % | 131,472 | 114,821 | 16,651 | 15 | % | ||||||||||||||||||||||
General and administrative | 63,263 | 102,999 | (39,736 | ) | -39 | % | 63,263 | 101,539 | (38,276 | ) | -38 | % | ||||||||||||||||||||
Total operating expenses before credit from Adviser | 21,588,867 | 18,143,227 | 3,445,640 | 19 | % | 21,560,668 | 18,113,027 | 3,447,641 | 19 | % | ||||||||||||||||||||||
Credit to incentive fee | (2,196,945 | ) | (2,321,597 | ) | 124,652 | -5 | % | (2,196,945 | ) | (2,321,597 | ) | 124,652 | -5 | % | ||||||||||||||||||
Total operating expenses | 19,391,922 | 15,821,630 | 3,570,292 | 23 | % | 19,363,723 | 15,791,430 | 3,572,293 | 23 | % | ||||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||||||||||
Interest income from temporary investments | 21,844 | 354,249 | (332,405 | ) | -94 | % | 21,844 | 354,249 | (332,405 | ) | -94 | % | ||||||||||||||||||||
Interest income — employee loans | 202,097 | 222,051 | (19,954 | ) | -9 | % | 202,097 | 222,051 | (19,954 | ) | -9 | % | ||||||||||||||||||||
Other income | 63,993 | 47,847 | 16,146 | 34 | % | 63,993 | 47,847 | 16,146 | 34 | % | ||||||||||||||||||||||
Interest expense | (16,858,687 | ) | (11,564,541 | ) | (5,294,146 | ) | 46 | % | (16,858,687 | ) | (11,564,541 | ) | (5,294,146 | ) | 46 | % | ||||||||||||||||
Total other expense | (16,570,753 | ) | (10,940,394 | ) | (5,630,359 | ) | 51 | % | (16,570,753 | ) | (10,940,394 | ) | (5,630,359 | ) | 51 | % | ||||||||||||||||
Income from continuing operations | 4,948,323 | 6,031,515 | (1,083,192 | ) | -18 | % | 4,873,021 | 5,958,214 | (1,085,193 | ) | -18 | % | ||||||||||||||||||||
Discontinued operations | ||||||||||||||||||||||||||||||||
Loss from discontinued operations | (35,376 | ) | (3,312 | ) | (32,064 | ) | 968 | % | ||||||||||||||||||||||||
Income from discontinued operations | 39,926 | 69,989 | (30,063 | ) | -43 | % | ||||||||||||||||||||||||||
Net realized income from foreign currency transactions | — | 33,359 | (33,359 | ) | -100 | % | — | 33,359 | (33,359 | ) | -100 | % | ||||||||||||||||||||
Taxes refunded on sale of real estate | — | 78,667 | (78,667 | ) | -100 | % | — | 78,667 | (78,667 | ) | 100 | % | ||||||||||||||||||||
Total discontinued operations | (35,376 | ) | 108,714 | (144,090 | ) | -133 | % | 39,926 | 182,015 | (142,089 | ) | -78 | % | |||||||||||||||||||
Net income | 4,912,947 | 6,140,229 | (1,227,282 | ) | -20 | % | 4,912,947 | 6,140,229 | (1,227,282 | ) | -20 | % | ||||||||||||||||||||
Distributions attributable to preferred stock | (4,093,750 | ) | (4,093,750 | ) | — | 0 | % | (4,093,750 | ) | (4,093,750 | ) | — | 0 | % | ||||||||||||||||||
Net income available to common stockholders | $ | 819,197 | $ | 2,046,479 | $ | (1,227,282 | ) | -60 | % | $ | 819,197 | $ | 2,046,479 | $ | (1,227,282 | ) | -60 | % | ||||||||||||||
4348
4449
45
For the year ended December 31, | ||||||||||||||||
2007 | 2006 | $ Change | % Change | |||||||||||||
Operating revenues | ||||||||||||||||
Rental income | $ | 31,469,297 | $ | 23,964,035 | $ | 7,505,262 | 31 | % | ||||||||
Interest income from mortgage notes receivable | 1,013,889 | 1,845,231 | (831,342 | ) | -45 | % | ||||||||||
Tenant recovery revenue | 310,353 | 136,280 | 174,073 | 128 | % | |||||||||||
Total operating revenues | 32,793,539 | 25,945,546 | 6,847,993 | 26 | % | |||||||||||
Operating expenses | ||||||||||||||||
Depreciation and amortization | 10,528,458 | 8,297,174 | 2,231,284 | 27 | % | |||||||||||
Property operating expenses | 800,822 | 636,427 | 164,395 | 26 | % | |||||||||||
Due diligence expense | 20,968 | 9,365 | 11,603 | 124 | % | |||||||||||
Base management fee | 1,858,120 | 2,902,053 | (1,043,933 | ) | -36 | % | ||||||||||
Incentive fee | 2,564,365 | — | 2,564,365 | 100 | % | |||||||||||
Administration fee | 837,898 | — | 837,898 | 100 | % | |||||||||||
Professional fees | 625,349 | 953,066 | (327,717 | ) | -34 | % | ||||||||||
Insurance | 214,141 | 211,562 | 2,579 | 1 | % | |||||||||||
Directors fees | 229,000 | 140,000 | 89,000 | 64 | % | |||||||||||
Stockholder related expense | 244,629 | 311,049 | (66,420 | ) | -21 | % | ||||||||||
Asset retirement obligation expense | 116,478 | 129,142 | (12,664 | ) | -10 | % | ||||||||||
General and administrative | 102,999 | 82,847 | 20,152 | 24 | % | |||||||||||
Total operating expenses before credit from Adviser | 18,143,227 | 14,067,096 | 4,076,131 | 29 | % | |||||||||||
Credit to incentive fee | (2,321,597 | ) | — | (2,321,597 | ) | 100 | % | |||||||||
Total operating expenses | 15,821,630 | 14,067,096 | 1,754,534 | 12 | % | |||||||||||
Other income (expense) | ||||||||||||||||
Interest income from temporary investments | 354,249 | 76,772 | 277,477 | 361 | % | |||||||||||
Interest income — employee loans | 222,051 | 125,788 | 96,263 | 77 | % | |||||||||||
Other income | 47,847 | 380,915 | (333,068 | ) | -87 | % | ||||||||||
Interest expense | (11,564,541 | ) | (9,104,894 | ) | (2,459,647 | ) | 27 | % | ||||||||
Total other expense | (10,940,394 | ) | (8,521,419 | ) | (2,418,975 | ) | 28 | % | ||||||||
Income from continuing operations | 6,031,515 | 3,357,031 | 2,674,484 | 80 | % | |||||||||||
Discontinued operations | ||||||||||||||||
Loss from discontinued operations | (3,312 | ) | 112,145 | (115,457 | ) | -103 | % | |||||||||
Net realized income from foreign currency transactions | 33,359 | (202,938 | ) | 236,297 | -116 | % | ||||||||||
Gain on sale of real estate | — | 1,422,026 | (1,422,026 | ) | 100 | % | ||||||||||
Taxes refunded on sale of real estate | 78,667 | (315,436 | ) | 394,103 | -125 | % | ||||||||||
Total discontinued operations | 108,714 | 1,015,797 | (907,083 | ) | -89 | % | ||||||||||
Net income | 6,140,229 | 4,372,828 | 1,767,401 | 40 | % | |||||||||||
Distributions attributable to preferred stock | (4,093,750 | ) | (2,186,890 | ) | (1,906,860 | ) | 87 | % | ||||||||
Net income available to common stockholders | $ | 2,046,479 | $ | 2,185,938 | $ | (139,459 | ) | -6 | % | |||||||
4650
47
48
51
49
50
52
5153
Payments Due by Period | ||||||||||||||||||||||||||||||||||||||||
Payments Due by Period | Less than 1 | More than 5 | ||||||||||||||||||||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | Year | 1-3 Years | 3-5 Years | Years | ||||||||||||||||||||||||||||||
Debt Obligations(1) | $ | 286,611,173 | $ | 33,953,975 | $ | 53,333,089 | $ | 6,431,796 | $ | 192,892,313 | $ | 285,961,651 | $ | 83,770,508 | $ | 5,878,841 | $ | 32,233,838 | $ | 164,078,464 | ||||||||||||||||||||
Interest on Debt Obligations(2) | 94,181,075 | 16,530,519 | 26,763,348 | 23,261,607 | 27,625,601 | 78,727,727 | 15,724,516 | 23,698,172 | 21,930,064 | 17,374,975 | ||||||||||||||||||||||||||||||
Capital Lease Obligations(3) | 300,000 | — | — | — | 300,000 | 300,000 | — | — | 300,000 | — | ||||||||||||||||||||||||||||||
Operating Lease Obligations(4) | 1,680,000 | 134,400 | 268,800 | 268,800 | 1,008,000 | 1,753,868 | 152,510 | 305,020 | 305,020 | 991,318 | ||||||||||||||||||||||||||||||
Total | $ | 382,772,248 | $ | 50,618,894 | $ | 80,365,237 | $ | 29,962,203 | $ | 221,825,914 | $ | 366,743,246 | $ | 99,647,534 | $ | 29,882,033 | $ | 54,768,922 | $ | 182,444,757 | ||||||||||||||||||||
(1) | Debt obligations represent borrowings under our line of credit, | |
(2) | Interest on debt obligations includes estimated interest on our borrowings under our line of | |
(3) | Capital lease obligations represent the obligation to purchase the land held under the ground lease on our property located in Fridley, Minnesota. | |
(4) | Operating lease obligations represent the ground lease payments due on our Tulsa, Oklahoma property. The lease expires in June 2021. |
5254
Year ended December 31, | For the year ended December 31, | |||||||||||||||
2008 | 2007 | 2009 | 2008 | |||||||||||||
1% increase in the one month LIBOR | ||||||||||||||||
Rental & interest income | $ | 106,031 | $ | 36,500 | $ | 5 | $ | 106,031 | ||||||||
Interest expense | 320,250 | 247,389 | 336,611 | 320,250 | ||||||||||||
Net decrease | $ | (214,219 | ) | $ | (210,889 | ) | $ | (336,606 | ) | $ | (214,219 | ) | ||||
Net income available to common stockholders (as reported) | $ | 819,197 | $ | 2,046,479 | $ | 509,298 | $ | 819,197 | ||||||||
Net decrease as percentage of Net income available to common stockholders (as reported) | -26.1 | % | -10.3 | % | -66.1 | % | -26.1 | % | ||||||||
1% decrease in the one month LIBOR | ||||||||||||||||
Rental & interest income | $ | (96,882 | ) | $ | (38,948 | ) | $ | — | $ | (96,882 | ) | |||||
Interest expense | $ | (320,250 | ) | $ | (248,067 | ) | $ | (336,611 | ) | $ | (320,250 | ) | ||||
Net increase | $ | 223,368 | $ | 209,119 | $ | 336,611 | $ | 223,368 | ||||||||
Net income available to common stockholders (as reported) | $ | 819,197 | $ | 2,046,479 | ||||||||||||
Net increase as percentage of Net income available to common stockholders (as reported) | 27.3 | % | 10.2 | % | ||||||||||||
Net income available to common stockholders | $ | 509,298 | $ | 819,197 | ||||||||||||
Net increase as percentage of Net income available to common stockholders | 66.1 | % | 27.3 | % |
5355
5456
Report of Management on Internal Controls over Financial Reporting To the Stockholders and Board of Directors of Gladstone Commercial Corporation: Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and include those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets, provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting based on the framework inInternal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations (COSO). Based on our assessment, management concluded that our internal control over financial reporting was effective as of December 31, The effectiveness of our internal control over financial reporting as of December 31, February
Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Gladstone Commercial Corporation: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Gladstone Commercial Corporation and its subsidiaries at December 31, A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP McLean, VA February
GLADSTONE COMMERCIAL CORPORATION CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements. 61 GLADSTONE COMMERCIAL CORPORATION CONSOLIDATED STATEMENTS OF
The accompanying notes are an integral part of these consolidated financial statements. 62 GLADSTONE COMMERCIAL CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
The accompanying notes are an integral part of these consolidated financial statements. 63 GLADSTONE COMMERCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements. 64 GLADSTONE COMMERCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Significant Accounting Policies Gladstone Commercial Corporation (the “Company”) is a Maryland corporation that operates in a manner so as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes and was incorporated on February 14, 2003 under the General Corporation Law of Maryland, primarily for the purpose of engaging in the business of investing in real estate properties net leased to creditworthy entities and making mortgage loans to creditworthy entities. Subject to certain restrictions and limitations, the business of the Company is managed by Gladstone Management Corporation, a Delaware corporation (the “Adviser”). Subsidiaries The Company conducts substantially all of its operations through a subsidiary, Gladstone Commercial Limited Partnership, a Delaware limited partnership (the “Operating Partnership”). As the Company currently owns all of the general and limited partnership interests of the Operating Partnership through GCLP Business Trust I and II as disclosed below, the financial position and results of operations of the Operating Partnership are consolidated with those of the Company. Gladstone Commercial Partners, LLC, a Delaware limited liability company (“Commercial Partners”) and a subsidiary of the Company, was organized to engage in any lawful act or activity for which a limited liability company may be organized in Delaware. Commercial Partners has the power to make and perform all contracts and to engage in all activities to carry out the purposes of the Company, and all other powers available to it as a limited liability company. As the Company currently owns all of the membership interests of Commercial Partners, the financial position and results of operations of Commercial Partners are consolidated with those of the Company. Gladstone Commercial Lending, LLC, a Delaware limited liability company (“Gladstone Commercial Lending”) Gladstone Commercial Advisers, Inc., a Delaware corporation (“Commercial Advisers”) and a subsidiary of the Company, is a taxable REIT subsidiary (“TRS”), which was created to collect all non-qualifying income related to the Company’s real estate portfolio. It is currently anticipated that this income will predominately consist of fees received by the Company related to the leasing of real estate. There have been no such fees earned to date. Since the Company owns 100% of the voting securities of Commercial Advisers, the financial position and results of operations of Commercial Advisers are consolidated with those of the Company. GCLP Business Trust I and GCLP Business Trust II, subsidiaries of the Company, each are business trusts formed under the laws of the Commonwealth of Massachusetts on December 28, 2005. The Company transferred its 99% limited partnership interest in the Operating Partnership to GCLP Business Trust I in exchange for 100 trust shares. Commercial Partners transferred its 1% general partnership interest in the Operating Partnership to GCLP Business Trust II in exchange for 100 trust shares.
Investments in Real Estate The Company records investments in real estate at cost and capitalizes improvements and replacements when they extend the useful life or improve the efficiency of the asset. The Company expenses costs of repairs and maintenance as incurred. The Company computes depreciation using the straight-line method over the estimated useful life The Company accounts for its acquisitions of real estate in accordance with Management’s estimates of value are made using methods similar to those used by independent appraisers (e.g., discounted cash flow analysis). Factors considered by management in its analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets and liabilities acquired. In estimating carrying costs, management also includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from nine to eighteen months, depending on specific local market conditions. Management also estimates costs to execute similar leases, including leasing commissions, legal and other related expenses to the extent that such costs are not already incurred in connection with a new lease origination as part of the transaction. The Company allocates purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. The “as-if-vacant” value is allocated to land, building, and tenant improvements based on management’s determination of the relative fair values of these assets. Real estate depreciation expense on these tangible assets, including discontinued operations, was approximately $9.4 million, $9.0 million Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values, included in the accompanying balance sheet as part of deferred rent receivable, are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. Total amortization related to above-market lease values was approximately The total amount of the remaining intangible assets acquired, which consist of in-place lease values, unamortized lease origination costs, and customer relationship intangible values, are allocated based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics to be considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
The value of in-place leases and unamortized lease origination costs are amortized to expense over the remaining term of the respective leases, which generally range from 10 to 15 years. The value of customer relationship intangibles, which is the benefit to the Company resulting from the likelihood of an existing tenant renewing its lease, are amortized to expense over the remaining term and any anticipated renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the above-market and below-market lease values, in-place lease values, unamortized lease origination costs and customer relationship intangibles will be immediately charged to the related income or expense. Total amortization expense related to these intangible assets, including discontinued operations, was approximately $3.7 million, Impairment Investments in Real Estate The Company accounts for the impairment of real estate in accordance with In light of Provision for Loan Losses The Company’s accounting policies require that it reflect in its financial statements an allowance for estimated credit losses with respect to mortgage loans it has made based upon its evaluation of known and inherent risks associated with its private lending assets. Management reflects provisions for loan losses based upon its assessment of general market conditions, its internal risk management policies and credit risk rating system, industry loss experience, its assessment of the likelihood of delinquencies or defaults, and the value of the collateral underlying its investments. Actual losses, if any, could ultimately differ from these estimates. There have been no provisions for loan losses in the Company’s history. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents; except that any such investments purchased with funds held in escrow or similar accounts are classified as restricted cash. Items classified as cash equivalents include money-market deposit accounts. All of the Company’s cash and cash equivalents at December 31,
Restricted Cash Restricted cash consists of security deposits and funds held in escrow for certain Funds Held in Escrow Funds held in escrow consist of funds held by certain of the Company’s lenders for properties held as collateral by these lenders. Deferred Financing Costs Deferred financing costs consist of costs incurred to obtain financing, including legal fees, origination fees and administrative fees. The costs are deferred and amortized using the straight-line method, which approximates the effective interest method over the term of the financing secured. The Company made payments of approximately $244,000, $1.3 million Prepaid Expenses and Other Assets Prepaid expenses and other assets consist of accounts receivable, interest receivable, prepaid assets, a note receivable from a former employee and deposits on real estate. Obligation In conjunction with the Company’s acquisition of a building in Fridley, Minnesota in February 2008, the Company acquired a ground lease on the parking lot of the building, which had a purchase obligation to acquire the land under the ground lease at the end of the term in April 2014 for $300,000. In accordance with Revenue Recognition Rental revenue includes rents that each tenant pays in accordance with the terms of its respective lease reported evenly over the non-cancelable term of the lease.
Management considers its loans and other lending investments to be held-for-investment. The Company reflects loans classified as long-term investments at amortized cost, less allowance for loan losses, acquisition premiums or discounts, and deferred loan fees. On occasion, the Company may acquire loans at small premiums or discounts based on the credit characteristics of such loans. These premiums or discounts are recognized as yield adjustments over the lives of the related loans. Loan origination fees, as well as direct loan origination costs, are also deferred and recognized over the lives of the related loans as yield adjustments. If loans with premiums, discounts, or loan origination fees are prepaid, the Company immediately recognizes the unamortized portion as a decrease or increase in the prepayment gain or loss. Interest income is recognized using the effective interest method applied on a loan-by-loan basis. Prepayment penalties or yield maintenance payments from borrowers are recognized as additional income when received. Income Taxes The Company has operated and intends to continue to operate in a manner that will allow it to qualify as a REIT under the Internal Revenue Code of 1986, as amended, and accordingly will not be subject to federal income taxes on amounts distributed to stockholders (except income from foreclosure property), provided it distributes at least 90% of its REIT taxable income to its stockholders and meets certain other conditions. To the extent that the Company satisfies the distribution requirement but distributes less than 100% of its taxable income, the Company will be subject to federal corporate income tax on its undistributed income. Commercial Advisers is a wholly-owned TRS that is subject to federal and state income taxes. Though Commercial Advisers has had no activity to date, the Company would account for any future income taxes in accordance with the provisions of Segment Information
Asset Retirement Obligations 69 which reflected the present value of the future obligation. There was no liability accrued during the year ended December 31, 2009. The Company also recorded expense, including discontinued operations, of approximately Real Estate Held for Sale and Discontinued Operations Recently Issued Accounting Pronouncements ASC 805, “Business Combinations,” requires that the assets and liabilities of all business combinations be recorded at fair value, with limited exceptions. ASC 805-10-25-23 requires that all expenses related to an acquisition be expensed as incurred, rather than capitalized into the cost of the acquisition as had been the previous accounting. ASC 805 is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008. The Company adopted this pronouncement effective for the fiscal year beginning January 1, 2009, and the adoption could have a significant impact on its results of operations because of the requirement to expense costs associated with acquisitions rather than capitalize the costs as the Company has done in the past. There was no significant impact from the adoption of this pronouncement during the year ended December 31, 2009, because there was limited activity during the period related to potential acquisitions. ASC 820, “Fair Value 70 liquidations or distressed sales and are not representative of fair value in an orderly transaction. ASC 820-10-35-51A, “Fair Value Measurements and Disclosures,” provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased when compared with normal market activity for the asset or liability. ASC 820-10-35-51E provides guidance on identifying circumstances that indicate when a transaction is not orderly. ASC 820-10-35-51D emphasizes that the fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. The guidance is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Company adopted this pronouncement during the quarter ended March 31, 2009, and the adoption had no material impact on the Company’s results of operations. ASC 825-10-50, “Financial Instruments,” requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements,
ASC 855-10-50, “Subsequent Events,” requires disclosure of the date through which an entity has evaluated subsequent events and defines the types of subsequent events that should be recognized or nonrecognized. ASC 855-10-50 is effective for ASC 860, “Transfers and Servicing,” removes the concept of a qualifying special-purpose entity (“
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets 71 and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Reclassifications Certain amounts from prior years’ financial statements have been reclassified to conform to the current year presentation. 2. The Company The
For the years ended December 31, 2009, 2008 and 2007, the Company recorded an incentive fee of approximately $3.2 million, $2.8 million and $2.6 million, respectively, offset by a credit related to an unconditional and irrevocable voluntary waiver issued by the Adviser of approximately $0.7 million, $2.2 million and $2.3 million, respectively, for a net incentive fee for the years ended December 31, 2009, 2008 and 2007, of approximately $2.5 million, $0.6 million and $0.3 million, respectively. The board of directors of the Company accepted the Adviser’s offer to Administration Agreement Under the Administration Agreement, the Company pays separately for its allocable portion of the Administrator’s overhead expenses in performing its obligations including, but not limited to, rent for employees of the Administrator, and its allocable portion of the salaries and benefits expenses of its chief financial officer, chief compliance officer, internal counsel, treasurer and their respective staffs. The Company’s allocable portion of expenses is derived by multiplying the Administrator’s total allocable expenses by the percentage of the Company’s total assets at the beginning of each quarter in comparison to the total assets of all companies managed by the Adviser under similar agreements. For the years ended 72 December 31, 2009, 2008 and 2007 the Company recorded an administration fee of approximately $1.0 million, $1.0 million and $0.8 million, respectively. 3.
The following tables set forth the computation of basic and diluted earnings per common share for the years ended December 31, 2009, 2008
Real Estate The following table sets forth the components of the Company’s investments in real estate, including capitalized leases, as of December 31,
On On 73 Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses and future operating lease payments for discontinued operations, in effect at December 31,
In accordance with the lease terms, substantially all tenant expenses are required to be paid by the tenant; however, the Company would be required to pay property taxes on the respective properties, and ground lease payments on the property located in Tulsa, Oklahoma, in the event the tenant fails to pay them. The total annualized property taxes for all properties held by the Company at December 31,
Intangible Assets
The following table summarizes the net value of other intangible assets and the accumulated amortization for each intangible asset class:
The estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows:
74 As of June 30, 2009, the Company classified its property located in Norfolk, Virginia as held for sale under the provisions of ASC 360-10, which requires that the results of operations of any properties which have been sold, or are held for sale, be presented as discontinued operations in the Company’s consolidated financial statements in both current and prior periods presented. The Company received an unsolicited offer from a buyer for this property. On July 17, 2009, the Company sold this property for $1.15 million, for a gain on the sale of approximately $160,000. In addition, on July 21, 2006, the Company sold its two Canadian properties
On April 15, 2005, the Company originated a mortgage loan in the amount of $10.0 million, collateralized by an office building in McLean, Virginia, where the Company’s Adviser and Administrator are subtenants in the building. This 12 year mortgage loan accrues interest at the greater of 7.5% per year or the one month London Interbank Offered Rate (“LIBOR”) rate plus 6.0% per year, with a ceiling of 10.0%. The mortgage loan is interest only for the first nine years of the term, with payments of principal commencing after the initial period. The balance of the principal and all interest remaining is due at the end of the 12 year term. At December 31,
The fair market value of the mortgage note receivable as of December 31, 75 The Company’s mortgage notes payable, line of credit and short-term loan as of December 31,
Mortgage Notes Payable As of December 31, The fair market value of all fixed-rate mortgage notes payable outstanding as of December 31, 76 Scheduled principal payments of mortgage notes payable are as follows:
Line of Credit The interest rate charged on the advances under the facility is based on the LIBOR, the prime rate or the federal funds rate, depending on market conditions, and adjusts periodically. The unused portion of the line of credit is subject to a fee of 0.15% per year. The Company’s ability to access this funding source is subject to the Company continuing to meet customary lending requirements such as compliance with financial and operating covenants and meeting certain lending limits. One such covenant requires the Company to limit its distributions to stockholders to 95% of its FFO If and when long-term mortgages are arranged for these pledged properties, the banks will release the properties from the line of credit and reduce the availability under the 77 Agreement as of December 31, 2009. The amount outstanding on the line of credit as of December 31, 2009 approximates fair market value, because the debt is short-term and variable rate. Short-Term Loan On December 21, 2007, the Company entered into a Distributions paid per common share for the years ended December 31, 2009, 2008
78 The following table is a summary of all outstanding notes issued to employees of the Adviser for the exercise of stock options:
In accordance with ASC 505-10-45-2, “Equity,” receivables from employees for the issuance of capital stock to employees prior to the receipt of cash payment should be reflected in the balance sheet as a reduction to stockholders’ equity. Therefore, these notes were recorded as loans to employees and are included in the equity section of the accompanying consolidated balance sheets. On November 4, 2009, the Company entered into an open market sale agreement, or the Open Market Sale Agreement, with Jefferies & Company, Inc., or Jefferies, under which it may, from time to time, offer and sell shares of its common stock with an aggregate sales price of up to $25.0 million through or to Jefferies, for resale. To date, the Company has not sold any common stock under the Open Market Sale Agreement. On November 19, 2009, the Company entered into a dealer manager agreement, or the Dealer Manager Agreement, with Halcyon Capital Markets, LLC, or Halcyon, pursuant to which Halcyon will act as its dealer manager in connection with a proposed continuous private offering of up to 3,333,333 shares of its newly designated senior common stock at $15.00 per share. To date, the Company has not sold any senior common stock under the Dealer Manager Agreement. As of December 31, The following table summarizes the Company’s consolidated operating results and total assets by segment as of and for the years ended December 31, 2009, 2008
79
80 The following table reflects the quarterly results of operations for the years ended December 31,
The Company evaluated all events that have occurred subsequent to December 31, 2009 through February 24, 2010, the date of the filing of this Form 10-K. On January On February 1, 2010, the maturity date for a $245,000 employee stock option loan to a former employee of the Adviser was extended from February 2010 to August 2010. The former employee was also granted the option to either repay the principal and interest in full or return the pledged shares to the Company in full satisfaction of the loan. If the employee returns the pledged shares in satisfaction of the loan, the Company would be required to record compensation expense if the market value of the pledged shares on the date of repayment is less than the outstanding principal balance of the loan. As of February 18, 2010, the market value of the pledged shares was in excess of the outstanding principal balance of the loan. 81 GLADSTONE COMMERCIAL CORPORATION SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31,
82 GLADSTONE COMMERCIAL CORPORATION SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) DECEMBER 31,
83 GLADSTONE COMMERCIAL CORPORATION SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) DECEMBER 31,
84 GLADSTONE COMMERCIAL CORPORATION SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31,
85 The following table reconciles the change in the balance of real estate during the years ended December 31, 2009, 2008
The following table reconciles the change in the balance of accumulated depreciation during the years ended December 31, 2009, 2008
86 GLADSTONE COMMERCIAL CORPORATION SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE DECEMBER 31,
The following table reconciles the change in the balance of mortgage loans on real estate during the years ended December 31, 2009, 2008
87 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures a) Evaluation of Disclosure Controls and Procedures As of December 31, b) Management’s Annual Report on Internal Control Over Financial Reporting Refer to Management’s Report on Internal Controls over Financial Reporting located in Item 8 of this Form 10-K. c) Attestation Report of the Registered Public Accounting Firm Refer to the Report of Independent Registered Public Accounting Firm located in Item 8 of this Form 10-K. d) Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, Item 9B. Other Information 88 PART III We will file a definitive Proxy Statement for our Item 10. Directors, Executive Officers and Corporate Governance The information required by Item 10 is hereby incorporated by reference from our Item 11. Executive Compensation The information required by Item 11 is hereby incorporated by reference from our Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by Item 12 is hereby incorporated by reference from our Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by Item 13 is hereby incorporated by reference from our Item 14. Principal Accountant Fees and Services The information required by Item 14 is hereby incorporated by reference from our 89 PART IV Item 15. Exhibits and Financial Statement Schedules
90 Exhibit Index
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95 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.
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