UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
 OR
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    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 001-33097
 GLADSTONE COMMERCIAL CORPORATION
 (Exact name of registrant as specified in its charter)
 MARYLAND
    
    02-0681276(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102
 (Address of principal executive office)
 (703) 287-5800  (Registrants telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act:Common Stock, par value $0.001 per share
    
    NASDAQ Global Select Market7.75% Series A Cumulative Redeemable Preferred
Stock, par value $0.001 per share
    
    NASDAQ Global Select Market7.50% 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)
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 Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)
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GLADSTONE COMMERCIAL CORPORATION
FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2009
 TABLE OF CONTENTS
 PAGEPART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    18Item 1B.
    
    Unresolved Staff Comments
    
    
    30Item 2.
    
    Properties
    
    
    31Item 3.
    
    Legal Proceedings
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    35Item 6.
    
    Selected Financial Data
    
    
    36Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    55Item 8.
    
    Financial Statements and Supplementary Data
    
    
    57Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    88Item 9A.
    
    Controls and Procedures
    
    
    88Item 9B.
    
    Other Information
    
    
    88PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    89Item 11.
    
    Executive Compensation
    
    
    89Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    89Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    89Item 14.
    
    Principal Accountant Fees and Services
    
    
    89PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    90
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Forward-Looking Statements
 All statements contained herein, other than historical facts, may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933( the Securities Act),
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act). These statements may relate to, among other things, future events or our future performance
or financial condition. In some cases, you can identify forward-looking statements by terminology
such as may, might, believe, will, provided, anticipate, future, could, growth,
plan, intend, expect, should, would, if, seek, possible, potential, likely or
the negative of such terms or comparable terminology. These forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause our actual results, levels
of activity, performance or achievements to be materially different from any future results, levels
of activity, performance or achievements expressed or implied by such forward-looking statements.
Such factors include, among others: (1) further adverse changes in the economy and the capital
markets; (2) risks associated with negotiation and consummation of pending and future transactions;
(3) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee
Brubaker, or George Stelljes III; (4) changes in our business strategy; (5) availability, terms and
deployment of capital, including the ability to maintain and borrow under our existing line of
credit, arrange for long-term mortgages on our properties, secure one or more additional long-term
credit facilities, and to raise equity capital; (6) changes in our industry, interest rates,
exchange rates or the general economy; (7) the degree and nature of our competition; and (8) those
factors described in the Risk Factors section of this Form 10-K. We caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of the date made. We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, after the date of this Form 10-K.
 
 Item 1. Business
 Overview
    3




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Recent Developments
 Financing Activities:
    Leasing Activities:
   Dispositions:
  Our Investment Objectives and Our Strategy
  4




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Investment Policies and Policies with Respect to Certain Activities
 Types of Investments
 Overview
 Risk
FactorsOur success depends on the performance of our Adviser and if our Adviser makes inadvisable
investment or management decisions, our operations could be materially adversely impacted
  Property Acquisitions and Net Leasing
 Risk Factors Highly leveraged tenants or borrowers may be unable to pay
rent or
make mortgage payments, which could adversely affect our cash available to make distributions to
our stockholders
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Investments in Mortgage Loans
   Underwriting Criteria, Due Diligence Process and Negotiating Lease Provisions
  
    
    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, 2009
and December 31, 2008:
 December 31, 2009
    
    
    December 31, 2008Percentage of
    
    
    
    
    
    
    Percentage ofIndustry Classification
    
    Rental Income
    
    
    Rental Income
    
    
    Rental Income
    
    
    Rental IncomeAutomobile
    
    $
    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
    %
 
    
    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.
 Underwriting of the Real Estate and Due Diligence Process
 Risk
Factors Potential liability for environmental matters could adversely affect our
financial condition
   
    
    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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Additional Investment Considerations
 Terms of Mortgage Loans
     Other Investments
  9




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Temporary Investments
   Qualified REIT Subsidiaries
  Joint Ventures
  Use of Leverage
 Non-recourse Financing
 Our Investment
Objectives and Our Strategy
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Recourse Financing
  Other Investment Policies
 Working Capital Reserves
  
    
    the acquisition of any property;
    
    the refinancing of the debt upon any property; or
    
    the leveraging of any previously unleveraged property.
 Investment Policies and Policies
with Respect to Certain ActivitiesUse of Leverage
 Holding Period for and Sale of Investments; Reinvestment of Sale Proceeds
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Investment Limitations
  
    
    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.
 Conflict of Interest Policy
   
    
    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%. or
    
    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).
  Future Revisions in Policies and Strategies
  13




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Our Adviser and Administrator
    Underwriting Criteria, Due Diligence Process and Negotiating Lease Provisions
  Investment Advisory and Administration Agreements
  Investment Advisory Agreement
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Management Services and Fees under the Advisory Agreement
   
    
    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).
 Quarterly Incentive Fee Based on FFO
 Pre-incentive fee FFO
(expressed as a percentage of total common stockholders equity)
 
 Percentage of pre-incentive fee FFO allocated to incentive fee
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Administration Agreement
  Adviser Duties and Authority under the Advisory Agreement
  
    
    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 Advisory Agreement); and
    
    the lease of assets to our Adviser, its affiliates or any of our officers or directors.
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Employees
   Number ofIndividuals
    
    Functional Area11
    
    Executive Management32
    
    Investment Management, Portfolio Management and Due Diligence8
    
    Administration, Accounting, Compliance, Human Resources, Legal and Treasury
 Competition
  Available Information
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Item 1A. Risk Factors
 An investment in our securities involves a number of significant risks and other factors relating
to our structure and investment objectives. As a result, we cannot assure you that we will achieve
our investment objectives. You should consider carefully the following information before making an
investment in our securities.
 Risk related to the economy
 The current state of the economy and the capital markets increases the possibility of adverse
effects on our financial position, results of operations and common stock price. Continued
adversity in the capital markets could impact our ability to raise capital and limit our ability to
make new investments.
  Risks related to our financing
 Our line of credit contains various covenants which, if not complied with, could accelerate our
repayment obligations, thereby materially and adversely affecting our liquidity, financial
condition, results of operations and ability to pay distributions to stockholders.
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Our ability to obtain replacement financing on our line of credit on terms favorable to us, or at
all, could adversely impact our liquidity and ability to fund new investments.
  Our business strategy relies heavily on external financing, which may expose us to risks associated
with leverage such as restrictions on additional borrowing and payment of distributions to
stockholders, risks associated with balloon payments, and risk of loss of our equity upon
foreclosure.
     Interest rate changes may adversely affect our results of operations.
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Risks related to the real estate industry
 We are subject to certain risks associated with real estate ownership and lending which could
reduce the value of our investments.
  
    
    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.
 Risk
related to the economy
 Competition for the acquisition of real estate may impede our ability to make acquisitions or
increase the cost of these acquisitions.
  Our ownership of properties through ground leases exposes us to risks which are different than
those resulting from our ownership of fee title to other properties.
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Risks related to our tenants, borrowers and properties
 Highly leveraged tenants and borrowers may be unable to pay rent or make mortgage payments, which
could adversely affect our cash available to make distributions to our stockholders.
 Risk related to the
economy
   
    
    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.
  Net leases may not result in fair market lease rates over time.
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Many of our tenants are small and medium size businesses, which exposes us to additional risks
unique to these entities.
  
    
    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.
    
    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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We may not have funding for future tenant improvements.
  Our real estate investments may include special use and single or multi-tenant properties that may
be difficult to sell or re-lease upon tenant defaults or early lease terminations.
   Our real estate investments have a limited number of tenants and are concentrated in a limited
number of industries, which subjects us to an increased risk of significant loss if any one of
these tenants is unable to pay or if particular industries experience downturns.
  The inability of a tenant in a single tenant property to pay rent will reduce our revenues and
increase our carrying costs of the building.
  Liability for uninsured losses could adversely affect our financial condition.
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Potential liability for environmental matters could adversely affect our financial condition.
  
    
    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.
    If a sale-leaseback transaction is re-characterized in a tenants bankruptcy proceeding, our
financial condition could be adversely affected.
  24




---



##### 



Risks related to our Adviser
 We are dependent upon our key management personnel, who are employed by our Adviser, for our future
success, particularly David Gladstone, Terry Lee Brubaker and George Stelljes III.
  Our success depends on the performance of our Adviser and if our Adviser makes inadvisable
investment or management decisions, our operations could be materially adversely impacted.
  We may have conflicts of interest with our Adviser and other affiliates.
   
    
    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.
 25




---



##### 



Our Adviser is not obligated to provide a waiver of the incentive fee, which could negatively
impact our earnings and our ability to maintain our current level of, or increase, distributions to
our stockholders.
  We may be obligated to pay our Adviser incentive compensation even if we incur a loss.
  Risks of being a REIT
 We may not qualify as a REIT for federal income tax purposes, which would subject us to federal
income tax on our taxable income at regular corporate rates, thereby reducing the amount of funds
available for paying distributions to our stockholders.
   
    
    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.
 26




---



##### 



We have not sought a ruling from the Internal Revenue Service that we qualify as a REIT, nor do we
intend to do so in the future.
  Failure to make required distributions or to satisfy certain income requirements would subject us
to tax.
  
    
    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.
   Because we must distribute a substantial portion of our net income to qualify as a REIT, we largely
depend on third-party sources of capital to fund our future capital needs.
  27




---



##### 



Risk related to the economy
 Other risks
 Recent accounting pronouncements may impact our results of operations.
  We are subject to restrictions that may discourage a change of control. Certain provisions
contained in our articles of incorporation and Maryland law may prohibit or restrict a change of
control.
 
    
    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 is divided into three classes, with the term of the directors in
each class expiring every third year. At each annual meeting of stockholders, the
successors to the class of directors whose term expires at such meeting will be elected
to hold office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. After election, a director may only be
removed by our stockholders for cause. Election of directors for staggered terms with
limited rights to remove directors makes it more difficult for a hostile bidder to
acquire control of us. The existence of this provision may negatively impact the price
of our securities and may discourage third-party bids to acquire our securities. This
provision may reduce any premiums paid to stockholders in a change in control
transaction.
    
    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.
 28




---



##### 



Market conditions could adversely affect the market price and trading volume of our securities.
  
    
    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 distributions to stockholders;
    
    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.
 Shares of common stock eligible for future sale may have adverse effects on our share price.
  Legislative or regulatory action could adversely affect investors.
  29




---



##### 



Our Board of Directors may change our investment policy without stockholders approval.
  If our Operating Partnership fails to maintain its status as a partnership or other form of
pass-through entity for federal income tax purposes, its income may be subject to taxation.
  Our potential participation in joint ventures creates additional risk.
  Item 1B. Unresolved Staff Comments
 
  30




---



##### 



Item 2. Properties
  Total RentalTotal Rental Income for
    
    Income per
    
    Year ofYear Built/
    
    
    
    
    
    Rentable
    
    
    
    
    
    the Year Ended
    
    Occupied Square
    
    LeaseProperty
    
    Improvements
    
    Date of Purchase
    
    Square Feet
    
    Occupancy
    
    December 31, 2009
    
    Foot
    
    Expiration208 South Rogers Lane
(Raleigh NC)
    
    
    1997
    
    
    
    12/23/2003
    
    
    
    58,926
    
    
    
    100
    %
    
    $
    624,118
    
    
    $
    10.59
    
    
    
    20153874 Highland Park NW
(Canton, OH)
    
    
    1994
    
    
    
    1/30/2004
    
    
    
    54,018
    
    
    
    100
    %
    
    $
    337,625
    
    
    $
    6.25
    
    
    
    2014260 Springside Drive
(Akron, OH)
    
    
    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
    %
    
    $
    996,484
    
    
    $
    15.45
    
    
    
    2019171 Great Oak Drive
(Canton, NC)
    
    
    1998
    
    
    
    7/6/2004
    
    
    
    228,000
    
    
    
    100
    %
    
    $
    600,145
    
    
    $
    2.63
    
    
    
    2024Rt. 219, Tax Parcel No. 33-251-0246,
(Snyder Township, PA)
    
    
    1991
    
    
    
    8/5/2004
    
    
    
    290,000
    
    
    
    100
    %
    
    $
    930,522
    
    
    $
    3.21
    
    
    
    20149698 Old US Hwy. 52
(Lexington, NC)
    
    
    1986
    
    
    
    8/5/2004
    
    
    
    154,000
    
    
    
    100
    %
    
    $
    424,964
    
    
    $
    2.76
    
    
    
    20149100 Highway 290 East
(Austin, TX)
    
    
    2001
    
    
    
    9/16/2004
    
    
    
    51,933
    
    
    
    100
    %
    
    $
    751,333
    
    
    $
    14.47
    
    
    
    201513 Industrial Park Drive
(Mt. Pocono, PA)
    
    
    1995-1999
    
    
    
    10/15/2004
    
    
    
    223,275
    
    
    
    100
    %
    
    $
    638,554
    
    
    $
    2.86
    
    
    
    20216550 First Park Ten Boulevard
(San Antonio, TX)
    
    
    1999
    
    
    
    2/10/2005
    
    
    
    60,245
    
    
    
    100
    %
    
    $
    769,793
    
    
    $
    12.78
    
    
    
    20144630 Journal Street
(Columbus, OH)
    
    
    1995
    
    
    
    2/10/2005
    
    
    
    39,000
    
    
    
    100
    %
    
    $
    308,105
    
    
    $
    7.90
    
    
    
    2015199 Sing Sing Road
(Big Flats, NY)
    
    
    2001
    
    
    
    4/15/2005
    
    
    
    120,000
    
    
    
    100
    %
    
    $
    644,252
    
    
    $
    5.37
    
    
    
    20132525 North Woodlawn Avenue
(Wichita, KS)
    
    
    2000
    
    
    
    5/18/2005
    
    
    
    69,287
    
    
    
    100
    %
    
    $
    1,109,217
    
    
    $
    16.01
    
    
    
    2012725 & 737 Great Southwest Pkwy
(Arlington, TX)
    
    
    1966
    
    
    
    5/26/2005
    
    
    
    64,000
    
    
    
    100
    %
    
    $
    580,596
    
    
    $
    9.07
    
    
    
    20134032 Linden Avenue
(Dayton, OH)
    
    
    1956
    
    
    
    6/30/2005
    
    
    
    59,894
    
    
    
    100
    %
    
    $
    268,042
    
    
    $
    4.48
    
    
    
    201881 Corbett Way
(Eatontown, NJ)
    
    
    1991
    
    
    
    7/7/2005
    
    
    
    30,268
    
    
    
    100
    %
    
    $
    536,989
    
    
    $
    17.74
    
    
    
    202417 & 20 Veronica Avenue
(Franklin Township, NJ)
    
    
    1978
    
    
    
    7/11/2005
    
    
    
    183,000
    
    
    
    100
    %
    
    $
    974,760
    
    
    $
    5.33
    
    
    
    2020150 Ridgeview Center Drive
(Duncan, SC)
    
    
    1984/2001/2007
    
    
    
    7/14/2005
    
    
    
    222,670
    
    
    
    100
    %
    
    $
    1,539,286
    
    
    $
    6.91
    
    
    
    2020170 Ridgeview Center Drive
(Duncan, SC)
    
    
    1984/2001/2007
    
    
    
    7/14/2005
    
    
    
    55,350
    
    
    
    100
    %
    
    $
    382,627
    
    
    $
    6.91
    
    
    
    20205656 Campus Parkway
(Hazelwood, MO)
    
    
    1977
    
    
    
    8/5/2005
    
    
    
    51,155
    
    
    
    100
    %
    
    $
    289,928
    
    
    $
    5.67
    
    
    
    2012914 Wohlert Street
(Angola, IN)
    
    
    1982
    
    
    
    9/2/2005
    
    
    
    52,080
    
    
    
    100
    %
    
    $
    125,202
    
    
    $
    2.40
    
    
    
    2020800 Growth Parkway
(Angola, IN)
    
    
    1998
    
    
    
    9/2/2005
    
    
    
    50,000
    
    
    
    100
    %
    
    $
    125,202
    
    
    $
    2.50
    
    
    
    2020802 East 11th Street
(Rock Falls, IL)
    
    
    1988
    
    
    
    9/2/2005
    
    
    
    52,000
    
    
    
    100
    %
    
    $
    125,202
    
    
    $
    2.41
    
    
    
    2020
 31




---



##### 



Item 2. Properties (Continued)
 Total RentalTotal Rental Income for
    
    Income per
    
    Year ofYear Built/
    
    
    
    
    
    Rentable
    
    
    
    
    
    the Year Ended
    
    Occupied Square
    
    LeaseProperty
    
    Improvements
    
    Date of Purchase
    
    Square Feet
    
    Occupancy
    
    December 31, 2009
    
    Foot
    
    Expiration2 Opportunity Way
(Newburyport, MA)
    
    
    1994
    
    
    
    10/17/2005
    
    
    
    86,308
    
    
    
    100
    %
    
    $
    891,492
    
    
    $
    10.33
    
    
    
    2015255 Spring Street
(Clintonville, WI)
    
    
    1992
    
    
    
    10/31/2005
    
    
    
    291,142
    
    
    
    100
    %
    
    $
    575,006
    
    
    $
    1.98
    
    
    
    20205700 Lee Road
(Maple Heights, OH)
    
    
    1974
    
    
    
    12/21/2005
    
    
    
    347,218
    
    
    
    100
    %
    
    $
    1,138,136
    
    
    $
    3.28
    
    
    
    20157545 Midlothian Turnpike
(Richmond, VA)
    
    
    1972
    
    
    
    12/30/2005
    
    
    
    42,213
    
    
    
    100
    %
    
    $
    722,866
    
    
    $
    17.12
    
    
    
    20103930 Sunforest Court
(Toledo, OH)
    
    
    1979
    
    
    
    12/30/2005
    
    
    
    23,368
    
    
    
    100
    %
    
    $
    327,152
    
    
    $
    14.00
    
    
    
    201075 Canal Street
(South Hadley, MA)
    
    
    1978
    
    
    
    2/15/2006
    
    
    
    150,000
    
    
    
    100
    %
    
    $
    359,673
    
    
    $
    2.40
    
    
    
    20102101 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    20,400
    
    
    
    100
    %
    
    $
    295,220
    
    
    $
    14.47
    
    
    
    20132109 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    40,000
    
    
    
    100
    %
    
    $
    578,863
    
    
    $
    14.47
    
    
    
    20132215 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    25,000
    
    
    
    100
    %
    
    $
    361,790
    
    
    $
    14.47
    
    
    
    20132301 Fox Drive
(Champaign, IL)
    
    
    1996
    
    
    
    2/21/2006
    
    
    
    22,862
    
    
    
    100
    %
    
    $
    330,849
    
    
    $
    14.47
    
    
    
    20132470 Highcrest Road
(Roseville, MN)
    
    
    1964
    
    
    
    2/21/2006
    
    
    
    359,540
    
    
    
    100
    %
    
    $
    3,030,460
    
    
    $
    8.43
    
    
    
    201212000 Portland Avenue South
(Burnsville, MN)
    
    
    1984
    
    
    
    5/10/2006
    
    
    
    114,100
    
    
    
    100
    %
    
    $
    1,234,662
    
    
    $
    10.82
    
    
    
    201514701 Anthony Avenue
(Menomonee Falls, WI)
    
    
    1986/2000
    
    
    
    6/30/2006
    
    
    
    125,692
    
    
    
    100
    %
    
    $
    775,274
    
    
    $
    6.17
    
    
    
    20161025 Birdsong Drive
(Baytown, TX)
    
    
    1997
    
    
    
    7/11/2006
    
    
    
    12,000
    
    
    
    100
    %
    
    $
    254,121
    
    
    $
    21.18
    
    
    
    201342400 Merrill Road
(Sterling Heights, MI)
    
    
    1979/1989
    
    
    
    9/22/2006
    
    
    
    532,869
    
    
    
    100
    %
    
    $
    1,166,654
    
    
    $
    2.19
    
    
    
    20162150, 2200 Pinson Valley Parkway
(Birmingham, AL)
    
    
    1961/1980
    
    
    
    9/29/2006
    
    
    
    63,514
    
    
    
    100
    %
    
    $
    271,164
    
    
    $
    4.27
    
    
    
    20162325 West Fairview Avenue
(Montgomery, AL)
    
    
    1962/1989
    
    
    
    9/29/2006
    
    
    
    29,472
    
    
    
    100
    %
    
    $
    125,827
    
    
    $
    4.27
    
    
    
    20165221 N Highway 763
(Columbia, MO)
    
    
    1978
    
    
    
    9/29/2006
    
    
    
    16,275
    
    
    
    100
    %
    
    $
    69,484
    
    
    $
    4.27
    
    
    
    20164690 Parkway Drive
(Mason, OH)
    
    
    2002
    
    
    
    1/5/2007
    
    
    
    60,000
    
    
    
    100
    %
    
    $
    681,270
    
    
    $
    11.35
    
    
    
    2013201 South Rogers Lane
(Raleigh, NC)
    
    
    1994
    
    
    
    2/16/2007
    
    
    
    115,500
    
    
    
    100
    %
    
    $
    717,203
    
    
    $
    6.21
    
    
    
    20151110 West Tenkiller
(Tulsa, OK)
    
    
    2004
    
    
    
    3/1/2007
    
    
    
    238,310
    
    
    
    100
    %
    
    $
    1,565,794
    
    
    $
    6.57
    
    
    
    20193725 East 10th Court
(Hialeah, FL)
    
    
    1956/1992
    
    
    
    3/9/2007
    
    
    
    132,337
    
    
    
    100
    %
    
    $
    995,048
    
    
    $
    7.52
    
    
    
    2022554 Clark Road
(Tewksbury, MA)
    
    
    1985/1989
    
    
    
    5/17/2007
    
    
    
    102,200
    
    
    
    100
    %
    
    $
    922,926
    
    
    $
    9.03
    
    
    
    20175324 Natorp Boulevard
(Mason, OH)
    
    
    2007
    
    
    
    7/1/2007
    
    
    
    21,264
    
    
    
    100
    %
    
    $
    583,131
    
    
    $
    27.42
    
    
    
    2027
 32




---



##### 



Item 2. Properties (Continued)
 Total RentalTotal Rental Income for
    
    
    Income per
    
    
    Year ofYear Built/
    
    
    
    
    
    
    Rentable
    
    
    
    
    
    
    the Year Ended
    
    
    Occupied Square
    
    
    LeaseProperty
    
    Improvements
    
    
    Date of Purchase
    
    
    Square Feet
    
    
    Occupancy
    
    
    December 31, 2009
    
    
    Foot
    
    
    Expiration7282 Willam Barry Boulevard
(Cicero, NY)
    
    
    2005
    
    
    
    9/6/2007
    
    
    
    71,880
    
    
    
    100
    %
    
    $
    529,743
    
    
    $
    7.37
    
    
    
    20201515 Arboretum Drive SE
(Grand Rapids, MI)
    
    
    2001
    
    
    
    9/28/2007
    
    
    
    63,235
    
    
    
    100
    %
    
    $
    1,029,184
    
    
    $
    16.28
    
    
    
    20164 Territorial Court
(Bollingbrook, IL)
    
    
    2002
    
    
    
    9/28/2007
    
    
    
    55,869
    
    
    
    100
    %
    
    $
    619,296
    
    
    $
    11.08
    
    
    
    20142349 Lawrenceville Highway
(Decatur, GA)
    
    
    1989
    
    
    
    12/13/2007
    
    
    
    16,740
    
    
    
    100
    %
    
    $
    404,159
    
    
    $
    24.14
    
    
    
    20262341 Lawrenceville Highway
(Decatur, GA)
    
    
    1989
    
    
    
    12/13/2007
    
    
    
    4,372
    
    
    
    100
    %
    
    $
    105,555
    
    
    $
    24.14
    
    
    
    20262339 Lawrenceville Highway
(Decatur, GA)
    
    
    1989
    
    
    
    12/13/2007
    
    
    
    5,488
    
    
    
    100
    %
    
    $
    132,498
    
    
    $
    24.14
    
    
    
    2026311 Phillip Boulevard
(Lawrenceville, GA)
    
    
    2005
    
    
    
    12/13/2007
    
    
    
    12,412
    
    
    
    100
    %
    
    $
    349,871
    
    
    $
    28.19
    
    
    
    20262096 McGee Road
(Snellville, GA)
    
    
    1986
    
    
    
    12/13/2007
    
    
    
    3,800
    
    
    
    100
    %
    
    $
    90,815
    
    
    $
    23.90
    
    
    
    20267174 Wheat Street
(Covington, GA)
    
    
    2000
    
    
    
    12/13/2007
    
    
    
    5,000
    
    
    
    100
    %
    
    $
    119,493
    
    
    $
    23.90
    
    
    
    20261055 Haw Creek Parkway
(Cumming, GA)
    
    
    2004
    
    
    
    12/13/2007
    
    
    
    13,919
    
    
    
    100
    %
    
    $
    380,410
    
    
    $
    27.33
    
    
    
    20261293 Wellbrook Circle
(Conyers, GA)
    
    
    1994
    
    
    
    12/13/2007
    
    
    
    6,400
    
    
    
    100
    %
    
    $
    152,951
    
    
    $
    23.90
    
    
    
    2026425 Gateway Drive
(Reading, PA)
    
    
    2007
    
    
    
    1/29/2008
    
    
    
    42,900
    
    
    
    100
    %
    
    $
    716,667
    
    
    $
    16.71
    
    
    
    20286499 University Avenue NE
(Fridley, MN)
    
    
    1985/2006
    
    
    
    2/26/2008
    
    
    
    74,160
    
    
    
    100
    %
    
    $
    946,380
    
    
    $
    12.76
    
    
    
    20137528 Auburn Road
(Concord Township, OH)
    
    
    1957/2008
    
    
    
    3/31/2008
    
    
    
    273,300
    
    
    
    100
    %
    
    $
    1,724,133
    
    
    $
    6.31
    
    
    
    202810021 Rodney Street
(Pineville, NC)
    
    
    1985
    
    
    
    4/30/2008
    
    
    
    74,950
    
    
    
    100
    %
    
    $
    438,282
    
    
    $
    5.85
    
    
    
    202828305 State Route 7
(Marietta, OH)
    
    
    1992/2007
    
    
    
    8/29/2008
    
    
    
    223,458
    
    
    
    100
    %
    
    $
    896,743
    
    
    $
    4.01
    
    
    
    2028400 Highpoint Drive
(Chalfont, PA)
    
    
    1987
    
    
    
    8/29/2008
    
    
    
    67,200
    
    
    
    100
    %
    
    $
    757,570
    
    
    $
    11.27
    
    
    
    2016Totals
    
    
    
    
    
    
    
    
    
    
    6,304,159
    
    
    
    
    
    
    $
    41,513,977
 
 (1)
    
    Two tenants occupy this building, each with separate leases ending in the same year. 33




---



##### 



Year of Lease
    
    
    
    
    
    
    
    
    
    Annualized Base
    
    
    % of AnnualizedExpiration
    
    Square Feet
    
    
    Number of Leases
    
    
    Rental Revenue
    
    
    Base Rent2010
    
    
    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 AnnualizedState
    
    Square Feet
    
    
    Leases
    
    
    Rental Revenue
    
    
    Base RentOhio
    
    
    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
    %
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  34




---



##### 



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  Market price per share
    
    DistributionsQuarter Ended
    
    High
    
    Low
    
    Declared Per Share3/31/2008
    
    $
    18.50
    
    
    $
    14.81
    
    
    $
    0.3756/30/2008
    
    $
    18.50
    
    
    $
    15.36
    
    
    $
    0.3759/30/2008
    
    $
    17.38
    
    
    $
    13.96
    
    
    $
    0.37512/31/2008
    
    $
    15.89
    
    
    $
    6.37
    
    
    $
    0.3753/31/2009
    
    $
    10.20
    
    
    $
    5.36
    
    
    $
    0.3756/30/2009
    
    $
    16.21
    
    
    $
    8.20
    
    
    $
    0.3759/30/2009
    
    $
    14.50
    
    
    $
    11.26
    
    
    $
    0.37512/31/2009
    
    $
    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.
    35




---



##### 



Item 6. Selected Financial Data
  Year ended
    
    
    Year ended
    
    
    Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Operating Data:Total operating revenue
    
    $
    42,608,937
    
    
    $
    40,807,497
    
    
    $
    32,690,038
    
    
    $
    25,842,045
    
    
    $
    12,778,005Total operating expenses
    
    
    (20,540,529
    )
    
    
    (19,363,723
    )
    
    
    (15,791,430
    )
    
    
    (14,035,669
    )
    
    
    (7,156,347
    )Other expense
    
    
    (17,668,460
    )
    
    
    (16,570,753
    )
    
    
    (10,940,394
    )
    
    
    (8,521,419
    )
    
    
    (2,185,509
    )Income from continuing operations
    
    
    4,399,948
    
    
    
    4,873,021
    
    
    
    5,958,214
    
    
    
    3,284,957
    
    
    
    3,436,149Discontinued operations
    
    
    203,100
    
    
    
    39,926
    
    
    
    182,015
    
    
    
    1,087,871
    
    
    
    165,796Net income
    
    $
    4,603,048
    
    
    $
    4,912,947
    
    
    $
    6,140,229
    
    
    $
    4,372,828
    
    
    $
    3,601,945Dividends attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (2,186,890
    )
    
    
    Net income available to common stockholders
    
    $
    509,298
    
    
    $
    819,197
    
    
    $
    2,046,479
    
    
    $
    2,185,938
    
    
    $
    3,601,945Share and Per Share Data:Earnings per weighted average common share  basicIncome from continuing operations (net of dividends attributable to preferred
stock)
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.22
    
    
    $
    0.14
    
    
    $
    0.45Discontinued operations
    
    
    0.02
    
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.14
    
    
    
    0.02Net income available to common stockholders
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.28
    
    
    $
    0.47Earnings per weighted average common share  dilutedIncome from continuing operations (net of dividends attributable to preferred
stock)
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.22
    
    
    $
    0.14
    
    
    $
    0.45Discontinued operations
    
    
    0.02
    
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.13
    
    
    
    0.02Net income available to common stockholders
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.27
    
    
    $
    0.47Weighted average shares outstanding-basic
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,827,781
    
    
    
    7,670,219Weighted average shares outstanding-diluted
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,986,690
    
    
    
    7,723,220Cash dividends declared per common share
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.44
    
    
    $
    1.44
    
    
    $
    0.96Supplemental Data:Net income available to common stockholders
    
    $
    509,298
    
    
    $
    819,197
    
    
    $
    2,046,479
    
    
    $
    2,185,938
    
    
    $
    3,601,945Real estate depreciation and amortization, including discontinued operations
    
    
    13,171,703
    
    
    
    12,704,641
    
    
    
    10,528,458
    
    
    
    8,349,474
    
    
    
    3,651,119Less: Gain on sale of real estate, net of taxes paid
    
    
    (160,038
    )
    
    
    
    
    
    
    (78,667
    )
    
    
    (1,106,590
    )
    
    
    Funds from operations available to common stockholders (1)
    
    
    13,520,963
    
    
    
    13,523,838
    
    
    
    12,496,270
    
    
    
    9,428,822
    
    
    
    7,253,064Ratio of earnings to combined fixed charges and preferred dividends (2)
    
    
    1.0x
    
    
    
    1.0x
    
    
    
    1.1x
    
    
    
    1.1x
    
    
    
    2.4xBalance Sheet Data:Real estate, before accumulated depreciation
    
    $
    390,753,892
    
    
    $
    390,562,138
    
    
    $
    340,500,406
    
    
    $
    243,713,542
    
    
    $
    165,043,639Total assets
    
    $
    416,865,373
    
    
    $
    429,098,785
    
    
    $
    378,902,689
    
    
    $
    315,766,022
    
    
    $
    207,046,954Mortgage notes payable, term loan and borrowings under the line of credit
    
    $
    285,961,651
    
    
    $
    286,611,173
    
    
    $
    226,520,471
    
    
    $
    154,494,438
    
    
    $
    105,118,961Total stockholders equity
    
    $
    118,450,542
    
    
    $
    130,495,260
    
    
    $
    142,368,068
    
    
    $
    152,224,176
    
    
    $
    98,948,536Total common shares outstanding
    
    
    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
distributions to stockholders. Comparison of FFO to similarly titled measures for other REITs may
not necessarily be meaningful due to possible differences in the application of the NAREIT
definition used by such REITs.  36




---



##### 



Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Net income
    
    $
    4,603,048
    
    
    $
    4,912,947
    
    
    $
    6,140,229
    
    
    $
    4,372,828
    
    
    $
    3,601,945Less: Distributions attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (2,186,890
    )
    
    
    Net income available to common stockholders
    
    
    509,298
    
    
    
    819,197
    
    
    
    2,046,479
    
    
    
    2,185,938
    
    
    
    3,601,945Add: Real estate depreciation and amortization,
including discontinued operations
    
    
    13,171,703
    
    
    
    12,704,641
    
    
    
    10,528,458
    
    
    
    8,349,474
    
    
    
    3,651,119Less: Gain on sale of real estate
    
    
    (160,038
    )
    
    
    
    
    
    
    (78,667
    )
    
    
    (1,106,590
    )
    
    
    FFO available to common stockholders
    
    $
    13,520,963
    
    
    $
    13,523,838
    
    
    $
    12,496,270
    
    
    $
    9,428,822
    
    
    $
    7,253,064Weighted average shares outstanding  basic
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,827,781
    
    
    
    7,670,219Weighted average shares outstanding  diluted
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
    
    
    
    7,986,690
    
    
    
    7,723,220Basic net income per weighted average common share
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.28
    
    
    $
    0.47Diluted net income per weighted average common
share
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
    
    
    $
    0.27
    
    
    $
    0.47Basic FFO per weighted average common share
    
    $
    1.58
    
    
    $
    1.58
    
    
    $
    1.46
    
    
    $
    1.20
    
    
    $
    0.95Diluted FFO per weighted average common share
    
    $
    1.58
    
    
    $
    1.58
    
    
    $
    1.46
    
    
    $
    1.18
    
    
    $
    0.94Distributions declared per common share
    
    $
    1.50
    
    
    $
    1.50
    
    
    $
    1.44
    
    
    $
    1.44
    
    
    $
    0.96Percentage of FFO paid per common share
    
    
    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 Advisory Agreement, by three. For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Net income from continuing operations
    
    $
    4,399,948
    
    
    $
    4,873,021
    
    
    $
    5,958,214
    
    
    $
    3,284,957
    
    
    $
    3,436,149Add: fixed charges
    
    
    22,000,728
    
    
    
    20,963,484
    
    
    
    15,670,067
    
    
    
    11,490,476
    
    
    
    2,494,245Less: preferred distributions
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (2,186,890
    )
    
    
    Earnings
    
    $
    22,306,926
    
    
    $
    21,742,755
    
    
    $
    17,534,531
    
    
    $
    12,588,543
    
    
    $
    5,930,394Fixed Charges:Interest expense
    
    
    16,398,938
    
    
    
    15,574,735
    
    
    
    10,847,346
    
    
    
    8,041,412
    
    
    
    2,187,586Amortization of deferred financing fees
    
    
    1,495,598
    
    
    
    1,283,952
    
    
    
    717,195
    
    
    
    1,207,198
    
    
    
    260,098Estimated interest component of rent
    
    
    12,442
    
    
    
    11,047
    
    
    
    11,776
    
    
    
    54,976
    
    
    
    46,561Preferred distributions
    
    
    4,093,750
    
    
    
    4,093,750
    
    
    
    4,093,750
    
    
    
    2,186,890
    
    
    
    Total fixed charges and preferred distributions
    
    
    22,000,728
    
    
    
    20,963,484
    
    
    
    15,670,067
    
    
    
    11,490,476
    
    
    
    2,494,245Ratio of earnings to combined fixed charges
and preferred distributions
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.1
    
    
    
    1.1
    
    
    
    2.4
 37




---



##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following analysis of our financial condition and results of operations should be read in
conjunction with our financial statements and the notes thereto contained elsewhere in this Form
10-K.
 OVERVIEW
 General
  Business Environment
  38




---



##### 



Recent Events
 Financing Activities:
  Leasing Activities:
   39




---



##### 



Dispositions:
  Industry Classifications
  December 31, 2009
    
    
    December 31, 2008Percentage of
    
    
    
    
    
    
    Percentage ofIndustry Classification
    
    Rental Income
    
    
    Rental Income
    
    
    Rental Income
    
    
    Rental IncomeAutomobile
    
    $
    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
    %
 Our Adviser and Administrator
   40




---



##### 



Advisory and Administration Agreements
    Management Services and Fees under the Advisory Agreement
   
    
    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




---



##### 



Quarterly Incentive Fee Based on FFO
 
 
   Administration Agreement
  Critical Accounting Policies
  Allocation of Purchase Price
  42




---



##### 




    
    The amount of purchase price allocated to the various tangible and intangible assets on
our balance sheet;
    
    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
to evaluate our operating performance; and
    
    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.
 Asset Impairment Evaluation
  43




---



##### 



Overview Business Environment
 Provision for Loan Losses
  Recently Issued Accounting Pronouncements
  44




---



##### 



Results of Operations
  A comparison of our operating results for the years ended December 31, 2009 and 2008 is below
 For the year ended December 31,2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeOperating revenuesRental 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 expensesDepreciation 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 operationsIncome 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
    %
 45




---



##### 



Operating Revenues
    Operating Expenses
    Advisory and Administration Agreements.
 Advisory and Administration
Agreements.
  46




---



##### 



Advisory and Administration Agreements.
       Other Income and Expense
     Discontinued Operations
  47




---



##### 



Net Income Available to Common Stockholders
  A comparison of our operating results for the years ended December 31, 2008 and 2007 is below
 For the year ended December 31,2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeOperating revenuesRental income
    
    $
    39,572,287
    
    
    $
    31,365,796
    
    
    $
    8,206,491
    
    
    
    26
    %Interest income from mortgage notes receivable
    
    
    898,573
    
    
    
    1,013,889
    
    
    
    (115,316
    )
    
    
    -11
    %Tenant recovery revenue
    
    
    336,637
    
    
    
    310,353
    
    
    
    26,284
    
    
    
    8
    %Total operating revenues
    
    
    40,807,497
    
    
    
    32,690,038
    
    
    
    8,117,459
    
    
    
    25
    %Operating expensesDepreciation and amortization
    
    
    12,679,437
    
    
    
    10,503,258
    
    
    
    2,176,179
    
    
    
    21
    %Property operating expenses
    
    
    875,850
    
    
    
    798,939
    
    
    
    76,911
    
    
    
    10
    %Due diligence expense
    
    
    1,176,379
    
    
    
    20,968
    
    
    
    1,155,411
    
    
    
    5510
    %Base management fee
    
    
    1,637,851
    
    
    
    1,858,120
    
    
    
    (220,269
    )
    
    
    -12
    %Incentive fee
    
    
    2,831,722
    
    
    
    2,564,365
    
    
    
    267,357
    
    
    
    10
    %Administration fee
    
    
    954,635
    
    
    
    837,898
    
    
    
    116,737
    
    
    
    14
    %Professional fees
    
    
    521,410
    
    
    
    625,349
    
    
    
    (103,939
    )
    
    
    -17
    %Insurance
    
    
    173,414
    
    
    
    214,141
    
    
    
    (40,727
    )
    
    
    -19
    %Directors fees
    
    
    216,851
    
    
    
    229,000
    
    
    
    (12,149
    )
    
    
    -5
    %Stockholder related expense
    
    
    298,384
    
    
    
    244,629
    
    
    
    53,755
    
    
    
    22
    %Asset retirement obligation expense
    
    
    131,472
    
    
    
    114,821
    
    
    
    16,651
    
    
    
    15
    %General and administrative
    
    
    63,263
    
    
    
    101,539
    
    
    
    (38,276
    )
    
    
    -38
    %Total operating expenses before credit
from Adviser
    
    
    21,560,668
    
    
    
    18,113,027
    
    
    
    3,447,641
    
    
    
    19
    %Credit to incentive fee
    
    
    (2,196,945
    )
    
    
    (2,321,597
    )
    
    
    124,652
    
    
    
    -5
    %Total operating expenses
    
    
    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
    %Interest income  employee loans
    
    
    202,097
    
    
    
    222,051
    
    
    
    (19,954
    )
    
    
    -9
    %Other income
    
    
    63,993
    
    
    
    47,847
    
    
    
    16,146
    
    
    
    34
    %Interest expense
    
    
    (16,858,687
    )
    
    
    (11,564,541
    )
    
    
    (5,294,146
    )
    
    
    46
    %Total other expense
    
    
    (16,570,753
    )
    
    
    (10,940,394
    )
    
    
    (5,630,359
    )
    
    
    51
    %Income from continuing operations
    
    
    4,873,021
    
    
    
    5,958,214
    
    
    
    (1,085,193
    )
    
    
    -18
    %Discontinued operationsIncome from discontinued operations
    
    
    39,926
    
    
    
    69,989
    
    
    
    (30,063
    )
    
    
    -43
    %Net realized income from foreign currency transactions
    
    
    
    
    
    
    33,359
    
    
    
    (33,359
    )
    
    
    -100
    %Taxes refunded on sale of real estate
    
    
    
    
    
    
    78,667
    
    
    
    (78,667
    )
    
    
    100
    %Total discontinued operations
    
    
    39,926
    
    
    
    182,015
    
    
    
    (142,089
    )
    
    
    -78
    %Net income
    
    
    4,912,947
    
    
    
    6,140,229
    
    
    
    (1,227,282
    )
    
    
    -20
    %Distributions attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    
    
    
    
    0
    %Net income available to common stockholders
    
    $
    819,197
    
    
    $
    2,046,479
    
    
    $
    (1,227,282
    )
    
    
    -60
    %
 48




---



##### 



Operating Revenues
    Operating Expenses
   Investment Advisory and Administration Agreements.
 Investment Advisory and Administration Agreements.
 Investment Advisory and
Administration Agreements.
  49




---



##### 



Other Income and Expense
     Discontinued Operations
  Net Income Available to Common Stockholders
  50




---



##### 



Liquidity and Capital Resources
 Future Capital Needs
  Overview Business Environment
    51




---



##### 



Operating Activities
  Investing Activities
 Overview Business Environment
 Financing Activities
  Mortgage Notes Payable
  Line of Credit
  52




---



##### 



Short-Term Loan
  53




---



##### 



Contractual Obligations
  Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligations
    
    Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    YearsDebt Obligations (1)
    
    $
    285,961,651
    
    
    $
    83,770,508
    
    
    $
    5,878,841
    
    
    $
    32,233,838
    
    
    $
    164,078,464Interest on Debt Obligations (2)
    
    
    78,727,727
    
    
    
    15,724,516
    
    
    
    23,698,172
    
    
    
    21,930,064
    
    
    
    17,374,975Capital Lease Obligations (3)
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    Operating Lease Obligations (4)
    
    
    1,753,868
    
    
    
    152,510
    
    
    
    305,020
    
    
    
    305,020
    
    
    
    991,318Total
    
    $
    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, which represents $33.2 million of the debt obligation due in less than 1 year,
and mortgage notes payable that were outstanding as of December 31, 2009. The line of credit matures in December 2010.
The $48.0 million mortgage note issued in September 2008 matures in October 2010, and we expect to exercise our options to extend the term through October 2013.(2)
    
    Interest on debt obligations includes estimated interest on our borrowings under our line of credit.
The balance and interest rate on our line of credit is variable, thus the amount of interest calculated for purposes of this table was based upon rates and
balances as of December 31, 2009.(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. Off-Balance Sheet Arrangements
  54




---



##### 



Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    For the year ended December 31,2009
    
    
    20081% increase in the one month LIBORRental & interest income
    
    $
    5
    
    
    $
    106,031Interest expense
    
    
    336,611
    
    
    
    320,250Net decrease
    
    $
    (336,606
    )
    
    $
    (214,219
    )Net income available to common
stockholders (as reported)
    
    $
    509,298
    
    
    $
    819,197Net decrease as percentage of
Net income available to common
stockholders (as reported)
    
    
    -66.1
    %
    
    
    -26.1
    %1% decrease in the one month LIBORRental & interest income
    
    $
    
    
    
    $
    (96,882
    )Interest expense
    
    $
    (336,611
    )
    
    $
    (320,250
    )Net increase
    
    $
    336,611
    
    
    $
    223,368Net income available to common stockholders
    
    $
    509,298
    
    
    $
    819,197Net increase as percentage of
Net income available to common stockholders
    
    
    66.1
    %
    
    
    27.3
    %
  55




---



##### 



56




---



##### 



Item 8. Financial Statements and Supplementary Data
 Index to Consolidated Financial StatementsReport of Management on Internal Controls over Financial Reporting
    
    
    58Report of Independent Registered Public Accounting Firm
    
    
    59Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008
    
    
    61Consolidated Statements of Operations for the years ended December 31,
2009, 2008 and 2007
    
    
    62Consolidated Statements of Stockholders Equity for the years ended
December 31, 2009, 2008 and 2007
    
    
    63Consolidated Statements of Cash Flows for the years ended December
31, 2009, 2008 and 2007
    
    
    64Notes to Financial Statements
    
    
    65Schedule III  Real Estate and Accumulated Depreciation
    
    
    82Schedule IV  Mortgage Loans on Real Estate
    
    
    87
  57




---



##### 



Report of Management on Internal Controls over Financial Reporting
    Internal Control -
Integrated Framework
   58




---



##### 



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
  59




---



##### 



60




---



##### 



GLADSTONE COMMERCIAL CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 December 31, 2009
    
    
    December 31, 2008ASSETSReal estate, at cost
    
    $
    390,753,892
    
    
    $
    390,562,138Less: accumulated depreciation
    
    
    34,111,952
    
    
    
    24,757,576Total real estate, net
    
    
    356,641,940
    
    
    
    365,804,562Lease intangibles, net
    
    
    28,177,461
    
    
    
    31,533,843Mortgage note receivable
    
    
    10,000,000
    
    
    
    10,000,000Cash and cash equivalents
    
    
    3,096,598
    
    
    
    4,503,578Restricted cash
    
    
    2,633,538
    
    
    
    2,677,561Funds held in escrow
    
    
    2,487,680
    
    
    
    2,150,919Deferred rent receivable
    
    
    8,975,196
    
    
    
    7,228,811Deferred financing costs, net
    
    
    3,136,055
    
    
    
    4,383,446Due from adviser (Refer to Note 2)
    
    
    
    
    
    
    108,898Prepaid expenses and other assets
    
    
    1,716,905
    
    
    
    707,167TOTAL ASSETS
    
    $
    416,865,373
    
    
    $
    429,098,785LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESMortgage notes payable
    
    $
    252,761,651
    
    
    $
    255,111,173Short-term loan and borrowings under line of credit
    
    
    33,200,000
    
    
    
    31,500,000Deferred rent liability
    
    
    3,213,195
    
    
    
    3,147,472Asset retirement obligation liability
    
    
    2,305,644
    
    
    
    2,190,192Accounts payable and accrued expenses
    
    
    2,086,741
    
    
    
    2,673,787Due to adviser (Refer to Note 2)
    
    
    1,213,640
    
    
    
    Obligation under capital lease
    
    
    247,686
    
    
    
    235,378Rent received in advance, security deposits and funds held in escrow
    
    
    3,386,274
    
    
    
    3,745,523Total Liabilities
    
    
    298,414,831
    
    
    
    298,603,525STOCKHOLDERS EQUITYRedeemable preferred stock, $0.001 par value; $25 liquidation preference;
2,300,000 shares authorized and 2,150,000 shares issued and outstanding
    
    
    2,150
    
    
    
    2,150Common stock, $0.001 par value, 47,700,000 shares authorized and 8,563,264
shares issued and outstanding
    
    
    8,563
    
    
    
    8,563Additional paid in capital
    
    
    170,622,581
    
    
    
    170,622,581Notes receivable  employees
    
    
    (2,304,999
    )
    
    
    (2,595,886
    )Distributions in excess of accumulated earnings
    
    
    (49,877,753
    )
    
    
    (37,542,148
    )Total Stockholders Equity
    
    
    118,450,542
    
    
    
    130,495,260TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    416,865,373
    
    
    $
    429,098,785
  61




---



##### 



GLADSTONE COMMERCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the year ended December 31,2009
    
    
    2008
    
    
    2007Operating revenuesRental income
    
    $
    41,513,977
    
    
    $
    39,572,287
    
    
    $
    31,365,796Interest income from mortgage note receivable
    
    
    760,417
    
    
    
    898,573
    
    
    
    1,013,889Tenant recovery revenue
    
    
    334,543
    
    
    
    336,637
    
    
    
    310,353Total operating revenues
    
    
    42,608,937
    
    
    
    40,807,497
    
    
    
    32,690,038Operating expensesDepreciation and amortization
    
    
    13,161,287
    
    
    
    12,679,437
    
    
    
    10,503,258Property operating expenses
    
    
    915,120
    
    
    
    875,850
    
    
    
    798,939Due diligence expense
    
    
    40,574
    
    
    
    1,176,379
    
    
    
    20,968Base management fee (Refer to Note 2)
    
    
    1,401,402
    
    
    
    1,637,851
    
    
    
    1,858,120Incentive fee (Refer to Note 2)
    
    
    3,238,634
    
    
    
    2,831,722
    
    
    
    2,564,365Administration fee (Refer to Note 2)
    
    
    1,015,695
    
    
    
    954,635
    
    
    
    837,898Professional fees
    
    
    649,566
    
    
    
    521,410
    
    
    
    625,349Insurance
    
    
    203,682
    
    
    
    173,414
    
    
    
    214,141Directors fees
    
    
    198,882
    
    
    
    216,851
    
    
    
    229,000Stockholder related expenses
    
    
    236,160
    
    
    
    298,384
    
    
    
    244,629Asset retirement obligation expense
    
    
    143,089
    
    
    
    131,472
    
    
    
    114,821General and administrative
    
    
    62,886
    
    
    
    63,263
    
    
    
    101,539Total operating expenses before credit from Adviser
    
    
    21,266,977
    
    
    
    21,560,668
    
    
    
    18,113,027Credit to incentive fee
    
    
    (726,448
    )
    
    
    (2,196,945
    )
    
    
    (2,321,597
    )Total operating expenses
    
    
    20,540,529
    
    
    
    19,363,723
    
    
    
    15,791,430Other income (expense)Interest income from temporary investments
    
    
    20,748
    
    
    
    21,844
    
    
    
    354,249Interest income  employee loans
    
    
    192,350
    
    
    
    202,097
    
    
    
    222,051Other income
    
    
    12,978
    
    
    
    63,993
    
    
    
    47,847Interest expense
    
    
    (17,894,536
    )
    
    
    (16,858,687
    )
    
    
    (11,564,541
    )Total other expense
    
    
    (17,668,460
    )
    
    
    (16,570,753
    )
    
    
    (10,940,394
    )Income from continuing operations
    
    
    4,399,948
    
    
    
    4,873,021
    
    
    
    5,958,214Discontinued operationsIncome from discontinued operations
    
    
    43,062
    
    
    
    39,926
    
    
    
    69,989Net realized income from foreign currency transactions
    
    
    
    
    
    
    
    
    
    
    33,359Gain on sale of real estate
    
    
    160,038
    
    
    
    
    
    
    
    Taxes refunded on sale of real estate
    
    
    
    
    
    
    
    
    
    
    78,667Total discontinued operations
    
    
    203,100
    
    
    
    39,926
    
    
    
    182,015Net income
    
    
    4,603,048
    
    
    
    4,912,947
    
    
    
    6,140,229Distributions attributable to preferred stock
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )
    
    
    (4,093,750
    )Net income available to common stockholders
    
    $
    509,298
    
    
    $
    819,197
    
    
    $
    2,046,479Earnings per weighted average common share  basic & dilutedIncome from continuing operations (net of distributions attributable to preferred stock)
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    0.22Discontinued operations
    
    
    0.02
    
    
    
    0.01
    
    
    
    0.02Net income available to common stockholders
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24Weighted average shares outstanding  basic & diluted
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264
  62




---



##### 



GLADSTONE COMMERCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Notes
    
    
    Distributions inCapital in
    
    
    Receivable
    
    
    Excess of
    
    
    TotalPreferred
    
    
    Common
    
    
    Excess of
    
    
    From Sale of
    
    
    Accumulated
    
    
    StockholdersStock
    
    
    Stock
    
    
    Par Value
    
    
    Common Stock
    
    
    Earnings
    
    
    EquityBalance at December
31, 2006
    
    $
    2,150
    
    
    $
    8,565
    
    
    $
    170,640,979
    
    
    $
    (3,201,322
    )
    
    $
    (15,226,196
    )
    
    $
    152,224,176Repayment of
Principal on Notes
Receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    431,399
    
    
    
    
    
    
    
    431,399Distributions
Declared to Common
and Preferred
Stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,427,736
    )
    
    
    (16,427,736
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,140,229
    
    
    
    6,140,229Balance at December
31, 2007
    
    $
    2,150
    
    
    $
    8,565
    
    
    $
    170,640,979
    
    
    $
    (2,769,923
    )
    
    $
    (25,513,703
    )
    
    $
    142,368,068Forfeiture of
Common Stock
    
    
    
    
    
    
    (2
    )
    
    
    (18,398
    )
    
    
    
    
    
    
    
    
    
    
    (18,400
    )Repayment of
Principal on Notes
Receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    174,037
    
    
    
    
    
    
    
    174,037Distributions
Declared to Common
and Preferred
Stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,941,392
    )
    
    
    (16,941,392
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,912,947
    
    
    
    4,912,947Balance at December
31, 2008
    
    $
    2,150
    
    
    $
    8,563
    
    
    $
    170,622,581
    
    
    $
    (2,595,886
    )
    
    $
    (37,542,148
    )
    
    $
    130,495,260Repayment of
Principal on Notes
Receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,887
    
    
    
    
    
    
    
    45,887Reclassification of
Loan Balance to
Other Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,000
    
    
    
    
    
    
    
    245,000Distributions
Declared to Common
and Preferred
Stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,938,653
    )
    
    
    (16,938,653
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,603,048
    
    
    
    4,603,048Balance at December
31, 2009
    
    $
    2,150
    
    
    $
    8,563
    
    
    $
    170,622,581
    
    
    $
    (2,304,999
    )
    
    $
    (49,877,753
    )
    
    $
    118,450,542
  63




---



##### 



GLADSTONE COMMERCIAL CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year ended December 31,2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    4,603,048
    
    
    $
    4,912,947
    
    
    $
    6,140,229Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization, including discontinued operations
    
    
    13,171,703
    
    
    
    12,704,641
    
    
    
    10,528,458Amortization of deferred financing costs
    
    
    1,491,389
    
    
    
    1,283,956
    
    
    
    717,195Amortization of deferred rent asset and liability, net
    
    
    (532,068
    )
    
    
    (532,066
    )
    
    
    (532,068
    )Accretion of obligation under capital lease
    
    
    12,309
    
    
    
    10,311
    
    
    
    Asset retirement obligation expense, including discontinued operations
    
    
    143,550
    
    
    
    133,244
    
    
    
    116,478Gain on sale of real estate
    
    
    (160,038
    )
    
    
    
    
    
    
    (Increase) decrease in prepaid expenses and other assets
    
    
    (959,738
    )
    
    
    172,096
    
    
    
    64,990Increase in deferred rent receivable and deferred rent liability, net
    
    
    (1,177,167
    )
    
    
    (2,387,509
    )
    
    
    (1,741,016
    )Increase in accounts payable, accrued expenses, and amount due adviser
    
    
    735,492
    
    
    
    1,001,639
    
    
    
    625,398(Decrease) increase in rent received in advance
    
    
    (315,223
    )
    
    
    275,916
    
    
    
    176,145Net cash provided by operating activities
    
    
    17,013,257
    
    
    
    17,575,175
    
    
    
    16,095,809Cash flows from investing activities:Real estate investments
    
    
    (1,139,711
    )
    
    
    (49,359,852
    )
    
    
    (105,599,587
    )Leasing commissions paid
    
    
    (441,745
    )
    
    
    
    
    
    
    Proceeds from sale of real estate
    
    
    1,089,269
    
    
    
    
    
    
    
    Receipts from lenders for reserves held in escrow
    
    
    1,465,133
    
    
    
    874,227
    
    
    
    1,603,309Payments to lenders for reserves held in escrow
    
    
    (1,801,894
    )
    
    
    (1,623,452
    )
    
    
    (1,369,186
    )Decrease (increase) in restricted cash
    
    
    44,023
    
    
    
    (763,494
    )
    
    
    (688,905
    )Deposits on future acquisitions
    
    
    (250,000
    )
    
    
    (1,650,000
    )
    
    
    (2,110,000
    )Deposits refunded or applied against real estate investments
    
    
    200,000
    
    
    
    1,750,000
    
    
    
    2,110,000Net cash used in investing activities
    
    
    (834,925
    )
    
    
    (50,772,571
    )
    
    
    (106,054,369
    )Cash flows from financing activities:Borrowings under mortgage notes payable
    
    
    
    
    
    
    48,015,000
    
    
    
    48,521,690Principal repayments on mortgage notes payable
    
    
    (2,349,522
    )
    
    
    (1,485,901
    )
    
    
    (895,657
    )Principal repayments on employee notes receivable
    
    
    290,887
    
    
    
    155,637
    
    
    
    431,399Borrowings from line of credit
    
    
    57,600,000
    
    
    
    76,900,000
    
    
    
    65,500,000Repayments on line of credit
    
    
    (35,900,000
    )
    
    
    (69,800,000
    )
    
    
    (41,100,000
    )Repayment of short-term loan
    
    
    (20,000,000
    )
    
    
    
    
    
    
    Receipts from tenants for reserves
    
    
    4,454,102
    
    
    
    2,391,360
    
    
    
    2,023,019Payments to tenants from reserves
    
    
    (4,526,409
    )
    
    
    (2,159,671
    )
    
    
    (1,710,685
    )Increase in security deposits
    
    
    28,282
    
    
    
    531,806
    
    
    
    376,572Payments for deferred financing costs
    
    
    (243,999
    )
    
    
    (1,262,273
    )
    
    
    (1,409,320
    )Distributions paid for common and preferred
    
    
    (16,938,653
    )
    
    
    (16,941,392
    )
    
    
    (16,427,736
    )Net cash (used in) provided by financing activities
    
    
    (17,585,312
    )
    
    
    36,344,566
    
    
    
    55,309,282Net (decrease) increase in cash and cash equivalents
    
    
    (1,406,980
    )
    
    
    3,147,170
    
    
    
    (34,649,278
    )Cash and cash equivalents, beginning of year
    
    
    4,503,578
    
    
    
    1,356,408
    
    
    
    36,005,686Cash and cash equivalents, end of year
    
    $
    3,096,598
    
    
    $
    4,503,578
    
    
    $
    1,356,408Cash paid during year for interest
    
    $
    16,558,955
    
    
    $
    14,337,944
    
    
    $
    10,693,440NON-CASH OPERATING, INVESTING AND FINANCING INFORMATIONAdditions to real estate included in accounts payable, accrued expenses,
and amount due adviser
    
    $
    
    
    
    $
    
    
    
    $
    81,400Increase in asset retirement obligation
    
    $
    
    
    
    $
    245,196
    
    
    $
    180,458Fixed rate debt assumed in connection with acquisitions
    
    $
    
    
    
    $
    6,461,603
    
    
    $
    4,506,689Obligation under capital lease
    
    $
    
    
    
    $
    225,068
    
    
    $
    Forfeiture of common stock in satisfaction of employee note receivable
    
    $
    
    
    
    $
    18,400
    
    
    $
    Reclassificaton of principal on employee note (Refer to Note 8)
    
    $
    245,000
    
    
    $
    
    
    
    $
    
  64




---



##### 



GLADSTONE COMMERCIAL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Significant Accounting Policies
  Subsidiaries
      65




---



##### 



Investments in Real Estate
       66




---



##### 



Impairment
 Investments in Real Estate
   Provision for Loan Losses
  Cash and Cash Equivalents
  67




---



##### 



Restricted Cash
  Funds Held in Escrow
  Deferred Financing Costs
  Prepaid Expenses and Other Assets
  Obligation Under Capital Lease
  Revenue Recognition
  68




---



##### 



Income Taxes
   Segment Information
  Asset Retirement Obligations
  69




---



##### 



Real Estate Held for Sale and Discontinued Operations
  Recently Issued Accounting Pronouncements
 .
    70




---



##### 



Use of Estimates
  71




---



##### 



Reclassifications
  2. Related Party Transactions
  Advisory Agreement
   Administration Agreement
  72




---



##### 



3. Earnings per Common Share
  For the year ended December 31,2009
    
    
    2008
    
    
    2007Net income available to common stockholders
    
    $
    509,298
    
    
    $
    819,197
    
    
    $
    2,046,479Denominator for basic & diluted weighted
average shares
    
    
    8,563,264
    
    
    
    8,565,149
    
    
    
    8,565,264Basic & diluted earnings per common share
    
    $
    0.06
    
    
    $
    0.10
    
    
    $
    0.24
 4. Real Estate and Intangible Assets
 Real Estate
  December 31, 2009
    
    
    December 31, 2008Real estate:Land
    
    $
    55,025,707
    (1)
    
    $
    55,226,042
    (1)Building and improvements
    
    
    325,907,479
    
    
    
    325,515,390Tenant improvements
    
    
    9,820,706
    
    
    
    9,820,706Accumulated depreciation
    
    
    (34,111,952
    )
    
    
    (24,757,576
    )Real estate, net
    
    $
    356,641,940
    
    
    $
    365,804,562
 
 (1)
    
    Includes land held under a capital lease carried at approximately $1.1 million.   73




---



##### 



TenantYear
    
    Lease Payments2010
    
    $
    38,922,2562011
    
    
    38,657,9362012
    
    
    38,751,6452013
    
    
    33,402,9942014
    
    
    29,172,473Thereafter
    
    
    160,527,477
  Intangible Assets
  December 31, 2009
    
    
    December 31, 2008Accumulated
    
    
    
    
    
    
    AccumulatedLease Intangibles
    
    
    Amortization
    
    
    Lease Intangibles
    
    
    AmortizationIn-place leases
    
    $
    15,935,445
    
    
    $
    (6,741,817
    )
    
    $
    15,981,245
    
    
    $
    (5,079,343
    )Leasing costs
    
    
    10,053,004
    
    
    
    (3,832,623
    )
    
    
    9,662,731
    
    
    
    (2,987,360
    )Customer relationships
    
    
    17,136,501
    
    
    
    (4,373,049
    )
    
    
    17,136,501
    
    
    
    (3,179,931
    )$
    43,124,950
    
    
    $
    (14,947,489
    )
    
    $
    42,780,477
    
    
    $
    (11,246,634
    )
  EstimatedYear
    
    Amortization Expense2010
    
    5,610,7702011
    
    
    5,047,4732012
    
    
    4,309,9902013
    
    
    2,310,9952014
    
    
    2,051,524Thereafter
    
    $
    8,846,709
 74




---



##### 



5. Real Estate Held for Sale and Discontinued Operations
   For the year ended December 31,2009
    
    
    2008
    
    
    2007Operating revenue
    
    $
    56,202
    
    
    $
    103,501
    
    
    $
    103,501Operating expense
    
    
    (13,140
    )
    
    
    (63,575
    )
    
    
    (33,512
    )Net realized income from foreign currency
transactions
    
    
    
    
    
    
    
    
    
    
    33,359Taxes refunded on sale of real estate
    
    
    
    
    
    
    
    
    
    
    78,667Gain on sale of real estate
    
    
    160,038
    
    
    
    
    
    
    
    Income from discontinued operations
    
    $
    203,100
    
    
    $
    39,926
    
    
    $
    182,015
 6. Mortgage Note Receivable
   75




---



##### 



7. Mortgage Notes Payable, Line of Credit and Short-Term Loan
  Date of
    
    Principal
    
    Stated Interest Rate
    
    Principal Balance OutstandingIssuance/
    
    Maturity
    
    at December 31,
    
    December 31,
    
    
    December 31,Assumption
    
    Date
    
    2009 (1)
    
    2009
    
    
    2008Fixed-Rate Mortgage Notes Payable:03/16/05
    
    04/01/30
    
    6.33%
    
    $
    2,884,908
    
    
    $
    2,948,75308/25/05
    
    09/01/15
    
    5.33%
    
    
    21,093,917
    
    
    
    21,399,64409/12/05
    
    09/01/15
    
    5.21%
    
    
    12,389,647
    
    
    
    12,560,67312/21/05
    
    12/08/15
    
    5.71%
    
    
    18,991,934
    
    
    
    19,241,11702/21/06
    
    12/01/13
    
    5.91%
    
    
    9,188,044
    
    
    
    9,344,90802/21/06
    
    06/30/14
    
    5.20%
    
    
    19,116,277
    
    
    
    19,472,74003/29/06
    
    04/01/16
    
    5.92%
    
    
    17,000,000
    
    
    
    17,000,00004/27/06
    
    05/05/16
    
    6.58%
    
    
    14,009,918
    
    
    
    14,281,61611/22/06
    
    12/01/16
    
    5.76%
    
    
    14,136,921
    
    
    
    14,309,00012/22/06
    
    01/01/17
    
    5.79%
    
    
    21,605,106
    
    
    
    21,846,00002/08/07
    
    03/01/17
    
    6.00%
    
    
    13,775,000
    
    
    
    13,775,00006/05/07
    
    06/08/17
    
    6.11%
    
    
    14,240,000
    
    
    
    14,240,00009/06/07
    
    12/11/15
    
    5.81%
    
    
    4,361,144
    
    
    
    4,426,39310/15/07
    
    11/08/17
    
    6.63%
    
    
    15,657,330
    
    
    
    15,828,61208/29/08
    
    06/01/16
    
    6.80%
    
    
    6,296,505
    
    
    
    6,421,71709/15/08
    
    10/01/10
    (2)
    6.85%
    
    
    48,015,000
    
    
    
    48,015,000Total Fixed-Rate Mortgage Notes Payable:
    
    
    
    
    
    
    
    
    252,761,651
    
    
    
    255,111,173Variable-Rate Line of Credit:
    
    12/29/06
    
    12/29/10
    (3)
    LIBOR + 1.9%
    
    
    33,200,000
    
    
    
    11,500,000Variable-Rate Short-Term Loan:
    
    12/21/07
    
    06/20/09
    (4)
    LIBOR + 2.75%
    
    
    
    
    
    
    20,000,000Total Mortgage Notes Payable, Line of
Credit and Short-Term Loan
    
    
    
    $
    285,961,651
    
    
    $
    286,611,173
 
 (1)
    
    The weighted average interest rate on all debt outstanding at December 31, 2009 was approximately 5.59%.(2)
    
    This note has three annual extension options, which extends the term of the note until October 1, 2013.(3)
    
    The line of credit was extended for a one-year period through
December 29, 2010.(4)
    
    The short-term
loan was repaid in full on March 31, 2009. Mortgage Notes Payable
   76




---



##### 



Scheduled principalYear
    
    payments2010
    
    $
    50,570,506
    (1)2011
    
    
    2,795,4112012
    
    
    3,083,4292013
    
    
    11,840,0202014
    
    
    20,401,572Thereafter
    
    
    164,070,713$
    252,761,651
 
 (1)
    
    The $48.0
million mortgage note issued in
September 2008 matures in October
2010, and we expect to exercise
our options to extend through
October 2013. Line of Credit
    77




---



##### 



Short-Term Loan
  8. Stockholders Equity
  Ordinary
    
    Return of
    
    Long-TermIncome
    
    Capital
    
    Capital GainsCommon StockFor the year ended
December 31, 2007
    
    
    25.86040
    %
    
    
    74.13960
    %
    
    
    0.00000
    %For the year ended
December 31, 2008
    
    
    9.26770
    %
    
    
    90.73230
    %
    
    
    0.00000
    %For the year ended
December 31, 2009
    
    
    6.04080
    %
    
    
    93.95920
    %
    
    
    0.00000
    %Series A Preferred StockFor the year ended
December 31, 2007
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2008
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2009
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %Series B Preferred StockFor the year ended
December 31, 2007
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2008
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %For the year ended
December 31, 2009
    
    
    100.00000
    %
    
    
    0.00000
    %
    
    
    0.00000
    %
 78




---



##### 



OutstandingAmount of
    
    
    Balance of
    
    
    OutstandingNumber of
    
    
    Strike Price
    
    
    Promissory Note
    
    
    Employee
    
    
    Balance of
    
    
    Maturity
    
    
    InterestOptions
    
    
    of Options
    
    
    Issued to
    
    
    Loans at
    
    
    Employee Loans
    
    
    Date of
    
    
    Rate onDate Issued
    
    Exercised
    
    
    Exercised
    
    
    Employees
    
    
    12/31/09
    
    
    at 12/31/08
    
    
    Note
    
    
    NoteSep 2004
    
    
    25,000
    
    
    $
    15.00
    
    
    $
    375,000
    
    
    $
    358,405
    
    
    $
    365,927
    
    
    Sep 2013
    
    
    5.00
    %Apr 2006
    
    
    12,422
    
    
    
    16.10
    
    
    
    199,994
    
    
    
    199,994
    
    
    
    199,994
    
    
    Apr 2015
    
    
    7.77
    %May 2006
    
    
    50,000
    
    
    
    16.85
    
    
    
    842,500
    
    
    
    842,500
    
    
    
    842,500
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    15,000
    
    
    
    16.10
    
    
    
    241,500
    
    
    
    241,500
    
    
    
    241,500
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    2,500
    
    
    
    16.01
    
    
    
    40,000
    
    
    
    
    (1)
    
    
    38,365
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    2,000
    
    
    
    16.10
    
    
    
    32,200
    
    
    
    32,200
    
    
    
    32,200
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    2,000
    
    
    
    16.10
    
    
    
    32,200
    
    
    
    32,200
    
    
    
    32,200
    
    
    May 2016
    
    
    7.87
    %May 2006
    
    
    2,000
    
    
    
    15.00
    
    
    
    30,000
    
    
    
    30,000
    
    
    
    30,000
    
    
    May 2016
    
    
    7.87
    %Oct 2006
    
    
    12,000
    
    
    
    16.10
    
    
    
    193,200
    
    
    
    193,200
    
    
    
    193,200
    
    
    Oct 2015
    
    
    8.17
    %Nov 2006
    
    
    25,000
    
    
    
    15.00
    
    
    
    375,000
    
    
    
    
    (2)
    
    
    245,000
    
    
    Dec 2016
    
    
    8.15
    %Nov 2006
    
    
    25,000
    
    
    
    15.00
    
    
    
    375,000
    
    
    
    375,000
    
    
    
    375,000
    
    
    Nov 2015
    
    
    8.15
    %172,922
    
    
    
    
    
    
    $
    2,736,594
    
    
    $
    2,304,999
    
    
    $
    2,595,886
 
 (1)
    
    This loan was paid in full on July 1, 2009.(2)
    
    This loan was to a former employee of the Adviser and accordingly was transferred from notes receivable  employees to other assets in connection
with the that employees termination of employment with the Adviser and the later amendment of the loan. The interest on the loan from the date the
employee stopped working for the Adviser is included in other income on the consolidated statement of operations.    9. Segment Information
   79




---



##### 



As of and for the year ended December 31, 2009Real Estate
    
    
    Real EstateLeasing
    
    
    Lending
    
    
    Other
    
    
    TotalOperating revenues
    
    $
    41,848,520
    
    
    $
    760,417
    
    
    $
    
    
    
    $
    42,608,937Operating expenses
    
    
    (14,260,070
    )
    
    
    
    
    
    
    (6,280,459
    )(1)
    
    
    (20,540,529
    )Other expense
    
    
    (16,480,535
    )
    
    
    
    
    
    
    (1,187,925
    )(2)
    
    
    (17,668,460
    )Discontinued
operations
    
    
    203,100
    
    
    
    
    
    
    
    
    
    
    
    203,100Net income
    
    $
    11,311,015
    
    
    $
    760,417
    
    
    $
    (7,468,384
    )
    
    $
    4,603,048Total Assets
    
    $
    399,867,563
    
    
    $
    10,000,000
    
    
    $
    6,997,810
    
    
    $
    416,865,373
 As of and for the year ended December 31, 2008Real Estate
    
    
    Real EstateLeasing
    
    
    Lending
    
    
    Other
    
    
    TotalOperating revenues
    
    $
    39,908,924
    
    
    $
    898,573
    
    
    $
    
    
    
    $
    40,807,497Operating expenses
    
    
    (14,863,138
    )
    
    
    
    
    
    
    (4,500,585
    )(1)
    
    
    (19,363,723
    )Other expense
    
    
    (13,769,417
    )
    
    
    
    
    
    
    (2,801,336
    )(2)
    
    
    (16,570,753
    )Discontinued
operations
    
    
    39,926
    
    
    
    
    
    
    
    
    
    
    
    39,926Net income
    
    $
    11,316,295
    
    
    $
    898,573
    
    
    $
    (7,301,921
    )
    
    $
    4,912,947Total Assets
    
    $
    413,760,683
    
    
    $
    10,000,000
    
    
    $
    5,338,102
    
    
    $
    429,098,785
 As of and for the year ended December 31, 2007Real Estate
    
    
    Real EstateLeasing
    
    
    Lending
    
    
    Other
    
    
    TotalOperating revenues
    
    $
    31,676,149
    
    
    $
    1,013,889
    
    
    $
    
    
    
    $
    32,690,038Operating expenses
    
    
    (11,437,986
    )
    
    
    
    
    
    
    (4,353,444
    )(1)
    
    
    (15,791,430
    )Other expense
    
    
    (10,860,826
    )
    
    
    
    
    
    
    (79,568
    )(2)
    
    
    (10,940,394
    )Discontinued
operations
    
    
    182,015
    
    
    
    
    
    
    
    
    
    
    
    182,015Net income
    
    $
    9,559,352
    
    
    $
    1,013,889
    
    
    $
    (4,433,012
    )
    
    $
    6,140,229Total Assets
    
    $
    366,231,132
    
    
    $
    10,086,111
    
    
    $
    2,585,446
    
    
    $
    378,902,689
 
 (1)
    
    Operating expenses includes base management fees, incentive fees, adminstration fees, professional fees,
insurance expense, directors fees, stockholder related expenses and general and administrative expenses that are
not practicable to allocate to either operating segment, thus it is included in the other column.(2)
    
    Other expense includes interest expense on the Companys line of credit and short-term loan of $1,414,001,
$3,089,270 and $703,715 for the years ended December 31, 2009, 2008 and 2007, respectively. It is not
practicable to allocate the interest from the line of credit or short-term loan to either operating segment, thus
it is included in the other column. 80




---



##### 



10. Quarterly Financial Information (unaudited)
  Year ended December 31, 2009Quarter ended
    
    
    Quarter ended
    
    
    Quarter ended
    
    
    Quarter endedMarch 31, 2009
    
    
    June 30, 2009
    
    
    September 30, 2009
    
    
    December 31, 2009Operating revenues
    
    $
    10,658,176
    
    
    $
    10,651,489
    
    
    $
    10,657,094
    
    
    $
    10,642,178Operating expenses
    
    
    5,165,052
    
    
    
    5,181,837
    
    
    
    5,069,018
    
    
    
    5,124,622Other expense
    
    
    (4,421,393
    )
    
    
    (4,373,632
    )
    
    
    (4,473,194
    )
    
    
    (4,400,241
    )Income from continuing operations
    
    
    1,071,731
    
    
    
    1,096,020
    
    
    
    1,114,882
    
    
    
    1,117,315Discontinued operations
    
    
    17,838
    
    
    
    20,916
    
    
    
    164,108
    
    
    
    238Net income
    
    
    1,089,569
    
    
    
    1,116,936
    
    
    
    1,278,990
    
    
    
    1,117,553Dividends attributable to preferred stock
    
    
    (1,023,437
    )
    
    
    (1,023,437
    )
    
    
    (1,023,437
    )
    
    
    (1,023,439
    )Net income available to common stockholders
    
    
    66,132
    
    
    
    93,499
    
    
    
    255,553
    
    
    
    94,114Net income available to common stockholders  basic
& diluted
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.01Weighted average shares outstanding  basic & diluted
    
    
    8,563,264
    
    
    
    8,563,264
    
    
    
    8,563,264
    
    
    
    8,563,264
 Year ended December 31, 2008Quarter ended
    
    
    Quarter ended
    
    
    Quarter ended
    
    
    Quarter endedMarch 31, 2008
    
    
    June 30, 2008
    
    
    September 30, 2008
    
    
    December 31, 2008Operating revenues
    
    $
    9,487,601
    
    
    $
    10,199,583
    
    
    $
    10,431,268
    
    
    $
    10,689,045Operating expenses
    
    
    4,371,325
    
    
    
    5,099,235
    
    
    
    5,014,602
    
    
    
    4,878,561Other expense
    
    
    (3,685,063
    )
    
    
    (3,899,215
    )
    
    
    (4,292,698
    )
    
    
    (4,693,777
    )Income from continuing operations
    
    
    1,431,213
    
    
    
    1,201,133
    
    
    
    1,123,968
    
    
    
    1,116,707Discontinued operations
    
    
    (14,511
    )
    
    
    18,312
    
    
    
    17,591
    
    
    
    18,534Net income
    
    
    1,416,702
    
    
    
    1,219,445
    
    
    
    1,141,559
    
    
    
    1,135,241Distributions attributable to preferred stock
    
    
    (1,023,437
    )
    
    
    (1,023,437
    )
    
    
    (1,023,437
    )
    
    
    (1,023,439
    )Net income available to common stockholders
    
    
    393,265
    
    
    
    196,008
    
    
    
    118,122
    
    
    
    111,802Net income available to common stockholders  basic
& diluted
    
    $
    0.05
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.01Weighted average shares outstanding  basic & diluted
    
    
    8,565,264
    
    
    
    8,565,264
    
    
    
    8,565,264
    
    
    
    8,564,807
 11. Subsequent Events
    81




---



##### 



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
 Initial Cost
    
    
    Costs Capitalized
    
    
    Total CostBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total(1)
    
    
    Depreciation(2)
    
    
    Net Real Estate
    
    
    AcquiredRaleigh, North Carolina
Office Building
    
    $
    4,939,999
    
    
    $
    960,000
    
    
    $
    4,480,772
    
    
    $
    
    
    
    $
    960,000
    
    
    $
    4,480,772
    
    
    $
    5,440,772
    
    
    $
    1,086,838
    
    
    $
    4,353,934
    
    
    
    12/23/2003Canton, Ohio
Office & Warehouse Building
    
    
    2,903,516
    
    
    
    186,739
    
    
    
    3,082,007
    
    
    
    
    
    
    
    186,739
    
    
    
    3,082,007
    
    
    
    3,268,746
    
    
    
    520,837
    
    
    
    2,747,909
    
    
    
    1/30/2004Akron, Ohio
Office & Laboratory Building
    
    
    7,440,875
    
    
    
    1,974,000
    
    
    
    6,769,565
    
    
    
    34,926
    
    
    
    1,974,000
    
    
    
    6,804,491
    
    
    
    8,778,491
    
    
    
    1,009,627
    
    
    
    7,768,864
    
    
    
    4/29/2004Charlotte, North Carolina Office
Building
    
    
    6,907,853
    
    
    
    741,296
    
    
    
    8,423,389
    
    
    
    59,190
    
    
    
    741,296
    
    
    
    8,482,579
    
    
    
    9,223,875
    
    
    
    1,213,977
    
    
    
    8,009,898
    
    
    
    6/30/2004Canton, North Carolina Commercial &
Manufacturing Building
    
    
    2,884,908
    
    
    
    150,000
    
    
    
    5,050,000
    
    
    
    
    
    
    
    150,000
    
    
    
    5,050,000
    
    
    
    5,200,000
    
    
    
    709,395
    
    
    
    4,490,605
    
    
    
    7/6/2004Snyder Township, Pennsylvania
Commercial & Warehouse Building
    
    
    5,622,612
    
    
    
    100,000
    
    
    
    6,573,902
    
    
    
    135,175
    
    
    
    100,000
    
    
    
    6,709,077
    
    
    
    6,809,077
    
    
    
    917,082
    
    
    
    5,891,995
    
    
    
    8/5/2004Lexington, North Carolina Commercial &
Warehouse Building
    
    
    2,846,353
    
    
    
    819,760
    
    
    
    2,106,845
    
    
    
    6,637
    
    
    
    819,760
    
    
    
    2,113,482
    
    
    
    2,933,242
    
    
    
    293,485
    
    
    
    2,639,757
    
    
    
    8/5/2004Austin, Texas
Office Building
    
    
    6,500,000
    
    
    
    1,000,000
    
    
    
    6,295,794
    
    
    
    46,095
    
    
    
    1,000,000
    
    
    
    6,341,889
    
    
    
    7,341,889
    
    
    
    877,479
    
    
    
    6,464,410
    
    
    
    9/16/2004Mt. Pocono, Pennsylvania Commercial
& Manufacturing Building
    
    
    5,240,313
    
    
    
    350,000
    
    
    
    5,818,703
    
    
    
    18,430
    
    
    
    350,000
    
    
    
    5,837,133
    
    
    
    6,187,133
    
    
    
    791,067
    
    
    
    5,396,066
    
    
    
    10/15/2004San Antonio, Texas Flexible
Office Building
    
    
    7,172,691
    
    
    
    843,000
    
    
    
    7,513,750
    
    
    
    22,673
    
    
    
    843,000
    
    
    
    7,536,423
    
    
    
    8,379,423
    
    
    
    1,249,219
    
    
    
    7,130,204
    
    
    
    2/10/2005Columbus, Ohio
Industrial Building
    
    
    2,733,214
    
    
    
    410,000
    
    
    
    2,385,108
    
    
    
    
    
    
    
    410,000
    
    
    
    2,385,108
    
    
    
    2,795,108
    
    
    
    302,401
    
    
    
    2,492,707
    
    
    
    2/10/2005Big Flats, New York
Industrial Building
    
    
    5,630,000
    
    
    
    275,000
    
    
    
    6,459,318
    
    
    
    33,666
    
    
    
    275,000
    
    
    
    6,492,984
    
    
    
    6,767,984
    
    
    
    790,812
    
    
    
    5,977,172
    
    
    
    4/15/2005Wichita, Kansas
Office Building
    
    
    8,492,719
    
    
    
    1,525,000
    
    
    
    9,702,731
    
    
    
    67,611
    
    
    
    1,525,000
    
    
    
    9,770,342
    
    
    
    11,295,342
    
    
    
    1,228,451
    
    
    
    10,066,891
    
    
    
    5/18/2005Arlington, Texas
Warehouse & Bakery Building
    
    
    4,117,875
    
    
    
    635,964
    
    
    
    3,694,876
    
    
    
    45,003
    
    
    
    635,964
    
    
    
    3,739,879
    
    
    
    4,375,843
    
    
    
    451,104
    
    
    
    3,924,739
    
    
    
    5/26/2005Dayton, Ohio
Office Building
    
    
    2,045,256
    
    
    
    525,000
    
    
    
    1,876,992
    
    
    
    119,736
    
    
    
    525,000
    
    
    
    1,996,728
    
    
    
    2,521,728
    
    
    
    329,244
    
    
    
    2,192,484
    
    
    
    6/30/2005Eatontown, New Jersey
Office Building
    
    
    4,580,000
    
    
    
    1,350,630
    
    
    
    3,520,062
    
    
    
    6,681
    
    
    
    1,350,630
    
    
    
    3,526,743
    
    
    
    4,877,373
    
    
    
    473,882
    
    
    
    4,403,491
    
    
    
    7/7/2005Frankling Township, New Jersey
Office & Warehouse Building
    
    
    6,790,000
    
    
    
    1,631,534
    
    
    
    6,199,849
    
    
    
    
    
    
    
    1,631,534
    
    
    
    6,199,849
    
    
    
    7,831,383
    
    
    
    712,307
    
    
    
    7,119,076
    
    
    
    7/11/2005Duncan, South Carolina
Office & Warehouse Building
    
    
    11,361,811
    
    
    
    783,212
    
    
    
    10,790,451
    
    
    
    2,033,148
    
    
    
    783,212
    
    
    
    12,823,599
    
    
    
    13,606,811
    
    
    
    1,386,290
    
    
    
    12,220,521
    
    
    
    7/14/2005Duncan, South Carolina
Manufacturing Building
    
    
    2,824,252
    
    
    
    194,686
    
    
    
    2,682,227
    
    
    
    
    
    
    
    194,686
    
    
    
    2,682,227
    
    
    
    2,876,913
    
    
    
    344,596
    
    
    
    2,532,317
    
    
    
    7/14/2005Hazelwood, Missouri
Office & Warehouse Building
    
    
    2,360,000
    
    
    
    763,178
    
    
    
    2,309,058
    
    
    
    29,962
    
    
    
    763,178
    
    
    
    2,339,020
    
    
    
    3,102,198
    
    
    
    276,829
    
    
    
    2,825,369
    
    
    
    8/5/2005
 82




---



##### 



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2009
 Initial Cost
    
    
    Costs Capitalized
    
    
    Total CostBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total(1)
    
    
    Depreciation(2)
    
    
    Net Real Estate
    
    
    AcquiredAngola, Indiana
Industrial Building
    
    $
    596,577
    
    
    $
    65,780
    
    
    $
    1,074,758
    
    
    $
    
    
    
    $
    65,780
    
    
    $
    1,074,758
    
    
    $
    1,140,538
    
    
    $
    105,517
    
    
    $
    1,035,021
    
    
    
    9/2/2005Angola, Indiana
Industrial Building
    
    
    1,193,145
    
    
    
    131,559
    
    
    
    1,129,874
    
    
    
    
    
    
    
    131,559
    
    
    
    1,129,874
    
    
    
    1,261,433
    
    
    
    211,032
    
    
    
    1,050,401
    
    
    
    9/2/2005Rock Falls, Illinois
Industrial Building
    
    
    318,168
    
    
    
    35,082
    
    
    
    1,113,340
    
    
    
    
    
    
    
    35,082
    
    
    
    1,113,340
    
    
    
    1,148,422
    
    
    
    56,275
    
    
    
    1,092,147
    
    
    
    9/2/2005Newburyport, Massachusetts
Industrial Building
    
    
    6,770,510
    
    
    
    628,690
    
    
    
    6,504,056
    
    
    
    1,846,895
    
    
    
    628,690
    
    
    
    8,350,951
    
    
    
    8,979,641
    
    
    
    783,828
    
    
    
    8,195,813
    
    
    
    10/17/2005Clintonville, Wisconsin
Industrial Manufacturing Building
    
    
    3,409,309
    
    
    
    54,674
    
    
    
    4,717,090
    
    
    
    
    
    
    
    54,674
    
    
    
    4,717,090
    
    
    
    4,771,764
    
    
    
    518,701
    
    
    
    4,253,063
    
    
    
    10/31/2005Maple Heights, Ohio
Industrial Building
    
    
    10,636,109
    
    
    
    1,608,976
    
    
    
    10,065,475
    
    
    
    987,265
    
    
    
    1,608,976
    
    
    
    11,052,740
    
    
    
    12,661,716
    
    
    
    1,202,647
    
    
    
    11,459,069
    
    
    
    12/21/2005Richmond, Virginia
Industrial Building
    
    
    5,275,000
    
    
    
    735,820
    
    
    
    5,335,863
    
    
    
    36,437
    
    
    
    735,820
    
    
    
    5,372,300
    
    
    
    6,108,120
    
    
    
    598,251
    
    
    
    5,509,869
    
    
    
    12/30/2005Toledo, Oho
Industrial Building
    
    
    2,966,919
    
    
    
    263,068
    
    
    
    2,811,801
    
    
    
    39,916
    
    
    
    263,068
    
    
    
    2,851,717
    
    
    
    3,114,785
    
    
    
    351,654
    
    
    
    2,763,131
    
    
    
    12/30/2005South Hadley, Massachusetts Industrial Building
    
    
    2,418,750
    
    
    
    470,636
    
    
    
    2,765,376
    
    
    
    10,000
    
    
    
    470,636
    
    
    
    2,775,376
    
    
    
    3,246,012
    
    
    
    275,004
    
    
    
    2,971,008
    
    
    
    2/15/2006Champaign, Illinois
Office Building
    
    
    1,731,319
    
    
    
    686,979
    
    
    
    2,035,784
    
    
    
    10,546
    
    
    
    686,979
    
    
    
    2,046,330
    
    
    
    2,733,309
    
    
    
    227,832
    
    
    
    2,505,477
    
    
    
    2/21/2006Champaign, Illinois
Office Building
    
    
    3,394,744
    
    
    
    1,347,017
    
    
    
    3,991,733
    
    
    
    
    
    
    
    1,347,017
    
    
    
    3,991,733
    
    
    
    5,338,750
    
    
    
    446,730
    
    
    
    4,892,020
    
    
    
    2/21/2006Champaign, Illinois
Office Building
    
    
    2,121,715
    
    
    
    841,886
    
    
    
    2,494,833
    
    
    
    
    
    
    
    841,886
    
    
    
    2,494,833
    
    
    
    3,336,719
    
    
    
    279,206
    
    
    
    3,057,513
    
    
    
    2/21/2006Champaign, Illinois
Office Building
    
    
    1,940,266
    
    
    
    769,888
    
    
    
    2,281,475
    
    
    
    
    
    
    
    769,888
    
    
    
    2,281,475
    
    
    
    3,051,363
    
    
    
    255,329
    
    
    
    2,796,034
    
    
    
    2/21/2006Roseville, Minnesota
Office Building
    
    
    19,116,278
    
    
    
    2,587,757
    
    
    
    25,290,127
    
    
    
    
    
    
    
    2,587,757
    
    
    
    25,290,127
    
    
    
    27,877,884
    
    
    
    3,051,186
    
    
    
    24,826,698
    
    
    
    2/21/2006Burnsville, Minnesota
Office Building
    
    
    11,867,677
    
    
    
    3,510,711
    
    
    
    8,746,407
    
    
    
    
    
    
    
    3,510,711
    
    
    
    8,746,407
    
    
    
    12,257,118
    
    
    
    1,083,501
    
    
    
    11,173,617
    
    
    
    5/10/2006Menomonee Falls, Wisconsin
Industrial Building
    
    
    6,940,000
    
    
    
    624,700
    
    
    
    6,910,616
    
    
    
    
    
    
    
    624,700
    
    
    
    6,910,616
    
    
    
    7,535,316
    
    
    
    630,547
    
    
    
    6,904,769
    
    
    
    6/30/2006Baytown, Texas
Office Building
    
    
    2,000,000
    
    
    
    221,314
    
    
    
    2,443,469
    
    
    
    
    
    
    
    221,314
    
    
    
    2,443,469
    
    
    
    2,664,783
    
    
    
    251,080
    
    
    
    2,413,703
    
    
    
    7/11/2006Sterling Heights, Michigan
Industrial Building
    
    
    
    
    
    
    2,734,887
    
    
    
    8,606,190
    
    
    
    12,676
    
    
    
    2,734,887
    
    
    
    8,618,866
    
    
    
    11,353,753
    
    
    
    723,554
    
    
    
    10,630,199
    
    
    
    9/22/2006Birmingham, Alabama Industrial
Building
    
    
    
    
    
    
    611,597
    
    
    
    2,325,761
    
    
    
    
    
    
    
    611,597
    
    
    
    2,325,761
    
    
    
    2,937,358
    
    
    
    198,766
    
    
    
    2,738,592
    
    
    
    9/29/2006Montgomery, Alabama Industrial
Building
    
    
    
    
    
    
    221,965
    
    
    
    844,081
    
    
    
    
    
    
    
    221,965
    
    
    
    844,081
    
    
    
    1,066,046
    
    
    
    72,137
    
    
    
    993,909
    
    
    
    9/29/2006Columbia, Missouri
Industrial Building
    
    
    
    
    
    
    145,988
    
    
    
    555,157
    
    
    
    
    
    
    
    145,988
    
    
    
    555,157
    
    
    
    701,145
    
    
    
    47,445
    
    
    
    653,700
    
    
    
    9/29/2006
 83




---



##### 



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 2009
 Initial Cost
    
    
    Costs Capitalized
    
    
    Total CostBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total(1)
    
    
    Depreciation(2)
    
    
    Net Real Estate
    
    
    AcquiredMason, Ohio
Office Building
    
    $
    5,400,000
    
    
    $
    797,274
    
    
    $
    6,258,344
    
    
    $
    47,471
    
    
    $
    797,274
    
    
    $
    6,305,815
    
    
    $
    7,103,089
    
    
    $
    607,885
    
    
    $
    6,495,204
    
    
    
    1/5/2007Raleigh, North Carolina 
Industrial Building
    
    
    5,534,866
    
    
    
    1,605,551
    
    
    
    5,513,353
    
    
    
    
    
    
    
    1,605,551
    
    
    
    5,513,353
    
    
    
    7,118,904
    
    
    
    415,958
    
    
    
    6,702,946
    
    
    
    2/16/2007Tulsa, Oklahoma 
Manufacturing Building
    
    
    
    
    
    
    
    
    
    
    14,057,227
    
    
    
    
    
    
    
    
    
    
    
    14,057,227
    
    
    
    14,057,227
    
    
    
    1,196,825
    
    
    
    12,860,402
    
    
    
    3/1/2007Hialeah, Florida 
Industrial Building
    
    
    
    
    
    
    3,562,452
    
    
    
    6,671,600
    
    
    
    
    
    
    
    3,562,452
    
    
    
    6,671,600
    
    
    
    10,234,052
    
    
    
    484,367
    
    
    
    9,749,685
    
    
    
    3/9/2007Tewksbury, Massachusetts 
Industrial Building
    
    
    
    
    
    
    1,394,902
    
    
    
    8,893,243
    
    
    
    
    
    
    
    1,394,822
    
    
    
    8,893,243
    
    
    
    10,288,065
    
    
    
    647,665
    
    
    
    9,640,400
    
    
    
    5/17/2007Mason, Ohio
Retail Building
    
    
    4,882,152
    
    
    
    1,201,338
    
    
    
    4,960,987
    
    
    
    
    
    
    
    1,201,338
    
    
    
    4,960,987
    
    
    
    6,162,325
    
    
    
    320,260
    
    
    
    5,842,065
    
    
    
    7/1/2007Cicero, New York 
Industrial Building
    
    
    4,361,144
    
    
    
    299,066
    
    
    
    5,018,628
    
    
    
    
    
    
    
    299,066
    
    
    
    5,018,628
    
    
    
    5,317,694
    
    
    
    298,472
    
    
    
    5,019,222
    
    
    
    9/6/2007Grand Rapids, Michigan Office
Building
    
    
    9,225,000
    
    
    
    1,629,270
    
    
    
    10,500,066
    
    
    
    
    
    
    
    1,629,270
    
    
    
    10,500,066
    
    
    
    12,129,336
    
    
    
    668,003
    
    
    
    11,461,333
    
    
    
    9/28/2007Bollingbrook, Illinois 
Industrial Building
    
    
    4,968,750
    
    
    
    1,271,543
    
    
    
    5,003,124
    
    
    
    
    
    
    
    1,271,543
    
    
    
    5,003,124
    
    
    
    6,274,667
    
    
    
    308,974
    
    
    
    5,965,693
    
    
    
    9/28/2007Decatur, Georgia 
Office Building
    
    
    
    
    
    
    784,188
    
    
    
    3,245,281
    
    
    
    
    
    
    
    784,188
    
    
    
    3,245,281
    
    
    
    4,029,469
    
    
    
    179,411
    
    
    
    3,850,058
    
    
    
    12/13/2007Decatur, Georgia 
Office Building
    
    
    1,117,698
    
    
    
    204,807
    
    
    
    847,573
    
    
    
    
    
    
    
    204,807
    
    
    
    847,573
    
    
    
    1,052,380
    
    
    
    46,857
    
    
    
    1,005,523
    
    
    
    12/13/2007Decatur, Georgia 
Office Building
    
    
    1,403,002
    
    
    
    257,086
    
    
    
    1,063,925
    
    
    
    
    
    
    
    257,086
    
    
    
    1,063,925
    
    
    
    1,321,011
    
    
    
    58,818
    
    
    
    1,262,193
    
    
    
    12/13/2007Lawrenceville, Georgia 
Office Building
    
    
    3,704,723
    
    
    
    678,854
    
    
    
    2,809,365
    
    
    
    
    
    
    
    678,854
    
    
    
    2,809,365
    
    
    
    3,488,219
    
    
    
    155,312
    
    
    
    3,332,907
    
    
    
    12/13/2007Snellville, Georgia 
Office Building
    
    
    961,622
    
    
    
    176,208
    
    
    
    729,217
    
    
    
    
    
    
    
    176,208
    
    
    
    729,217
    
    
    
    905,425
    
    
    
    40,314
    
    
    
    865,111
    
    
    
    12/13/2007Covington, Georgia 
Office Building
    
    
    1,265,292
    
    
    
    231,852
    
    
    
    959,496
    
    
    
    
    
    
    
    231,852
    
    
    
    959,496
    
    
    
    1,191,348
    
    
    
    53,045
    
    
    
    1,138,303
    
    
    
    12/13/2007Cumming, Georgia 
Office Building
    
    
    4,028,089
    
    
    
    738,107
    
    
    
    3,054,580
    
    
    
    
    
    
    
    738,107
    
    
    
    3,054,580
    
    
    
    3,792,687
    
    
    
    168,869
    
    
    
    3,623,818
    
    
    
    12/13/2007Conyers, Georgia 
Office Building
    
    
    1,619,574
    
    
    
    296,771
    
    
    
    1,228,155
    
    
    
    
    
    
    
    296,771
    
    
    
    1,228,155
    
    
    
    1,524,926
    
    
    
    67,897
    
    
    
    1,457,029
    
    
    
    12/13/2007
 84




---



##### 



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2009
 Initial Cost
    
    
    Costs Capitalized
    
    
    Total CostBuildings &
    
    
    Subsequent to
    
    
    
    
    
    
    Buildings &
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    DateLocation of Property
    
    Encumbrances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total(1)
    
    
    Depreciation(2)
    
    
    Net Real Estate
    
    
    AcquiredReading, Pennsylvania 
Industrial Building
    
    $
    5,257,500
    
    
    $
    490,646
    
    
    $
    6,202,376
    
    
    $
    
    
    
    $
    490,646
    
    
    $
    6,202,376
    
    
    $
    6,693,022
    
    
    $
    306,759
    
    
    $
    6,386,263
    
    
    
    1/29/2008Fridley, Minnesota 
Office Building
    
    
    
    
    
    
    1,354,233
    
    
    
    8,073,526
    
    
    
    
    
    
    
    1,354,233
    
    
    
    8,073,526
    
    
    
    9,427,759
    
    
    
    584,131
    
    
    
    8,843,628
    
    
    
    2/26/2008Concord Township, Ohio 
Industrial Building
    
    
    
    
    
    
    1,796,467
    
    
    
    11,154,123
    
    
    
    
    
    
    
    1,786,212
    
    
    
    11,154,123
    
    
    
    12,940,335
    
    
    
    538,336
    
    
    
    12,401,999
    
    
    
    3/31/2008Pineville, North Carolina 
Industrial Building
    
    
    2,145,000
    
    
    
    669,025
    
    
    
    3,028,320
    
    
    
    
    
    
    
    669,025
    
    
    
    3,028,320
    
    
    
    3,697,345
    
    
    
    133,612
    
    
    
    3,563,733
    
    
    
    4/30/2008Marietta, Ohio 
Industrial Building
    
    
    4,500,000
    
    
    
    829,014
    
    
    
    6,607,265
    
    
    
    
    
    
    
    829,014
    
    
    
    6,607,265
    
    
    
    7,436,279
    
    
    
    229,063
    
    
    
    7,207,216
    
    
    
    8/29/2008Chalfont, Pennsylvania 
Industrial Building
    
    
    6,296,506
    
    
    
    1,249,415
    
    
    
    6,419,607
    
    
    
    
    
    
    
    1,249,415
    
    
    
    6,419,607
    
    
    
    7,669,022
    
    
    
    265,975
    
    
    
    7,403,047
    
    
    
    8/29/2008$
    252,761,651
    
    
    $
    55,036,042
    
    
    $
    330,078,046
    
    
    $
    5,650,139
    
    
    $
    55,025,707
    
    
    $
    335,728,185
    
    
    $
    390,753,892
    
    
    $
    34,111,952
    
    
    $
    356,641,940
 
 (1)
    
    The aggregate cost for land and building improvements for federal income tax
purposes is the same as the total gross cost of land and building improvements.(2)
    
    Depreciable life of all buildings is 39 years. Depreciable life of all improvements
is the shorter of the useful life of the assets or the life of the respective leases on each
building, which range from 5-20 years. 85




---



##### 



2009
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    390,562,138
    
    
    $
    340,500,406
    
    
    $
    243,713,542Acquisitions during period
    
    
    
    
    
    
    47,874,020
    
    
    
    95,396,039Improvements or other
additions
    
    
    1,139,711
    
    
    
    2,187,712
    
    
    
    1,390,825Dispositions during period
    
    
    (947,957
    )
    
    
    
    
    
    
    Balance at end of period
    
    $
    390,753,892
    
    
    $
    390,562,138
    
    
    $
    340,500,406
  2009
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    24,757,576
    
    
    $
    15,738,634
    
    
    $
    8,595,419Additions during period
    
    
    9,445,768
    
    
    
    9,018,942
    
    
    
    7,143,215Dispositions during period
    
    
    (91,392
    )
    
    
    
    
    
    
    Balance at end of period
    
    $
    34,111,952
    
    
    $
    24,757,576
    
    
    $
    15,738,634
 86




---



##### 



GLADSTONE COMMERCIAL CORPORATION
SCHEDULE IV  MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2009
 Location and Type of Real
    
    
    
    
    
    Final Maturity
    
    

    
    
    
    Face Amount of
    
    
    Carrying  Amount of
    
    
    Principal Amount of Loans Subject to DelinquentEstate
    
    Type of Loan
    
    Interest Rate
    
    Date
    
    Periodic Payment Term
    
    Prior Lien
    
    Mortgage
    
    
    Mortgage (1)
    
    
    Principal or InterestMcLean, Virginia;
Office
Property
    
    First Mortgage
    
    1 month LIBOR +6%;
Floor of 7.5%,
Ceiling of 10%
    
    5/30/2017
    
    Monthly payment
based upon a 24 year
amortization term,
which changes based
on LIBOR, with a
floor of 7.5% and a
ceiling of 10%.
Payments are
interest only until
June 2011. Balloon
payment at maturity
is $8,221,344.
    
    
    
    $
    10,000,000
    
    
    $
    10,000,000
    
    
    $
    $
    10,000,000
    
    
    $
    10,000,000
 
 (1)
    
    The aggregate cost for federal income tax
purposes is the same as the total gross cost.  2009
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    10,000,000
    
    
    $
    10,000,000
    
    
    $
    10,000,000Collections of principal
    
    
    
    
    
    
    
    
    
    
    Balance at end of period
    
    $
    10,000,000
    
    
    $
    10,000,000
    
    
    $
    10,000,000
 87




---



##### 



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures
         
 Item 9B. Other Information
  88




---



##### 



PART III
  
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees and Services
  89




---



##### 



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 a.
    
    DOCUMENTS FILED AS PART OF THIS REPORT
 1.
    
    The following financial statements are filed herewith:
 Report of Management on Internal Controls over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008
Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Stockholders Equity for the years ended December 31, 2009, 2008 and
2007
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
Notes to Financial Statements
 2.
    
    Financial statement schedules
 Schedule III  Real Estate and Accumulated Depreciation is filed herewith.
Schedule IV  Mortgage Loans on Real Estate is filed herewith.
All other schedules are omitted because they are not applicable, or because the required
information is included in the financial statements or notes thereto.
 3.
    
    Exhibits
 The following exhibits are filed as part of this report or hereby incorporated by reference to
exhibits previously filed with the Securities and Exchange Commission:
 90




---



##### 



Exhibit Index
 Exhibit
    
    Description of Document3.1
    
    Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 3.1 to the Registration Statement on Form
S-11 (File No. 333-106024), filed September 11, 2003.3.1.1
    
    Articles of Amendment to Articles of Amended and Restated
Articles of Incorporation, incorporated by reference to Exhibit
3.1.1 to the Form 10-Q (File No. 001-33097), filed July 30, 2009.3.2
    
    Bylaws, incorporated by reference to Exhibit 3.2 to the
Registration Statement on Form S-11 (File No. 333-106024), filed
September 11, 2003.3.2.1
    
    First Amendment to Bylaws, incorporated by reference to Exhibit
99.1 of the Current Report on Form 8-K (File No. 000-50363),
filed July 10, 2007.4.1
    
    Articles Supplementary Establishing and Fixing the Rights and
Preferences of the 7.75% Series A Cumulative Redeemable Preferred
Stock, incorporated by reference to Exhibit 3.3 of Form 8-A (File
No. 000-50363), filed January 19, 2006.4.2
    
    Articles Supplementary Establishing and Fixing the Rights and
Preferences of the 7.5% Series B Cumulative Redeemable Preferred
Stock, incorporated by reference to Exhibit 3.4 of Form 8-A (File
No. 000-50363), filed October 19, 2006.4.3
    
    Form of Certificate for 7.75% Series A Cumulative Redeemable
Preferred Stock of Gladstone Commercial Corporation, incorporated
by reference to Exhibit 4.1 of Form 8-A (File No. 000-50363),
filed January 19, 2006.4.4
    
    Form of Certificate for 7.5% Series B Cumulative Redeemable
Preferred Stock of Gladstone Commercial Corporation, incorporated
by reference to Exhibit 4.2 of Form 8-A (File No. 000-50363),
filed October 19, 2006.10.1
    
    Real Property Purchase and Sale Agreement between 3058348 Nova
Scotia Company, 3058349 Nova Scotia Company and Gladstone
Commercial Limited Partnership, dated August 11, 2004,
incorporated by reference to Exhibit 10.4 to the Form 10-K (File
No. 000-50363), filed March 8, 2005.10.2
    
    Real Property Purchase and Sale Agreement between PBC Pocono,
L.L.C., PBC Norfolk, L.L.C. and Gladstone Commercial Limited
Partnership, dated August 11, 2004, incorporated by reference to
Exhibit 10.5 to the Form 10-K (File No. 000-50363), filed March
8, 2005.10.3
    
    Promissory Note between Key Bank National Association and CMI04
Canton NC LLC, dated March 14, 2005, incorporated by reference to
Exhibit 10.1 of the Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005 (File No. 000-50363), filed May 4, 2005.10.4
    
    Loan Agreement between AFL05 Duncan SC LLC and Little Arch
Charlotte NC LLC and Bank of America, N.A., dated as of August
25, 2005, incorporated by reference to Exhibit 10.4 of the
Current Report on Form 8-K (File No. 000-50363), filed August 29,
2005.10.5
    
    Promissory Note between AFL05 Duncan SC LLC and Little Arch
Charlotte NC LLC and Bank of America, N.A., dated as of August
25, 2005, incorporated by reference to Exhibit 10.5 of the
Current Report on Form 8-K (File No. 000-50363), filed August 29,
2005.10.6
    
    Mortgage and Security Agreement between 260 Springside Drive,
Akron OH LLC and JP Morgan Chase Bank, N.A., dated as of
September 12, 2005, incorporated by reference to
 91




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Exhibit
    
    Description of DocumentExhibit 10.6 of
the Current Report on Form 8-K (File No. 000-50363), filed
September 13, 2005.10.7
    
    Fixed Rate Note between 260 Springside Drive, Akron OH LLC and JP
Morgan Chase Bank, N.A., dated as of September 12, 2005,
incorporated by reference to Exhibit 10.7 of the Current Report
on Form 8-K (File No. 000-50363), filed September 13, 2005.10.8
    
    Loan Agreement between PZ05 Maple Heights OH LLC, WMI05 Columbus
OH LLC, and OB Crenshaw GCC, LP, and Countrywide Commercial Real
Estate Finance, Inc., dated as of December 21, 2005, incorporated
by reference to Exhibit 10.8 of the Current Report on Form 8-K
(File No. 000-50363), filed December 22, 2005.10.9
    
    Promissory Note between PZ05 Maple Heights OH LLC, WMI05 Columbus
OH LLC, and OB Crenshaw GCC, LP, and Countrywide Commercial Real
Estate Finance, Inc., dated as of December 21, 2005, incorporated
by reference to Exhibit 10.9 of the Current Report on Form 8-K
(File No. 000-50363), filed December 22, 2005.10.10
    
    First Amended and Restated Agreement of Limited Partnership of
Gladstone Commercial Limited Partnership, incorporated by
reference to Exhibit 10.1 of the Current Report on Form 8-K (File
No. 000-50363), filed February 1, 2006.10.11
    
    Loan agreement between Stonewater Dox Funding LLC and Wells Fargo
Bank, National Association, dated as of November 21, 2003,
incorporated by reference to Exhibit 10.20 of the Current Report
on Form 8-K (File No. 000-50363), filed February 24, 2006.10.12
    
    Assumption agreement between Stonewater Dox Funding LLC, ACI06
Champaign IL LLC, Gladstone Commercial Corporation and LaSalle
Bank National Association, dated as of February 21, 2006,
incorporated by reference to Exhibit 10.21 of the Current Report
on Form 8-K (File No. 000-50363), filed February 24, 2006.10.13
    
    Promissory note between Stonewater Dox Funding LLC and Wells
Fargo Bank, National Association, dated as of November 21, 2003,
incorporated by reference to Exhibit 10.22 of the Current Report
on Form 8-K (File No. 000-50363), filed February 24, 2006.10.14
    
    Purchase agreement between Stonewater UIS Funding LLC and
Gladstone Commercial Limited Partnership, dated as of November
23, 2005, as the same has been modified by that certain Amendment
to Purchase Agreement dated December 22, 2005, that certain
Amendment to Purchase Agreement dated December 30, 2005, that
certain Amendment to Purchase Agreement dated January 6, 2006,
that certain Amendment to Purchase Agreement dated January 13,
2006, that certain Amendment to Purchase Agreement dated January
17, 2006 and that certain Amendment to Purchase Agreement dated
January 20, 2006., incorporated by reference to Exhibit 10.23 of
the Current Report on Form 8-K (File No. 000-50363), filed
February 24, 2006.10.15
    
    Loan agreement between Stonewater Dox Funding LLC and Greenwich
Capital Financial Products, Inc, dated as of May 12, 2004,
incorporated by reference to Exhibit 10.24 of the Current Report
on Form 8-K (File No. 000-50363), filed February 24, 2006.10.16
    
    Loan assumption agreement between Stonewater UIS Funding LLC, and
UC06 Roseville MN LLC, Gladstone Commercial Corporation and
LaSalle Bank National Association, dated as of February 21, 2006,
incorporated by reference to Exhibit 10.25 of the Current Report
on Form 8-K (File No. 000-50363), filed February 24, 2006.10.17
    
    Promissory note between Stonewater UIS Funding LLC and Greenwich
Capital Financial Products, Inc, dated as of May 12, 2004,
incorporated by reference to Exhibit 10.26 of the Current Report
on Form 8-K (File No. 000-50363), filed February 24, 2006.
 92




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Exhibit
    
    Description of Document10.18
    
    Purchase agreement between Stonewater UIS Funding LLC and
Gladstone Commercial Limited Partnership, dated as of November
23, 2005, as the same has been modified by that certain Amendment
to Purchase Agreement dated December 22, 2005, that certain
Amendment to Purchase Agreement dated December 30, 2005, that
certain Amendment to Purchase Agreement dated January 6, 2006,
that certain Amendment to Purchase Agreement dated January 13,
2006, that certain Amendment to Purchase Agreement dated January
17, 2006 and that certain Amendment to Purchase Agreement dated
January 20, 2006, incorporated by reference to Exhibit 10.27 of
the Current Report on Form 8-K (File No. 000-50363), filed
February 24, 2006.10.19
    
    Loan agreement between IXIS Real Estate Capital Inc. and 2525 N
Woodlawn Vstrm Wichita KS, LLC, CI05 Clintonville WI LLC and
MSI05-3 LLC, dated as of April 27, 2006, incorporated by
reference to Exhibit 10.29 of the Quarterly Report on Form 10-Q
(File No. 000-50363), filed May 2, 2006.10.20
    
    Promissory note between IXIS Real Estate Capital Inc. and 2525 N
Woodlawn Vstrm Wichita KS, LLC, CI05 Clintonville WI LLC and
MSI05-3 LLC, dated as of April 27, 2006, incorporated by
reference to Exhibit 10.30 of the Quarterly Report on Form 10-Q
(File No. 000-50363), filed May 2, 2006.10.21
    
    Custodial Agreement between Branch Banking and Trust Company of
Virginia, as Custodian, and Gladstone Commercial Company, dated
as of May 1, 2006, incorporated by reference to Exhibit 10.33 of
the Quarterly Report on Form 10-Q (File No. 000-50363), filed May
2, 2006.10.22
    
    Gladstone Commercial Limited Partnership Schedule 4.2(A)(2) to
First Amended and Restated Agreement of Limited Partnership;
Designation of 7.50% Series B Cumulative Redeemable Preferred
Units, incorporated by reference to Exhibit 10.1 of the Form 8-K
(File No. 000-50363), filed October 25, 2006.10. 23
    
    Deed of Trust, Assignment of Leases and Rents and Security
Agreement between First Park Ten COCO San Antonio, L.P. and CIBC
Inc., dated as of November 22, 2006, incorporated by reference to
Exhibit 10.1 of the Current Report on Form 8-K (File No.
001-33097), filed November 28, 2006.10.24
    
    Deed of Trust, Assignment of Leases and Rents and Security
Agreement between SLEE Grand Prairie, L.P. and CIBC Inc., dated
as of November 22, 2006, incorporated by reference to Exhibit
10.2 of the Current Report on Form 8-K (File No. 001-33097),
filed November 28, 2006.10.25
    
    Deed of Trust, Assignment of Leases and Rents and Security
Agreement between OB Midway NC Gladstone Commercial LLC, and CIBC
Inc., dated as of November 22, 2006, incorporated by reference to
Exhibit 10.3 of the Current Report on Form 8-K (File No.
001-33097), filed November 28, 2006.10.26
    
    Promissory Note First Park Ten COCO San Antonio, L.P., SLEE Grand
Prairie, L.P. and OB Midway NC Gladstone Commercial LLC and CIBC
Inc., N.A., dated as of November 22, 2006, incorporated by
reference to Exhibit 10.4 of the Current Report on Form 8-K (File
No. 001-33097), filed November 28, 2006.10.27
    
    Mortgage, Assignment of Leases and Rents and Security Agreement
between HMBF05 Newburyport MA LLC and CIBC Inc., dated as of
December 22, 2006, incorporated by reference to Exhibit 10.1 of
the Current Report on Form 8-K (File No. 001-33097), filed
December 28, 2006.
 93




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##### 



Exhibit
    
    Description of Document10.28
    
    Open-end Mortgage, Assignment of Leases and Rents and Security
Agreement between SVMMC05 Toledo OH LLC and CIBC Inc., dated as
of December 22, 2006, incorporated by reference to Exhibit 10.2
of the Current Report on Form 8-K (File No. 001-33097), filed
December 28, 2006.10.29
    
    Mortgage, Assignment of Leases and Rents and Security Agreement
between TCI06 Burnsville MC LLC and CIBC Inc., dated as of
December 22, 2006, incorporated by reference to Exhibit 10.3 of
the Current Report on Form 8-K (File No. 001-33097), filed
December 28, 2006.10.30
    
    Promissory Note between HMBF05 Newburyport MA LLC, SVMMC05 Toledo
OH LLC and TCI06 Burnsville MC LLC and CIBC Inc., dated as of
December 22, 2006, incorporated by reference to Exhibit 10.4 of
the Current Report on Form 8-K (File No. 001-33097), filed
December 28, 2006.10.31
    
    Credit Agreement dated as of December 29, 2006 among Gladstone
Commercial Limited Partnership as Borrower and Gladstone
Commercial Corporation as Guarantor, the Initial Guarantors
Listed Therein, the Banks Listed Therein and KeyBank National
Association, as Administrative Agent, incorporated by reference
to Exhibit 10.1 of the Current Report on Form 8-K (File No.
001-33097), filed January 3, 2007.10.32
    
    Amended and Restated Investment Advisory Agreement between
Gladstone Commercial Corporation and Gladstone Management
Corporation, dated January 1, 2007 incorporated by reference to
Exhibit 99.1 of the Current Report on Form 8-K (File No.
001-33097), filed January 3, 2007 (renewed on July 8, 2009).10.33
    
    Administration Agreement between Gladstone Commercial Corporation
and Gladstone Administration, LLC, dated January 1, 2007
incorporated by reference to Exhibit 99.2 of the Current Report
on Form 8-K (File No. 001-33097), filed January 3, 2007 (renewed
on July 8, 2009).10.34
    
    Accordian Agreement between Gladstone Commercial Limited
Partnership and KeyBank National Association, dated November 13,
2007 incorporated by reference to Exhibit 10.1 of the Current
Report on Form 8-K (File No. 001-33097), filed November 16, 2007.10.35
    
    Note Agreement between Gladstone Commercial Limited Partnership
and KeyBank National Association, dated December 21, 2007
incorporated by reference to Exhibit 10.1 of the Current Report
on Form 8-K (File No. 001-33097), filed December 27, 2007.10.36
    
    Second Amendment to Credit Agreement by and among Gladstone
Commercial Limited Partnership and KeyBank National Association,
dated as of June 30, 2009 incorporated by reference to Exhibit
10.1 of the Current Report on Form 8-K (File No. 001-33097),
filed July 1, 2009.10.37
    
    Open Market Sale Agreement by and among Gladstone Commercial
Corporation, Gladstone Commercial Limited Partnership and
Jefferies & Company, Inc., incorporated by reference to Exhibit
1.1 of the Form 8-K (File No. 001-33097), filed November 4, 2009.10.38
    
    First Amendment to Credit Agreement by and among Gladstone
Commercial Limited Partnership and KeyBank National Association,
dated as of November 20, 2007, incorporated by reference to
Exhibit 10.2 of the Form 8-K (File No. 001-33097), filed November
30, 2009.10.39
    
    Amended and Restated Dealer Manager Agreement, dated December 22,
2009, by and between Gladstone Commercial Corporation and Halcyon
Capital Markets, LLC.10.40
    
    Amended and Restated Dealer Manager Operating Agreement, dated
December 22, 2009, by and between Gladstone Commercial
Corporation and Halcyon Capital Markets, LLC.
 94




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##### 



Exhibit
    
    Description of Document11
    
    Computation of Per Share Earnings from Operations (included in
the notes to the audited financial statements contained in this
report).12
    
    Statements re: computation of ratios (included in Selected
Financial Data contained in this report).14
    
    Gladstone Commercial Corporation Code of Business Conduct and
Ethics, dated October 11, 2005, incorporated by reference to
Exhibit 14.1 to Current Report on Form 8-K (File No. 000-50363),
filed October 12, 2005.21
    
    Subsidiaries of Gladstone Commercial Corporation.23
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302
of The Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302
of The Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to Section 906
of The Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to Section 906
of The Sarbanes-Oxley Act of 2002.
 95




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##### 



Gladstone Commercial CorporationDate: February 24, 2010
    By:
    /s/ Danielle JonesDanielle JonesChief Financial Officer  Date: February 24, 2010
    By:
    /s/ David GladstoneDavid GladstoneChief Executive Officer and Chairman of the Board of Directors(principal executive officer)Date: February 24, 2010
    By:
    /s/ Terry Lee BrubakerTerry Lee BrubakerVice Chairman, Chief Operating Officer and DirectorDate: February 24, 2010
    By:
    /s/ George Stelljes IIIGeorge Stelljes IIIPresident, Chief Investment Officer and DirectorDate: February 24, 2010
    By:
    /s/ Danielle JonesDanielle JonesChief Financial Officer(principal financial and accounting officer)Date: February 24, 2010
    By:
    /s/ David A.R. DullumDavid A.R. DullumDirectorDate: February 24, 2010
    By:
    /s/ Anthony W. ParkerAnthony W. ParkerDirectorDate: February 24, 2010
    By:
    /s/ Michela A. EnglishMichela A. EnglishDirector 96




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##### 



Date: February 24, 2010
    By:
    /s/ Paul AdelgrenPaul AdelgrenDirectorDate: February 24, 2010
    By:
    /s/ Maurice CoulonMaurice CoulonDirectorDate: February 24, 2010
    By:
    /s/ John OutlandJohn OutlandDirectorDate: February 24, 2010
    By:
    /s/ Gerard MeadGerard MeadDirector 97