Gladstone Commercial Management Discusses Q2 2012 Results - Earnings Call Transcript

Gladstone Commercial (GOOD)

Q2 2012 Earnings Call

August 01, 2012 8:30 am ET

Executives

David J. Gladstone - Founder, Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Gladstone Management Corporation and Chief Executive Officer of Gladstone Management Corporation

George Stelljes - Co-Vice Chairman, Chief Investment Officer and Chief Investment Officer of Gladstone Companies

Danielle Jones - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

John M. Roberts - Hilliard Lyons, Research Division

Elizabeth Bland - Janney Montgomery Scott LLC, Research Division

Justing Meng

Presentation

Operator

Good morning, and welcome to the Gladstone Commercial Corporation Second Quarter Ended June 30, 2012, Shareholders' Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Gladstone. Please go ahead.

David J. Gladstone

Well, thank you, Valery, for that nice introduction, and thank you, all, for calling in. We enjoy this time we have with you on the phone and there's still more times to talk with you. By the way, if you're ever in the Washington, D.C. area, we're located in the suburb called McLean, Virginia and you have an open invitation to come by and see us here. You'll see a great team at work. There are 57 members of the team now and we're no longer a small company and by the way, we have a couple of puppies that wander around the halls everyday.

Now let me read our forward-looking statement. This report that we're about to give includes statements that constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements involve certain risks and uncertainties and based on our current plan, we believe that plan to be reasonable.

There are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all those factors listed under the caption "Risk Factors" of our company's 10-K and 10-Q in the filings that we file with the Securities and Exchange Commission. Those 10-Ks and 10-Qs can be found on our website at www.gladstonecommercial.com and on the SEC website. The company undertakes no obligation to publicly update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise.

In our talk today, we all plan to talk about funds from operation or FFO. And since FFO is a non-GAAP accounting term, I need to define FFO and that is net income, excluding gains or losses from the sale of real estate, but adding back depreciation and amortization of the real estate assets. The National Association of Real Estate Investment Trusts or NAREIT has endorsed FFO as one of those non-accounting standards that we can use in a discussion of our REIT. Please see our 10-Q filings yesterday with the SEC and our other financial statements for a detailed description of FFO.

Now before I begin, we have here in the room, Bob Cutlip. He has recently been appointed the new President of Gladstone Commercial. We really's excited to have Bob join us and he'll be available for questions at the end of the presentation. Going forward, Bob will be participating in the presentations next time and we'll begin the call today by hearing from our Vice Chairman and Chief Investment Officer, Chip Stelljes. Chip is the Chief Investment Officer of all the Gladstone companies. And today, he's calling in from Nashville, Tennessee, where he's looking for a new deal. Chip, take it away.

George Stelljes

All right. Thank you, David. Good morning, everyone. During the quarter, we acquired 4 additional properties and issued long-term debt on 8 of our properties. Pipeline remains robust and we're hoping to announce additional acquisitions in the near future. As of today, all but 2 of our buildings continue to be occupied and all of the buildings that are occupied continue to pay as agreed. The 2 empty buildings constitute about 2% of our stabilized gross portfolio income and about 1.2% of the total square feet of space we own. We continue to take appropriate action to re-tenant these properties.

The 4 new properties we acquired this quarter total about 505,000 square feet and were purchased for an aggregate of $31.8 million. 2 of these properties are located in the Columbus, Ohio area. 1 is in Iowa and the fourth property is located in Columbus, Georgia. The weighted average cap rate over the term of the leases for these 4 properties is 9.6%.

The market for long-term mortgages has improved. We're seeing mid- to long-term mortgages become much more obtainable. The collateralized mortgage backed securities or CMBS market has made a comeback in recent months, but it's more conservative than it was prior to the credit crisis. And the market remains somewhat volatile. Consequently, we're looking to regional banks and insurance companies and other non-bank lenders as an alternative to finance our real estate activities.

During the quarter, we issued 5 new mortgages for $33.7 million. 2 of these mortgages were issued through the CMBS market and totaled $21 million. The remaining 3 lenders were banks or insurance companies. The 5 new mortgages were collateralized by 8 of our properties at a weighted average interest rate of 5.8% and a weighted average loan-to-value obtained was 67%. Depending on several factors including the tenant credit rating, the location of the building, the terms of the loan, we're seeing interest rates in the marketplace today ranging from 4.5% to 6.5%. Because we were able to obtain long-term debt during the quarter, we continue to have ample available equity to fund additional purchases real estate in our pipeline. Other than through our senior common stock offering, we do not anticipate a need to raise any additional capital through sheer issuances until later in 2012, but most likely 2013.

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