Gladstone Commercial Corp (GOOD) 2008 Q4 法說會逐字稿

Greetings and welcome to the Gladstone Commercial fourth-quarter and year-end 2008 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. David Gladstone, Chairman. Thank you, Mr. Gladstone. You may begin.

Thank you so much, Everett, for that nice introduction, and thanks to all of you for calling in. We certainly enjoy these times we share with shareholders and analysts, and I wish there was a lot more time to talk with you. Unfortunately, we don't have that much time. And please come and visit us if you are ever in the Washington, D.C. area. We are located in a suburb called McLean, Virginia, and you have an open invitation from us to stop by and say hello when you're here. You will see a great team at work.

Now let me read the forward-looking statement. This report that I'm about to give may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933, Securities Exchange Act of 1934, including statements with regard to the future performance of the Company. These forward-looking statements involve certain risk and uncertainties that are based on our current plan, and we believe that plan is reasonable.

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

In my talk today and also from the others that are going to talk today, we plan to talk about the term called funds from operation or FFO. And since FFO is a non-GAAP accounting term, we need to define FFO as net income excluding the gains and losses from the sale of real estate, but plus depreciation and amortization of real estate assets.

The National Association of Real Estate Investment Trust, or NAREIT, has endorsed FFO as one of those non-accounting standards that we can use in discussing our REIT or any REIT, for that matter. I plan to use this term and the others plan to use this term in their discussion today. Please see our 10-K filed yesterday with the SEC, and it is also on our website, and please review our financial statements for a detailed description of FFO.

As some of you know, we have a great team working here at the Company and we think it is time for you to hear from some of them. I'm not going anywhere. I will be talking today as well, but we should know that we have some very talented folks that are here as part of the presentation.

First we will hear from Chip Stellies. Chip is in Dallas today, so we're trying something different. We're having him calling in from Dallas. Chip is also our Chief Investment Officer for all of the Gladstone entities. Chip, if you are on line, please go do your part, please.

Okay. Thank you, David. Our December 2008 quarter-end results reflect a positive step forward. We are glad to report that in the current economic environment, all of our tenants are current with their rent payments. Our conservative acquisition pace and thorough due diligence has paid off to date, and we remain optimistic that the portfolio will continue to perform going forward.

During 2008, we completed the acquisition of six fully leased properties for approximately $53.6 million, of which $47.1 million was funded initially with our line of credit, and the remaining $6.5 million through the assumption of a long-term mortgage. We also made capital improvements to our properties located in Arlington, Texas; Newburyport, Massachusetts; and Duncan, South Carolina, of approximately $2.2 million, resulting in a total investment of approximately $55.8 million for the year.

After year-end, we have not made any new investments, but we remain hopeful that we will be able to overcome the current economic challenges and difficult market and make some more acquisitions during this year.

With the disruptions in the credit markets and the decline in the equity market, it has become extremely difficult to obtain new debt or equity capital on favorable terms. Hopeful that banks and other financial institutions will begin making long-term mortgages again, but until this happens or until the equity markets become more favorable, our near-term strategy will be to retain capital, build the value of our existing portfolio of properties by reviewing and renegotiating existing leases and performing improvements at those properties.

We will still continue to review potential acquisitions, and we continue intend to continue our strategy of making conservative investments in properties that are likely to produce attractive, long-term returns for our stockholders, and importantly, have existing assumable financing and always are leased to tenants we believe will weather the current recession.

We have about $11 million outstanding on our $95 million line of credit funded by a group of banks. The line of credit matures in December of this year, but we can and intend to extend the line on the same terms to December 2010. We have a $20 million term loan that matures this June, and we plan to repay that loan in full using our line of credit. So we are in very good shape with our short-term credit situation.

Once the long-term mortgage market becomes more readily available, we intend to continue building our portfolio, again by using our line of credit. As you recall, our model calls for us initially to borrow from the line of credit to buy properties. We then seek to obtain long-term fixed-rate mortgages as soon as we can. By doing this, we lock in the profit for five to 10 years or in some cases longer. And then proceeds from the mortgage pay down our line of credit, making the line available for the purchase of our next property.

The current credit market is virtually frozen, and the long-term mortgage markets including the CMBS or conduit markets where we have traditionally sourced our long-term mortgage financing are presently unavailable, and we don't know when they will reopen.

In spite of the current credit market, we successfully closed on two mortgages during 2008. The first occurred in August when we assumed approximately $6.5 million of debt under a long-term note payable in connection with our acquisition of a property located in Chalfont, Pennsylvania near Philadelphia. And the second occurred in September when we borrowed approximately $48 million under a shorter-term mortgage collateralized by 15 of our properties.

This is a five-year mortgage that we can repay after two years if conditions are right. If we can find some lenders making mortgage loans on commercial industrial properties, or if we can find assumable term debt and we have a decent spread between the rent coming in and the mortgage payments going out, then our REIT should continue to move along well.

With all of the turmoil in the credit and equity markets, 2009 is going to be a difficult year to build the assets of the Company. We hope the markets will improve as the year proceeds.

At year-end we had approximately $255 million in long-term mortgages borrowed against the properties we own at a weighted average fixed interest rate of 6%. The first of these mortgages in the amount of $48 million do not mature until 2010. However, this mortgage has three annual extension options that we intend to exercise through 2013. So we are not under the refinancing pressure some other REITs are experiencing.

Rates on long-term mortgages if they are available will be higher in 2009, and the actual mortgage maturities will be shorter. With the collapse of the syndicated mortgage market or CMBS market, we are looking at shorter-term options averaging closer to five years until the CMBS market stabilizes and the market for ten-year mortgages returns.

Rates on these shorter-term mortgages are approximately 6.5%. All other terms are tighter as you might expect, including lower loan to value. But the market is very volatile today, so we will have to wait and see what the mortgage lenders can offer us. At quarter-end we have approximately $287 million in mortgages and short-term borrowings. We have about $2.2 in debt to every $1.00 in equity, but we are still in a conservative position on our balance sheet; relatively low leverage compared with others.

Over the long term, we plan to increase our borrowings to a level of $2.5 of debt to $1.00 of equity. We think this is a reasonable debt to equity position for the Company. Again, our strategy is to buy real estate properties that have long-term leases. We then place mortgages on these properties, paying the difference between the interest on the loan and the rent we receive to our shareholders as monthly distributions. It is a good model, but obviously finding mortgage money today is our most difficult task.

The quality of the assets remains very good. All of our properties are leased, all of our tenants current in their rent payments as of December 31, 2008. We are currently working with our tenants to renegotiate lease terms for those leases that are expiring in 2009 and 2010. In 2009, we have one lease that we are in the process of renegotiating, which has total annualized revenue of approximately $200,000.

In 2010, we have three leases that have to be renegotiated, which have a total annualized rent revenue of approximately $1.4 million. During 2008, the tenants in both our Lexington, North Carolina, Snyder Township, Pennsylvania properties exercised their renewal options to extend the terms of their leases from 2009 to 2014; and our Newburyport, Massachusetts property extended their lease through 2015. The renewal period rents are prices that are above the old lease rates.

We feel pretty good about the portfolio and remain pleased that so many of the tenants seem to be weathering the poor economy. With that, I will turn it back over to David.

All right. Thank you, Chip. That was a good report, good presentation. Now let's turn it to our Chief Financial Officer, Danielle Jones, for a report on the financial results. Danielle?

Thank you, David. Let's start with our balance sheet. As Chip stated earlier, our balance sheet remains strong. We have a total of $130 million of both common and preferred equity, and a total of $287 million in mortgages and short-term borrowings. So our debt to equity ratio is approximately 2.2 to 1. This is a very conservative balance sheet from that perspective.

We also currently have approximately $35.5 million of remaining borrowing capacity under our line of credit. The borrowing capacity on our line of credit is limited to a percentage of the value of properties pledged as collateral to the line, plus both the amount outstanding under the line and our outstanding letters of credit. With the remaining capacity under our line of credit and our current cash flows from operations, we are confident we have ample liquidity to fund operations, service our debt, including repayment of the $20 million short-term loan that matures in June of this year, and maintain our distributions to stockholders.

Now I will turn to the results. As I talked about per-share numbers, please know that I am talking about fully diluted weighted average common shares. Funds from operations available to common stockholders or FFO for the quarter were approximately $3.4 million or $0.39 per share, a 4.2% increase to FFO from the $3.2 million or $0.38 per share for the same period last year.

These results were affected by the increase in our portfolio of investments during 2008, and a corresponding 19.5% increase in revenues over the same quarter last year, partially offset by the fact that we financed all of our acquisitions during 2008 using fixed-rate long-term debt, which resulted in increased interest expense as rates on our long-term debt were higher than on our short-term debt.

We also had to write off over $1 million of due diligence expenses related to a large potential acquisition that ultimately did not close during the quarter. Because of the write-off of these expenses, the management company chose to credit the entire incentive fee for the fourth quarter back to us, along with a portion of the incentive fees paid during prior quarters in 2008, in order for us to maintain distributions to stockholders. We do not anticipate having the management company refund prior quarters' incentive fees paid during 2009.

For the full year 2008, FFO was approximately $13.5 million or $1.58 per share as compared to $12.5 million or $1.46 per share in the same period last year. This is an 8.2% increase in FFO from the same period a year ago. Once we are in a position where we can pay out 100% of the incentive fee earned, we will be able to continue to grow our FFO. We are hopeful that we will be able to achieve this by the end of 2009.

Now I will turn the program back to David.

Okay. Thanks, Danielle. That was a great report, and we are glad to have you on board as our CFO. I do want to say how proud I am of the team that has increased the Company's FFO and FFO per share during these very difficult times. Please know that we are all working hard here to achieve the same positive results going forward that we have achieved in the past, and we are relatively optimistic that the team will be able to grow the Company's FFO during 2009.

The real estate marketplace has changed because the mortgage marketplace has changed, and this will cause more sellers hopefully to be realistic in their sale price, or the property just won't get sold. If we have good mortgage financing available to us, we can make a good number of acquisitions, but without it, it will be difficult because then we just have to assume existing debt on existing properties.

The marketplace still is divided into three parts. The triple-net real estate market has been and continues to be in three sections. In section one, the tenants usually have a AAA or certainly a BBB rating, somewhere in that range, and our credit ratings are very high. Usually the buildings are well located, and so you have high-quality real estate and also high-quality tenants. These are being sought after by all of the very large REITs and certainly insurance companies and pension funds buy those at cap rates, while they continue to rise, are still much too low for us.

There is also another section of the triple-net marketplace which we call small real estate properties like fast-food locations or pharmacy chain locations. These are being purchased by individual investors, many of them using the tax ability to go from one property to another -- it's under Section 1031 of the IRS code -- and these buyers are using cap rates today yielding about 7.25%. We have seen some as high as 7.75%. Again, you have a really pretty good tenant and pretty good retail location.

The buyers of this are doing it for income and to roll over profits from a piece of real estate that they may have owned someplace else. This pricing also is in flux, and we will see some of this market come our way during probably 2009. When it gets over 8% cap rates, we may start looking at that if we can find some mortgages.

Our investment space is the middle market, in between those two. On the one hand, they are non-rated tenants. They are small and medium-sized businesses, and our expertise is the ability to underwrite those small business tenants the same way we would in our other business of making loans to small businesses. And we also have real estate experts on our team that can underwrite the real estate as well. So we're able to do a dual underwriting of tenant and real estate.

We are in a good position to see a lot of opportunities here. Cap rates have ballooned up pretty well on this side. We see some at 9%, 10%, 11% range. So the cap rates are in the right place. We just need to figure out how to finance them with mortgages. We are doing our best to find good properties and long-term financing that match our long-term leases and lock in that financing in place so that it is good for the future.

But again, it is difficult because we don't know when the economy is going to stabilize, so we are going slow. We are watching what is happening to the mortgage marketplace, and again, I am very hopeful that the mortgages will be more plentiful in the near term.

The industrial base that rents these industrial and commercial properties remains steady. However, I do not expect significant growth in the base in 2009. It is really hard to guess where we are going at this point in time, but we hope the downturn is approaching a bottom, and we will begin to climb back out of all of this over the next two or three years.

At this point, I am still optimistic that our company will find, in the future, will find some good properties. But we all are worried about the future, so we will have to be cautious in acquisitions. The stimulus package that is just passed by Congress and the funds being invested in banks by our government will help, but I just don't see it making a big difference in 2009. And all of this spending that has been announced and the tax increases that are coming along with it will have a major change in the fabric of our country.

Inflation, I am afraid, is on the way. It is hard to think that you could have this much spending without inflation. So it is a really good time to own real estate, because real estate tends to go up as inflation goes up. That is why I like our REIT so much. It is in the business with good business tenants, with reasonably good outlooks. And in an inflationary environment, our rents can go up and the value of the real estate can go up over time. I think this structure makes this company a winner.

In January of 2009, our Board declared the monthly distributions of $0.125 per share per month for January, February and March. That is $1.50 per year. A very nice rate for such a good REIT, and because the real estate can be depreciated, we are able to shelter the income in this company. So that distribution in 2008 was 91% a return of capital, so you don't pay tax on that. And it should be at a similar percentage during this year, 2009.

So this stock can be a good one to hold in your regular account because it is so tax-friendly. This 91% return on capital is due to the depreciation of the real estate asset and some other items, and that causes earnings to remain low after depreciation. That is why we spend all of our time talking about FFO, because that adds back the real estate depreciation.

As most of you know, depreciation of a building is a bit of a fiction since at the end of the depreciation period, the building's still standing, the real estate's still there. The great thing is that if you own the stock personally, you don't pay any taxes on that part that's sheltered by the depreciation, as it is considered a return of capital.

However, the return of capital does reduce the cost basis on the stock, which may result in larger capital gains when the stock is sold. Right now, the stock price yesterday was about $6.41. The FFO, of course, makes the yield and the payout -- the yield about 23%. And about 90% of that should be this year sheltered by depreciation, and so it is not taxable.

So the after-tax return on $6.41 is really off the chart. We see a lot of REITs out there trading at much lower yields. We should be trading there too, but we are just too small as an REIT for the big institutions to take part in buying our stock.

And for all of you out there who keep asking the question, if we're going to cut the distributions. Well, the answer is I have no plan to cut the distributions. I'm not going to recommend that to our Board. Folks, even if we had two or three tenants that ended up not paying and we had to cut back, which we don't have any tenants not paying now, the distribution would still only be cut by a small amount. So again, we have no plans to cut the distribution, and I think the outlook is still very good for this company.

We will declare the next monthly distribution in early April 2009 for the months of April, May and June. So you should see a continuation of our distributions at that time.

Well, at this point in time we will get our operator back on board, and we will answer some questions from all of our loyal shareholders and analysts out there who follow our great REIT.

Thank you, Mr. Gladstone. (Operator Instructions) Chris Lucas, Robert W. Baird.

Good morning, David.

Good morning, Chris.

Just a couple of questions. On the acquisitions front, you mentioned that you had a large transaction that was queued up and didn't close. What happened with that transaction? Was it all financing related or were there other issues that cropped up?

No, it was all financing related. We ended up not being able to get the financing that we wanted in place, and so as a result we had to step back. And it was a shame because it was a large number of properties. We thought the operations were good on all of them, but sometimes you lose them and we took the hit for that.

I guess given where the stock price is and given the tightening credit markets generally, how do you think about using the precious amount of capital that you have left in terms of what sort of hurdle rate do you feel like you need to hit in order to make a transaction worthwhile in the current environment?

There's two parts of an answer to that question. The first part, of course, is that you have an economy that is in a stalled state or a declining state, depending on who you listen to today. And as a result, you worry about whether your tenants are going to be able to make the long-term payment. So each tenant gets a scrubbing as we always did it before, but with a lot more doubts in our mind about their ability to go forward.

We do find, from time to time, good companies, good strength, good outlook. And in those cases then, the second question comes up and that is can you finance it in some way with a long-term mortgage. And that tends to be our biggest problem right now. Some of these properties do come with financing already attached. Sometimes it is relatively low amount in terms of loan to the price that you are paying. So it might not make sense at that point in time.

But generally speaking, as long as there is a spread between what we are borrowing at and what we are able to garner in terms of rent, as long as that spread is big enough, then we can close the acquisition. It is when that gets very tights, as you mention, that doesn't make any sense. And right now, trying to get a new mortgage with new terms, brand-new mortgage, it is very difficult to make any of these credits work.

So we are concentrating our time now on working with sellers that have financing in place, that is assumable financing whereby we can buy the property and assume the financing and go forward and those are in high demand. As you can imagine, those people that are buying real estate are looking for those as well.

Just I guess on the lease maturity issue that you have coming up, you had sort of mentioned about business conditions deteriorating. What can you tell us about the tenants that have leases maturing over the next couple of years, and what your sense is about their interest in renewing and their ability to renew?

Yes, we have -- all of them, in terms of air credit quality, it is very strong and the ones that are renewing. That is not the problem. The real problem with somebody who is renewing a lease now is that there are substantial vacancies in many marketplaces, and we have to compare ourselves to those vacancies. Because people at some price will move from our location someplace else.

So as a result, we have got to compete with people who have vacancies or vacancies coming up. In the cases where we have had that happen in 2008, we have been very successful in converting those over. We recently converted one that wasn't due for several years into a much longer lease as well. It just depends on the circumstances and the market that we are in.

I think of those that are coming up in '09 and 2010, those four or five that we have got coming up, only one of them to me looks like we could lose it because of competing offers by others in the marketplace. Now that doesn't come due for quite some time, I think it is 2010, that one in the summer. So we have got a long time to go on that one, and we will just have to see how that one comes out. And it is a relatively small transaction as well.

So that is the only one I am worried about, and it is a very small amount of gross revenue, and we will be able to re-rent it because of its location. It is a good location. I am just afraid that we will get less than we are currently getting today.

On the lease renewals that you did accomplish in 2008, can you give us a sense as how the rent trended between where the lease rate was when it expired and what you renewed at?

It all went up. I don't have a percentage in front of me, but we were very fortunate that all rents went up.

Then my last question is, on the dividend policy is there any -- a number of REITs have gone to paying a portion of their dividend in the form of stock. Is that something that you guys have looked at and what are your thoughts?

We looked at it. Unfortunately, it is a very cumbersome process to go through. If you follow the IRS guidelines, it requires you to offer to the shareholders an opportunity to take partial cash or all cash -- in case others don't want cash -- but partial cash and partial stock. And as a result since they have to make that decision, the SEC requirement is that you have to send out a prospectus each time you do it in order to get people to look at the prospectus since they're determining whether to buy stock or to receive cash.

So, for us, I don't think we have any ability to do that under the IRS guidelines. Now there are some other guidelines out there that we are looking at, and we haven't come to any conclusion yet. But right now, we would not be able to use -- you can imagine for us, Chris, every month we would have to send out a new prospectus. We would have to have people vote one way or the other, and if they didn't vote, we could probably vote their shares the way we wanted to. But the point being it would be a very difficult process for us.

So for us that pay monthly dividends, the IRS guidelines and combined with the SEC would make it very difficult for us. But we are looking at that right now. We don't have any desire to do that, but I don't want to rule it out for the future.

Other than the, I guess the complications associated with it, philosophically is that something you guys are comfortable with or what is your thought?

Well, the biggest problem with it today of course is that the stock price is so low and the yield is so high, you hate to issue any new shares. So the desire would be not to issue any new shares and to pay cash. I can't rule out the possibility that someday in the future we wouldn't want to use that mechanism some way if we found an easier way that didn't have all of the complications. But at this point in time, as far as the IRS procedures to combine with SEC, that would just be very difficult.

And I noticed the few -- I think there's only two REITs that I saw were doing it, they were doing it sort of a one-time event rather than trying to do it even on a quarterly basis, much less an annual basis. I mean much less a monthly basis.

Okay, David. Thanks a lot, appreciate it.

John Roberts, Hilliard Lions.

Any thought for next year on the waiver of the incentive fee? Have you had any thought on that, what you're going to do?

Yes, we had to give back a lot of our incentive fee because we spent so much of the Company's money trying to get the one deal closed. So it was a very atypical quarter. My guess is during 2009, we will have a little bit of giveback from time to time. But my hope is that for the year, we have substantially eroded all of that need for the giveback and that things are going to operate as we hoped they would always operate when we converted over to this. So right now, I think we are planning on not having a lot of giveback during the '09 period.

Okay. You had a pretty significant declines in professional fees in the fourth quarter. Is that a decent run rate to use, or do you expect that to go up a little again?

Well -- I am sorry, legal was it that tracked down?

Professional.

It was more legal, John, than anything else, and that relates to closings and other things we were trying to do to raise money during the year. We had to write off some expenses for an offering that we had hoped to do in, I think it was August. So there was a lot of legal that went through. I think that is a reasonable amount unless the marketplace comes back very strong.

So the legal expenses, but the one I was looking at were the professional fees, which let me grab my --.

John, we do --.

They were down about 13%. They went from where 183 last year fourth quarter to 159 this year.

John, we include lawyers as professionals. I know some people don't, but lawyers are included in the professional fees.

So the decline was because you had a write-off last year?

Yes, in '08.

No, you had a decline this year versus last year.

Yes, '08 we had fewer legal fees.

Okay, got you. Very good. You didn't make any investments in the fourth quarter, right?

In the fourth quarter? No, we didn't.

The due diligence expense charge-off, was that totally because of that one transaction that didn't close?

One very large transaction.

Okay. What was the size of that; are you willing to say?

I think it was a $95 million purchase.

Okay, that is it, David. Thanks very much.

Just to follow up, John, there were 11 properties I think involved in that, so it was a big deal for us. It would have been wonderful. We would have jacked up our FFO, but sometimes life deals you a curveball.

Especially in this type of an environment, David.

It does.

(Operator Instructions) Harold Zirkin, Zirkin-Cutler Investments.

Good morning, David. Congratulations to you and the good professionals on our team who have produced some very attractive results for the past quarter, in light of the current economic conditions. I have two or three questions. First of all, on the GE credit line that has two options, two or three options to renew when it comes due, are the options at the same interest rate or is there a bump?

It is a variable rate, but we have to pay a small fee to extend it. So that is the real change.

Can you describe small?

I think it is a quarter-point. I can't remember exactly.

Okay. We can figure out the book value by looking at the reported results. My question is, do you have any internal numbers thinking about what the book value of the REIT is based on more or less current market conditions? Because you all have been around for a long time, so the numbers on the balance sheet don't necessarily represent the numbers in fact, and hopefully some of them are quite higher.

Yes. My guess is that a good number of them are higher because we have been depreciating them as fast as we can. So the depreciated value on the balance sheet is probably a reasonably low number. But at this point, we have not gone out and gone from property to property and tried to go through that analysis, which would be a kind of a mark-to-market approach.

Just off the top of my head, it is probably not too far-fetched because if you remember, we were never buying properties at 6.5% or 7% cap rates. What is our average cap rate now -- 9.6%. So we were already at the range that everybody else has moved into today when we were buying properties.

So we haven't had a diminution from a pricing standpoint, and it is hard to know. And it really is, as you know, from market to market you have to go back and look at every one of them. And the one I mentioned, for example, very competitive marketplace. If we got our price on that one today, if we put it up for sale, I think that would be good and probably have to take a low bit of a loss if we were trying to sell it because the marketplace is so competitive.

But others are very strong, and we have got increased rents on some of them. As you know, we do our accounting on a straight-line basis, so you can't really see the cash flow bumps that come up every year, 2%, 3% that comes back in. So as a result, each one of those properties continues to get better over time in terms of resale value.

I think it is hard -- I just would not like to speculate on what the true book value would be if you went out and had an appraisal on all of the properties now.

Okay. My last question is I notice that there are notes receivable from employees of $2,595,000, which is down a couple hundred thousand dollars from last year. Could you give some color on that item as to what it represents, what the interest rates are? And I assume there's certain terms and conditions that people have to pay those notes off on a regular basis, and that is why they have gone down over the past year.

Yes, we did have one payoff that took it down by a substantial amount. And then during the year, there's actually no amortization on those, so they come due as bullet payments. And the interest rate, what is the interest rate on that? 7% she says, so around 7%. So the REIT is not suffering too much from those. And as you know, those were swapped for stock, so there wasn't any cash outlay at the time.

It was a note signed in when they purchase their stock, and we don't do that anymore. We don't have a stock option plan to do that anymore. This is left over. And over the next, well, I think next five years, those will all have to be paid. So it will wind off completely.

Are they more or less equal over five years, or are they bullets in five years?

No, they are very staggered. Some of us who got our loans in the early years, and mine is no longer there, but some of us have had ones in the early years that they are 10-year loans. So at the beginning, some people still have maybe four or five years and others have shorter terms.

Do they have personal guarantees or are they only secured by the stock?

They are both. They have the stock as security, and these are loans that are personally guaranteed by the folks, so they are on the hook for them. And I might mention, they are good for it.

Are all of these peoples still with the firm, and if they leave the firm, do they have to pay it off?

If they leave, they have to pay it off. All of them are with the firm today.

Good. I am glad everybody has an interest in the firm. Thank you for your courtesy and taking my calls.

Chris Lucas, Robert W. Baird.

One real quick follow-up question. On your secured debt, does any of that debt have recourse to the Company?

No, it is all collateralized by properties. I think we have five properties on the line -- nine properties on the line. We have nine properties that secure that line of credit.

Right, but on your mortgage, all of that -- none of those --?

Oh, the $255 million is only to the properties involved. For example, we might have one property that is financed and that loan, that mortgage is only against that property and has no recourse back to the REIT itself. And some of them have one or two or three properties in the pool that is used to finance it and, of course, the one has 15 properties in it. That's the $48 million from GE, so those are all nonrecourse.

Now when I say nonrecourse, it is nonrecourse except there are what we call in the business bad boy carveouts. And that means that if we have lied or cheated or somehow misrepresented to the people that these are not what we said they were, then of course those lies can lead back to the REIT. But all of those were straightforward deal, so there is little chance, if any, that there is recourse back to the REIT.

Okay, thanks, David.

Thank you, Mr. Gladstone, but there are no further questions at this time. I would like to turn the floor back to you, sir.

All right. We thank you all for attending and we will see you again next quarter, and hopefully the world of finance will have changed for the better. Thanks very much and goodbye.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.