Gladstone Commercial Corp (GOOD) 2010 Q2 法說會逐字稿

Greetings, and welcome to the Gladstone Commercial June 30, 2010, quarterly shareholders' conference call. (Operator Instructions). As a reminder, this conference is being recorded.

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

Oh, thank you, Jobie, for that nice introduction, and thank all of you for calling in this morning. We always enjoy this time that we have with you on the phone. Wish we had a lot more time to talk.

I give an invitation each time, and please come by and visit us if you are ever in the Washington, DC, area. We are located in a suburb called McLean, Virginia, and you have an open invitation to stop by and see us if you are in this area. You will see a great team working.

Now let me read the forward-looking statement that we read each time.

This report we're about to give may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and Securities Exchange Act of 1934, including statements with regard to the future performance of the company.

These forward-looking statements involve certain risks and uncertainties that are based on our current plans, and we believe those plans to be reasonable.

There are many factors that may cause our actual results to be materially different from the future results expressed or implied by the forward-looking statements, including those factors listed under the caption Risk Factors and in the company's 10-K and 10-Q filings that are filed with the Securities and Exchange Commission. Those 10-K's and 10-Q's can be found on our website. They also can be found at the SEC website.

Our website of course is www.GladstoneCommercial.com. 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 our talk today we're going to talk about funds from operation, or as it's abbreviated, FFO, and since FFO is a non-GAAP accounting term, I need to define FFO, and that is the net income excluding the gains or losses from the sale of real estate but adding back the depreciation and amortization of the real estate.

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 discussing our REIT, and most REITs discuss it that way.

Please see our 10-Q filed yesterday with the SEC and our financial statements for a detailed description of FFO.

Well, we have some good news this time, and we'll begin the call with Chip Stelljes, our President. Chip also is the Chief Investment Officer of all the Gladstone companies. So, Chip, this is your part. Go ahead.

Thank you David. And good morning.

Our June 2010 quarter end results did not have any negative surprises. They reflect the general positive performance of our portfolio.

As of June 30, all but two of our buildings are occupied, and all the buildings that are occupied are paying as agreed. We had announced these two vacancies in past calls. The two empty ones constituted about 2.6% of revenue. We do have to get new tenants or reposition those two properties.

The conservative approach to acquisitions that we took in past years and our due diligence process are really benefiting us today. We are hopeful that the portfolio will continue to perform well in the future.

While the equity and debt markets have improved, the overall disruption in these markets is still making it difficult to obtain new debt or equity capital on terms that we believe are attractive.

Our stock price did improve from the beginning of the quarter, and as David will discuss, we continue to review options to raise equity to keep growing the company.

On the debt side, the current credit market is still difficult, and the long-term mortgage markets, including the CMBS market where we traditionally sourced our long-term mortgage financing, remain largely unavailable.

We are seeing some banks willing to issue medium-term mortgages up to say five years, albeit on less favorable terms than we could get in the past, but it is improving. So we're focusing on these medium-term mortgages until the market for long-term mortgages returns.

We only plan to use our line of credit to make acquisitions that we believe can be refinanced with longer-term mortgage debt.

As you recall, our model called for us to initially borrow from a line of credit to buy properties. We then obtained long-term, fixed-rate mortgages as soon as we could. We were able to secure a spread between the rent coming in and the mortgage payments going out. By doing this we were able to lock in the profit for 5 to 10 years, or in some cases longer. The proceeds from the mortgages would then pay down our line, thus making the line available for purchase of the next property.

With the turmoil in the credit and equity markets, the model had to adjust to medium-term mortgages so that we are matching as closely as possible long-term leases with longer-term credit.

Without attractive debt, we really only plan to buy properties that already have assumable long-term mortgages on them.

In addition to buying buildings, we will continue to improve the value of our existing portfolio of properties by reviewing and renegotiating existing leases, performing improvements, and selling certain assets of the business.

To this end, we did extend the lease on our property located in Grand Rapids, Michigan, during the quarter for a period of 15 years, and the tenant has two additional options to extend the lease for 10 years each. The lease was originally set to expire in July of 2016 and will now expire in April of 2025.

Annual straight-line rents over the term increased to approximately $1.1 million from $1.0 million.

On the debt side, our line of credit matures in December of this year. We are in negotiations to extend this loan for three years. So we're in very good shape with our short-term credit, and we hope to have an announcement on this in the near future.

As for mortgage loans, we have one mortgage loan for $48 million which matures in October of this year. However, the mortgage has three annual extension options that we intend to exercise if we need them. So we're not under the near level -- or the level of near-term refinancing pressure some other REITs are experiencing.

Rates on long-term mortgages going forward, if they are available, will be higher than we've paid in the past, and the actual mortgage maturities will be shorter. All the other terms are tighter as well, including lower loan-to-value advances and some recourse to our company, whereas in the past there was really only recourse to the properties themselves.

The market is improving, but we'll just have to wait and see what the mortgage lenders can offer us.

On the left-hand side of the balance sheet, the assets -- the quality of our assets remains very good. As I stated earlier, all but two of our properties are leased, and all of our existing tenants are current in their rent payments as of June 30.

Also as I mentioned earlier, we are working with potential tenants for the properties, and for one property we are working on a plan to reposition that property to a much higher-value operation. Since we're in the early stages of this effort, we can't provide any details today. But both of these repositionings and tenant replacement will require some capital outlays.

Also we are currently working with one tenant to renegotiate the lease term for the lease that's expiring in December of this year and are optimistic that this tenant will renew. The total annualized rent revenue for this lease is approximately $327,000 or about 0.8% of our rental income.

So we feel pretty good about the lease maturities, but we do have some work to do on those two that are empty.

So we feel good about the portfolio, and I'm pleased so many of our tenants seem to be weathering the poor economy.

As David mentioned, a piece of very good news, on July 22 the only mortgage loan that we owned in the portfolio was repaid. The loan, which totaled $10 million, repaid because the building securing the loan was sold. Since we had a partial ownership in the building, we also collected over $3 million in additional income in prepayment penalties, and the funds from this repayment were used to repay our line of credit by about $13.3 million.

With that news, we'll turn it back over to David.

Thank you Chip. That's a good presentation. Glad you sold that building and got our mortgage paid off.

Now let's turn to the Chief Financial Officer, Danielle Jones, for reporting on the financial results. Danielle?

Thank you David. As Chip stated, our quarterly results were consistent with our expectations. At the end of the quarter, we had $411 million in total assets, $379 million of which is our net investment in real estate.

We had $112 million of both common and preferred equity, and approximately $251 million in long-term mortgages borrowed against the properties we own, with a weighted average fixed interest rate of 6%.

We also have $36 million outstanding under our line of credit at a weighted average interest rate of 2.5% for a total of $287 million in mortgages and short-term borrowings, so our debt to equity ratio is approximately 2.6 to 1.0.

At the end of the quarter, we had approximately $4.9 million of our 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 repayment of the $10 million mortgage loan subsequent to quarter end, our availability under the line increased to approximately $11 million.

With the remaining capacity under our line of credit and our current cash flows from operations, we remain confident we have ample liquidity to fund operations, service our debt, perform necessary capital improvements to our properties, and maintain our distributions to shareholders.

Now I will review the results for the quarter.

As I talk about per-share numbers, please know that I'm 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. FFO for the six months was $6.8 million or $0.79 per share. These results remained flat from the same period last year.

Our results were affected by an increase in our professional fees, partially offset by a decrease in our administrative, base management, stockholder related and interest expense, which allowed us to increase the net amount in the incentive fee that was paid during the both the three and six months ended June 30, resulting in FFO remaining flat period or period over.

Professional fees increased because of an increase in legal fees incurred during the period. We incurred more legal fees during the period related to various ongoing issues with our existing tenants and buildings.

Stockholder related expenses decreased during the period because of a reduction in the amount of costs incurred for printing and filing our proxy and annual report, and interest expense also decreased because of the decrease in LIBOR from the first quarter of 2009, which reduced our interest expense under our line of credit, coupled with reduced interest expense on our long-term financing from amortizing principal payments made during 2009 and 2010.

Our base management fees decreased because of the reduction in total common stockholders' equity, which is the main component of the calculation, and the administrative fee decreased because of a decrease in the amount of the total expenses allocated from our administrator during the period.

We were able to pay out the full incentive fee during the first quarter, and 93% of the incentive fee during the second quarter. Once we are in a position where we can consistently 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 (technical difficulty) [do] this in the next few quarters.

And now I will turn the program back over to David.

All right. Thank you so much, Danielle. That was a great report.

As you can see, our team is maintaining our FFO and allows us to sustain our distributions to shareholders. Please know that we are working hard now to put some new deals on the book.

Before we move on, we encourage all the listeners to read the press release and the quarterly reports that were filed yesterday. There's a lot of good material in those documents, and you can find them on our website -- www.GladstoneCommercial.com -- and also on the SEC website.

The big news, as mentioned, is the payoff of the -- and the extra income generated by the mortgage that we have. This puts us in a position to put some new deals on the books and generate some more income. That was a -- not a low yielder, but it wasn't as high as we can get today.

Also the news of course is that we are moving forward having good progress on putting our new line of credit in place. And hopefully that will happen in the next couple of months.

I do want to mention that the price of commercial real estate in the marketplace today has generally changed a great deal because there are few mortgages in the market, and as a limited amount of low-cost mortgages are out there, it means that commercial real estate, the buyers just can't find low-cost mortgages, and they can't pay as much for real estate, and this is causing most of the sellers to be realistic in their sale price of the property, or they just won't sell.

So if we have some mortgage or equity financing available to us, we can make some good number of acquisitions. There are good acquisition opportunities out there, and I think this will happen for us this year.

We are looking, as I mentioned, to buy some more buildings with existing mortgages in place. Sometimes we find those, and those are good opportunities to put some equity to work. I hope we can do a couple of those in the next couple of quarters as well.

As part of the real estate market that we look at, the properties are divided really into three parts. There are tenants that have ratings, and these are properties that are well located and are being sought after by many of the large real estate investment trusts and insurance companies, and these cap rates continue to rise, but -- and I really don't know where they are going to stop, but right now they are still just too low for us to jump in and buy some of that kind of real estate.

There are others in this category with lower ratings, that is, say a BB or a B rating, and we have purchased in the past some of these properties that are occupied by those tenants with the lower ratings, and we'll keep looking at those.

There's another category called small real estate properties, like fast food locations and pharmacy chains. These are still being purchased by individual investors such as the 1031 buyers, at cap rates that yield anywhere from 7.5% or higher. They do this -- the individuals are buying this for income, and they roll over some profits from some real estate they've had.

But this area too is in flux, and we've seen some of the out-of-way locations as high as 9%. Again, we are not interested in out-of-the-way locations. But this would be an area that I hope comes our way during the next six months or a year.

Our primary investment space is the middle market, where we seek non-rated tenants, small and medium-sized businesses in commercial and office and some industrial properties. We like the medical and retail area and the smaller area, but we haven't seen much of that in this part of the world.

Our competitive advantage is, again, the expertise we have in underwriting the business tenant, in conjunction with underwriting the real estate. We are in a good position I think to see a lot of opportunity this year, and cap rates in this group range from 9% to 13%, and we have a number of these that are in our backlog and we're working on now. Again, I hope we can make some announcement in the near term.

We're focusing our efforts on finding good properties with long-term financing that match our long-term leases. Locking in the long-term financing is a key part of what we need to do. It keeps us in shape to keep paying you out dividends, but currently it's a real challenge because we don't know when the economy is going to stabilize and the mortgage market is going to come back to something normal. So I'm hopeful that the mortgage market will be more plentiful in the future, and I think we've got a few lined up now for some of the properties that we have.

If we do find something to buy, then we will find -- then we'll fund the purchase with an increase in availability under the line that we obtained from paying down the line of credit with the proceeds from the mortgage that we just had paid off. So we've got some opportunity now, and a couple of these that we are working on I hope will happen soon.

Here's one item I wanted to bring up here, and that's how we report to you. We give you FFO, and we'll continue to do that of course, but we noticed that some of the analysts that follow the REIT industry are also giving out something called AFFO, or adjusted funds for operation, and some of them also talk in terms of modified FFO, or MFFO.

Over the next few quarters we'll be looking at this to see how we can report to you in a way that is proper but also so that you can compare prior year periods with the new periods going forward.

Currently the accounting profession has changed, and they require that we expense any of the expenses that we have in acquiring a property in the year it's acquired, rather than amortizing it over the life of the lease. In the past that amortization made the income higher in the early years, and of course now we will have a decrease in income, or FFO, if we have to expense those. And they end up being anywhere from 0.5% -- 5/10 of 1% -- to 0.8% of the purchase price.

So if you want to keep straight, we'll come up with some method that you can use AFFO in looking at us, in comparing current FFO with past FFO. We'll figure out a way to do that so that some of you who follow us closely will be able to do that.

Much of the industrial base that rents industrial and commercial properties remains steady. Most of them are paying their rents. There are some that are having problems, but usually if they go into bankruptcy, they want to keep paying their rents and stay in the building. We don't have any of those problems today; however, I noticed that some of our competitors have gone through those processes.

We don't expect any significant growth in the base for 2010 -- maybe a few transactions, but we do see 2011 as a big year for growth of this real estate investment trust.

At this point I'm very optimistic that our company will be fine in the future. We all have worried about the future so much, but I think now that things have settled down somewhat, we are in a position to grow the asset base.

We are looking at a number of ways to grow the business. First, we're talking to some local banks to provide mortgages on our properties. Local banks, especially those located near our properties, may be able to offer us some mortgage money. We're currently negotiating with a couple of banks on some of the properties we have.

As I've mentioned before, we have about $80 million of properties that don't have any mortgages on them, and we are now out shopping for mortgages on those properties, and should we get those mortgages in of course and get -- and are able to pay down the short-term line of credit, we'll use the short-term line of credit to buy the next property and be in the process all over again.

We are looking for ways to raise some equity. As I mentioned, we are looking at various forms of preferred stock. We may be able to issue some at reasonable rates, and I'm hopeful that we can raise some funds with the preferred stock or some variation thereof.

Looking for a way to raise money, it's very hard to tell you how we do that at this point. I'm just -- I am not able to do that. So stay tuned. We'll have some announcements in the future.

In July 2010 the Board declared the monthly distribution of $0.125 per common share for July, August and September. That's a run rate of $1.50 a year. Very nice rate of return for such a good rate.

Because the REIT has depreciation, we are able to shelter the income of the company, and so the distributions in 2009, 94% was -- quote -- return of capital, and that's a tax-free payment to you. It should be similar this year.

The stock after all has -- is very tax friendly for those of you out there that want tax friendly stock. You don't have to put it in your IRA or Keogh to get this. The benefits come directly to you.

And if you buy stock say at $17 a share, where it is today, pretax yields, about 8.8%, but if you are in the 40% tax bracket, then your yield is about 8.6%, but that's after taxes -- and how many times do you get a yield of 8.6% after paying the government?

This 94% return of capital is due to the depreciation of the real estate asset and other items that we have on the balance sheet and has caused earnings to remain low after depreciation. That's why we talk about FFO, because to add back the real estate depreciation, and as most of you know who are involved in real estate, depreciation of a building is a bit of a fiction anyway since at the end of the depreciation period the building is still standing and still can be rented, so you get kind of a free ride on the tax code for depreciating that building.

So this is a good stock to own personally. You don't have to pay any taxes on it because of that shelter of the depreciation. However, you do if you are selling the stock at the end and decide to sell the stock, you've got to have a lower base. All of that return of capital lowers the price that you've paid on the stock.

With a stock price averaging $17.01 at the close yesterday, FFO yield is making it about 8.8%. Many tax -- many REITs are trading at much lower yields. We see most of the REITs in our category trading at 6% and 7% yields. I think as soon as we get our loan in place, we will see the stock price go up and the yield go down, so hopefully some of you will wade in and buy the stock today.

We will declare the next monthly distribution in early October for the months of October, November, and December.

And that will be all of our presentation for today. And would the operator please come on now and help some of our listeners who want to ask some questions.

(Operator Instructions). John Roberts, Hilliard Lyons.

On the two tenants you lost, could you go a little bit more into exactly what you guys are doing in order to replace them?

Yes. In the one case, we are just walking people through the space. We have, oh, I would say three candidates -- two or three candidates that are looking at renting the space.

The tenant just moved out, so it was really hard to show the space when the tenant was there.

This is a property in Richmond, and it's well located right on Midlothian highway. So we'll get somebody in there. I don't know what rent rate we are going to get. That marketplace is pretty heavy right now in terms of spaces available. But we should be able to rent that, hopefully in the next six months or so.

It may cost us some money for tenant improvements, of course, but we're pretty optimistic that that will get rented.

The other one is up in New York. It's a location that was really a more of a storage warehouse kind of thing, and now the tenant has moved out, and what we've discovered is that it's in a very residential area that's nearby and around part of it, and we are looking at repositioning that.

We'll probably tear down the building and build something else there, but until we've gotten all the permits, I'd rather not go into it. It will make the property worth a much larger amount than it is today if we can reposition it.

That unfortunately will probably take at least a year to go through that process. So we won't be able to rent that one probably for a year.

But right now we did the study, the marketing study came back, said it's a great place for this kind of location that we are looking at, and we have a joint venture partner that wants to do it with us, and we are now going forward with finishing up the permitting, and hopefully that will be done soon, and we can then -- once it's permitted by the county or -- we will be able to announce then what's going in that space.

All right. Any thought on the loss in revenue?

No. It's not enough to be really worried about. We'll be able to pay our dividend, and all we need to do is take the money that we just received from this mortgage and put it to work, and it will make up a lot of that.

All right. Now, at this point you're talking about adding more properties, buying more properties. Is this going to be sourced through using existing capital? Or are you going to have to raise more capital in order to do that?

Well, we are hopeful of two things happening. First of all, that we'll mortgage some of these properties that we have. Of course, those are about $80 million worth so there's plenty of room. We've negotiated some terms with one bank. It wasn't exactly what we wanted, so we are still in negotiations with them. But that would free up some capital to buy some new properties, and that would just provide us with capital -- debt capital rather than equity capital.

And second of all, we did of course sell the building, so that freed up around $13 million to put to work, so we'll go out and find one or two properties to buy with that $13 million.

And then finally, we are looking to discuss with some folks, is there an opportunity to do some preferred stock? As you know, we've done that before. If the rate can be more reasonable on the preferred side, we like to raise preferred stock rather than common stock.

I do think the common stock is undervalued today. As I mentioned in my talk, 8.8% is very high in comparison to other triple net REITs out there. So we'd like to get the stock down into a lower yielding area, which means a higher price, before we raise any common equity.

How about your credit line? Is there any constraints on that for adding this additional mortgage debt?

No, and we would normally do that except that it comes due in December, so until we put the new one in place that has three years on it, we would jump right in as soon as that new one comes and put a couple more deals on using the line of credit. I just don't want to do that in today's marketplace, in case something happened and we couldn't renegotiate our line or we couldn't find a new lender to come in.

We've got six months -- no -- well, five months now to do it. I think we've got plenty of time to renew the line of credit. I think it will get done. I'm very positive on that, but I wouldn't want to go out and do new transactions and put it on a line of credit that expires in December.

How about -- so no constraints. The fact -- there are no covenants on the credit line that would not allow you to add more mortgage debt?

We could add it right now. They would be delighted to have us draw it down.

But what's it look like on the renegotiated line? Are there going to be any covenants there that might hurt your ability to add mortgage debt?

No, we don't think there will be an impact. We should be able to buy any number of buildings and put it on there. Every line of credit sort of wants to constrain you as to what kind of buildings you buy and what kind of tenants you have. They've not -- the two that we're -- two or three that we are talking to now, none of them have taken us out of the area that we're in today. They all are very pleased with the progress that we've made in what we're doing today.

Chris Lucas, Robert W. Baird.

David, just to follow up on John's questions on the credit facility, are you negotiating with the current line leader or are you out looking -- are you also talking to other parties? Where does that stand? Are you sort of resolved in terms of who you are expecting to go with at this point?

Not resolved. We're talking to two major groups and several minor groups that have been through here, and it's amazing that the marketplace has changed so much since last year. Last year you -- they don't return your phone calls. Now today they have actually come to the office, done visits, done due diligence and are moving forward with the transaction.

Again, it's a little early to say what's going to happen. I don't like to mislead people, so I don't like to say things, or this, that or the other when you're at this point in time in negotiations.

Okay. But you are 4 to 5 months away from the current line expiring, so I would assume that an announcement is coming before December?

Oh, yes. We are -- at the end of December, the line comes due, and we already have term sheets from potential lenders, and so it's going along.

Just kind of a clarification on how the -- how adding mortgage debt on the unencumbered assets would impact your line's capacity -- I'm assuming that if you pulled encumbered assets that were currently pledged to support the line, that your availability on the line would be reduced by some amount; is that correct?

It is. That's right. Some of those -- so of the $80 million is not on the line. So it's not collateral for the line. We can use that obviously without impairing the line. But as you get the money from the mortgage, the first thing you do with it is paid down the line. Then you use the line and borrow back up, based on the new asset that you are going to pledge, that you are buying and putting on the line. So they count that.

It would be very difficult if they didn't count anything until after you bought it. They will work with us on that.

Okay. And then just you talked about the preferred market. I think your preferred's are trading in kind of the low maybe 8 1/4-ish range right now. Have you gotten any price quotes from underwriters as it relates to sort of what your thoughts would be in terms of what you could price preferred at? And maybe more importantly, what is your sense about what your appetite would be at call it an 8.5% number?

Well, that's a little bit high, but we have to consider all things. Obviously if I could find a property someplace that was going to yield me 13%, then an 8.5% preferred used to buy that property would be very accretive to our common shareholders.

So there is a balance of what you can use the money for and it's cost, versus what you can -- and what you have to pay for the cost.

Chris, I can't give you a number today, and I haven't gotten any term sheets or indications back from any of the people I've asked. The preferred marketplace, as you know, has been pretty much shut down, but it does seem to be coming back.

And then you do have in place an at-the-market program, and you haven't used it as of yet. I guess I'm trying to -- wondering what the parameters you have either structurally in place or -- and your thought process as to when you would use that program.

Yes. I would like to try the program out at some point in time, just to get a feel for how it works, but as you can imagine, right now we really don't need a lot of money, so there would be no reason to raise any substantial amount.

We have never used the program. I've never used an ATM program, and it would be interesting to see how the program works, but as far as raising $10 million, $15 million, that would be kind of silly at this point in time. We've got ample opportunity.

Now, if something crazy happened, for example, and both of these terms sheets that we have from lenders went away and we needed to pay off the bank, obviously we would start tapping that ATM program to pay off the bank in December.

And then just in terms of lease expirations for 2011, is there anything coming up next year?

No, nothing next year.

Okay. So the risk to the portfolio right now is just the one in December?

That's right. And it's moving along at a good pace.

Then -- and just maybe more broadly, a question just about your overall conversations with your various investments across the Gladstone platform. What are you hearing from your clients in terms of business conditions and their outlook on the economy?

It's getting better, Chris. As you know, I'm probably the most negative of most of the people that you talk to, but I must say that we are starting to see some positives out there in the marketplace that we haven't seen for a year. And I'm not ebullient optimistic, but I think we may have reached the bottom, and it's just going to take an agonizing time for the economy to turn around.

Unemployment is exceedingly high. It's not going away. The numbers that the government is giving out are fudged. They don't really tell the truth. And so as a result, there's just a tremendous problem with unemployment right now. And without employment, it's really hard to get the consumers to buy. And we see the savings rate going up, which is good for them but pretty bad for our retailers.

Now, on the other hand, most of the quarterly calls this quarter have been very good, and the leading indicators are still positive. So I don't know. There's a lot of mixed news out there, but I'm beginning to believe that the worst is over, and it's now a slow building period rather than any kind of robust building period.

Okay. Very good. Thank -- oh, one last question, David -- or maybe for Danielle. The gain from the mortgage, is that going to be included in your FFO calculation?

Yes, it will be included in the third quarter FFO calculation. It will come on the balance sheet as -- or -- excuse me -- the income statement as other interest income.

Okay. And that will be for $3.3 million?

Correct.

Okay. Great. Thank you very much.

(Operator Instructions). There appear to be no further questions at this time.

All right. Thank you all for calling in. We do enjoy these calls and wish there were more of them, and right now we will adjourn the meeting. Thank you all for attending.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.