Gladstone Commercial Corp (GOOD) 2011 Q2 法說會逐字稿

Good morning, and welcome to the Gladstone Commercial Corporation's second quarter ended June 30, 2011 shareholders conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note that this event is being recorded.

I'd now like to turn the conference over to David Gladstone. Mr. Gladstone, please go ahead.

Thank you, Keith. That was nice of you and good introduction. And thanks to all of you for calling in. We always enjoy these times we have every quarter with you. And actually, wish we had more of them, but once a quarter, I guess, is enough for most people. Please come and visit us if you're ever in the area, the Washington, D.C. area. We're located in a suburb of Washington, D.C. -- it's McLean, Virginia, and you have an open invitation to stop by, if you're ever in this area. I think you'll see a great team at work.

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

There are many factors that may cause the actual results to be materially different from any future results expressed or implied by these forward-looking statements, including those factors listed under the caption Risk Factors in the Company's 10-K and 10-Q filings that are filed with the Securities and Exchange Commission. Now, those 10-K's and 10-Q's can be found on our website at www.gladstonecommercial.com and also 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 talks today, we plan to talk about Funds From Operation, or as we call it, FFO. And since FFO is a non-GAAP accounting term, I need to define FFO as net investment income excluding the gains and losses from the sale of real estate 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 discussion of REITs. Please see our 10-Q filed yesterday with the SEC and our financial statements for a detailed description of FFO.

We'll begin the call today by hearing from our President, Chip Stelljes. Chip is also the Chief Investment Officer of all the Gladstone companies. So we'll start with chip.

Good morning. We were active in the second quarter. We acquired two new properties. We're able to extend one of our leases, re-leased one of our previously vacant properties, and raised additional equity through common stock. As of today, all but two of our buildings are occupied and all the buildings that remain occupied were paying as agreed.

The two empty buildings constitute about 2.4% of our gross portfolio income and about 1.3% of the total square feet of space that we own. In addition, while we re-leased one of our previously vacant properties, the lease is short-term, six months, so we continue to take appropriate action to re-tenant all three properties as quickly as possible.

As for our acquisitions, the first property acquired during the quarter was a 60,000 square foot office building located in Hickory, North Carolina. We purchased the property for approximately $10.7 million and funded it through borrowings from our line of credit. The average cap rate from this acquisition over the term of the nine-year lease is 9.8%. The property is leased to Fiserv Solutions, Incorporated. Fiserv provides information management, electronic commerce systems and services, and is a credit-rated tenant.

The second acquisition was a 78,421 square foot office building located in Springfield, Missouri. We purchased that property for approximately $15.9 million, and funded it through a combination of borrowings from our line of credit and the assumption of $11.5 million of mortgage debt on the property. The average cap rate on this acquisition over the term of the 10-year lease is 9.0%. The property is leased to T-Mobile USA Inc.

While we continue to see signs of improvement in both the equity and debt capital markets, these markets remain somewhat challenging. The market for long-term mortgages has been limited for some time. However, we have recently seen mid- to long-term, five- to 10-year mortgages become more obtainable. The market for long-term mortgages through the CMBS market has been making a comeback in recent months, but it's still much more conservative than it was prior to the recession. As a result, we'll likely not have the same level of access to the CMBS market that we had prior to the recession. Consequently, we'll be looking to both regional banks, non-bank lenders, in addition to the CMBS market to issue mortgages to finance our real estate activities.

On the equity side, our common stock remains steady from the first quarter. And as a result, we were able to sell 22.7 million of common stock in an underwritten, overnight public offering during the quarter. We continue to use our line of credit to make acquisitions that we believe to be financed for longer-term debt.

Our original business model called for us to initially borrow from the line of credit to buy properties. We then obtained longer-term fixed rate mortgages as soon as we could, and 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 profit for five to 10 years, or in some cases, longer. The proceeds from the mortgages would then pay down our line of credit, thus making the line available for the purchase of our next property.

With the turmoil in the credit and equity markets over the past [few] years, our model has adjusted so that we could continue matching as closely as possible the long-term leases with long-term credit. So, going forward, if we don't believe we'll be able to source attractive debt on new acquisitions, then we'll only buy properties that already have long-term mortgages on them.

We also continued to improve the value of our existing portfolio of properties by reviewing and renegotiating existing leases, performing improvements at our properties, and selling certain of our assets. To this end, we extended one lease during the quarter and the lease on our two properties located in Angola, Indiana and Rock Falls, Illinois, was extended for an additional period of three years. The lease was originally set to expire in 2020 and will now expire in 2023.

As to mortgage loans, we have mortgage debt on our properties in the aggregate principal amount of $1.8 million, payable during the remainder of 2011 and $4 million, payable during 2012. These amounts are regular amortization on the mortgages we hold, and does not include the $45.2 million of balloon principal payments maturing on one of our long-term mortgages in 2011. However, this mortgage has two remaining annual extension options through 2013 and we intend to exercise one of these options in 2011. The mortgage payments due in 2011 and 2012 are comprised solely of debt amortization payments. We have no balloon payments due under any of our mortgage loans until 2013. And we plan to fund these payments through operating cash flow and borrowings under our line of credit.

The quality of our assets continues to remain strong. All but two of our properties are leased and all of our existing tenants are current in their rent payments today. We're working to locate new tenants for the two vacant properties and for the one lease that expires in November of this year. Locating new tenants will require some level of capital outlay we expect, but our pipeline of possible acquisitions is very strong today and we have to close a few more properties this quarter, so stayed tuned.

And with that, I'll turn it back over to David.

All right. Good presentation. Now let's turn to our Chief Financial Officer, Danielle Jones, for a report on the financial results. Danielle?

Good morning. I will start by reviewing the balance sheet. Our quarterly results were strong and reflect our growth over the past few quarters. At the end of the quarter, our total assets increased to $428 million, $404 million of which is our net investment in real estate. We have $140 million of both common and preferred equity, and approximately $267 million in long-term mortgages borrowed against the properties we own at a weighted average interest rate of 5.7%.

We had $8.2 million outstanding under our line of credit at the end of the quarter at a weighted average interest rate of approximately 3.2%, for a total of $275 million in mortgages and short-term borrowings resulting in a debt-to-equity ratio of approximately 2-to-1. Our sources of liquidity include cash flows from operations, cash, borrowings under our line of credit, obtaining mortgages on our unencumbered properties, and issuing additional equity securities.

Our available liquidity at June 30 was approximately $34.6 million, including $2.3 million in cash and an available borrowing capacity of $32.3 million 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, with 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 have ample liquidity to continue to acquire new properties, fund operations, service our debt, perform necessary capital improvements to our properties, and maintain our distributions to shareholders.

In addition, we have the ability to raise approximately $257 million of additional equity capital through the sale of securities that are registered under our universal shelf registration statement in one or more future public offerings. Of the approximately $257 million of available capacity under our universal shelf, approximately $22 million of common stock is reserved for additional sales under our open market sale agreement, or ATM program.

Now I'll discuss the operating results for the quarter. As I talk 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 $3.8 million or $0.39 per share, a 12.8% increase to FFO over the prior year's quarter. FFO increased despite the vacancies in our portfolio, as our rental income increased compared to the second quarter of 2010, because of income generated during the quarter from the three properties acquired subsequent to June 30, 2010. Our property operating expenses also decreased during the quarter because of reduced repairs and maintenance incurred, and our general and administrative expenses decreased because of reduced legal fees at certain of our properties.

Our interest expense also decreased because of the 2.3% decrease in the interest rate charged on our $45 million mortgage loan that was renewed in September 2010, coupled with reduced interest expense on our long-term financings for amortizing principal payments made during 2010 and 2011, partially offset by interest on the mortgage debt we assumed in December 2010 and June 2011.

FFO for the six months was approximately $7.6 million or $0.80 per share, a 12.7% increase over prior year's FFO. Increase in FFO for the six months was a result of what I just discussed, coupled with an out-of-period adjustment recorded during the three months ended March 31, 2011 for $250,000, which related to due diligence costs that were expensed on the Company's acquisitions during the quarter ended December 31, 2010, which should have been capitalized into the cost of the property. These expenses were cost-borne by the seller of the property that were inadvertently expensed by us.

With our robust pipeline of new investments, we believe the remainder of 2011 will be very active. As we build our portfolio and our FFO grows, we believe we will be able to consistently pay out 100% of the incentive fee earned, so that we will be able to again grow our FFO.

And now I'll turn the program back over to David.

All night. Thank you very much, Danielle. That was good. And while the reports of Danielle and Chip were good reports, of course, we encourage all the listeners to read the press release and the Quarterly Reports filed yesterday with the SEC. This is Form 10-Q that we file every quarter. There's a lot of good material in these documents. And believe me, hundred of hours go into presenting and preparing these reports.

Now you can find them all on our website at www.gladstonecommercial.com and on the SEC's website. And if you'd like us to send you a hard copy, just drop us a note, and we'll be glad to Xerox off a copy and send it out to you. To stay up to date on the latest news involving Gladstone Commercial and our public companies, please follow us on Twitter, username Gladstone Comps. And we're also on Facebook -- the key word is The Gladstone Companies. And, of course, you can go to our general website and see more information about all of our companies -- that's at www.Gladstone.com.

I think the main news this quarter ending June 2011 was that, again, we're able to acquire two properties and we have more in the works. Now, that's the good news. And we raised $22.7 million of new common equity in an underwriting, overnight offering. Our friends at Janney Montgomery Scott were the lead, and our friends at Hilliard Lyons, Wunderlich, and BB&T participated in the selling. We sold stock so we'd have the necessary cash on hand to fund the properties in the pipeline. The money we raised back in January, of course, was all been put to work. And all that money raised, now that it's invested, is nicely accretive to our existing shareholders before January. And I think this money that we raised this time around, the $22.7 million, will be accretive as well, as we put these deals that we have in our pipeline on the books.

We have built a very nice pipeline, or backlog of new properties that we want to buy. Certainly hope to be able to grow the assets even more during the second half of the year than we did in the first half. And it's really nice, folks, to be back in the business of buying more properties.

As you may know, we have an ATM program -- the ATM stock selling program. We did that last year. We haven't put it into effect this year. I don't know that we need it quite now, but it does permit us to raise small amounts of stock in the open marketplace. We are moving forward on our senior common stock offering. It's the lowest cost form of raising money. Now with our common stock price so low and the yield so high, we have to look to some alternate ways of raising money.

This time, we're going forward with a registered offering and a cost-effective approach. The company -- that is, this REIT -- has capped the amount of expenses that they will incur in the offering. And over that cap, the management company will take up the remainder of any risk and expenses of raising the money. And we're certainly hopeful that we'll be successful with that offering, because that would add a lot of firepower to being able to increase the income and, hopefully, the dividend.

I really think that this Company is in a great position now to increase the assets and increase the income from those assets. This is a very strong position for the Company and 2011 sure is shaping up as a good year.

One other note, I'm hopeful that we can find some very attractive long-term mortgages to fund our acquisition of properties. The mortgage marketplace is still getting better, but it's not robust. And we assumed one mortgage in connection with the acquisition of the property in Missouri. And we should be able to do more of that. However, I hope we can announce additional financing for some of our non-mortgage properties that we have in our portfolio.

We have a few mortgages in process and I'm hopeful that they'll close this quarter. This will move those properties off our line of credit and finance them with long-term debt, match up the long-term rental properties that we have with long-term debt. We've actually got three in process, so I hope all three of those come through.

But the big news this quarter really is now that we have more equity, we're in a position to buy more properties. The pipeline is full. We're working that. And hopefully, by the time we announce next time, we'll have -- we'll be in a great position. And certainly, if the mortgage market comes back, as we believe it will, it will open up a new list of properties to us to buy. And I'm just looking for this to be a good year.

As I mentioned every time, there are Triple A and Triple B-rated properties and tenants. And these are really high-quality real estate that are being sought after by the large real estate investment trusts, insurance companies, pension funds. The cap rates there continue to move around and they're still very high, in terms of the cost of those properties and the yield that we can get. Some of those properties are going for really crazy prices. We've seen apartment buildings -- we don't do those, of course, but we've seen those go for astronomical rates these days.

So we've stayed away from all of that, mainly because those are usually larger properties in great locations. And we can't take those on because our cost of capital is a little too high.

We've also looked at the small real estate properties like fast food location and pharmacy chains. Those go around. They're purchased a lot by the individuals. The cap rates today are running 7%, 7.5%. And most people buy these just for the income; rather than buying the bonds, they buy the real estate. This is still in flux, although it's coming back pretty strong. And I think you'll see those drop down in the 6.5% and 7% rate by the next time we talk. All of those are out of our range because the cap rates are just too low for us.

And the area, as I've mentioned, that we invest in is the middle market where we seek non-rated tenants -- some rated-tenants that are in transactions that we can take advantage of. But most of these are non-rated tenant. They're medium-sized businesses. These are commercial office and industrial properties as well as some medical properties. Our competitive advantage in this area is our expertise in underwriting the business tenant. We are able to do that because, as most of you know, we have two other businesses that do nothing but lend and buy into smaller businesses. And so we use that talent pool that we have there to underwrite those properties.

We are in a great position to see a lot of opportunity this year. And cap rates for this group are in the 8% and 9% range. And yields after the mortgages, assuming you can get a decent mortgages, are in the 12% to 15% return on equity. So that's what we're trying to do, is build that up. We are focusing our efforts on finding these good properties and long-term financing with them. And that will match up with our long-term leases and give us a good return over the next 8 to 10 years.

Being able to lock in those long-term financings is really the only way to go. That's what saved us from the problems that you saw in the real estate marketplace during the downturn. Now, we are much more optimistic that things are going to be great during the rest of 2011, and maybe even to 2012. So we will proceed cautiously, as we always do.

Just to note, as I usually do, much on the economic status that we're in today, much of the industrial base that rents industrial and commercial properties remains pretty steady out there. We're not seeing a lot of problems. There are lots of auctions that you see in the newspapers for commercial properties. Those usually have been taken back by the banks or are being foreclosed on by the banks. But those are some really pretty difficult properties and much more difficult tenants, and we've avoided those. We expect significant growth in 2011 from just standard, straightforward deals.

At this point, just again, a note -- I'm optimistic that the Company will be fine in the future. We'll continue to be cautious in our acquisitions, as we've done over the past years. We were able to run through the recession without being damaged. And that last recession was pretty bad, but we didn't cut the dividends. We didn't raise cheap capital and dilute our shareholders. We are, as you all know, very protective of our shareholders and the dividend that we pay them. And I think this portfolio that we have today would stand up to another test if we get another big downturn.

So, again, how are we going to grow? We are looking for a number of ways to continue our growth of our business. And it is limited, because there's a limited amount of low-cost commercial mortgages out there. But we continue to talk to the local banks and providers of mortgages for our properties. The local banks -- that is, the local banks near the properties; not necessarily near our home headquarters here -- and we have about $94 million of properties that don't have mortgages. And I mentioned before, if we can secure mortgages on these, which I think we'll take a chunk of those before year-end, and get them over to the long-term, we'll then have more room on our line of credit and be able to grow our asset base.

We were successful in raising the common stock twice in the last six months. We've used up the first batch of that money. The price of the common stock that we have today is not going to allow us to issue any common stock, so we're looking at other ways to do that. If we issued common stock today, it would be very dilutive.

We've raised money in January. And as I mentioned, we put all of that money to work in the FFO. Coming off of those transactions is very accretive to the existing shareholders. We always work with that in mind rather than just raising money to make our Company bigger.

We also continue to look at various forms of preferred stock that we may be able to issue at reasonable rates. And I would note here that our preferred stock is now trading -- that is, the shares that we have outstanding -- is trading pretty much at par. So we'll look at that way of raising capital as well as any other way we can do, to make our dividend growth and our FFO grow.

In July, the Board maintained the monthly distributions of $0.125 per common share. That's $1.50 per year. That's a nice run rate. Because the real estate can be depreciated, as you all know, the distributions in 2010 were about 84% of return of capital. And that, of course, is tax-free. And this is really a tax-friendly stock. And you can put that in your own account -- your personal account -- it works very well there because of the low tax rate. The return of capital is due to the depreciation of the real estate asset. And folks, that's really just a fiction, because in essence, the building is still there. And that's why we talk about FFO, because we add back the real estate depreciation in order to compute the FFO.

It's a great thing if you have this in your own personal account. It works well in IRAs and retirement plans. You don't have to pay any taxes there either when you sell the stock. However, if it's in your own personal account, you will have to do a recalculation of your cost basis when you sell the stock. You may have a higher capital gain.

With a stock price at around $17.04 and the FFO yield on the stock at about 8.8% today, this is just tremendous -- it's sheltered on at 8.8%. And I think we'll actually shelter more than 84% this year. But we'll just have to wait for the numbers to come out.

I just read that the entire REIT universe is trading at 4.1% yield. Man, if we could trade at 4.1% yield, our stock would be at $36 a share. And the triple net REITs are all trading in about 6.1% today. And if we were trading at 6.1%, that would give us a $24 a share. Some of you may remember that we traded in the $20s, low $20s before. And we really should be trading there today, given the fact that we weathered the last recession without turning down. And I think we'd do just the same this time around.

We did have one large institution that added additional shares to their stock that we sold this last offering as well. They were in the first offering in January and the second one. I don't think it's any secret, it's now published out that Wellington was the buyer. They are a very large institutional investor. And my hope is that since they're such a well-known investment group, that some of the other institutions will become interested as well. We will declare the next monthly distribution in October for October, November, and December, so stay tuned.

And now we'll have some questions from our loyal shareholders and the analysts who follow our stock. So if the Operator would please come on, we'll take the questions.

(Operator Instructions) Andrew DiZio, Janney Capital Markets.

A question on the short-term lease that you have on the Massachusetts building. It looks like the rent there is about $1.35 a square foot versus the $2.40 it was at previously. I'm just wondering, first, if that's kind of where you think the market is on that building right now? And second, if your long-term plans -- you've talked in the past are to possibly sell or redevelop the property, if that's still on the table.

And still working both of those concepts, re-leasing. It's got a sign out front. The people who were in there were actually the tenant that was there before, and it turned out they needed the space that they thought they were giving up. So they came back into the building.

It's a short-term lease. It was nice to have them back in the building. No one likes an empty building sitting any place. So we're optimistic that something will happen there, but at this point in time, I don't have any news to announce.

Okay. So the potential to sell the building is still out there?

Yes, we have it listed for sale and listed for rent. And we do have also the ability to redevelop it. We've gone down that path, part of the way down. It's a big investment. We're thinking that through before we make that decision.

Sure. Understood, thanks.

And then, Chip, you mentioned the two leases that were renegotiated at Angola and East Falls. Can you talk about what the -- did those rental rates go down? Up? Just the same, with an extension?

It's the same, with an extension. And so you have a little bit of increase in GAAP rent, the way the GAAP measures the leases. But they were just extended straight out on the same rental rates.

Okay, so on a straight-line basis, they're the same?

That's right.

Okay.

No, I mean, in other words, you've got about an $18,000 additional to GAAP rent because of the extension, but the rental rate itself is exactly the same as it was.

Yes, I'm sorry, on a cash basis. Got you. Okay.

And then, I guess, on the subject of capital raising, can you talk about what kind of reception you've got on the senior common stock side of things -- how much interest there is there?

Unfortunately, we haven't gotten into the marketplace because FINRA has to review all of your marketing materials. And it's been an agony to get the marketing materials out of FINRA. But we've gotten one piece out, the brochures out, and now we're waiting for the slideshow to get out. We made changes that they asked for and it's back to them -- I think it went back yesterday. So we're hopeful any day now that we'll get signoff and we can go into the marketplace.

We have talked to some broker/dealers. We've gotten a couple of broker/dealers already signed up and they're just waiting for the documents to come out so they can go sell.

Okay. Thanks. And then just one last question and then I can jump back in the queue. I'm sorry, David, I missed this -- you mentioned earlier you had three in process. I missed if you were talking about potential acquisitions or mortgages?

Mortgages -- we had three that we're working on. One of them is a little bit tenuous, but the other two are very firm and are moving along. I don't know that we'll get those closed, but they certainly look like they're moving in the right direction.

Okay. Can you talk about what it looks like the market rate cost of debt would be for you guys now?

No, I can't. But we'll announce it when we get it done.

Okay. Well, I guess another way to ask the question -- the 6.08% rate on the assumed mortgage -- is that above market, below-market, at market?

That's a little bit above market. We've seen some high fives and some low sixes. And it just depends on the property, of course, and the term, and the feeling of the credit officer at the time, I think. But there's really no way of knowing what you're going to get until you lock it in. And we were waiting for the Congress to get over their broil that they were having, and hopefully, the marketplace would calm down before we tried to lock in anything. But now that that is partially settled, I think the marketplace will settle down and we can probably lock in and move forward.

All right, thanks a lot.

Okay, next question, please.

(Operator Instructions). Don Roberts, Hilliard Lyons.

Could you talk a little bit more about your acquisition pipeline? What you see and what you expect to close by the end of the year?

Well, I wished I could give you some certainty on all of those. We've got a good number of very strong potential closes in this quarter, or certainly in the next quarter. However, as you well know, we don't know until very near the end of all our due diligence and gathering all the documents whether we can get to closing or not.

I can tell you that we've got plenty of business. And that's about as far as I want to go, in terms of trying to lead you to some understanding of what we might close in this quarter and in the next quarter. And I know that's what you're trying to do, because it has a big impact on FFO and where we are. I think we'll get a pretty good amount closed this quarter and certainly enough to take up the slack on the $22 million we raised.

Well, let's sort of backdoor it. You've got, what, your debt to capital right now or debt to equity is about [196%], I believe?

That's right (multiple speakers) --

You're looking to go to 250. Are we looking six months, a year out to get to that level?

No, I don't think so.

More quickly?

That's true.

Okay, thanks, David.

Any more questions?

(Operator Instructions). Jeff Rudner, UBS.

Good morning, David, and congratulations on a very nice quarter. A couple of questions, partly in follow-up to these last question. Assuming we go to 250% leverage -- and you said that might be a little bit sooner rather than later -- would you anticipate being able to raise the dividend at that point in time?

Yes, the goal would be to raise the dividend, of course. I don't know that we'll get to 250%. I think what will happen is we'll end up raising additional equity. I think when we get beyond 2-to-1, we all kind of feel as though it's time to put more equity on the books. So raising preferred stock and maybe the senior common has come in by then, so that the debt/equity ratio will continue to stay at the 2-to-1. It's just impossible right now to figure it out, because the marketplaces are so crazy right now and our stock is so low.

Okay. Then following-up, assuming you had a debt to equity ratio of 2-to-1, would you be able to raise the dividend to that level?

If you put on enough deals, of course. It will flow right down to the bottom line. If you're putting equity out at 13% or 15%, there's no reason we can't get to an increase in dividend.

Okay. You mentioned about the average of REITs and triple lease REITs of selling at 4% yields or 6% yields, and ours obviously is a lot higher. When we did have the last issuance of common stock back in June, the price of the stock had been trading in the mid-18's and obviously fell down to the mid-17's -- low-17's now, I guess, because of market conditions. I'm assuming you're mindful of the fact that any additional equity offerings you have would probably put pressure on the price of the stock regardless of the level the stock was at?

Of course, they always knock down the price afterwards because they think you're going to dilute the shareholders' FFO. And of course, we maintained our FFO after raising the money last time. And I think when you see this quarter come out, this quarter that we're in, you won't see diminution in FFO either.

Okay. And last question -- if I heard you correctly, you did mention in the prepared comments that the FFO on the additional stock raise in June was actually accretive -- the FFO for the previous 9 million shares outstanding. Can you elaborate as to how much the increase in the FFO, the accretion, would have been on the additional million shares?

Haven't done the analysis in that amount of detail. I'm not sure I could answer off the top of my head. Let me think about that and maybe we can post it on our website.

Okay. Thanks very much, David.

Chris Lucas, Robert W. Baird.

I guess two quick questions for you. Going back to the pipeline of opportunities, I guess I was just trying to understand -- is the stuff you're looking at, if you could maybe give us a sense as to how much has a mortgage on it already, versus what would potentially be unencumbered -- on a percentage basis, just roughly, to understand sort of what the makeup would be.

Chip is looking at me, saying half. So half is -- believes that is in the pipeline now already has a mortgage in place. And some of it's a little high in terms of the mortgage, but that just means we pay less for the building. And as a result, it works out to give us the kind of equity returns that we're looking for.

It's always nice to have the mortgage in place, because then you don't have any risk of buying it and then trying to place a mortgage on it. So we are actively looking for that. Although the mortgage marketplace seems to be tuning up again and CMBS seems to be working again. But it may take another year before we get back to something normal.

Okay. And then (multiple speakers) --

(multiple speakers) Additionally, I think we're doing a lot of work on the ones that don't have existing mortgage debt on them, to understand what lenders are willing to lend us on those properties. So we're able to tune up our model as well as have loans in the works by the time we close.

Okay. And then I guess the other question that relates to that, which is -- so the last deal that you did that had the mortgage assumed with it, how long did it take for you to get through the assumption process?

It was agony. It was probably three months from start to finish. We were ready to close way before we got the holder of the mortgage to sign off. And if I remember correctly, was there a one-point fee that we had to pay? Yes, there was a one-point assumption fee that we had to pay as well.

There's -- these things that are locked up in CMBS portfolios, the servicers of those portfolios I think don't want to do anything ever. And so when you go to them trying to get something done, it really takes a long time. And that one may have been an exception. There are, of course, good managers of real estate and very attentive and responsive. We had one -- I think it was last year -- it took almost no time for them to approve the assumption. So it just depends on what group you get.

Okay. And then I guess the question on the senior common offering for me is just sort of what's the intended process here? Is it a best efforts? Is it an underwritten transaction? How is that going to proceed?

Well, it is a best efforts. And what happens in the non-traded REIT world where this is being sold is it's being sold to individuals. It is far superior to anything that's being sold in that marketplace. I can say that unequivocally, because they do have an exit at the end of five years because it is convertible.

So the idea is that you raise it at a lower yield than we have it today. For example, it is a 7% yield. And as a result, even though there's a larger fee, if you add all the problems with doing a regular public offering at a very high interest -- high yield compared with the low yield with a larger fee, I mean, it is 3 points more than the normal fee.

At the end of the day, I think it's a wash. But we'll see. We want to try it out this time. We have very low-cost basis going forward and it's all performance-driven. So if somebody sells the shares, they can do that.

A lot of this stuff, I don't know if you know, it ends up on a lot of desks. There are three or four major underwriters of this that put it on their desk. They don't charge the higher fee; they give that benefit to their shareholder -- to their clients. It's becoming a much more legitimate market than it was 10 years ago, obviously.

Great. Thanks, David.

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