Gladstone Commercial Corp (GOOD) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gladstone Commercial Corporation first-quarter ended March 31, 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, David Gladstone. Please go ahead, sir.

All right. Thank you, Charlotte, for that nice introduction. And thank all of you for calling in this morning. We enjoy the time we have with you. And we love these phone calls and wish we had more time to do this. And 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 to stop in and say hello. You'll see a lot of great people here. I think there is almost 60 of us now, and we do have a couple of dogs that actually come in and will greet you as you come to the door.

I'd like to introduce now Michael LiCalsi. He's our Internal Counsel and our Secretary, who also serves as the President of our Administrator to present the statement regarding forward-looking statements. Michael, go ahead.

Good morning, everyone. This report may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the 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 plan, which we believe is reasonable.

There are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all those factors listed under the caption Risk Factors of our Company's 10-K and 10-Q filings that are filed with the Securities and Exchange Commission. Those 10-K and 10-Q's can be found on our website at www.gladstonecommercial.com and on the SEC's website as well. 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, except as required by law.

In our talk today, we plan to talk about funds from operations, or FFO. And since FFO is a non-GAAP accounting term, I need to define FFO as net income excluding the gains or losses from the sale of real estate and any impairment losses from property, plus depreciation and amortization of real estate assets. The National Association of REITs, or NAREIT, has endorsed FFO as one of the non-accounting standards that we can use in discussions of REITs. Please see our 10-Q filed yesterday with the SEC and our financial statements for a detailed description of FFO.

Our shareholders meeting will be on May 1 at the Hilton McLean, and we invite you all to attend the meeting. We ask you to please vote your shares so that we can ensure a quorum at the meeting. To stay up-to-date on the latest news involving Gladstone Commercial and our other publicly traded funds, please follow us on twitter, user name Gladstonecomps; and on Facebook, keyword "The Gladstone Companies." You can also go to our general website to see more information by Gladstone Commercial and all of our funds at www.Gladstone.com.

And now we will begin the presentation today by hearing from our President, Bob Cutlip.

Thank you, Michael. Good morning, everyone. During the first quarter, we acquired two properties and some debt that covered (technical difficulty) options, extended our line of credit for a year, and amended certain terms under the line to reduce our costs; received an unsolicited offer to sell one of our properties at a nice profit; issued additional common equity through our ATM program; and recorded in impairment loss on one of our properties. We had a good quarter, as we continued to increase our asset base by acquiring new properties. This was our 10th consecutive quarter of closing new acquisitions.

Market conditions permitting, consistency in closing acquisitions quarter-after-quarter really is a key team objective. While the new acquisitions we closed were tempered by the impairment loss we recorded during the quarter, we are still happy with our overall results and have a strong pipeline of acquisitions that are in the second quarter. We impaired our 360,000 square feet two-story Roseville office facility partially occupied by Unisys, because we changed our estimated hold period during the quarter. The impairment charge of $14 million is disclosed in our 10-Q, which we filed yesterday.

As you are aware, we have been trying to release the property for over a year, after our tenant Unisys downsized to about one-third of the building in January of 2013. Our leasing team, led by our Managing Director for the Midwest region, and our leasing agent, CBRE, have engaged 23 prospects over the past 15 months, including numerous proposals, but to no avail. We continue to try to release the space and we currently have submitted an unsolicited proposal for a 40,000 square foot user and are awaiting their response.

The characteristics of the building present a challenge because of several reasons. First, 180,000 square foot floor plates on each of two floors; whereas typically, the floor plate sizes for a multistory office building will range anywhere from 20,000 to maybe 45,000 square feet, even for large floor plate users. In addition, the property is located in an industrial park surrounded by large distribution facilities.

It has low ceiling height, and it has limited glass on the exterior, and therefore creates difficulties for light to get to the inside of the building. However, even regardless of these conditions, we continue to aggressively market the property, and our team is working diligently to release the space. The list of properties in our acquisition pipeline remains robust, and we were able to close on one acquisition subsequent to the end of the quarter, and we hope to announce even more acquisitions in the near future.

Now for some details. During the quarter ended March 31, we acquired two additional properties. The properties totaled 42,000 square feet and are daycare facilities located in Allen and Colleyville, Texas, known as the suburbs of Dallas. The properties are occupied by Creme de la Creme, which is a nationally recognized daycare and education provider that operates 24 locations in eight states.

The purchase price for these properties was $10 million, which equates to an average cap rate of 10.3% over the life of the lease. We funded this acquisition with cash on-hand and the assumption of $6.3 million of mortgage debt on these properties. Creme has 12 years remaining on the leases and has several renewal options.

After the end of the quarter, we acquired another property. This property is a 62,000 square foot office building located in Rancho Cordova, California. The purchase price was $8.2 million, with an average cap rate of 8.5% over the life of the lease. We funded this acquisition with cash on-hand and an issuance of $4.9 million of new mortgage debt. Varco is the tenant in this property and has leased the property for 10 years. Varco is a global technology firm that designs, develops and manufactures visualization solutions, including video protectors, LED displays, digital lighting, and lighting controls.

We also received an unsolicited offer during the quarter from a third-party to acquire our 530,000 square foot industrial building in Sterling Heights, Michigan. The tenant in this property had a right of first refusal in any sales scenario. The tenant, in fact, has exercised this right and we anticipate the sale closing during the second quarter. This is a great way for us to dispose of a non-core asset at a realized gain, and redeploy the proceeds into real estate transactions that are really more in line with our current strategy.

Shifting to our overall portfolio, as of today, all but three of our buildings continue to be fully occupied, and all of the occupied buildings tenants continue to pay as agreed. Two of these properties are 100% vacant and the third is the partially vacant property we recorded an impairment loss on, as I mentioned earlier. The leases on these two vacant buildings comprise less than 1% of our total square footage as of March 31.

One of the vacant properties is located in Richmond, Virginia, and we have two active prospects for this property, each requiring the entire building. We've seen an increase recently in activity at this property as a result of the completed retail development. That retail development has stimulated demand for both office and retail space. The other vacant property is located in a Houston, Texas submarket and is a 12,000 square foot medical facility in close proximity to a hospital.

We have two prospects at this building as well, one for the entire facility and one for 50% of the building. Our building located in Roseville, Minnesota remains partially vacant. And although we recorded an impairment loss, and we have begun negotiations with the lender, we continue to aggressively pursue new tenants for this building. To this end, we have three prospects for this property ranging from 30,000 square feet to 80,000 square feet. One of the prospects is an educational user and two are state agencies.

Turning to our tenants, we continue to improve the value of our existing portfolio of properties by reviewing and renegotiating existing leases and performing improvements at our properties. We continue to work diligently on the remainder of our leases that come due in 2014 and 2015. And to this end, we've renewed five of the six leases that were originally set to expire in 2014. The remaining 2014 lease expires in December, and this building is located in an industrial submarket of Chicago.

The existing tenant in this property has already vacated. They really needed to double in size. We could not accommodate them. However, they have prepaid their rent through the end of the term in December of 2014. We're actively marketing this property at this time and have two prospects, one of which we are in final negotiations for about 40% of the space. In 2015, we have 11 leases expiring, and we are already in negotiations with seven of these tenants at this time. Locating new tenants and signing leases with existing tenants for these buildings usually requires some capital outlays for tenant improvements and for leasing commissions.

Switching to mortgages, debt financing is available from multiple sources. We have seen interest rates decline somewhat over the past several months, although there has been considerable volatility. While fluctuating, the yields on US Treasury securities have declined, with the Federal Reserve's guidance that the tapering of its programs of quantitative easing will be more gradual than anticipated.

Also, as more lenders have really reentered the market, interest rate spreads have tightened. Consequently, interest rates remain historically low, and we continue to actively try to match-fund our acquisitions with cost-effective mortgages. Depending upon several factors, including the tenant credit rating, the location of the building, the terms of the lease, the leverage and the term of the loan, we are seeing fixed interest rates in the marketplace today ranging from the mid-4% to low-5% levels. To this end, we assumed $6.3 million of mortgage debt in the first quarter, which was collateralized by our two new properties at an interest rate of about 5.6%.

While the interest rate is a bit higher than market on this mortgage, the return on this deal was also a good bit higher than average. So it makes sense for us to execute the transaction. This loan matures in two years, and we will look to refinance at that time at even better rates. For the property acquired subsequent to the end of the quarter, we closed at $4.9 million mortgage. The terms included a 30-year amortization schedule, 10-year term, and a 4.9% interest rate -- excellent mortgage terms for our first California property.

In summary, at quarter-end, all of our existing tenants are paying as agreed and our portfolio was 96.8% leased. We acquired two properties during the quarter and an additional property last week. We have consistently increased our acquisition volume over the past three years, and we currently have approximately $60 million of potential acquisitions in due diligence -- two office properties and two industrial properties.

All of these properties may not close, but this reflects our continued efforts to increase the number of properties we are investigating. Our current list of possible acquisitions also includes six properties totaling $68 million that are in the letter of intent stage, and $195 million under initial review.

As you may recall, our objective is to have at least $250 million to $300 million in what we call our pipeline of possible acquisitions, with properties in each phase ranging from our initial review through letter of intent stage, due diligence phase and, of course, closing. At this point, we are exceeding that target and our team is extremely active. We hope to close on additional properties in the upcoming months. Please stay tuned.

Now, let's turn to our Chief Financial Officer and Treasurer, Danielle Jones, for a report on the financial results. Danielle?

Thanks, Bob. Good morning, everybody. We continued our goal of consistently growing our asset and equity base in the first quarter. While our total assets actually decreased during the quarter because of the impairment loss we recognized, this was offset by the acquisitions of two new properties. With the subsequent acquisition of properties in our substantial pipeline, we expect our total assets to increase significantly during the second quarter. The amounts outstanding under long-term mortgages and our line of credit increased slightly to about $450 million as a result of the funding of our new acquisitions.

Reviewing our upcoming long-term debt maturities, we have mortgage debt in the aggregate principal amount of $22.8 million payable during the remainder of 2014, and $42.6 million payable during 2015. 2014 and 2015 principal amounts payable includes balloon principle payments due in June of 2014 and three mortgages that mature in the second half of 2015. We are currently in discussions with a lender on the mortgage for our Roseville, Minnesota property that matures in June of 2014 to determine the best course of action for this property. This is the first time we've recognized an impairment loss on one of our properties since inception.

The operating expenses, loss revenue, and debt service on this property exceeded the rent received by close to $2.4 million during 2013. And the property characteristics present significant challenges, even with aggressive leasing efforts. Our objective is to reach a solution that is in the best interest of our shareholders.

As for the mortgages that mature during 2015, we do anticipate being able to refinance these mortgages as new mortgage debt. We do not intend to increase the leverage on any of these refinancings in order to continue our strategy of reducing our overall leverage. We intend to pay the additional debt amortization payments from operating cash flow and borrowings under our line.

The interest rate on the debt we assumed during the first quarter was 5.6%, which was higher than current market rates, but we paid a premium on the debt because we were able to achieve higher than average returns on this deal. The weighted average interest rate in all of our existing mortgages remained flat from 2014 at 5.4%. We also are continuing our strategy of lowering our overall leverage by reducing our weighted average loan to value on newly issued or assumed debt, and also issuing additional common equity.

We issued about 420,000 shares of common stock under our ATM program this quarter at an average price of $17.48 per share, and net proceeds after deducting operating expenses were about $7.2 million. We've used these additional funds to fund our recent acquisitions. The ATM continues to be a great way for us to raise additional equity in a cost-effective manner.

Turning to our line of credit, we amended the line during the quarter and extended the maturity date by one year, and also amended certain terms under the line. We were able to reduce the pricing by 25 basis points at each pricing level. The changes to line provided immediate increased availability under the line of about $1.3 million. This amendment positions us well for growth over the next few years by both increasing our availability and reducing our borrowing costs.

We currently have $21.2 million outstanding under the line at a weighted average interest rate of approximately 3.2%. We continue to only use our line of credit to make acquisitions that we believe can be financed with longer-term mortgage debt or that we believe are good additions to our unsecured property pool required under our line.

As you may recall, our customary business model calls for us initially to borrow from the lines to buy properties. We then obtain longer-term fixed-rate mortgages as soon as we can. By doing this, we are able to secure the difference or spread between the rent coming in and the mortgage payments going out, thus locking in the profit for 5 to 10 years or, in some cases, longer. From a liquidity perspective, the proceeds from the mortgages then pay down our line of credit, thus making the line available for the purchase of the next property.

With the current aggressive credit and equity markets, our business model adjusted so that we are matching as closely as possible long-term leases with longer-term mortgages. If we do not believe we will be able to source attractive debt on new acquisitions, then we will only buy properties that already have long-term mortgages on them or are well-suited to be funded on our lines.

Currently, we have enough availability to fund our current operations deals in our pipeline of possible acquisitions, and any known upcoming improvements at certain of our properties. Our debt to equity ratio at the end of the quarter, excluding our term preferred stock and the impairment loss during the quarter, was approximately 2.4 to 1. We are heavily focused on decreasing our debt to equity ratio over the next couple of years, as we continue to issue more common stock to both overnight offerings under our ATM program, and reducing our loan-to-value on new and refinanced mortgages.

As of today, our available liquidity is approximately $26.5 million comprised of $4.7 million in cash and available borrowing capacity of $21.8 million under our lines. The borrowing capacity under our line is limited to a percentage of the asset value of our unencumbered properties plus both the amount outstanding under the line and our outstanding letters of credit. In addition, we have the ability to raise additional preferred or common equity through the sale of securities that are registered under our self-registration statement in one or more future public offerings.

And now I will discuss the operating results for the quarter. Please note that per-share numbers referenced are fully diluted weighted average common shares. FFO available to common stockholders for the quarter was approximately $6 million or $0.38 per share, which was about a 6.6% increase when compared to the fourth quarter. FFO per share increased because of the additional revenue we achieved from new acquisitions made over the last two quarters. This was partially offset by vacancies in our portfolio, coupled with the additional shares issued during the quarter.

Our rental income increased primarily from holding the properties acquired during the fourth quarter for the entire period, as the properties acquired during the first quarter were only held for a short period. This was offset by an increase in our administrative fees, due to a larger percent of the fee being allocated to our fund because we have higher total assets in comparison to the funds managed by our administrator.

This is also coupled with the loss of new and additional property operating expenses from our vacancies of close to $800,000. We also managed higher G&A expenses from the timing of fees related to our proxy and Annual Report. We anticipate these expenses to decrease in future quarters, which will help our bottom-line. We manage this increase in expense while still maintaining our dividend during the quarter.

We were not able to pay out a large portion of our incentive fee this quarter because of the dilution from equity issued during the quarter, and increase in our property operating expenses from our vacant portfolio. We expect that over the next few quarters, as we invest the equity cash from the stock offering, and our operating expenses decrease, that we will start to grow our FFO again. We believe with our repositioning and growth activities that 2014 will be a great year, as we continue to increase our asset base and work diligently to re-lease our vacant buildings, manage our property operating expenses, and make selective property dispositions.

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

All right. Thank you very much. Danielle. And that was a good report, and a good report from Bob Cutlip and Michael LiCalsi, too.

I encourage all of you -- all of the listeners, and those out there who might listen to this a little later, to read the press release and the Quarterly Report that was filed yesterday with the SEC. And this is the 10-Q that comes out every quarter. There's just an awful lot of good material in those documents, and they spend a lot of time putting it together. And I think it would be good for you if you have a chance to read through that and digest a lot of that material. You can also find all of this on our website at www.gladstonecommercial.com and also on the SEC website.

I think the main news reported this quarter is that we were able to acquire two additional properties and assume long-term financing on those properties. This makes it worthwhile. As you probably know, we already have a couple of those in the portfolio. And we extended our line of credit and reduced the overall pricing under the line. And we also raised some additional common equity to fund these new deals.

We did have to record our first loss, the impairment loss. And since that helps the incentive of our Company by getting rid of that, it's going to be better in the future. We'll have a further resolution of this property during the next quarter, but I think you're going to see the impact is positive to the Company getting rid of that one property that we've had so much problems with over the last year.

So, while we did have a loss, we also continued to add quality real estate to the portfolio. We have shored up a lot of the existing investments, and we've grown the asset base yet again this quarter. So we continue to grow; our market capitalization should increase. We hope to see higher trading volumes in our stock now that we've had additional issues of our stock, and hope to see a corresponding uptick in the price.

We continue to have a nice list of potential quality properties that we are interested in acquiring. I think Bob and his team have been really good at getting out and finding those. And because of this list of properties, we hope to be able to grow the asset portfolio even more during the rest of 2014. And with the increase in the portfolio of properties comes greater diversification, and that means better earnings, usually.

We are focused our efforts on finding good properties and long-term financing that matches those long-terms, and being able to lock in that long-term. That's what carried us through the last recession, is locking in those long-term financings along with the long-term leases. Now we are much more optimistic now that things are going to be positive for us during the next year simply because the economy looks a little bit better.

Much of the industrial base that rents industrial and commercial properties, like all of our properties, remains steady. And most of them are paying their rents, so we've had good response there. There's still some businesses that are having problems, and the economy is still not in good shape. However, we expect good growth during 2014 for this Real Estate Investment Trust.

And while I'm optimistic that our Company will be fine in the future, we are obviously going to continue to be very cautious in our acquisitions as we've done in past years. You know, we made it through that last recession without cutting the dividend or having a lot of problems from our tenants. And if another recession is lurking on the horizon, I think our portfolio will continue to stand up. And hopefully, we'll continue to pay our dividend. Don't see anything on the horizon to stop that.

We were successful in raising common equity this quarter under our ATM program. I wish that program could be bigger. It keeps us from having to have overnight offerings. And we put this new equity that we've got from the ATM to work quickly, and that helps us with our recent acquisitions. We'll still use the ATM program as we can during the 2014, and continue to fund our new investments.

During April 2014, the Board voted to maintain the monthly distribution of $0.125 per common share for April, May and June, or the annual run rate now is $1.50 per share per year. This is very attractive rate. It's on a well-managed REIT like ours. We now paid 117 consecutive common stock cash dividends since the inception of the Company. And we went through that horrible recession without cutting any of those dividends.

Because the real estate can be depreciated, we are able to shelter the income from taxes. This distribution in 2013 was 82% of return of capital. And that's really tax-free to individual shareholders. This is a very tax-friendly stock and, in my opinion, is a good one for personal accounts that are seeking income. This return of capital is due to the depreciation of the real estate assets and other items, and causes earnings to remain very low after depreciation. But that's why we are able to talk about FFO, because that's adding back the depreciation so you can see the real cash flow.

Depreciation of a building, as I say every time, is a bit of a fiction, since, at the end of the depreciated period, the building is still standing, even though you've assumed, for tax purposes, that it's all gone. So, if you own the stock in a non-retirement account as opposed to having it in an IRA or retirement plan, then you don't pay any taxes on that part that is sheltered by the depreciation, as it's considered a return of capital when we send you the cash. However, the return of capital does reduce your cost basis in the stock, which may result in a larger capital gain when the time comes to sell the stock. Hopefully, you never sell the stock, but that's something that happens from time to time.

With the stock price now at $17.65, the distribution yield on the stock is about 8.5%. This is very high. Many REITs are trading at much lower yields. I get a service every week actually, it comes on the Internet. And the REIT universe now is trading at 4.3% yield. Goodness, if we were trading at that price, we would be over $34 a share. And just to make a more comparable analysis, the triple net REITs, like the ones that we have, all of our situations are triple net. This -- those REITs are trading at 6.2%. And if we were at 6.2%, we'd be at $24 a share. I think there's a lot of room out there for expansion or reduction, as you might say, of the yield, as we go from 8.5%. If we come down to 6.2%, that will be a big jump in the price of the stock.

The Board will vote again in mid-July during our regular scheduled quarterly Board meeting on the declaration of the monthly distributions for July, August, and September. Please note that our July Board meeting is a little bit later than normal; nothing alarming there. We're just giving a little more time to prepare all the stuff for the Board meeting.

Now I'm going to stop. And if the operator will come back on, we'll have some questions from those of you on the line.

(Operator Instructions). John Roberts, Hilliard Lyons.

First, hey, Bob, on the acquisition pipeline, you said -- and I'm sorry, you said this already but I was writing quick and missed it -- $195 million under review.

Correct.

$68 million under letters of intent.

Correct.

And what was the other?

$60 million in due diligence.

$60 million in due diligence. Okay. And David, can you discuss a little bit more the property -- not the one that you just wrote down, but there's another one with the potential for a write-down that you discussed in the 10-Q?

Bob, you want to answer that? You know more about it than I do.

Yes. This is a 150,000 square foot industrial facility in South Hadley, Massachusetts. And the tenant has renewed it twice for one year after their original lease term was up. And so we will be, once again -- in fact, next week, we'll be meeting with them to talk about a renewal again. It's -- the property is located really in a predominantly residential area. There is senior housing there and some multifamily, but it works very well for the tenant year-in and year-out for their overflow requirements. So we'll see how it goes.

Okay. And (multiple speakers) --

It's a small -- you know, as you might imagine, it's an industrial building, so the rents are very low on this property anyhow.

Okay. Great. David, can we anticipate what about $1 million reduction in NOI from the property that you wrote down at this point?

You mean, the write-down itself? Danielle?

No, no, no. The amount of reduction in NOI that you're reflecting in the write-down.

It shouldn't impact NOI, John. The impairment loss -- you just write down the value of the gross real estate through an impairment charge, which actually doesn't impact your FFO. But it's not going to impact our NOI right now.

Right, but I mean, it's reflecting a potential reduction or an assumed reduction in the income on that property, I would assume?

Well, right now, our operating expenses are in excess of the income on that property, so I don't think it would actually reduce our NOI.

John, the way I look at it, it's really beneficial to get rid of it, because the expenses that we are carrying it at -- meaning we are paying it -- will actually go away. And so we are actually expecting an uptick as opposed to a down-tick.

Okay, great. And I guess we can pretty much anticipate that what you'll get for that property will -- it's been reflected in the write-down?

Yes. I don't think it's -- probably it may not even be worth the first mortgage. I'm not sure that we are going to get anything out of it. But my guess is that this quarter that we are in, we'll end up either giving it back or doing some kind of deed in lieu or something in order just to get rid of it. It's been a huge drain in terms of expenses.

But more than that, we've had a lot of people working it, and now they can turn their attention to putting new deals on the books. I hate to lose anything, but we are losing the equity that we have invested in that. And unfortunately, it's gone.

All right, great. Thanks, David.

Okay, next question.

Daniel Donlan, Ladenburg Thalmann.

This is actually [John Misoka] on for Daniel. Could you give a little more color maybe on the CapEx spend in terms of TI's and capital improvements you guys think you're going to have in the next two years? Is that going to be more weighted toward 2014 or --?

I don't know if we projected those out. Bob or Danielle, have you projected out at least this year's CapEx and fees and expenses, perhaps, for the -- I don't know that we have 2015. But Bob, you're probably on top of that.

Yes. We, right now, through the end of 2014, are now expecting approximately, from TI and a CapEx standpoint, on the TI side, about $2.9 million and about $1.4 million of commissions. That's through the end of 2014. And the CapEx is probably going to be somewhere under $1 million for all of our properties. So that's what it looks like for 2014.

Yes, we are anticipating more in 2015 as a result of the renewals. And it's hard for me to tell you exactly what they will be, since we are in negotiations with those tenants at this time. But I would say that we would probably be looking at a like amount or maybe a little bit more than that next year for the same, John.

Right. That makes sense. Thanks for the color. And then in terms of the 10.3 cap rate you guys got on the Texas assets, is that something you think you can see more of in the market? I mean, I know some of that was probably driven by the debt you put on that was already on those properties. But I mean, if you go from your unique assets, can you see those higher cap rates, do you think?

No. As we say each time, the number of deals that you have coming in and that you close is so lumpy that you run across good opportunities like that, and hopefully, run across those every quarter. But Bob, you are on the firing line with your team in terms of the number of deals out there that you're seeing. Maybe you can put a little more color on that for John.

You know, I think, John, if I had to compare this to the majority of the market, I would say that this was more unique than it is standard. You know, I think as everybody knows, even though interest rates have flattened a little bit, they are up significantly over 12, 15 months ago. And yet, because there's so much capital out there, cap rates have really not risen very much at all. In fact, I don't think they've really risen at all.

We are getting a little bit of a benefit in the secondary markets that we are looking at. And that's -- and I'm very encouraged about what the team has been able to do, and the size of our pipeline and the returns on that pipeline. But we have not seen, really, any really upward movement in cap rates. And just coming from another conference on triple net leases, no one really sees, in my opinion, rates rising in the near-term.

That makes sense. And then, lastly, just a quick accounting question, maybe for Danielle. The asset retirement obligations have traditionally been positive and it went negative. Is that just the end of the obligation or --?

No. It was actually an adjustment we had made from prior years for -- it was just a one-time adjustment (multiple speakers) that was negative this quarter.

(multiple speakers) Okay, just one time?

Yes. It's going to go back up to what the normal run rate was in each quarter for 2013.

All right, that makes sense. Thank you very much, everyone, and good day.

All right. Next question, please.

Jeff Rudner, UBS.

Good morning, David, and a very nice quarter. I have a couple of questions about a comment you made during your statements after the presentation, regarding the fact that, because of the active market offering on the one hand, you thought there might be more value in the stock. And you also thought, based on the yield, that the price of the stock might rise over a period of time. You had mentioned in previous quarters that you still plan on having the at-the-market offerings periodically. Is that still accurate?

Yes. The goal is that it's a very low-cost way of raising money. Unfortunately, you don't raise a lot of money. So, as a result, you end up making -- probably avoiding one overnight offering during the year using the ATM.

Okay. But on the other hand, if you're assuming that because of the fundamentals, the strong fundamentals of the Company, that the price of this stock might rise out of this mid-$17 price area, my experience in the past -- and I think what investors and potential investors might be concerned of going forward -- as the stock started to poke up above the $20 level, as it has in the past, that we might have an at-the-market offering coming. So, any time the stock got significantly higher from the current price, as long as we have the potential of the at-the-market offerings out there, people might become concerned about buying the stock much above $19, $20 area. Is that something that you consider a concern also?

Well, we always consider a concern for anything that knocks the price down. So, these at-the-market offerings usually -- and I speak from many of our companies have used it -- usually don't damage the stock because they are not putting that many shares in. There's a huge limit placed on whichever brokerage house we're using to do the at-the-market.

So, there's no way of knowing empirically what's happening. You're really just thinking about it how it will work each time and hoping that you're not damaging the stock price. So our goal always is not to damage the stock price. It didn't help us in the long run. And so, as a result, we are all pushing that the ATM program works correctly.

We've seen a lot of larger companies use the ATM program very successfully. I think it's a little more difficult for us at this size in order to get a good ATM program going. But if it will help us grow the Company, then I'm all in favor of it.

Okay. Thanks very much.

Next question, please.

(Operator Instructions). And I'm not showing any further questions at this time.

All right. Well, it sounds like we are at the end of this program. And we thank everybody for calling in, and we'll talk to you again next quarter. That's the end of the program.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.