Gladstone Commercial Corp (GOOD) 2014 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Gladstone Commercial Corporation's Fourth Quarter and Year Ended December 31, 2014 Earnings Call and webcast. 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 turn the conference over to David Gladstone. Please begin.

All right. Thank you, [Latoya]. That was a nice introduction and thanks all of you for calling in. We always enjoy this time we have on the phone and wish there were more times to have these conversations ever in the Washington D.C. area combined visitors. We're located in a suburb called McLean, Virginia and you have an open invitation to stop by and see us if you're here. You will see a great team at work. There are about 60 members of the team now while they're no longer of small management Company, and now we have some people that bring their dogs to work, so you (inaudible).

Now, let's hear from Michael LiCalsi, he is our General Counsel and Secretary. He also serves as President of the Administrator. Michael?

Good morning, everyone. The report that you are about to hear may include 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 plans, which we believe to be reasonable.

There are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements including the factors listed under the caption Risk Factors of our Forms 10-K and 10-Q that we filed with the SEC and they can be found on our web site at gladstonecommercial.com and on the SEC's web site, www.sec.gov. 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, except as required by law.

In our report today, we also plan to talk about funds from operations or FFO. FFO was a non-GAAP accounting term defined 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. And the National Association of REITs or NAREIT has endorsed FFO as one of the non-accounting standards that we can use in discussion of REITs. Please see our Form 10-K filed yesterday with the SEC and our financial statements for a detailed description of FFO.

We also plan to discuss Core FFO today, which is generally FFO adjusted for property acquisition costs and gains on debt extinguishments. We believe this is a better indication of our operating results of our portfolio and allows comparability of period-over-period performance. And to stay up-to-date, you can sign up on our web site to get updates by e-mail on the latest news involving Gladstone Commercial and our other publicly traded funds. You can also follow us on Twitter, user name GladstoneComps; and on Facebook, keyword, The Gladstone Companies. You can go to our general website to see more information at www.gladstone.com.

The presentation today is an overview, and we ask you to read our press release issued yesterday and also review our Form 10-K for the year ended December 31, 2014. You can find both of those on our website, www.gladstonecommercial.com. And now we'll begin the presentation today, by hearing from our president, Bob Cutlip.

Thanks, Michael. Good morning, everyone. During the fourth quarter, we acquired three properties issuing new debt onto and funded the other property with equity, raised $28.7 million of common equity under the ATM program with Cantor Fitzgerald. We turned the Roseville Minnesota property via a deed-in-lieu transaction to our lender. This is one of our vacant properties in Richmond to a Xerox affiliate for a three year lease, completed the expansion of one of our properties and extended the lease with the existing tenants through 23 core, extended two leases that were set to expire in 2015, and executed a lease with a tenant occupy a third of our industrial property in Bolingbrook, Illinois.

Subsequent to the end of the quarter, we also extended two of our leases that were set to expire in 2015, and one lease that was set to expire in 2016. So as you can see from the statistics, our acquisitions, capital and asset management teams all contributed to our fourth quarter success. We had a very active quarter to close that 2014, as we continue to increase our asset base by acquiring new properties. During 2014, we invested nearly $145 million at a weighted average cap rate of 9.0%.

That performance included 10 acquisitions with each of our regions, contributing accretive transactions and expansion at one of our property, resulting in a lease extension and a straight loan for a build-to-suit with a 15-year lease attached. These transactions include investments in the strong markets of Phoenix, Denver, Dallas, Indianapolis, Sacramento and Columbus Ohio. So as indicated, each of our regions were contributing throughout the year.

This was our 13th consecutive quarter closing new acquisitions. We're extremely pleased with our activity and consistency over the last several months and we continue to have a strong pipeline of acquisitions and really expect to close more transactions prior to the end of the first quarter.

Now, for some details on our activities. During the quarter ended December 31, we acquired three additional properties. The first property is a 189,000 square foot industrial building located in Denver, Colorado. Purchase price $10 million with an average cap rate of 8.6% over the life of the 10-year lease. We funded this acquisition with cash on hand. The tenant in this property is Premium Pet Health, a wholly owned subsidiary of Smithfield Foods.

The second acquisition was for two industrial buildings totaling 535,000 square feet located in the Detroit, Michigan submarket. The purchase price was $30.8 million with an average cap rate of 8.2%. The properties are fully leased through August 2023, to a $1 billion plus manufacturing Company. That's a wholly owned subsidiary of Johnson Controls. We funded this acquisition with cash on hand and the issuance of $18.5 million of mortgage debt.

Shifting to our overall portfolio. As of today, all but two of our buildings continue to be fully occupied and all of the occupied buildings tenants continued to pay as agreed. We have one fully vacant property located in Houston, Texas submarket and this is a 12,000 square foot medical office facility in close proximity to a hospital campus. We have two active prospects at this building and both prospects are for the entire building. One user wishes to acquire the property and the other wishes to lease the property. So we'll see how this unfolds over the next few months.

Our other partially vacant property is located in Bolingbrook, Illinois, which is a southwest suburb of Chicago. The tenant in this property moved out in December and we've executed a lease with a new tenant for 38% of the building, which began in December. We have an active prospect for the balance of the building at this time as well. The deed in lieu transaction on our building located in Roseville, Minnesota was completed in the fourth quarter. This is the first property we have ever returned to a lender. But on a positive note, this decision is going to favorably impact FFO on a going forward basis and therefore we really believe it's going to benefit our shareholders.

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 2015, and have begun discussions with tenants having lease expirations in 2016. We originally had 12 leases expiring in 2015. At this time, we've successfully extended the leases for seven of these tenants. We're in negotiation with an additional tenant to extend their lease and we're negotiating to sell one of the properties to a sub-tenant.

We've been notified; however, that three of the tenants will leave at the end of their lease terms, and we're currently aggressively pursuing new tenants for these properties and have leasing teams in place. The three leases where we know the tenants are going to be vacating really comprised less than 3% of our projected 2015 rental income and half of this income does not expire until the end of December, 2015. So the impact is much less. While we originally had 12 leases rolling in 2015, the next few years are much brighter from a lease expiration standpoint, we only have four leases expiring in 2016, four in 2017, and one in 2018.

The expiring rents for these years represent less than 2% of our annualized rents for each respected year. So after this year, our lease rollovers slowed down quite a bit and our existing portfolio and what I would call our same-store rents are going to have stable and growing rental income. As you all know locating new tenants and signing leases with existing tenants for the buildings does require some capital outlays for tenant improvements and leasing commissions.

So in summary, at year end, all of our existing tenants are paying as agreed and our portfolio was over 99% leased. We acquired three properties during the quarter, funded a mortgage loan and continued to have a very active pipeline. Our asset management team was also very busy renewing tenants and leasing our properties. We have consistently increased our acquisition volume over the past three years, and we currently have three properties totaling $50.5 million in the due diligence stage of our acquisition process.

Our current list of possible acquisitions also includes two properties totaling $37 million that are in a letter of intent stage and we have $244 million of acquisition prospects under initial review. As you may recall, at our side, our objective is to have at least $250 million to $300 million in our pipeline of possible acquisitions with properties in each phase including initial review, letters of intent, due diligence, and of course closing activities. Our team continues to exceed this objective and has prospects at each phase of the acquisition process today, which we hope and will lead to continuing and consistent closing in the months ahead.

Now I'd like to turn to our Chief Financial Officer, Daniel Jones for report on the financial results.

Good morning. We continued our goal of consistently growing our asset and equity base in 2014. Our total assets increased to $788 million this year, which was the 40% increase in total assets last year. We also focused on decreasing our leverage and issuing new equity under our ATM program with Cantor Fitzgerald to help achieve this goal. We expect to continue this growth throughout 2015. Then also, outstanding under long-term mortgages in our line of credit was $503 million at the end of the year and is representative of funding both of our new acquisitions in the fourth quarter.

In addition today, we've raised $45 million in common equity and our ATM program with Cantor, which began in September of 2014. And we use these funds to acquire properties and to reduce the outstanding balance under our line of credit. Reviewing our upcoming long-term debt maturities, we have mortgage debt and the aggregate principal amount of $42.4 million payable during the remainder of this year and $99 million payable during 2016. The 2015 principal amount payable include $34.6 million of balloon principal payments due on three mortgages that mature in the second half of this year and we do anticipate being able to refinance these mortgages with a combination of new mortgage debt and equity.

We've already begun discussions with lenders on these upcoming maturities and we expect to refinance during this summer. The 2016 principal amounts payable include $92 million of balloon principal payments to nine mortgages that mature throughout the year and we also anticipate being able to refinance these mortgages with the combination of new mortgage debt and equity. We have also begun discussions with lenders on the debt that matures during the first quarter of 2016. We intend to decrease the leverage on these refinancings in order to continue our strategy in reducing our overall leverage.

We do intend to pay the additional debt amortization payments from operating cash flow and borrowings on our line of credit. Debt financing does continue to be available from multiple sources. At the end of 2014, interest rates were approximately 80 basis points lower than they were at the beginning of the year. They have moved up slightly since the beginning of the year over the past month, but they're still significantly lower than they were at the beginning of 2014. Upward pressure on interest rates associated with the ending of the Federal Reserve quantitative easing program has been offset by the Federal Reserve guidance that will continue to work to keep interest rates low; weakness in the European and Chinese economies and international tensions.

Lenders are competing with one another to meet their production goals, which is resulting in tightening interest rate spreads and more flexible terms. Interest rates continue to remain historically low, and we are actively trying to match our acquisitions with cost effective mortgages. Depending on several factors including the tenant credit rating, property type and location, terms of the lease, leverage, and the term of the loan, we are generally seeing fixed interest rates ranging anywhere from 4% to about 4.6%.

To this end, we did issue new debt during the fourth quarter of $18.5 million on one of our new acquisition at an interest rate of 4%. The low end of the range in the deals the cap rate of 8.2%, so it's very accretive for our shareholders. As I mentioned, we are continuing our strategy of lowering our overall leverage by reducing our weighted average loan-to-value and newly issued or assumed debt and are also issuing additional common equity. We have raised over $45 million in net proceeds under the ATM program over the past several months and issued over $2.6 million of new shares of common stock. We've also decreased blend value of new debt from 68% in 2012 to 60% in 2014.

Turning to our line of credit, we currently have $24.3 million outstanding underlying at a weighted average interest rate of 3%. 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 acquired under our new line of credit. We continue to finance the majority of our properties as long term fixed rate mortgages allowing us to secure the spread between the rent coming in and the mortgage payments going out, which allowed us to locking the profit for the length of release.

Currently, we have enough availability to fund our current operations, deals in our pipeline and any known upcoming improvements at our properties. As of today, our available liquidity is approximately $32 million comprised of $4 million in cash and an available borrowing capacity of $28 million under our line of credit. In addition, we have the ability to raise equity through the sale of securities that are registered under our shelf registration statement and now we'll discuss the operating results. In our press release filed yesterday, we reported a Core FFO number. We believe Core FFO, which is just for our property acquisition expenses and gains on debt extinguishment allows our investors to better compare period over period results as a property acquisition expenses can be very lumpy quarter-over-quarter.

All per share numbers I referenced are fully diluted weighted average common shares. Core FFO available of common stockholders for the quarter was approximately $7.7 million or $0.39 per share, which is about an 8% increase when compared to the third quarter and was approximately $27.5 million or $1.55 per share for the year. Quarterly core FFO per share increased because of the additional revenue we achieved from new acquisitions made during the quarter, coupled with lower property operating expenses at certain of our vacant properties and a lower net peak management fee.

We received a credit to our base management fee during the quarter from a fee paid by one of our tenants to our advisor. This was partially offset by an increase in G&A expenses related to the adjustment of our deferred rent balance for one of our tenants where the lease was recently modified and an increase in the cost of the additional shares issued during the quarter. We do not earn incentive pay this quarter because of the recognition of a loss from the turn of the Roseville Minnesota property to a lender and deed in lieu transaction.

While 2015 brings with the challenges as we welcome both lease renewals and debt maturities, we believe we have the right team and plan in place to reposition and continue our growth activities. We are confident that 2015 will be successful as we to continue to increase our asset and equity base and decrease our leverage. We are focused on managing our property operating expenses.

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

All right. That is a good report Danielle and a good one from Bob Cutlip and also from Michael LiCalsi. We encourage all our listeners to read the press release and the annual reports filed yesterday with the SEC, it's called Form 10-K. And there are a lot of good material on those documents and you can find them on our website www.gladstonecommercial.com and it's also on the SEC website.

The main news again purchase to properties for about $41 million in place, mortgages on those properties of $18.5 million, extended to leases that were originally scheduled to expire in 2015. We'd finally lease that 42,000 square feet building down in Richmond seem like it took forever, but got that one in with a good tenant and we're now 99 -- at December 31 we're 99% occupied over the entire portfolio that may go down if we don't find some tenants for the two or three that we have leaving our buildings this year.

And then we raised closed to $30 million in common equity under the ATM program, which has been working for us very well. We have continued to add quality real estate to our portfolio, show enough existing investments and grew the asset base. We continue to grow all of our market capitalization increase and we hope to see higher trading volumes in our stock, corresponding uptick in the stock price, because distribution rate is very high for real-estate investment trust.

As many of you know, this Company didn't turn it monthly cash distributions during the recession, that was quite a success story, what some of the good Companies cut their distributions, just want to do this one more time. As an example, this Company first X dividend in 2008 was $1.36 per share, the distributions now $0.60, so it's 56% decrease.

Blank realty dividend in 2008 was $1.17 per share, distributions now $0.68 per share, so still down by 42%. And blank property trust distribution in 2008 was $1.25, distributions now $0.20 per share and 84% decrease. And first real estate distribution was in 2008, $2.88, now $0.41 a share and 86% decrease. Corporate property was another one that we looked that distributions in 2008 at $1.43, distributions now at $1.10. So, not too much of a decrease 23%, they may be back up soon. Of course, our Company had a distribution rate in 2008 of a $1.50, and we're still at a $1.50, so, that tells you something about our strategy, which is to have a very strong asset base.

Now these REIT's that I mentioned having the distributions from hitting their low point, but none have returned to their original level, and some of that none of the analysts have gone out and picked up some of these that are comparable to us and put that story in their write ups. I know all of you want us to increase the distributions, and I do too, I'm like a shareholder, but please give us some credit for being very steady cash payers, and taking care of our shareholders, and track record is, I'm not cutting the distribution should stack up extremely well against the others that have cut theirs and then build back to prior levels during the last six years.

It is what we're doing today. We need to increase the common market capitalization in order to increase the volume to give investors who want to buy a lot of stock at one time. So, the big buyers always want to know that if they buy a number of shares outstanding, if they say buy $20 million worth of stock that there will be liquidity when they want to sell.

We're still not big enough for those shareholders and we don't have enough shares outstanding to give them that confidence.

However, as we consistently build the assets and the equity base almost doubling in size in the past two years. With this growth, we'll see larger buyers come into the stock and that should increase the price and lower our cost of capital, so that new investments will be much more accretive to our dividend payout. We have the program twice, we're executing it and I think by the end of this year we will be in great shape.

Continue to have a promising list of potential quality properties the team is really continue to do that very well and because of this list of properties, we hope we will be able to grow the asset base and the portfolio more due in 2015 with the increase in the portfolio properties comes greater diversifications for all shareholders and we believe that we will also strengthen and hence solidify earnings. We're focusing our efforts to find good properties in long-term financing to match the long-term leases that we like and being able to lock in long-term financing will be good for the future.

We are much more optimistic that things are going to be positive for this year 2015, so have a good outlook there. Much of the industrial base that rents, industrial, and commercial properties like the ones that we own remained steady, most of them are paying their rents. So, we see a good strength out there in the marketplace now. There's still some businesses like always that are having problems in the economy and it's still not grow shape. However, we expect good growth in 2015, for this REIT.

I'm optimistic that the Company will fund that you find in the future; Bob Cutlip, his team and I will continue to be cautious in acquisitions as we've done in past years. We've made it through the last recession without cutting the dividend and having a lot of problems that have come up (technical difficulty) we all know that will be another one someday, if there is a recession (inaudible) on the horizon, I think this portfolio will continue to stand the test against anything that they can throw at us.

And if the Fed decided to raise interest rates well, we're ready for them. Most of our properties are financed with long-term fixed-rate mortgage debt. So there should be a lot of impact to our properties into our cash flow. We were successful and implementing a new ATM program to raise a small amount of common stock, not dilute our shareholders too much and that makes it possible for us to put that new equity to work quickly rather than raising a huge amount of equity on time and then having a longer time to get it to work.

In January 2015, the Board voted to maintain the monthly distribution of $0.125 per common share in January, February, and March with annual run rate of a $50 per year. This is a very attractive rate on this well managed fleet. We know paid 125 consecutive common stock cash distribution since the inception and we went through a recent recession without having any problems in doing that. I just think that's wonderful, because the real estate can be depreciated. We are able to shelter the income of the Company in addition, because the loss recognized in 2014 related to the property will return in deed in lieu transaction, the common distribution in all of 2014 was 100% return of capital.

We don't expect that to be the case again in 2015. We think it overturned and expense somewhere around 80%. This is a very tax-friendly stock. In my opinion, it's the best one for your personal account and that you're receiving cash and not having to pay tax on it on the current basis. This return of capital is due to the depreciation of real estate assets and some other items and causes earnings to remain low after depreciation and that's why we talk about FFO, because that's adding back the real estate depreciation. As we all know depreciation of a building is a bit of a fiction anyway, because after the depreciation period the building still standing even though you depreciated it substantially.

If you own the stock in a non-retirement account as opposed to an IRA or retirement plan, you don't pay any taxes on that part, that's sheltered by the depreciation, as that is considered the return of capital. However, the return of capital does reduce the cost basis of the stock, which may result in a larger capital gain tax when you sell the stock.

With the stock priced at about $17.40 yesterday, the distribution yield on the stock is 8.6%. Many REITs are trading at much lower yields and that's -- I'll just bring this up every time. The REIT universe is trading at about a 3.7% yield. If we ever get to that yield that means our stock will be trading at about $41. And the triple-net REITs that are very similar to trading at 4.87% yield. So if our stock trades at that yield then the price per share would be about $31 per share. So you see there is a lot of room for expansion in the stock-based on the real estate REIT stocks that are out there today.

And some of you analysts out there will say oh yes but you're externally managed and you are somewhat more leverage than the other REITs, but just once I'd like to you say this REIT has a great team to use this analogy, the team puts the puck in the net every year, year-in and year out. And even when the team is hit, if it was a terrible body check like the recession, they still keep putting the puck in the net, sorry to get a little testy on this, but use that hockey analogy, but this team really is great and should be recognized for that.

And one more thing, there are among the REIT buyers, a bias against externally managed REITs like ours as opposed to internally manage REITs like most of the very large REITs. Most people agree that it's better to be externally managed when the REIT is small, because that can share the cost of compliance for all of these regulations that IRS, the SEC and other regulatory bodies and for me, this is the best way to run. The question is what size do you have to be before you change? So small REIT that's externally managed can have an excellent coverage of compliance and accounting and more management talent. This is the mutual fund has managed so many mutual funds over the year.

So the job of the Board of directors has determined if the externality is too high. Our Board goes through that every year. We do so in depth study for the Board. We make a determination of the fee. We reached one -- when we reached $1 billion in asset that would be the time when we have to really look at changing the fee schedule at that point in time. There's great confusion about the cost to run a REIT. Some internally manage REITs have low G&A cost, because they farm out or don't quit in G&A, you never really know what's in that line item. They don't show you that or some of the expense items.

We like ours has a lot of expenses covered by the people in the management Company and not found out to outside groups. So, it's hard to pull these figures out for our Board each year, that's what we do. We've told the Board when we reach 1 billion in assets, we'll be looking to see if we can reduce the management fee to be more like the internally managed REITs. And one more thing, our management fee is calculated on the equity of the Company at the depreciated cost, not original cost, and it's not the asset of the REIT, as this is common in many closed and mutual fund.

So when we borrow money to buy buildings, it's not increasing the management fee. And when we sell preferred stock and use that money to buy building, it doesn't really raise the management fee. It's only when we sell common stock that the management fee goes up and since we use a fair amount of mortgage borrowing and preferred stock in this Company. The fee is relatively low compared with externally managed REIT. We've compared it to some 9 or so other REITs and we are the lowest in terms of our overall fee to other externally managed.

The analysis of internally management fees every July is one that we go through, it's a little bit more difficult. We are about 200 -- little over 200 million in book equity. We're charging 2% of that. So as a result, as we look at these things, we try to figure it out. So the Board ask us since the management Company is making this money, is it making too much money? And the answer is easy, since the management Company does not make any money, that is we run this really over the last 10 years at 0. So that's not the answer. So then of course, the Board would ask are we paying our people too much? So, we go through that comparison of our compensation of persons as compared with the industry.

National Association of Real Estate Investment Trust publishes a very large number of categories of employees and what we find is that we're paying our people what the industry pays, in some cases, may be a little higher and others little low, but combined. It seems to be just fine within the industry guidelines. So then we say, are we paying more than other externally managed REITs? And we look at to have those in a so externally manage REITs, and we see that we are actually the lowest of all the externally managed REITs.

Some of REITs claimed to the charging only 1.5% fee, but when you look at all the other fees that they're charging, you find that our fees and percentage is the lowest of the Group. And then, we begin our analysis to say, how could we compare ourselves with the internally manage REITs? And this is most difficult, because the reports that we get from the other REITs, don't include the various some or don't have details of the various summary line items of expenses, so you're kind of guessing where things are, and trying to unbundle those costs.

And here is what we do, the triple-net REITs are -- we look at triple net REITs our size range, and there are only a few, so we're looking at the smaller real estate investment trust. And we also need to look at REITs that do what we do and that's very difficult, and there are a lot of triple-net REITs and that buy building that have tenants that are rated by National Rating Services like Standard & Poor's, and that makes it easier for them to buy those large rated tenants and there are many buildings.

We have some of those, we don't have many. We have some A rated, some double B rated by rating agencies. But we have tenants that are not rated. This is very different from most of the real estate investment trust that are out there. And what this means is that we have to underwrite those tenants, just the way we have other funds that underwrite borrowers. So we underwrite those tenants, as if they were borrowing money from us and determine the probability of the fault. This is a big expense. It also gets us a larger income.

This underwriting cost takes more time. It takes more time to find acceptable tenants and someone buying only rated tenants can do a pretty quick analysis of their tenant and go forward. So use of much more time and energy of our people, and this is really an extra expense that we have to deploy.

We need to look at the length of a lease too. Some of our buyers out there are buying buildings which have leases that are very short, we rarely do that. We look for long-term leases, those leases that are in high demand, so we have to compete with many others who want those long-term leases, and that's why we moved more towards those that are not rated tenants there. We have a better chance of getting a higher return. So we come to the conclusion that what we're doing to build our REIT is expensive, but while being expensive is far more secure.

We are 99% leased-out. We don't lose a lot of tenants, when the recession occurs, we have less problems. There are many that do not like our method of operation. This is very slow, methodical and expensive. And since its slow, they don't want to buy our stock as we're not growing as fast as others. They want quick growth and if there is more risk in the portfolio, so be it. This is just not what we do. And so, if you're expecting us to go out and do that, it's just not going to do that.

We are building term oriented REIT that can withstand the recession. This means our people have to work longer to achieve the same growth as other REITs and evidently this cost us more than some internally managed REITs. We charge less than externally managed REITs, but some say we charge more than internally managed REITs.

And let me just make one point. If we were internally managed today with the same number of people, and the same strategy of long-term secure investing then the cost would be the same today, if we were internally managed or externally managed. You're not more efficient if you're internally managed the way we're running our Company today, it's just a bogus argument. So what you're looking at here is a higher cost REIT based on the strategy we have of making sure that we make all of our payments to our shareholders. It is true that this REIT is internally managed -- I mean externally managed. When you buy an internally managed you get the management Company and the REIT.

And so we've been told that if we took the management Company public, then people who wanted to own both could do that. So we are looking into the possibility of doing an offering for the management Company. I just don't know how we're going to do it, but we should have that study done by sometime this summer.

Again, we thank you all for tuning in and excuse me for going off the deep end and talking all about all of these items, but I think it's necessary. And with the operator please come on now to our listeners and others can ask questions.

Operator

Thank you, (Operator Instructions) John Roberts, Hilliard Lyons.

I don't know if this question is for you, Bob or Danielle. But usually I try to get a pre-conference call report out in the evening that you guys announced. I was unable to though, because you it did not provide the line item information you provided and sort of lump information on costs and revenue. So I couldn't do my usual quarterly numbered charts and discuss the individual.

That wasn't in the 10-K?

Yes, it was -- David, it was in the 10-K, but you don't have quarterly numbers, just get the aggregate numbers for the full year. And I tried to back it up by subtracting the previous three quarters, but you must have restated previous quarters for some of the properties you sold, because nothing came out as it should, and I don't want to put

We didn't restate so.

John, I aggregated it together on the press release, but I can post something to the website after this call that has the detailed breakout for quarterly December 31 versus September 30 as that would be helpful.

That will be super. I mean I just like to see what the queue numbers are.

Yes. Well, that's fine. Okay, I'll post it to the website.

Super. And if you can send me -- maybe you can email to me Daniel?

Sure.

I'd appreciate it. Other than that, David I think you guys explained all the questions I had and from our previous discussion that I think what you guys are doing is probably appropriate given the size of the Company. As I talk to when I was there about the external versus internal, and you stated that real well a small rate really being externally managed and actually be saved a savior so to speak and some of the internally small manage REITs about the business, because I couldn't survive so.

Exactly. So that's a good plus for us. And I think we'll get the $1 billion mark by July of 2016. And so as a result, we will have a very deep detailed discussion and my guess is by then we should be able to cut the management fee. It's not a guarantee. Lot of the external managers call themselves as charging only 1.5%. But as you look at all the other expenses they flow through, it adds up and we've done that now first time as they externally managed and we are far and away ahead of all of them in terms of low cost.

Right. On the vacant property in Texas the medical office building, you mentioned that you've got somebody maybe want to buy it and somebody wants to lease it. Are you expecting -- which way are you expecting to go and be, would there be a loss on the sale or you expect to gain on a sale?

We expect that we'll probably go to lease, but we're kind of leaving our options open and no it would the numbers that we have been promoting to the buyer is definitely is a gain. I mean that location next to the hospital campus is good. Our challenges beyond the hospital had built some facility, and so they had brought in-house a number of activities that they've had in third party location. And so, we just had to be patient, but now the activity has picked up and we, who like to be long-term holders would probably prefer to get a nice 7-year to 10-year lease with a group, but, we are going to leave our options open right now and see how it plans out over the next two or three months.

Right. Obviously, I follow a lot of the healthcare REITs. So, I wanted an introduction that the some potential buyers, let me know Bob?

Okay. Thank you very much. I will definitely call you John.

As far as the ATM program, there was a big chunk of equity you issued in Q4, are you expecting that same number going forward?

Well we slow it down sometimes, when we don't have the formal built up and are ready to close. So the idea is, you turn it on and off like a [ticket] and when you need some money to do the next transaction, you turn it on, and also very sensitive to the price of the stock. We really don't like to issue a stock at low prices, so that would be careful. I think, if we didn't do the ATM program, the stock price actually will probably go up a little bit. But we just got to build our equity base. We're about $217 million in equity, and the market cap is still relatively low compared to so many other REITs. So we just got to build ourselves up, so that we can attract more shareholders.

Yes, understand David. Okay, well thanks. You answered all my questions. Most of my questions on the call (inaudible). Thank you very much.

Okay. Next question please.

Robert Stevenson, Janney.

Can you talk about which your target leverage level is on the timeframe for getting there?

We're about 60% now in terms of leverage. So I don't know Bob what are you shooting for now. I keep tell him don't be leverage too much (inaudible) helping us pay the dividend on the stock price. I don't know what do you want to tell us.

Let me tell you what our plan is for this year. We of course -- I think as Danielle indicated, we've gone from 68% to 60% in 2014. The target for our team this year is between 55% and 58% on the deals that they pursue and of course every deal is unique. And we want to make sure that we're accretive, and because of our cost of capital is still high, higher than we want it to be. We will look at every deal individually, and David and I will then make a decision with Danielle. But, that's kind of what we look at. Danielle you want to add some?

Yes. One other thing, as I mentioned, we had about $35 million of debt refinancing this year, a $92 million next year, and that was put on a much higher leverage in 2005 and 2006, and we'll get some lower leverage if refinancing matched by the nature of that. So it's refinancing will keep it down this year.

Yes, good point. Yes.

And then how are you dealing preferred stock these days, expense of debt or acquired by equity to help out?

Well, if we could get permanent we call it equity, but everything now is some kind of due date in the future. So we look at that is debt, if we have to pay it back, even though it's a security and that has less complications when it comes due then that would -- we still look at it it is debt because it does come due and we always want to meet our obligations. So for us it's debt and I like it from time to time. It's a substitute for long-term debt. And I don't know where analysts look at it, but some people saying we've got too much preferred stock, and I'm just glad I don't have to run my Company by all the people that tell me how to run it. So we're just going to keep doing that same old thing that I've been doing for 25 or so years.

Okay. And then last question, do you guys have a drip in place?

We do have a drip, it's not used much because most of the brokerage houses won't pull down the shares from the drip, they actually go into the market and buy. So if you have a drip let's say one of the big [Oakridge] houses all they will do is pull it down from the market rather than pull it down from ours. We are ready to issue new shares under the drip. We just haven't had both of them. . We have no demand for our drip.

(Operator Instructions) there is no one else in queue at this time, I'll turn the call back over to David for closing remarks.

All right, well thank you all for calling in and we were hopeful, but a few more analysts who would have given us a few more questions, but if you have more questions, let us know we'll do our best to answer them on our website. That's the end of this. Thank you.

Thank you, ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.