Gladstone Commercial Corp (GOOD) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Gladstone Commercial Corporation First Quarter ending March 31st, 2015 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 be given 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 Mr. David Gladstone, Chairman. Sir, please go ahead.

All right. Thank you, Amanda for that nice introduction and we welcome you all to the call. We appreciate you calling in. I always enjoy these times that we have on the phone with you. I wish we had more time with you, but we only do this once a quarter. So please come visit us if you're ever in the Washington DC area. We're located in a suburb called McLean, Virginia and you have an open invitation to stop by, and say hello. You'll see a great team here. About 60 members of the team now. We're no longer a small business and we have some people here that even bring their dogs to work. So we're very dog friendly here.

So now let's turn it over to Michael LiCalsi, he is our General Counsel, Secretary, he also serves as President of the Administrator regarding some of the legal and regulatory matters concerning this call today.

Good morning, everyone. The report that you're 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 all the factors listed under the caption Risk Factors of our Forms 10-K and 10-Q that we file with the SEC. And they can found on our website at gladstonecommercial.com and on the SEC's website at sec.gov.

The Company undertakes no obligation to publicly update or revise any forward-looking statements. Whether they result as a new information or future events or otherwise except as required by law.

And in our report today, we also plan to talk about funds from operations or FFO, FFO is a non-GAAP accounting term defined as net income excluding the gains and 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 we can use in discussion of REITs. And please see our Form 10-K filed yesterday with the SEC and our financial statements for a detailed description of FFO. And we also plan to discuss core FFO today, which is generally FFO adjusted for property acquisition costs and other non-recurring expenses. We believe this is a better indication of the operating results of our portfolio and allows better comparability of period-over-period performance.

And to stay up to date on our fund as well as all the other Gladstone publicly traded funds, sign up on our website to get e-mail updates on the latest news and you can also follow us on Twitter, username GladstoneComps and on Facebook keyword The Gladstone Companies and finally you can visit our general website to see more information at www.gladstone.com and the presentation today is an overview and we ask you to read our press release issued yesterday and also review our Form 10-Q for the quarter ended March 31, 2015.

You can find them both on our website gladstonecommercial.com.

Our shareholders meeting will be held this Thursday May 7th at McLean Hilton and we invite you all to attend the meeting. We ask that you please vote your shares so that we can ensure a quorum at the meeting.

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 by issuing new debt on (technical difficulty) funding the other property with equity, raised $15.1 million of common equity under the ATM program with Cantor Fitzgerald, extended three leases that were set to expire in 2015 and 2016 and selected three national property management firms as strategic partners for asset management execution.

Subsequent to the end of the quarter, we also issued a $300,000 interim financing loan, signed a financing term sheet to refinance debt totaling $22 million on three of our properties, which have loan maturities this year. And in a recently acquired anchored multi-tenant building the larger tenant agreed to expand into the balance of the building and the smaller tenant's lease expires in 2016.

So as you can see our acquisitions, capital and asset management teams all contributed to our first quarter success. We had an excellent quarter to start 2015 as we continued to increase our asset base by acquiring new property. This was our 14th consecutive quarter of closing at least one new acquisition. We're extremely pleased with our activity and the consistency over the last several years and we continue to have a strong pipeline of acquisitions. We expect to close more properties prior to the end of the second quarter.

Now for some details. During the quarter ended March 31st, we acquired two additional properties. The first property is a 156,000 square foot office building located in Richardson, Texas, a north Dallas suburb. The purchase price, $24.7 million with an average cap rate of 8.3% over the life of the 10-year lease. We funded this acquisition with cash on hand and the issuance of $14.6 million of mortgage debt. The tenant operates the nation's largest private Medicare exchange and is wholly owned by a leading global professional services firm.

The second acquisition is a 30,850 square foot office property located in Birmingham, Alabama. The purchase price was $3.7 million with an average cap rate of 9.1% over the life of the 8.5 year lease. The property is fully leased to TechLink, a leading and growing provider of IT consulting and technology related services to businesses located in the Gulf South. We funded this acquisition with cash on hand.

Our acquisitions team has been placing significant focus on acquiring properties in secondary growth markets.

Now the hallmark of our continuing high occupancy remains thorough tenant credit underwriting and the mission-critical nature of the facility. However, acquiring properties in growth locations leads to ownership in what we believe will be land constrained locations over time, which will lead to subsequent increases in property values and ultimately will benefit our shareholders.

Over the past 18 months to 24 months we've invested in Phoenix, Denver three times, Dallas four times, Austin, Indianapolis and Columbus, Ohio, to promote this 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 continue to pay as agreed. One of our vacant properties is located in Houston, Texas. This is a 12,000 square foot medical facility in close proximity to a hospital. We have three active prospects for this building, two are for the entire building and one is for two-thirds of the building.

We have another vacant property located in Newburyport, Massachusetts where the tenant just vacated last week and relocated to Rhode Island. This is an 86,000 square foot food processing facility and at this time, we have one prospect for the entire building. Our other partially vacant property is located in a southwest suburb of Chicago. The tenant in this property moves out in December and we executed the lease with a new tenant for 38% of the building. At this time, we have four active prospects each for the balance of the building or 35,000 square feet.

This increased activity seems to validate what market researchers are stating and that is that small and middle market companies are finally seeing improving conditions and are making real estate decisions.

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 2016 and we've begun discussions with tenants who have leases expiring in 2015 as well. We originally had 12 leases expiring in 2015. We have successfully extended the leases for seven of these tenants. One is in negotiation with the tenant and one in which we have signed a sale agreement to sell the property to a sub-tenant in the fourth quarter.

We have been notified however that three tenants will in fact leave. And we're aggressively pursuing new tenants for these properties at this time. The three leases where we know the tenants are vacating comprise less than 3% of our projected 2015 rental income and one-half of this income does not expire until December of 2015.

So while we originally had 12 leases rolling in 2015, we only have three leases expiring in 2016, six in 2017 and four in 2018. The expiring rents for these years represent less than 2% of the annualized projected rent for each respective year. So after this year our lease rollovers slow down dramatically and our existing portfolios will have stable and growing rental income.

As I noted earlier, we have selected three national firms CBRE, Cushman & Wakefield and JLL to serve as regional partners as we continue to improve the all important asset management function of our business.

Each will perform on the ground property management services at an assigned portfolio. The properties will not include any expenses that they are not already obligated to incur today. This local expertise will enhance the service to our tenants and will ensure the properties are maintained at a high quality. And in addition, we think another benefit is that, we're going to be receiving local market intelligence from our teams, which is going to be a significant benefit in our renewal, re-leasing and acquisition activity.

Locating new tenants and signing leases as I've indicated in the past usually requires some capital outlay for tenant improvements and leasing commissions.

So in summary, at quarter end, all of our existing tenants are paying as agreed and our portfolio was over 99% leased. We acquired two properties during the quarter, we continue 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. We currently have two properties totaling $30 million in due diligence. We have four properties totaling $41 million that are in the letter of intent stage. And then we have just over $245 million of properties under initial review. Our objective is to have as I've indicated in the past, at least $250 million to $300 million in the pipeline of possible acquisitions with properties in each stage including the initial review, letter of intent stage and property due diligence. Our team continues to exceed this objective and has prospects at each stage of the acquisition process, which we hope is going to lead to continuing consistent closings in the months ahead.

Now let's turn to our Chief Financial Officer, Danielle Jones who will report the financial results.

Thanks Bob. Good morning, everybody. We continued to grow our asset and equity base in the first quarter. Our total assets increased to $807 million from the two acquisitions completed during the quarter. We continue to focus on decreasing our leverage and have been issuing new equity on our ATM program to help achieve this goal.

We expect to continue decreasing leverage over the next several years to this lower leverage on newly issued debt and refinancing some of our maturities with lower leverage. The amounts outstanding under long-term mortgages and our line of credit was $510 million at the end of the quarter and is represented in the funding both of our new acquisitions this quarter.

In addition to today, we have raised over $20 million in common equity under our ATM program during 2015. We have used 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 in the aggregate principal amount of $40 million payable during the remainder of 2015 and $97 million payable during 2016.

The 2015 principal amounts payable include $34 million of balloon principal payments due on three mortgages that mature in the second half of this year. As Bob mentioned we assigned a term sheet to refinance $22 million of this debt, which will close this summer and expect to refinance the remaining mortgages with a combination of new mortgage debt and equity. We expect to achieve at least a 100 basis point interest rate reduction when we refinance these loans in 2015.

The current weighted average rate on our 2015 debt maturities is 5.4%. And market rates for these loans are below 4% today. The 2016 principal amounts payable include $90 million of balloon principal payments due on nine mortgages that mature throughout the year and we also anticipate being able to refinance these with a combination of new mortgage debt and equity.

We've already begun discussions with lenders on the debt that matures during the first quarter of 2016. We will continue to pay the additional debt amortization payments from operating cash flow and borrowings under our line of credit. Debt financing continues to be available from multiple sources. At the end of the quarter interest rates were approximately 80 basis points lower than they were a year ago. The upward pressure on interest rates associated with the ending of the Federal Reserve's quantitative easing program has been offset by the Federal Reserve's fear of raising interest rates too quickly, slower than anticipated domestic economic growth, 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 remain historically low, and we continue to actively try to match our acquisitions with cost effective mortgages. Depending on several factors including the tenant credit rating, property type, location, the term of the lease, leverage, and the term of the loan, we are generally seeing fixed interest rates ranging from below 4% to about 4.5% depending on the term of the loan, tenant credit, and loan size.

And this time we did issue new debt during the first quarter of $14.6 million on one of our new acquisitions at an interest rate of 3.9% which is the low end of the range on a deal with a cap rate of 8.3%, so it was very accretive for our shareholders. As I mentioned earlier, we are continuing our strategy of lowering our overall leverage by reducing our weighted average loan to value on newly issued debt and are also issuing additional common equity. We have increased our market capitalization by 37% over the past year, and have issued over 4.4 million new shares of common stock.

We have decreased our loan-to-value from a high of 67% in 2009 to 53% today.

Turning to our line of credit, we currently have $35 million outstanding at a weighted average interest rate of approximately 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 line of credit.

We continue to finance the majority of our properties with long-term fixed-rate mortgages, which allows us to secure the spread between the rent coming in and the mortgage payments going out, locking in the profits for the length of the lease.

As of today our available liquidity is approximately $26 million comprised of $7 million of cash and an available borrowing capacity of $18 million under our line of credit. Currently we have enough availability to fund our current operations, deals in our pipeline and any known upcoming improvements at our properties.

Looking at our operating results for the quarter, as you saw on our press release filed yesterday, we reported a core FFO number. We believe core FFO, which adjusts for our property acquisition expenses and other non-recurring expenses, allows our investors to better compare period-over-period results.

All per share numbers I referenced are fully diluted weighted average common shares. Core FFO available to common stockholders for the quarter was approximately $8 million or $0.38 per share, which was about a 4% increase when compared to the fourth quarter. Quarterly core FFO increased because of the additional revenue we achieved from new acquisitions made during the quarter coupled with a decrease in general and administrative expenses. This was partially offset by an increase in our base management fees from additional shares issued.

We also earned an incentive fee this quarter where we didn't in Q4 because of the loss on disposal of our Minnesota asset. While 2015 brings us 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 activity.

We are confident that 2015 will be successful as we continue to increase our asset and equity base and decrease our leverage. We are focused on managing our property operating expenses as well.

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

All right Danielle, that was a good report and good report from Bob Cutlip and Michael LiCalsi too. We encourage you all to read that press release and the quarterly report filed yesterday with the SEC called Form 10-Q. There's a lot of good material and lot of good work that goes into producing that document, you can find it on our website at gladstonecommercial.com. It's also on the SEC website.

Main items again are purchasing two new properties, $28 million, but a mortgage on one of these properties at $14.6 million to lock in the spread between the interest that we're paying and the rents that are coming in. We extended three leases that were originally scheduled to expire in 2015 and 2016 and also raised $15 million in common equity. As you've noticed we continue to add quality real estate to our portfolio and shore up the existing investments and we grew our asset base as we try to do every quarter. As we continue to grow our market capitalization (technical difficulty) we hope to see higher trading volume and greater liquidity in our stock and a corresponding pickup in the stock price because the distribution rate is much higher than those compared to other REITs like us.

As many of you know the Company didn't cut its monthly cash distribution during the recession, that was quite a success story. We have watched some of the other great companies have to cut their distributions and most of them never have come back to their original level. So us staying in our same level through this period of time has been a great accomplishment.

I do wish more of the analysts would pick up on the story of how strong we've been in the past and how strong we look as we go forward. I know you all want to increase the distribution, and I certainly do too as a large shareholder, but please let's give us some credit for the very steady cash payer that we are. You can put it in your portfolio and hopefully not worry about it.

Our track record of not cutting the distributions should stack up extremely well against others that have cut their dividend and not build it back prior to levels of six years ago.

Now here's what we're doing today to increase the price of the stock and we're seeking to increase the common stock market capitalization, and that's the number one goal. That will increase liquidity and trading volume and this will give investors who want to buy a lot of stock at one time the ability to do that.

The big buyers of stock always want to know that if the number of shares outstanding that if they buy $10 million or $20 million worth of stock that there will be liquidity if they want to sell and get out.

We still do not have enough shares outstanding to give them that much confidence. However we're consistently building the assets and the equity base almost doubling the size over the past four years. With this growth, we hope the additional large stock buyers will come into the stock and that should hopefully help increase the price and lower our cost of capital so that new investments will be very accretive to our dividend payout.

We had a program in place now and we're executing it over the next few years, and hope to see a corresponding increase in the price of the stock.

We're also expecting to reach that marvelous milestone of having assets over $1 billion in the near future. And when we do that, as we promised you we would, we'll take a look at the price of our management fee and we're working on that now and doing some studies in coming forward that we'll present to the Board of Directors, hopefully by the end of the year.

As we look at the future, we have a promising list of potential quality properties that we're interested in acquiring because that list of properties we hope to be able to grow the asset portfolio even more during 2015. With a increase in the portfolio of properties comes greater diversification and we believe that's better for earnings. We are focusing our efforts on finding good properties and long-term financing to match those long-term leases, being able to lock in that long-term financing for the future that really helps us. So between 2016 and 2019, we only have a very small amount of forecasted rents expiring and our debt maturities after 2016 drop significantly.

So we're set up very well over the next several years to continue what we're doing today and I'm increasingly optimistic that things are going to be extremely positive for this Company during the next few years. Much of the industrial base, businesses that rent industrial and commercial properties like our properties, they remain steady and most of them are paying their rent. We expect good growth in 2015 for this REIT.

And while I'm optimistic that the Company will be fine in the future, as Bob Cutlip has explained and I concur, we'll continue to be cautious in our acquisitions that as we've done in past years. We made it through the recession without cutting dividend and if you think there's going to be problems in the future, I think having ourselves set up the way we are, that we should go through the next recession that may be lurking on the horizon as we talk. And if the Fed decides to raise interest rates, we're ready for them. We have most of our properties financed with long-term fixed-rate mortgages. So they match up on our long-term leases and we should not have a problem.

We do not use a lot of short-term debt as some of our brethren in the business do. And so we've stayed away from that addiction to get very low-cost interest rate loans in a very short-term period in order to make our numbers look better.

In April of 2015, the Board voted to maintain the monthly cash distribution of stock -- to stockholders of $0.125. Therefore April, May and June at the annual run rate of $1.50. It is a very attractive rate [to] a REIT like ours. We now paid 128 consecutive common stock cash distribution since our inception, and we went through the recession of course without touching those dividends and I just think that should be emphasized over and over again.

Because the real estate can be depreciated, we're able to shelter the income of the Company from taxes, the return on capital has historically been somewhere around 80%. This is a tax-friendly stock in my opinion for those personal accounts that are seeking income. This return of capital is mainly due to the depreciation of the real estate and other items that we have on the books and it's caused earnings to remain low after the depreciation; that's why we talk about core FFO because this adds back the real estate depreciation.

Depreciation as you all know, depreciation of a building is a bit of a fiction in the tax code in a sense that the end of the depreciation period that building is still standing and still usable. So if you own stock in a non-retirement account as opposed to having it in an IRA or a retirement account, you don't pay any taxes on that part. It is sheltered from -- by the depreciation as that's considered a return of capital.

That's about 80% of the payment that we're guessing it is going to be this year. However, the return of capital does reduce your cost base as the stock may result in a larger capital gain when you sell the stock. Our stock has been trading around $17.84 as it closed yesterday, the distribution on the stock is about 8.4%. Many of the REITs that you see out there are trading at much lower yields and let me say again, the REIT universe is trading at a little over 4% yield and if we were trading at that yield, the stock price would be $36. As the net, net, net REITs are trading at about 5.96% per year, so if our stock was trading at that yield on an annual basis, the price would be about $25 a share, so there is a lot of room for expansion of the stock based on yields compared to other REIT stocks. And over time as we get bigger, have more liquidity, it's anticipated that we will begin to trade like many of those stocks at a much lower yield.

I know some analysts will say, yes, but you're externally managed and you're somewhat more leveraged than other REITs, but just once, I wish somebody would say something about this great team because they have done a great job over the years. And if you've been watching, our leverage has been going down every quarter, we're now nearing 50% leverage based on our market capitalization and that's about $1 a stock outstanding for $1 of mortgage debt.

You have to remember that mortgage debt is what they call exculpatory. That means if we can't pay the mortgage, the only thing the mortgage holder can do is go after the piece of property, they don't come up to the REIT and our main company.

So this is a very well-structured REIT right now and not a lot of risk in our profile. The Board will vote again in mid-July during the regular scheduled quarterly Board meetings and declare a monthly distribution for July, August and September. And another reminder our Annual Shareholders Meeting will be held Thursday, May 7th at the McLean Hilton. We wish you all would show up. We only get three or four people coming to the meeting and we'd like to have about 100 of you show up. It would make it a much more enjoyable shareholder meeting.

But now I'll stop and see if there's some questions from our loyal shareholders out there and the analysts that follow this wonderful REIT. Would the operator please come on and help our listeners ask those questions.

Yes, sir. Thank you. (Operator Instructions). Rob Stevenson, Janney.

Good morning, guys. Bob, can you talk about what the weighted average remaining lease term is in the portfolio today?

We'll look it up, I think it's close to 7.5 years. (multiple speakers). But I think it's around 7.5 years.

Okay, perfect. And then how are you guys feeling about preferred stock today as a source of capital? I mean you guys have been very active with the ATM, but how are you feeling about preferred where you think you could price and how much could you issue if you wanted to do a deal today?

Well, my feeling about that and Bob will chime in if he wants to, is that I love preferred stock and I'd love to have permanent rather than term. I don't think many people are buying as much permanent as they used to. But my goal would be to issue a little more preferred stock. We don't have anything on the agenda right now, but that's where we think where we will one day issue some more preferred.

Dan Donlan, Ladenburg.

Thank you and good morning, David and everybody else. David, I wanted to go back to your comment on when you compare your dividend yield to the triple net peers, you have to sensitize that for leverage and you have to sensitize it for covering your dividend with recurring cash flow, operating cash flow.

So I guess, I think that's why your yield is a little bit higher is that, you don't have -- you have higher leverage and you're not covering it with recurring cash flow?

Well, if you say so, cash is cash. We are been consistent, have paid dividends forever and a day, never cut the dividend, no likelihood we're going to cut it in the future and you go back to some of those that you would rate higher because they do those things that you're mentioning. And they all had a lot of problems during the last recession and they haven't learned, they're still using a lot of short-term capital in order to finance their deals. So, I don't know, you like them much better than us, that's just everybody's choice.

Right. Well, I guess what I'm saying is, I'm not sure it's a fair analysis to make given kind of those things in place, but not necessarily when you compare yourself to the average REIT, but I think some of your triple net peers that didn't cut their dividends and have raised them since the downturn. And are now much higher than they were kind of in, call it, 2007 or 2008.

But just wanted to kind of talk a little bit about, you talked about the asset management fees, bringing that down, I mean, what's holding you back from doing it now because if I look at your G&A and I don't -- and I exclude the add-back you give to the advisor, your G&A, you get all the advisory expenses, the diligence costs, the acquisition costs, all those different items which you're in the business of acquiring property every quarter, that's like 19% of your NOI and if you look at that, again exclude the add-back that you give to the advisor that's 1.8% of gross asset. That's the highest of any triple net REIT that I cover and I cover 12 of them. So I'm just kind of curious as to how you're going to be able to reduce those expenses on a going forward basis?

Well, as you get bigger you can absorb more of those in terms of the relationship to the earnings. And so, that's where we think we are at a $1 billion in assets. So who knows, we'll see, we're going to go through the analysis now, we just started that and we should be finished by the end of the year. I'm sure when the Board will take a look at it, but we're going to come at you with something and hopefully we are in your range. So Dan that you will approve it.

Right. Well, what about the incentive fee. Why not just permanently, why not just change that structure, because that, that's -- you pay more in incentive fees than you do in base management fees. If I look at the hurdle rate, the initial hurdle is 7%, and the second hurdle is I think 8.75%.

You're buying properties in the low eights or you're almost in the money on any of those properties, why not increase that hurdle rate to somewhere around 10% to 12%. And then I think your earnings would start to go up because you wouldn't have so much incentive fee.

Well, that's what we're looking at. We're going through that analysis now in terms of how low should the incentive fee be and how to reward the people as well as our shareholders.

Okay. And then just looking at your G&A, or actually just to take one step back, is internalizing the company on the table?

It's not right now because we still got a lot of things to do for all of the companies and we want to rely on the individuals that have the expertise in this area that we can't possibly bring into the company at this point in time.

Okay. Is maybe the fact that you're talking with or working with JLL and CBRE and some of those regional brokers, is that a step in that direction?

It's a step in the sense that we've gone away from having a lot of those people that were doing work for us. But most of our tenants have told us that they don't like the fact that they are supposed to manage their properties. They want somebody else to manage. They don't mind paying, they just don't want to have to do it themselves.

So that's why we've rounded up these three and we had a bake off between all of them and did different regions and we've come up with these three as our beginning number. And I don't think we'll expand it from there, but we might end up dropping one of them if they don't perform as well as the others.

So this is an experiment to try to remove the tenant from taking care of the properties. Give some professionals the opportunity to take care of the properties and let them bill the tenant directly. I think that will take something off of our table because we've been doing a lot of that internally here. And really haven't been rewarded for that at all except through the fact that we have our incentive fee. So as we move that out of our shop and into the other that will help us remove some of the expenses out of the Company.

Okay. But do you think, I mean, do you think if you internalize the Company though, that assuming your expenses stay the same, which I think would be hard to argue given where other internally managed REITs have their G&A loads relative to gross assets, but assuming it stayed the same, wouldn't you get a pretty nice pop in the stock in terms of changing your corporate governance?

I mean, a lot has been discussed in the REIT land recently about corporate governance and those REITs that are externally advised have really taken a hit over the last couple of years. So, given that you're a net lease REIT, you're constantly issuing equity to buy properties you really need to have a better cost of capital to make things more accretive. And if your stock, if you internalize the Company, you'd probably get a really nice boost in the stock price which would allow you to issue stock at a more attractive rate and allow you to probably do things that are more accretive. Why haven't you looked at this in more detail, I mean, what's -- what is holding you back from doing it?

Well, what holds us back is that it's going to cost the Company a lot more money to engage the legal and accounting people that are working at the advisors level that are shared with other companies. So, I don't want to put that expense on top of what we already have.

So we're going to work the other side of the ledger, which is trying to make sure that we're charging a reasonable amount and we'll compare it for you. I think there is a belief out in the marketplace that internally managed are so much cheaper than externally managed that it's just a no-brainer, but let us do our analysis and we're glad to show it to all of our shareholders of how we're approaching the problem.

Okay. Well, I think if you looked at several other REITs in your space that are similar in size, you'd see that their G&A loads are significantly less than yours and they're internally managed. So, I think that, I think the shareholders would be rewarded if you were to internalize versus stay the same.

So anyways Bob, just last for me on the CapEx, was there anything in the CapEx number, Bob, it looks like it was $1.7 million or so, is there some type of expansion dollars that are being spent there?

Yeah. We've got about -- one of our tenants, we just renewed and we've put about $1.3 million to $1.4 million of that into the renewal and extension. And so, it's -- and of course their rent's higher than it was before. And that takes effect, I think it's June 1 is when that takes effect. So, yes, that's what it was for, Dan.

Okay. And then as far as the acquisition front. Bob, since you've started it, you've really started to ramp it up. Is this more or less you working your relationships from prior firms? What else is kind of driving your acquisition momentum?

Well, believe or not, I think it's really more the team members that we have out in the field than me. I mean, I help some, but we have three great leaders out there who are very well connected, see everything.

And as you know, our cost of capital is higher than most of our peer group and yet we're able to successfully invest in the markets that -- you and I've even spoken about. We need to be in the secondary growth market and Buzz and Matt and Andrew White, I mean all three of them are doing, I think a phenomenal job with their team uncovering opportunities that make sense for us. So it's probably a miniscule amount of Bob and the majority of the guys who are out in the field.

Okay. Fair enough. I look at your implied cap rate, and it looks with today's stock price somewhere around 8.1% and when you look at your, some of your office and industrial peers in the single-tenant world they are closer to 7.3%, 7.4%. So I guess bridging that gap would be -- which is surprising to me to some degree because you have more industrial than those companies do and that's a lower cap rate type of asset.

So, I guess given kind of that -- you do have this disadvantage from a cost of capital standpoint, are you focusing more on one asset class versus the other, or is it simply you're sticking with office and industrial and staying in more secondary markets and that's how you're able to get properties that are somewhat above or at least in line with your implied cap rate.

It's interesting, if you look at what we had purchased, let's say in 2014, we had 10 assets that we purchased and six of those were office and four of those were industrial and of course then if you add the expansion on our industrial, we had five and our overall ratio in the Company right now is just over 40% industrial, and just over 50% office and the balance being the retail and the medical.

I don't see that changing, I think everybody knows, and I just saw and listened to a webcast by CBRE, the industrial market is extremely, extremely competitive. And most of the secondary and gateway markets are in the 6es, they're certainly not going in the 7s. And we have to have something in the 7s to start for it to make sense. And we're just sticking to our knitting, staying within our envelope. And as I said, our pipeline right now, the two properties that are in due diligence one is in Columbus and one is in Salt Lake City.

Salt Lake City is a city that we would love to be in long term. We think that's a great market and we've already invested in Columbus, and we want to do more there.

So, it's difficult, yes it is and challenging. But we're finding deals that do make sense. And as David said, we've got to be patient, we've got to be persistent, we got to stick to staying in the size acquisition that we're looking at right now and in the annual volume [120 to 150] is perfect for our size at this point. So we're just going to continue to do that.

Okay. All right. Well thank you so much. I appreciate you taking my questions.

Sure.

Okay. Do we have some more questions?

(Operator Instructions). And sir, at this time, I'm showing no further question.

All right, thank you all for calling in. We appreciate all those nice questions and hope to see you next -- this Thursday at the Annual Shareholders Meeting. That's the end of the conference call.

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