Gladstone Commercial Corp (GOOD) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome, to the Gladstone Commercial fourth quarter ended December 31, 2015, earnings call and webcast.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now turn the call over to your host, David Gladstone. Please go ahead.

All right, thank you, Stephanie. We appreciate that nice introduction and, boy, most of all, we thank all of you for calling in. We enjoy this time with you on the phone and wish there were more time to talk about things. Please come and visit us if you are ever in the Washington DC area.

We are located in a suburb called McLean, Virginia. You have an open invitation to stop by and see us if you are in this area. You will see a great team at work, about 60 members here in the office.

Now, we'll hear from Michael LiCalsi. He's our General Counsel and Secretary. Michael is also the President of Gladstone Administration, which serves as the Administrator of all the Gladstone funds and related companies as well. He will make a brief announcement regarding some legal and regulatory matters concerning this call. Michael?

Good morning, everyone. The report that you are about to hear may include forward-looking statements within the meaning of Securities Act of 1933 and the Securities and 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 our 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 of the risk factors included in our forms 10-K and 10-Q that we filed with the SEC. They can be found on our website at www.GladStoneCommercial.com, on the SEC's website at 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 require 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 or losses from the sale of real estate and any impairment losses from the 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 we can use in the discussion of REITs. Please see our Form 10-K, which we 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 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.

To stay up-to-date on our fund, as well as all of the other Gladstone publicly traded funds, you can sign up on our website to get e-mail updates on the latest news. You can also follow us on Twitter, user name GladstoneComps, and on Facebook, with the keyword The Gladstone Companies. Finally, you can visit our general website to see more information at www.gladstone.com.

The presentation today is an overview and we ask that you read our press release issued yesterday and also review our Form 10-K for year ended December 31, 2015. We also prepared a financial supplement this quarter to provide further detail on our portfolio and results of operations. And you can find all of these on our website, GladstoneCommercial.com. Now, we will begin the presentation today by hearing from Gladstone Commercial's President, Bob Cutlip.

Thank you, Michael. Good morning, everyone. During the fourth quarter, we acquired a $6.6 million property and financed it with a long-term mortgage of $3.8 million; expanded our line of credit facility to $110 million, adding three banks and reducing the costs on the facility; sold three properties for a total gain on sale of $1.5 million; extended leases with existing tenants at five of our properties; executed a lease with a new tenant at the majority of our Maple Heights, Ohio, property; modified one lease such as the tenant will expand into the additional space in our Minneapolis property; and repaid $27.2 million of maturing debt on six properties.

Subsequent to the end of the quarter, we also received repayment of a $5.9 million development loan plus a 22% return on this investment and signed a letter of intent for 13,000 square feet in our partially vacant Chicago property. As you can see, our acquisitions, capital and asset management teams were all very active and contributed to our success this quarter.

We had another excellent quarter as we continued to increase are asset base by acquiring new properties, while also selectively selling properties as part of our asset recycling program. This was our 17th consecutive quarter of closing at least one new acquisition. We're extremely pleased with our activity and the consistency over the last number of years, and we continue to have a very good pipeline of acquisition candidates.

Now, for some details. During the quarter ended December 31, we acquired a 90,000 square foot industrial facility in the Atlanta I-20 West submarket. The purchase price was $6.6 million; the lease term, 18 years; and the average cap rate, 9.2%. Universal Pasteurization, a market-leading high-pressure pasteurization food processor is the tenant. In addition to this excellent cap rate, the acquisition price included additional land which will enable us to expand the building by about 50% if necessary.

Subsequent to the end of the year, we successfully exited our $5.9 million second mortgage development loan and achieved a 22% return on our invested capital during the hold period on exit. This was a first in the new program we created to participate with developers on build-to-suit projects nationwide. This investment provided very good risk adjusted returns to our shareholders. Under this program, we expect to own many of these properties at construction completion with a credit qualified long-term lease. Otherwise, we will exit with the developer as we did in this case with a sizable return.

Our acquisitions team has been placing significant focus on acquiring properties in secondary growth market. The hallmark of our continuing high occupancy remains and will continue to remain, thorough tenant credit underwriting and the mission critical nature of the property. We also critically evaluate the real estate and closing transactions in growth markets leads to properties and land-constrained locations over time, and, hopefully, subsequent increases in property values that will benefit our shareholders.

Over the past two years, we have invested in Phoenix, Salt Lake City, Denver three times, Dallas four times, Boston, Atlanta twice, Indianapolis, Columbus, Ohio twice, and Minneapolis to promote this strategy. The last three acquisitions have been in Atlanta, and Salt Lake City, two markets in which we wish to increase our concentration over time.

Our asset management team was quite busy in 2015 renewing existing leases and leasing our available space. During the fourth quarter alone, we executed a three-year lease for 80% of our industrial property in Maple Heights, Ohio, after the existing tenants expired at the end of December; extended the lease of one of our office tenants in our Indianapolis property; extended the remaining three leases that were set to expire in 2016; and extended the lease of our 280,000 square foot office and industrial tenant located in Duncan, South Carolina. That lease was extended through 2028. With all of these leasing activities completed, we expect our same-store rents to be stable and growing in 2016, and expect our occupancy to remain at a high level.

We only have two fully vacant properties remaining today. We've engaged a broker to sell the Dayton, Ohio, office property and anticipate of sale to close in the next six months. The second property in eastern Massachusetts, is an 86,000 square foot freezer cooler industrial property and we are actively pursuing new tenants for that property at this time. So from a 2015 bottom line perspective, the two vacant properties comprise less than 1.5% of our 2015 rents, and we're hopeful that one of the properties will be sold within the next six months.

In summation, our portfolio is 97.4% occupied and our team successfully concluded 15 of 17 leases that were set to expire in 2015 and 2016, with leasing activity exceeding one million square feet. And the better news is that only 5% of forecast rental income is expiring over the next four years through calendar year 2019. During the period that we anticipate the industry may well experience some headwind at some point in time. So we believe our occupancy should remain high even if economic conditions deteriorate.

We also executed on our capital recycling program during the quarter. We sold three properties located in Columbus, Ohio; Birmingham, Alabama; and Columbia, Missouri, for a net gain on sale of $1.5 million. All three of these properties were sold to the existing users of the building. We considered these industrial assets to be non-core to our long-term strategy. We will continue to review our assets during 2016 and beyond to determine if any of these assets are good disposition candidates and are in line with our focus of increasing our concentration in growth markets.

In summary, we continued our acquisitions program during the quarter; renewed and expanded tenants on our properties; sold non-core assets; expanded our line of credit; and refinanced maturing mortgage debt at lower interest rates. We continue to have a strong pipeline of acquisition candidates, and will adhere to our strategy of only acquiring properties in growth markets that are accretive to our operations.

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

Good morning, everybody. As Bob referenced, we had a very active quarter. Our total assets at the end of the year, were about $833 million, which is reflective of the one acquisition completed this quarter, coupled with certain ongoing tenant improvement projects, partially offset by the asset sales.

We continue to focus on decreasing our leverage and have been refinancing debt at lower leverage levels. We expect to continue decreasing leverage over the next several years through a combination of lower leverage on newly issued debt and refinancing our mortgage maturities with lower leverage. We've reduced our leverage in Q4 by repaying maturing mortgage debt, which reduced the amount outstanding under long-term mortgages in our line of credit to about $530 million, which is a 2% drop from the third quarter. In addition, we raised $10.5 million in common equity and used these funds to acquire property, refinance the debt as a fund capital improvements at certain of our properties.

You may have seen how we filed a new registration statement for $500 million in January. Our existing registration statement was set to expire in September of this year. We decided to file a new registration statement now because our current ATM program needs to be renewed, and we also have the $38.5 million of term preferred equity that matures in January 2017.

We currently plan to refinance this equity with another tranche of preferred in 2016. We did not anticipate raising large amounts of equity in the current market environment. We filed the registration statement because it is for a three-year term and we want to be in a position to access equity when we need it and market conditions permit.

We also amended our line of credit during the fourth quarter in order to position us for growth over the next few years. We expanded the line from $75 million to $85 million and added a $25 million five-year term loan facility. We also extended the maturity date in the line for one-year through August 2018.

The interest rate in the line was reduced 25 basis points at each leveraged tier and the interest rate on the term loan is 5 basis points less than the line of credit. The total maximum commitment was increased from $100 million to $150 million.

We also expanded the number of banks in the line. In addition to the KeyBanc and Comerica Bank, we added Fifth Third Bank, US Bank and Huntington Bank to the syndicate. We believe this addition of three strong lenders illustrates their confidence in our long-term strategy.

We currently have $57.3 million outstanding under both the line and term loan facility at a weighted average interest rate of about 2.9%. 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 of credit.

The market for long-term mortgages continues to be strong and the environment is very competitive. The CMBS market remains active but its underwriting terms have become slightly more conservative and restrictive than they were in the first half of 2015. Lenders tighter credit metrics have had very little impact on our access to credit because we have been leveraging assets at loans to values less than 60%, rather than seeking to maximize leverage. However, interest rates continue to be volatile.

For example, during 2015, the yield on the 10-year treasury ranged from a low of 1.6% at the end of January to a high of 2.5% in late June, which was about a 90 basis point swing. At the end of 2015, the yield on the 10-year treasury was 2.3%, which is about 23 basis points lower than its second quarter highs, and since beginning of 2016, the yield on the 10-year treasury has declined to approximately 1.6%.

While the yield has retreated from its highs last year, lenders have increased the margins at which they lend in response to the increased volatility in anticipation of increasing interest rate. With regard to overall borrowing costs, this increase in margins have more than offset the decline in the 10-year treasury's yield. However, interest rates still remain attractively low and we continue to actively try to match our acquisitions with cost effective mortgages.

Depending on several factors, including the tenant's credit rating, property type, location, the terms of the lease, leverage and the amount and term of the loan, we are generally seeing fixed interest rates ranging from 4.5% to about 4.75%. To this end, we did repaid $27.2 million in maturing mortgage debt this quarter by refinancing $3.6 million with new variable rate mortgage debt with an interest rate cap, and the remainder with borrowings under our line of credit and cash on hand. This combination lowered the loan to value of our portfolio.

The weighted average interest rate on the maturing debt was 5.7%, and the rate on the new mortgage debt is about 2.7% today, which is a 3% decrease from the mortgage debt that was repaid. Total 2015 refinancings were $57.5 million at a new weighted average interest rate of 2.7%. Prior to the refinancing, the mortgages had a weighted average interest rate of 5.5%. The combined refinancing will reduce our annual debt service by approximately $1.8 million.

We also issued new debt during the fourth quarter of $3.8 million on our acquisition at a fixed-rate of 4.6%, which was the lower-end of the range making this deal very accretive for our shareholders. Reviewing our upcoming maturities, we have balloon principal payments on seven mortgages of $69 million payable throughout 2016. We anticipate being able to refinance these loans with a combination of new mortgage debt and equity.

The weighted average interest rate on the 2016 debt is 5.7%, and while interest rates are anticipated to increase from today's lows, we still expect to achieve at least a 100 basis point interest rate reduction when we refinance these loans in 2016. We've already begun discussions with lenders on the debt that matures during the second quarter of 2016, and expect to refinance some of this before the end of the first quarter.

We also have $61 million of mortgage debt maturing in 2017. Weighted average interest rate on this debt is 6.1%, so again, we should achieve better rates and this goes straight to the bottom line. We're focused on our strategy of lowering our leverage by reducing our weighted average loan to value on new lease, new debt and refinanced debt. We also continue to increase our common market capitalization and have issued over 2.9 million shares of common stock during 2015. We have decreased our loan to value from a high of 67% in 2009, to 53% today.

As of today, our available liquidity is approximately $22.3 million, comprised of $3 million in cash and available borrowing capacity of $19.3 million under our line of credit. With our current availability and access to our ATM program, we have enough availability to fund our operations, deals in our pipeline and any known upcoming improvements at our properties.

Now, we will review the results. All per share numbers I reference are fully-diluted weighted average common shares. Core FFO available to common stockholders was $33.4 million, or $1.53 per share for the year, and was approximately $8.9 million, or $0.39 per share for the quarter, which increased when compared to the third quarter.

Quarterly core FFO per share increased because of the additional revenue we achieved from the acquisitions completed during the last two quarters, coupled with a decrease in property operating expenses at certain of our properties. We also had a decrease in general and administrative expenses from lower professional fees driven by lower acquisition volume.

This was also the second quarter completed under our revised fee structure. As you can see, we did not have a credit to our incentive fee paid to our advisors this quarter and our core FFO per share increased quarter over quarter.

We believe the changes to the fee structure brought us more in line with the current rate market practice and we are hopeful it will facilitate our growth of FFO in the future. We also believe this amended fee structure will allow us to become more competitive in forcing and retaining talented investment and operations professionals.

As Mike mentioned, we also posted a quarterly financial supplement to our website under the presentations link, which provides more detail of financial and portfolio information for our investors and analysts. While 2016 brings with it challenges as we work on debt maturities and the headwinds from the global macroeconomic conditions, we believe we have the right team and plan in place to reposition and continue our growth activities.

We're confident that the remainder of 2016 will be successful as we continue to increase our asset and equity base and decrease our leverage. We're focused on maintaining our high occupancy. I will now turn the program back over to David.

That was a good report, Danielle, and good reports from both Bob Cutlip and Michael LiCalsi. Good team in place today. The main news, of course in 2015, is that we renewed all of our 2016 leases leaving only 5% of forecast ramp expiring through 2019. That's a very solid base to work from now with 97.4% occupancy.

We refinanced the maturing loans at lower interest rates and saving about $1.8 million, and we expanded our line of credit at three strong lenders. That reduced our costs as well. This diversification of lenders is always very secure for all of our shareholders.

Revising our fee structure during the year is much more in line with all of the REIT marketplace. We've been very friendly to our shareholders in the past, and now, we've put it in place with the complete new structure that is very favorable to shareholders. And, we have, of course, been investing in more buildings in growth marketplaces consistent with the strategy of going after certain marketplaces that Bob and the team like.

We've continued to add the quality real estate that we like in our portfolio and shore up any existing properties. We've continued to grow all of our market capitalization leases -- increases, and we hope to see higher trading volumes in the stock and the corresponding uptick in the stock price because the distribution rate today is very, very high.

As many of you know, the Company did not cut its monthly cash distribution during the recession. That was quite a success story. We watched some very good companies cut their distributions and most of them never came back. They never recovered to the dividend level they had during that period of time.

Here's what were doing today, we need to increased the common stock market capitalization in order to increase the trading volume to give investors who want to buy a lot of stock the ability to do this. We hear this from some of the institutional buyers. They always want to know the number of shares outstanding so that when they buy $10 million, $20 million, $30 million of our stock, they know that if they need to, they will have enough liquidity when they want to sell.

We still do not have enough shares outstanding to give them that confidence. However, as we consistently build are asset base and our equity base, we have doubled it over the last four years and that will help us out a lot. With this growth, we hope to see more buyers come into the stock and it should, hopefully, help increase the price and lower the cost of capital so new investments will be much more accretive to the dividend payout.

I want to expand on Bob's comment regarding renewal leasing efforts. We slowed the acquisition pace during 2015 due primarily to market conditions, but we continue to evaluate opportunities. In addition, our acquisition team has been augmenting our asset management team during the year, getting all of the leases in place and relieving some of the burdens that we have of overseeing all of our properties.

But they are back on the path now. We continue to have a promising list of potential quality properties they are interested in acquiring. Because of that list of properties, we expect to continue to grow the assets in the portfolio during 2016.

With the increase in the portfolio properties comes greater diversification and we believe that's better for earnings, more solid earnings and better by lowering the risk profile to shareholders. We are focusing our efforts on finding good properties and long-term financing to match the long-term leases. So we go long-term on both of those.

We are being able to lock-in the long-term financing, which is good for us in the future. And between 2016 and 2019, they only have 5% of the forecasted rents expiring during that period of time and our debt maturities after 2016 drop significantly at a time where we believe interest rates may likely be higher.

We're set up to be very well over the next several years. Much more optimistic today than I have been in a long time about what's going on out there, especially with regard to this Company. Much of the industrial base of businesses that rent industrial and commercial properties like our properties, remain steady and most of them are paying their rents. Everything is working the way it should work in this Company.

There are, of course, some businesses that are having problems and the economy is still not in great shape. We expect good growth in this REIT during the following years.

While I am optimistic that the Company will be fine in the future, Bob Cutlip and I will continue to be very cautious in our acquisitions as we have in past years. We made it to the last recession without cutting the dividend or having a lot of problems from our tenants. If there's another recession lurking on the horizon, I think our portfolio will continue to stand the test against that period of downturn.

In January of 2016, the Board voted to maintain the monthly distribution of $0.125 per common share for January, February and March and an annual run rate of $1.50 per year. Very attractive rate for a well-managed REIT like ours today. We have now paid 137 consecutive common stock cash distributions since inception, and we went through the recent recession of course without cutting any of those. I just think this is a wonderful track record that you can see in the past and we hope to duplicate. Feel very confident we're going to duplicate in the future.

Because the real estate can be depreciated and we are able to shelter the income of the Company, the return of capital was about 79% per common stock dividend in 2015. This is a very tax-friendly stock and in my opinion, a good one for personal accounts that are seeking income because you don't pay taxes on that 79% until you have to sell the stock.

This return on capital is mainly due to the depreciation of the real estate, assets and other items. That's caused earnings to remain low after depreciation and that's why we talk about core FFO because it's adding back the real estate depreciation.

As you all know out there, depreciation of a building is a bit of a fiction anyway since at the end of the depreciation period, the building is still standing even though you have zero cost in it. If you own the stock in a non-retirement account, as opposed to having it in an IRA or retirement plan, you don't pay any taxes on that part that's sheltered by the depreciation as that is considered a return to capital. However, tax man does get hid due when the return on capital has to reduce your cost basis on the stock, which may result in a large capital gain in taxes when the stock is sold.

Stock closed yesterday at $13.74. The distribution yield now is about 10.9%, almost 11%. Our stock price has taken a hit as many other REITs with the threat of rising interest rates, which is causing the investors to flee to bond and high-yield market place like our stock. We're hopeful that our stock price will rebound and stabilize over the next few months as the uncertainty subsides. Many of the REITs are trading at much lower yields, however, than ours. We are at 10.9%.

Let me say this again, REIT universe is trading at about 5.8% yield and if we were trading at that price, we would have a stock price of about $25 a share. The net-net-net REITs, which is what we are, are trading at about 7.28% yield. So if our stock was trading at the that yield today, the stock price would be about $20.60 per share. As you can see, there is a lot of room for expansion of our stock based on other REIT stocks that our comparable to us.

I know some of the analyst would say, oh yes, but you are externally managed and you are somewhat more leveraged than other REITs. Well, I don't want to be too contrary here, but I think you should be looking at whether the management team is a good team or not. Not whether they are internally managed or better. Just once, I would like people who make that argument to say, we have a great management team here who's performed over the last 10 years.

The cost to operate a REIT is not higher whether you are internally or externally managed. If you've been watching also, the leverage has been going down every quarter recently. We are now about 50% leverage based on our market capitalization. That's about $1 stock outstanding for $1 of debt in the buildings we own. That's not high leverage when you are talking about buildings that are on long-term leases.

The Board will vote again in mid-April during our regularly scheduled quarterly meeting toward declaration of the monthly distributions of April, May and June. We are hopeful that overtime we can continue to -- well, I'm hopeful that we can raise the dividend but we will have to look at that on a quarter by quarter basis.

Now we have some questions from our shareholders and analysts who follow this wonderful REIT. Will the operator please come on and help our listeners ask their questions?

(Operator Instructions)

John Roberts, Hilliard Lyons.

Good morning, David.

Good morning, John.

Given the current share price, obviously you're not going to issue any equity. Do you think, is that going to potentially constrain your ability to make acquisitions in the near term, do you think?

Well, it would. But, John, we're probably going to be able to raise more debt and, hopefully, maybe even sell some preferred stock. We have considered both of those alternatives and are currently looking at it. My guess is, during this year, we will be using that more than the common stock. That's the plan right now.

Okay. Would that be a convertible, do you think? Or a straight preferred?

We really haven't locked in on that yet. We are thinking about doing some straight preferred if the price is right. We are working on that now, so a little early to make any announcements.

Okay. Thanks, David.

Next question, please.

Rob Stevenson, Janney.

Good morning, guys. Just to follow up on that last question, where do you guys think that you can price preferred today?

Probably between 6.8% and 7.2% would be the range.

Okay. Does that lead you to, in addition, to possibly issuing preferred for -- to fund future acquisitions? Does that have you -- at least one of your existing tranches of the preferred is at an interest rate above that. Are you thinking also about taking -- [go out] and refinancing that one as well to give you a little bit extra cushion?

No. We have not talked about that at all. We just want to add some additional preferred. As you know, next year, we have some of our preferred coming due and we'll have to pay that off. So, the term preferred would probably be replaced with additional term preferred, or some other form of preferred.

But for us in that range, as you probably know, we are not a big buyer of buildings that have tenants in it that are rated. And rated tenants mean that the cap rate or the rate of return that you can get are, historically, very low today. So, for us, because we are able to underwrite unrated tenants, as you know, we have teams here that do nothing but lend money to small and mid-size businesses and doing buyouts of small businesses. So we understand that marketplace.

And because we understand that marketplace, we're able to do transactions in that area of un -- each of the companies that we are looking at are underwritten as if we were going to make a loan or buy them so that we get this long-term history that we have of not having tenants fail on us. We continue to use that ability to pick good tenants. And when you pick the good tenants and put them in for 10 years and they stay for 10 years, and you are able to leverage that, as we have been in the past, the spreads there are superior to the people who are buying the rated tenants and trying to finance those.

So, we feel like we are in a sweet spot with regard to what we do. We've picked out some cities. We are now doubling and tripling down in some of those cities in terms of getting our teams together. We have cut our Management Team into teams that are related to areas of the country. All of this is coming together as a very, very nice operation. We think using preferred at this point in time is probably the best way to pay for half of the buildings. And the other half can be paid for by borrowing on long-term mortgages. It's a good fit for us right now, Rob.

Okay. Thanks, guys.

Next question?

John Massocca, Ladenburg Thalmann.

Good morning, everyone.

Good morning.

Given that you have no lease renewal in 2016, how do you think your capital improvements and leasing commissions are going to trend next year -- this year, sorry?

Bob? Danielle?

Let me address it, initially. We will have overhang through the first, let's say, six to eight months and then, really, it trails off quite a bit because we are finishing up the 2015 and doing the 2016 during the first six months. So, we will have CapEx for commissions and for tenant improvements during that period.

But as I said, and Danielle confirms for me, the latter half of the year we kind of tail off. And then, of course, in 2017, I think we are already looking at our renewals at that point. We have very few, as you know, based on the expected expirations. So, we're pretty confident that it's going to drop over the next six to eight months quite a bit.

So, for the first six months of this year, it will probably be maybe similar to what it was in fourth quarter of 2015?

Just to pipe in a little bit there. I think Bob was talking on a cash basis. We've accrued a lot of that TI in leasing commissions at the end of the year. We have to pay some of it out. In the first quarter, if you look at our cash flow statement, I think there's like $4.5 million that we have accrued that have yet to pay. So, some of it is already baked into our financial statements at the end of the year. But we will have a little bit of additional.

John, it's not significant. It's not going to undo the applecart in some way. It's relatively light.

Understood. And then, for your dispositions you guys did in the fourth quarter, do you guys have a cap rate or even just a cap rate range for what you sold those at?

I don't have that with me but we can get that to you. I do know that we sold them for $6.9 million and made $1.5 million. So a very, very good profit for us. But remember, these properties, when we bought them, we bought them at a very high cap rate. Two of the properties are truck-service maintenance facilities for Cummins. And, of course, they bought them from us.

The other one is an industrial facility in the suburb of Columbus, Ohio. And the existing tenant, who is the subtenant in the building, bought that from us. So, we feel very good about it. But, I will guarantee you, those cap rates are not going to be in the 6%s and 7%s, but I think we bought them with double-digit cap rates. But we will confirm that number to you.

Okay, no problem. More on the balance sheet side. With regards to the term loan, is there any interest in swapping that out? Most of your floating -- all of your floating-rate mortgage debt is capped, but with volatility maybe in the interest rate markets, is there any interest in swapping out the term loan and what kind of spread do you think you could get in the market today?

I don't know. The term loan is something we've been trying to do for a long time. As you know, we've got mortgages that are long term and then we've got our revolving line of credit, and it was very nice to put a piece of debt in there. But we will look at that. I don't know what the penalties are for paying that off. Do you remember?

Are you talking about the $25 million term loan we just put in place or our term preferred stock?

The $25 million term loan you put in place.

I don't think we have any plans to put that out this year. Again, we just put it in place. It's got pretty solid pricing (multiple speakers).

I was talking about swapping it out so the interest rate was essentially fixed.

Oh, I see.

We could buy a cap for that.

Yes, we could buy a cap for that. No, we haven't had discussions on that internally right now.

No, we have not.

Okay. That's it for me. Thanks very much, everyone.

Next question.

(Operator Instructions)

Larry Raiman, LDR Capital.

Good morning. A question for you on the core portfolio. I didn't go through the full filing yet. I just read your earnings release. Could you describe what the quarterly same-property -- same-store income was year over year? Then maybe you could describe it for the full year what the same-property income is? And then maybe you could use that as a launch pad to say, based on your anticipation given your lease structure, what the organic growth in the same-property portfolio looks like over the course of the next 12 months?

Organic growth is going to be relatively small, but fixed rates, they bump up maybe 2% or 3% at the most in the core. So, there's not much growth in that. The way we've been making a lot more money is by refinancing some of the mortgages that are coming due or when they can be. And, of course, we mentioned the 1.8 savings last year. I suspect that this year will be very strong in savings there. So the growth will come from refinancings, not redoing leases.

When we do have a lease and we get a chance to increase the rate but we don't have that many. It's a blessing and a curse. We don't have that many coming due in the next two years to three years, so there's not that many opportunities to renegotiate. But there is some built-in growth. I don't know what that is. Danielle, do you --?

Just to follow up on your question, we had close to $81 million of rental income this year. Over 95% of that is basically on our same-store properties. It's on our existing properties or properties we've acquired. Some of that additional -- I can refer you to page 54 of our 10-K because we actually have a table that breaks all of this out. Less than 2% of that is from our vacant properties. We anticipate our same-store revenue to be stable again in 2016 since we've renewed all of our 2016 leases.

Sure, and do you straight line your -- any stipulated rent increases? I presume that's in there as well?

That's correct.

Okay. Good. One other, maybe, just observation would be I know you mentioned the quality of the Management Team, but certainly the structure being an outside advised does turn off some investors. I know that you listened to them and changed your advisory fee over the very recent past. But was there disclosure with regard to the analysis that -- you made mention that we wanted to -- you wanted to bring the cost of that structure in line with the market and be more cognizant of existing investors, was disclosure of that analysis made public to show similarly sized companies and their overhead costs, and here we are, so you're not paying any more dollar for dollar?

No, we did not do that. There are maybe 10 externally managed REITs and only 3 or 4 of them are in our area. We pretty much took their agreements and analyzed them in terms of what it would do for us and felt like that was a good marker. But we did not go out and say, here is a research paper you can review.

Trying to get data from those that are internally managed and compare them to ours is very difficult since the internal-managed groups don't really publish exactly what it would be like if it was externally managed. So it's hard to pull out all the costs and expenses. They are summarized to such a level that you can't get to the pieces that we pay from -- we pay to our management company. So, there is no way to get that number out. I have guessed several times in talking to people and trying to tease those numbers out, that there is not a lot of difference between what the internal managers pay and what the external manager pays.

Understood. Has there been any discussion about potentially internalizing just while the Management Team can still be involved but changing quote-unquote the optics? And maybe that would bring in a new constituency of shareholders as you want to grow the Company and broaden out that base?

I think it would be hard to do that at this point in time. You need to be larger. We've considered that a couple of times and just felt like that we would lose so much in terms of external versus internal, because we have this sharing arrangement of legal and accounting, and different (technical difficulty). So, it's very hard to be able to externalize that -- I mean, internalize that. We haven't gotten to that point. Maybe one day, but not today.

Great. Thank you very much. Nice job. Keep it up.

Next question, please.

I am showing no further questions. I will now turn the call back over to David Gladstone for closing remarks.

Okay, thank you all for calling in. We appreciate the questions and hope there are more of those next time. We will see you at the end of next quarter. That's the end of this call.

Thank you, ladies and gentlemen. That does conclude today's conference. You may all disconnect and everyone have a great day.