Gladstone Commercial Corp (GOOD) 2016 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, 2016 earnings call and webcast.

(Operator Instructions)

As a reminder, today's call is being recorded. I would now like to introduce your host for this conference call, Mr. Michael LiCalsi. You may begin.

Good morning, and thanks to everyone for calling in. We enjoy this time we have with you on the phone and wish we had more time to talk with our loyal shareholders. As you know, David Gladstone usually does the introductions but he is traveling today. He will be on the call later to give a summary after Mike Sodo's portion of the call, and will answer some questions along with Mike Sodo and Bob Cutlip at the end of the presentations today.

As many of you know, I am the President of Gladstone Administration, my name is Michael LiCalsi. Gladstone Administration serves as the administrator to all of the Gladstone public funds and related companies. I will make a brief announcement regarding some legal and regulatory matters concerning this call and report.

This report 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 Company's future performance, and forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable.

And 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 file with the SEC. These can be found on our website, www.gladstonecommercial.com and on the SEC's website, www.sec.gov.

This 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. 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 has endorsed FFO as one of the non-accounting standards that we can use in discussion of REITs. And please review 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 previously recorded as expenses 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 our other Gladstone publicly traded funds, you can sign up on our website to receive email updates and the latest news. You can also follow us on Twitter, username GladstoneComps, and on Facebook, keyword the Gladstone Company. And finally, you can visit our general website to see more information at www.gladstone.com.

This presentation today is an overview and we ask that you read our press release issued yesterday, and also review our Form 10-K for the year ended December 31, 2016. We also created a financial supplement which provides further detail on our portfolio and results of operations. All of these can be found on our website, www.gladstonecommercial.com. Today we will begin the presentation by hearing from Gladstone Commercial's President, Bob Cutlip.

Thanks, Mike. Good morning, everyone. During the fourth quarter, we acquired a $25.5 million property located in Philadelphia and placed a $14.8 million mortgage note on that property. We executed a lease amendment with our tenant in our Vance, Alabama property to expand that property by 75,000 square feet and extend the lease by 10 years upon construction completion in June of this year.

We raised $13.9 million in a direct placement of our common stock, raised $3.5 million in net proceeds from sales of our Series D preferred and $9.4 million in net proceeds from sales of our common, both through our ATM program. We executed one new lease with a tenant to occupy the remaining space in our Burnsville, Minnesota property, extended the lease with a tenant in our Wichita, Kansas property for five years, sold two properties located in Montgomery, Alabama and Toledo, Ohio, and we were added to the MSCI US REIT Index.

Subsequent to the end of the quarter, we sold a non-core Franklin Township, New Jersey property for a nice capital gain of $5.9 million, continued deleveraging our portfolio by repaying $13.8 million of fixed-rate debt, which was at a 6% interest rate, and also repaying $8.2 million of variable-rate debt. And we continued our program of connecting with registered investment advisors and institutions to promote our brand. Over the past six months, we have had 25 such meetings.

We had another excellent quarter as we continued to re-lease vacant property and continue our industry high occupancy. We also added another high-performing asset to our portfolio. We continue to be pleased with our activity and have a healthy pipeline of acquisition candidates. As I've noted during our last quarterly call, our Acquisitions Team has spent considerable time over the past several months researching the direction of the market.

Noted researchers had forecast that the market cycle may be peaking. Actual data through year end reflects that investment volume is down by about 10% compared to the 2015 volume, and this is as reported by national brokerage and research firms. And discussions with brokers reflect that listings were up last year but closings were down. Publicly traded REITs were net sellers for the year.

Now whether this leads take some cap rate expansion remains to be seen. Our team will continue to monitor market conditions and will actively investigate opportunities and acquire properties when the tenant credit, location and asset returns are accretive and promote our measured growth strategy. Now for some Company specific details.

During the quarter ended December 31, we acquired a multi-story 103,000-square-foot office building located in Philadelphia in a sale-leaseback transaction. The purchase price was $25.5 million, the lease term 15 years, and the average cap rate 8.7%, accretive for our shareholders. We placed a $14.8 million mortgage note on this property with a fixed rate of 5.1% and a 10-year term. This property is 100% occupied by Radial and serves as Radial's corporate headquarters.

Radial provides logistics and related services to retailers in e-commerce business. We are also under construction on a 75,000-square-foot expansion to our Leer industrial facility adjacent to the Mercedes-Benz assembly plant in Vance, Alabama. Upon construction completion, the lease term resets the 10 years and the average cap rate over the new term for the entire 245,000 square feet is an estimated 10.4%. So also very accretive and an excellent effort by our team.

Our Acquisitions Team continues to only acquire properties in strategic secondary growth markets. Now the hallmark of our continuing high occupancy remains and it will continue to remain thorough tenant credit underwriting and the mission-critical nature of the property. This execution strategy has resulted in our never having an occupancy in our portfolio below 96%, and that is since 2003.

Location is also important for value accretion over time. Over the past three years, to promote this parallel strategy, we have invested in Phoenix, Salt Lake City twice, Denver three times, Dallas four times, Austin, Atlanta twice, South Florida, Philadelphia, Indianapolis and Columbus, Ohio, twice. This emphasis on select markets also improves our overall asset management operating efficient. So our strategy is credit emphasis with an added focus on growth market location.

And from a prospective opportunity standpoint, our team continues to have a strong pipeline of acquisition candidates. At this time, it is exceeding $275 million in volume and 18 properties are under investigation. One property is in due diligence, three in the letter-of-intent stage, and the balance is under initial review.

Our Asset Management Team continued our strong leasing performance. As noted, we leased the remaining space in our office property in Burnsville, Minnesota which is a Minneapolis sub-market. This lease was for approximately 20,000 square feet and the lease commenced in January. We also extended the lease that was set to expire in 2017. At this time, only 0.6% of our GAAP rents are expiring in 2017 and 1.3% of our GAAP rents in 2018.

So our team is staying ahead of lease expirations in general and actively managing our properties. We only have one fully vacant property remaining today, and that is our property in northeastern Massachusetts, an 86,000-square-foot freezer/cooler industrial property. We have two full building prospects and one prospect for 50% of the building at this time. We successfully extended all of our leases that were originally set to expire in 2016 with the exception of a 2,900-square-foot office space in our multi-tenant property in Indianapolis. Our portfolio is currently 97.9% occupied.

In total for 2015 and 2016, we successfully concluded 16 of 18 lease expirations resulting in over one million square feet of leasing activity. And in 2016 alone, we sold six properties in non-core markets. These results, combined with our acquisitions and capital raise performance, reflects an ability to execute successfully in every phase of the real estate life cycle for a property. As part of our capital recycling program, we sold two properties during the quarter, one property subsequent to the end of the quarter and have one additional property under contract for sale to the existing tenant. All of these assets are considered non-core in our efforts to move out of smaller, single-asset markets and redeploy the proceeds in our target locations.

As we reflect on our recent portfolio efforts, the better long-term news for our overall growth strategy is that only 4.4% of our forecasted rental income is expiring through 2019, during a period that we anticipate the industry is going to experience headwinds at some point. So our cash rents should be stable and growing and our occupancy should remain high even if economic conditions deteriorate.

This is an important fact for our shareholders, as the majority of our peers have a minimum of 20% and as high as 50% of their leases expiring during this same period. The majority of our capital availability will be used to pursue growth opportunities because we do not anticipate needing significant capital for tenant improvements and leasing commissions to retain tenants, or to re-lease vacant space, or to fund operating deficits.

Mike Sodo, our CFO, will expand upon our refinancing activities, but it is important to note that our refinancings continue to lower our loan to value, lower our annual interest costs and the amount of debt maturing reduces through 2017. This combination of our improving capital structure, our lower annual debt cost on our same-store properties, and the opportunity to emphasize growth positions us well in the current environment.

So in summary, our fourth quarter continued our leasing and acquisition success and we refinanced maturing mortgages at lower interest rates. Our team continues to have a strong pipeline of acquisition candidates and will adhere to our strategy of only acquiring properties with credit-worthy tenants in growth markets that must be accretive to our operations. Now let's turn it over to Mike for a report on the financial results.

Thanks, Bob, and good morning. I'm happy to be participating on this call after taking over as CFO during the fourth quarter. I will start by reviewing our operating results. All per-share numbers I reference are based upon fully-diluted weighted-average common shares.

Core FFO available to common stockholders was $37.1 million, or $1.55 per share for the year, and $9.4 million, or $0.38 per share, for the quarter which slightly decreased from the third quarter. This is largely a function of increase in common share issuance, which I will expand on later in my remarks. Our fourth-quarter results resulted in an increase in total operating revenues to $22 million as compared to total operating expenses of $13.7 million for the period. The increase in revenue largely results from our Philadelphia acquisition and a full quarter of revenue for our prior acquisitions.

Property operating expenses were higher due to increased land board obligation expenses, and G&A expenses were higher due to an increase in legal and accounting fees. We did see a decrease in interest expense from reductions in interest rates through our refinancing efforts.

Now let's look further into our debt activity and structure. We continue to have a strong balance sheet as we grow our assets and focus on decreasing our leverage. We reduced our debt-to-gross assets during the year to 52% from 57% at the end of 2015 through refinancing maturing mortgage debt at lower leverage levels and redeeming our Series C Term Preferred Stock. The Series C was considered debt due to its mandatory redemption date. We continue to expect to gradually decrease our leverage over the next couple of years.

We continue to 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. As we manage our debt, we repaid $19.3 million of maturing mortgage debt during the quarter with borrowings under our line of credit and an $8 million mortgage note. Over the past 12 months, we have refinanced close to $80 million of debt primarily with the new variable rate mortgages at interest rate equal to the one-month LIBOR plus a spread ranging from 2.35% to 2.75%. We have placed interest rate caps on all of these new mortgages.

We also added some of these properties to our unencumbered pool under our line of credit in an effort to provide more flexibility in the future. Prior to the refinancings, these mortgages had a weighted average interest rate of 6.1%. Our deleveraging and refinancing efforts have been a tremendous success with year-over-year interest expense decreasing by approximately 8% which helps earnings.

Looking at our upcoming maturities, we have three balloon principal payments of $35.7 million payable during the remainder of 2017, after repaying a $13.8 million mortgage with a 2017 maturity earlier this month. Our remaining 2017 balloon payments have a weighted average interest rate of 5.6%. We anticipate refinancing these maturities into new long-term debt or adding some of these properties to our asset pool under our line of credit. We believe either outcome will result in a reduction in interest expense.

Long-term mortgage debt continues to be available, but at slightly higher rates than we have experienced in the prior 24 months. Interest rates have been very volatile since the presidential election. Since November 8, the yield on the 10-year Treasury has increased in the neighborhood of 75 basis points and the one-month LIBOR rate has increased roughly 25 basis points, so both the short- and long-term components of the rate curve have moved a lot.

Interest rate volatility has also been a function of global uncertainty, anticipation of further potential Federal Reserve rate hikes, as well as the unknown future for the US economy. In response to this volatility, banks have widened out their spread, and life insurance companies, as well as CMBS lenders have reintroduced [floors]. With CMBS loan originations down, the life insurance companies and banks have become increasingly more selective with new originations.

With all of that said, interest rates still do remain attractively low from a historical perspective and we will continually try to actively match our acquisitions with cost effective debt. Depending on several factors, including the tenant's credit rating, property type, location, terms of the lease, leverage and the amount and term of the loan we are generally seeing all-in rates ranging from 4.25% to 5%.

Finally, I will turn to our equity activity during the fourth quarter, which I made mention of previously. As Bob stated previously, we completed a direct placement of common equity in December totaling $13.9 million. This placement was executed at an opportunistic time as the Company had just been included in the RMZ index. While putting a minor temporary dilutive drag on FFO, we believe it was a solid execution to provide capital for future acquisitions and the repayment of debt.

We also raised both common and preferred equity under the ATM programs during the quarter for combined proceeds of $12.9 million. We used these funds primarily for our new acquisitions, refinancings and tenant improvements at certain of our properties. As of today, our available liquidity is approximately $34 million comprised of $3.2 million in cash and an available borrowing capacity of $8 million under our line of credit. With our current availability and access to our ATM programs, we believe that we have enough liquidity to fund our current operations, deals in our pipeline, and any known upcoming improvements at our properties.

We encourage you to also review our quarterly financial supplement posted on our website, as Mike mentioned, which provides more detailed financial and portfolio information for the quarter. We believe that we have the right time (inaudible) team and business plan in place as we progress this year. We are confident that 2017 will be successful as we continue to increase our high-quality asset base, as well as continuing to improve our metrics inclusive of leverage. We are focused on maintaining our high occupancy with strong credit and real estate. Institutional ownership of the stock has increased over 10% in the past year to roughly 50% as of year end. We do view this as a positive trend.

Through our outreach initiatives, David, Bob, and myself look forward to further engaging with not only our existing investor base, lenders and coverage analysts, but also establishing new relationships as the Company moves forward to its next chapter. And with that, I will turn the program over to David.

All right, Mike, that was a good report, good to know the details, and Bob Cutlip that was an excellent report, as well. And Michael LiCalsi, you do the introductions better than I do. We ought to maybe change the way we do these things as we begin.

The main news, again, is new property for a little over $25 million. We raised some common and preferred to get ready for the quarter that we are in, putting some more money to work, and leased more vacant space and renewed all of the 2016 leases except for a small office lease, leaving only about 4.4% of forecast rents expiring to the beginning of 2020, so a long time before we have any leases coming due, and refinanced many of the loans and positioned ourselves really for more growth.

As many of you know, this Company did not cut its monthly cash dividend during the recession, and that was quite a success story as we watched many other good REITs cut their distributions, and many of them have never recovered from the beginning of that disastrous period. We are in a great position, if the economy slips again.

Here's what we're doing today, we need to increase the common stock market capitalization in order to increase the trading volume to give some of the larger institutional investors who want to buy a lot of stock the ability to do so. These institutional buyers, they always want to know the number of shares outstanding, so if they buy $10 million to $20 million of our stock then they know there will be enough liquidity if they want to sell, or if they need to buy some more. When we were included in the MSCI US REIT index, that has certainly been a great help to us, that it is a mark of distinction when you have finally reach that size.

However, consistently, we want to build our assets and equity base, and the size has doubled over the last five years, and with the growth we hope to see more buyers coming into the stock. That should, hopefully, help us increase the price, it is still at the low end of the scale.

We are raising preferred stock, the Series D which has a 7% yield, that is permanent preferred, hang onto it for a lifetime. We have a new webpage, gladstonecommercial.com, that explains that preferred and you can't redeem it for, I think it is five years now. So it is very investor friendly for those people who want preferred stock, and it was actually designed for some large institutions that did come in and buy the preferred stock. They are not really common stock buyers, the preferreds, those stocks that these companies buy, but hopefully, they get to know us and pass our name on to some other folks.

The outlook for this Company is really promising, potential quality products. The properties that we are putting in the portfolio now, we expect to continue to grow the asset portfolio even more in this next year that we are in. With the increase in the portfolio of properties comes greater diversification and that will be better earnings too.

However, please know that the price to buy a good building with good tenants is very high these days and yields are relatively low, so we have to be very picky. We are focusing our efforts on finding excellent properties, good long-term financing to match long-term leases, and that has been the secret for us to get through these recessions that have happened.

Being able to lock in a long-term financing is really good for us for the future, at the same time having long-term leases. 2017 and the end of 2019, we have about 4.4% of forecast rents expiring, I don't have any reason to believe those won't be re-leased, even the same tenants re-upping. So we're much more optimistic about this Company's cash flow.

Much of the industrial base and businesses that are renting these office properties, like the ones we have, it has remained steady. Most of them are paying their rents. As you know, we have a terrific credit underwriting group that underwrites our tenants. And considering the track record of the tenants paying their rents, the future is really bright for this Company. It is a strong underwriting team that has kept more than 96% of our properties occupied since 2003.

I find the future, I know Bob and I will continue to do the same thing, that is, be cautious on our acquisitions, as we have done in past years. We made it through the last recession and quite, frankly, we can handle most anything that the economy wants to throw at us at this point in time.

In January, the Board voted to maintain the monthly dividend of $0.125 per common share for January, February and March. That is an annual run rate of $1.50 per share; this is a very attractive rate for our REITs that like us. We now have 144 consecutive common stock cash distributions. We went through the recession, never cutting the dividend. That is more than 10 years, and I just think that is some thing that we can't seem to get across to people, how strong we have been.

Because real estate can be depreciated, we are able to shelter the income of the Company. The return of capital was 71% for the common stock in 2016. This is a very tax-friendly stock for anyone who wants to put it in their personal accounts rather than the IRA or Keough. This return of capital is mainly due to the depreciation of the real estate assets and other items, and has caused earnings to remain low after depreciation. And that is why we talk about FFO and core FFO because this is adding back the real estate depreciation.

Depreciation of a building is just an accounting thing for tax purposes. If you own the stock and a non-retirement account, as opposed to having it in your IRA, you do not pay any taxes on that part, so it is sheltered by the depreciation and is considered a return of capital. However, the return of capital does reduce your cost basis on the stock which may result in a larger capital gain.

So we have been decreasing the leverage every quarter, we are now nearing 50%. This is about $1 in stock for every $1 of buildings that we own. It's just a very attractive track record when it comes to leverage now. So why don't we have the operator come onboard now and we will get some questions from the analysts and good stockholders that we have that want to ask us some questions. Would you come onboard, please?

(Operator Instructions)

John Roberts with Hilliard Lyons.

Good morning, Dave, and Bob, that large purchase you made, it is much larger than you typically have done in the past. Is there a change in strategy, are you going to go for larger sized properties versus maybe what you have historically?

No, I think, John, our sweet spot is still anywhere from $10 million to as high as $30 million. As you know, we have been averaging, from the inception of the Company, we were right like $9 million to $10 million, but really over the past four years, we have been in the $16 million to $17 million on average. So this is not really outside of the envelope at all.

It was a very attractive deal in a target market that we have, and with the cap rate we were able to get with a really long-term lease, we felt it was worthy of the investment. But I think you will still see us somewhere for the most part between $15 million to $20 million, $22 million to $25 million. Getting above $30 million to $40 million, still at our size is -- David and I just think that we don't want to get out over the tips of our skis, we don't want one asset, one tenant to be an issue. We've never had any major issues in the past, but looking forward we still do not want to have that opportunity. So that sweet spot is going to stay $10 million to probably $30 million.

Great, that is good color. And what should we expect on security issuance-wise? You did quite a bit on the ATM and Common and Preferred, should we look at somewhere in the $10 million to $15 million a quarter type number? Is that a good number for us to model in?

If we look back historically over acquisitions, we have been somewhere between the $75 million to $150 million range per year, going back two or three years. In the context of our efforts to moderately delever over time I think it would be reasonable to assume that new property acquisitions would be approximately 50% leverage, 50% to 55%. So as you are solving for those numbers, John, I think you are probably in the right range. For us, it is really an exercise in being prudent and the timing of issuances within the Common and Preferred.

We do not want to be doing that in a dilutive fashion. So myself, as CFO, I have daily conversations with Bob and the deal team really to see, for those candidates for new property acquisitions, the probability and timing of those, so that I can properly guide through the ATM program and do those issuances. Fortunately, with the Common being at $20 per share, Series D is at roughly $25 to $30, so those are places at which we can do accretive deals through the ATM.

Super. Thanks a lot.

Next question.

Laura Engel with Stonegate Capital Partners.

Good morning, hi, David, and Bob. Thanks for taking my questions. I wanted to see, overall it looks like maybe some of the new releases and some of the renewals are coming in at shorter terms, I guess. Can you comment on that? And then you can you also comment on what type of pricing power you all are seeing as far as the inventory that is available versus potentially increasing the rates as you renew or get new tenants? Thanks.

Okay. I think on the renewal side, I think what we are looking at is we have leases that have stipulated provisions that are typically five-year renewals, and so we are pretty much stuck to that, and the tenants what the flexibility. So that drives our renewals more than anything else. And for new leases, they really have ranged from five to seven years, so we try to get it extended as much as possible, but I think you know tenants, with what is going on with the changeover of the government and where interest rates are going and accounting changes, tenants are being a little bit more hesitant to go really long term.

So I think on renewals, number one, they are going to stay at probably the five- to seven-year period. But most of the deals that we are chasing out there are actual 10-year leases and beyond, so I'm not that concerned. And from a pricing standpoint, in these secondary growth markets, we are having some improvement in the pricing, but in these tertiary markets, our goal is to make sure that we at least maintain the straight-line rent at the same.

To give you a little history, in 2015 our straight-line rents on our renewals and new leasing turned out to be about 7% increase. Last year, frankly, and being brutally honest, it was flat. This year so far, the deals that we have done already for 2017 are about 2% up.

But the thing that we have to deal with, when you are in the net lease business, if you do 10- to 15-year leases, and you have 2% to 3% escalations year-over-year, you are in the real estate business. You are going to go through at least one, maybe two recessions during that period, and so the likelihood of you being at that market rent consistently is going to be challenging. But, with that said, we are seeing some good pricing power in Columbus and in Indianapolis, and even in Minneapolis, because the office markets for sure are getting a little tighter.

Right, okay. Great. Well, I appreciate the color and congrats on the strong quarter and I will get back in the queue.

Next question.

[James] Altschul with Aviation Advisory Service.

Good morning, thanks for taking my question. And I apologize if you have covered this matter already because I haven't been listening to your conference calls every quarter. Was there some point last year or the year before you announced you were going to call the Series B Preferred, if I remember correctly, but then you didn't and now I see that you have established an ATM program for the Series B. Am I correct in deducing that you have decided not to call this series?

There are no current plans to call the Series B. Our ATM issuances currently are going through the lower coupon Series D.

What do you mean lower?

Sorry, well, the coupon on the Series D is a 7%. You may be misinterpreting the Series B for the Series C that was actually redeemed in 2016. Is that possible?

No, no, no. You said you made reference to the lower coupon Series B, is there more than one Series B?

There is a Series A that's at 7.75%, a Series C at 7.5%, and the new Series D is at 7% coupon, so my comment was that currently through the ATM, we are issuing both Common stock as well as the 7% coupon Series D, as in David, stock. There is no other activity for the Series A or B currently.

Okay, but are you issuing more Series B, as in Boy?

No we're not currently.

Oh, okay. I thought the news release said something about an ATM program for Series B. Perhaps I misread it. Okay.

The program is in place, it's just not actively being utilized.

Oh, you have it but you are not using it?

Correct. We're only issuing through a Preferred Series D.

Okay. Fine. That is all I have. Thank you very much.

Okay, next question, please.

Jeff Rudner with UBS.

Good morning, David. Good morning, Bob, and congratulations on a very nice quarter. David, I have follow-up question for you from the first caller.

I am a little bit confused or a little bit conflicted in that, on the one hand, I understand you would like to have more Common shares, not referring to the Preferred stock, but more Common share, maybe ATM offerings, to increase the size of the outstanding shares to make it more attractive to institutional investors.

On the other hand, you indicated that the price of office space continues to climb and is pretty high right now. So, obviously, any issuance of Common shares would mean that we would have to invest the money, yet I'm getting the impression that maybe the investments aren't as attractive now as they were over the last number of years. Can you reconcile that?

Sure. The situation is always, for us, is the difference between the rent on the one hand and what we can borrow at and raise money at on the other hand. As long as the spread remains strong, you don't mind putting the money to work in new properties. Every transaction we look at we put through a pretty rigorous model that Bob and his team have developed, and that tells us exactly how accretive it will be to our Common shareholders. And that is driving everything.

We do have opportunities, it is just that every now and then the market place kind of craters and goes the wrong way and we have to stay out for a while. Right now it is slow because I think the pricing hasn't quite caught up with what is going on in the debt marketplace. So we are finding transactions, and as long as we can do $20 million or so every quarter, I think it is a good run rate.

So far we have been able to do that. I would love to go faster, but I just think it takes a lot of effort that we do not have the ability to do to put a lot more to work.

So we raise money as we need it. The wonderful thing about an ATM program on your Common or Preferred stock is that you can open it up and take some dollars in and put it to work. So you do not have that big gulp that you do when you do an equity offering of $20 million or $30 million.

Even this last Preferred offering that we had, and we did it because one institution needed some money to put enough of our stock in to match this new thing that we are involved in, and so as a result, it was just an opportunity and we took it. Looking back, maybe not have taken it, but we do have money for the future, and I think Bob and his team will put that to work in the next quarter.

Well, thank you very much for the insight. And, again, I would just like to emphasize something that you mentioned previously about the fact that during the recession of 2008/2009 where as many REITs and, obviously, BDCs cut their dividend, Gladstone Commercial maintained that solid $1.50 dividend and certainly you guys are to be commended for that.

Well, thank you very much. Could we have the next question, please.

John Massocca with Ladenburg Thalmann.

Good morning, everyone.

Good morning, John.

A quick question. After the lease-up of Burnsville, can you remind us what partial vacancy you guys have left in the portfolio, and any prospects you have for leasing up that vacancy? Not including the fully vacant property in Massachusetts.

Not including that we have -- remember that small medical facility that we have in Houston, Texas? We have about 5,000 square feet left in that and we have a prospect right now -- two prospects for about 3,500 square feet for that. Heritage Park is our multi-tenant property in Indianapolis, and we have a small 2,900-square-foot vacancy there. And this year we have another 2,000 square feet that we are discussing with the tenant, but that is only 2,900 square feet there.

But then you recall our Maple Heights property in Ohio -- central Ohio, we have about 100,000 square feet that is vacant in that warehouse facility that we have one prospect for that entire space, but that is all we have. And then in Raleigh, North Carolina, we have a 114,000-square-foot warehouse facility, and there's about 7,000 square feet vacant there. That is about it.

So if I'm hearing correct, outside of the Massachusetts property, the bulk of vacancy is really that Maple Heights property?

That is right. That is correct.

Sounds good. And then, can you guys walk the thought process behind the Franklin Township sale? Was this more of an opportunistic sale where you thought you got really good pricing on it, or something that is more part of your stated strategy of moving out of non-core market?

It is kind of a little bit of both, John. We do not have a desire to be in that industrial market. Most of the people there who -- from a prior life I am very familiar with, are very strong, they are chasing cap rates way down. As you know, from [Exit 8 to Exit 12], it is extremely strong there.

And so this is a building that was built in the early 1980s, very low clear heights, there is only three-and-a-half years left on the lease. The possibility of them renewing, but if we bought it for like $8.2 million and if you can sell it for $12.8 million I would rather take that money and put it in our target markets that you are familiar with as we're going forward, and that is our plan. So it is both opportunistic and it was a non-core location we wanted to get out of.

Okay. And then, as you look to kind of -- I don't want to say necessarily redeploy that money one-for-one, but when you guys look at acquisitions, would you be looking for kind of buildings in the industrial sector that are newer, maybe higher clear height than that, or is that kind of a space that you like to play in, just maybe assets where you think you can get better pricing versus what you could sell the one in Franklin Township for?

From an industrial standpoint, we are only seeking properties that have at least 30 feet clear. Our sweet spot is under 500,000 square feet, and we are now chasing, in our current pipeline, we have three assets that kind of fit that bill. One of them is like 34 clear in Denver, Colorado. So we are not going to chase the low clear height.

Now one thing that we are investigating very extensively is the last mile that you are seeing in e-commerce where the urban logistic centers are going to be very, very important. And those are probably going to be anywhere from 24 clear to 30 clear. So we will look at those, but for the most part, any distribution facilities, we really want it to be minimum 30 clear -- and of precast or tilt wall construction.

All right. Makes sense to me. Thanks very much for your time.

Okay, next question, please.

(Operator Instructions)

I am not showing any further questions at this time. I would like to turn the call back over to David.

Okay, thank you, and we thank all of you for your questions. We really like the questions, it get us to give you more information that you're looking for. We will see you next quarter, it should be a good quarter ending March 31. That is the end of this call.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.