STAG Industrial Inc (STAG) 2011 Q4 法說會逐字稿

Greetings, and welcome to the STAG Industrial, Inc., fourth-quarter 2011 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Shepherd, VP of Investor Relations. Thank you. Mr. Shepherd, you may begin.

Thank you. Welcome to STAG Industrial's conference call covering the fourth-quarter 2011 results.

In addition to the press release distributed yesterday, we shall file later today our first annual report on Form 10-K with the SEC and we have posted an unaudited quarterly supplemental information presentation on the Company's website at www.STAGIndustrial.com under the investor relations section.

On today's call, the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to STAG Industrial's revenues and operating income, financial guidance, as well as non-GAAP financial measures such as trends from operations, core FFO, and EBITDA.

We encourage all our listeners to review the more detailed discussion related to these forward-looking statements contained in the Company's filings with the SEC, and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the Company's website.

As a reminder, forward-looking statements represent management's estimates as of today, Friday, March 9, 2012. STAG Industrial will strive to keep its stockholders as current as possible on Company matters, but assumes no obligation to update any forward-looking statements in the future.

On today's call, we will hear from Ben Butcher, our Chief Executive Officer, and Greg Sullivan, our Chief Financial Officer. I now turn this call over to Ben.

Thank you, Brad. Good morning, everybody, and welcome to the fourth-quarter earnings call for STAG Industrial.

This quarter marked the end of a partial year for us as a public company. As you may recall, we closed our IPO in April of 2011. We are pleased to have you join us, and look forward to telling you about our fourth-quarter results and some significant subsequent events in early 2012.

Presenting today, in addition to myself, will be Greg Sullivan, our CFO, who will review our fourth-quarter financial and operating results. Also with me today are Steve Mecke, our COO; Dave King, our Director of Real Estate Operations; and Bill Crooker, our Chief Accounting Officer. They will be available to answer questions specific to their areas of focus.

For those of you who may still becoming familiar with STAG Industrial, we are a self-administered and self-managed real estate company focused on the acquisition, ownership, and management of single-tenant industrial properties throughout the United States. The Company, now with a staff of 31, has a full-service platform that incorporates acquisition, asset management, credit, accounting, and legal functions.

At the end of 2011, the Company owned 105 industrial properties totaling 17.3 million square feet. The 15 properties acquired by the Company during 2011, a partial year of operation, represented an approximately 25% increase in the Company's real estate assets.

Our investment strategy is, and remain constant, to acquire individual Class B single-tenant industrial properties predominately in secondary markets throughout the United States in the $5 million to $25 million range. We target these markets because we believe the secondary markets tend to have less occupancy and rental rate volatility and less buyer competition compared with primary markets.

Further, we believe that due to observed market inefficiencies, our focus on these properties will allow us to generate aggregate returns for our stockholders that are attractive in light of the associated risks when compared to other real estate portfolios.

Fourth-quarter operational results provide continued validation of our investment thesis with significant leasing and acquisition activity by the Company.

Let me first mention highlights from the Company's leasing activities during the fourth quarter and for 2011 in total. Tenant retention for 2011 was 88%, slightly above our long-term expectations of circa 85% for single-tenant industrial assets. In the fourth quarter, the Company renewed leases for 585,942 square feet, including approximately 335,000 square feet which was scheduled to expire in 2012. 28% of all the leases scheduled to expire in 2012 were renewed.

In the quarter, we also leased approximately 41,000 square feet of existing vacant space.

For 2011 in total, the rental rates on renewed leases increased 0.6% on a cash basis and 1.2% on a GAAP basis.

As a result of these fourth-quarter leasing efforts and our overall acquisition activity, overall quarter-end occupancy increased by 60 basis points to 93.2%.

We generally have achieved these solid results without having to offer significant rent concessions or by incurring large capital expenditures. As I mentioned last quarter, we believe our leasing results are indicative of the improving leasing trends generally across the country and specifically in our markets. The continuation of these trends will further contribute to the Company's growth and stability in coming quarters.

Our acquisition activity continued to be strong in the fourth quarter. We completed the acquisition of seven properties for a combined all-in purchase price of approximately $50 million. These acquisitions added approximately 1.5 million square feet to our portfolio, increasing our portfolio size by 9% in the quarter.

The seven properties are located in five different states, and their tenants reflect diverse industries, including industrial equipment manufacturing, household durables, and technology. These acquisitions have been accomplished at an average cap rate of 9%-plus, in line with our target.

Since quarter end, we have acquired two additional properties with approximately 370,000 square feet for a price of approximately $12.9 million. The Company is also under contract to acquire four properties comprising approximately 1.1 million square feet for a combined purchase price of approximately $35 million. There are some significant conditions to closing that have not yet been satisfied, so there can be no assurance that these transactions will be consummated.

Including these yet to be consummated transactions, we believe that we will shortly have acquired approximately $48 million in assets since the beginning of 2012, comfortably ahead of most third-party expectations for the year to date. This continues to be noteworthy when compared with the size of our existing portfolio.

In addition, our pipeline of deals that meet our investment criteria is robust, with approximately $460 million of potential acquisitions being reviewed and considered by our acquisition teams. As these acquisitions in our pipeline indicate, we remain very confident of our ability to maintain that vibrant acquisition pace through the remainder of 2012.

A note on our Board. It is with regret that we report that one of our directors, Ed Lange, has decided to not stand for re-election to our Board of Directors. The time commitment, duties, and travel requirements of the position he started post our IPO -- he is now the CFO of AmeriCold -- do not allow him to continue to serve as a director for the Company. We would like to thank Ed for his invaluable counsel and assistance for the period prior to and during the first year of our public company existence. We wish him every success in his current role and in life.

Our nominating and governance committee of the Board has begun an orderly process to identify a candidate to succeed Ed on our Board.

I will now turn it over to Greg to review our fourth-quarter financial results and provide some further detail on our balance sheet and liquidity.

As Ben mentioned, we had another solid quarter from an acquisition and a leasing standpoint. There were some meaningful differences between the third and fourth quarters, including the preferred offering which closed on November 2 and the large termination fee received in Q3, so I will detail those components to provide a more representative comparison.

Our cash NOI for Q4 was $13.6 million. Our third-quarter figure included a $1.8 million termination fee, so backing that out for comparison purposes, our cash NOI increased by 7% from $12.7 million to $13.6 million in the fourth quarter.

Our portfolio occupancy increased 60 basis points from 92.6% to 93.2% and 100 basis points on a day-weighted basis. Our same-store occupancy decreased slightly by 10 basis points when measured at quarter ends, but increased by 30 basis points on a day-weighted basis.

We did have one tenant renewal which rolled down in the fourth quarter as they transitioned from a premium holdover rent to a long-term lease, but overall we experienced positive rental uplift over the course of the year, as Ben mentioned, with rents rolling up 0.6% on a cash basis and 1.2% on a GAAP basis.

Our core FFO in the fourth quarter was $5.3 million, which included a $1 million preferred dividend that did not exist in the third quarter. We also sold a property in Q4 to a user for a modest gain, so the financial impact of that asset has been removed from prior periods through discontinued operations to provide comparability.

Consistent with our past reporting, we also eliminated the gain on our interest rate swap; our above/below market rent adjustment, the majority of which was created at our IPO; acquisition deal costs; and other nonrecurring costs to measure our core FFO, which we believe is a more representative measure of the NAREIT FFO. You can see a detailed reconciliation of these various metrics in our press release and supplemental.

We also took a reserve for a tenant, The Fuller Brush Company, which became delinquent in rent during the fourth quarter. The reserve we took was for $300,000 in cash payments, which was for property taxes that were the responsibility of the tenant. We also took a $400,000 non-cash reserve for the straight-line rent that we have on the books for that tenant. Those reserves cover all the amounts owed to us by the tenant in 2011. During February of 2012, the tenant filed a Chapter 11 bankruptcy to reorganize.

As a bit of background, the tenant occupies two buildings in Great Bend, Kansas, which total 570,000 square feet, consisting of a 438,000-square-foot manufacturing facility and a small adjacent warehouse. It is Fuller's only manufacturing facility in the U.S. It employs approximately 150 people. It has an extensive water treatment facility and is full of machinery and equipment which is an integral part of their operation.

The tenant has expressed a desire to remain in the building, given the disruption to the business of moving, and has paid us all rent due since filing bankruptcy. The monthly rent was approximately $100,000 as of year-end. If Fuller Brush stays and demonstrates the ability to continue to meet their obligations, all or a portion of our fourth-quarter reserves, which represent $0.03 per share of core FFO, may be reversed.

After adjusting for the Fuller reserve of $0.03 and the preferred dividend representing $0.04 per share, our core FFO would have increased by 7% over the prior quarter. Most of the cash from the preferred was deployed into acquisitions late in the quarter, so the pure quarter-over-quarter results require some normalization.

I should add that there are no other tenants on our watch list, and the quality of our tenant base is quite strong as 62% of our tenants are publicly rated, either the tenant or the parent, and 33% are investment-grade rated.

The other point I will make is that these metrics of 7% quarter-over-quarter growth are comparing sequential quarters, since we don't yet have comparable prior-year periods. Having said that, our operating expenses on vacant buildings and the few non triple net buildings typically have higher expenses in our fourth quarter than our third quarter, so the trend is probably a bit better than stated.

Our AFFO for the quarter was $5.6 million, a 16% increase over the third quarter, adjusted for the preferred dividend.

Because of the single-tenant nature of our business, our renewal and recurring leasing costs continue to be pretty modest. They were 1% of cash NOI in the fourth quarter.

Our balance sheet and liquidity continues to be strong. We sold $69 million of preferred during the fourth quarter, and used the proceeds to pay down our revolver and to continue our active acquisition program. Our net debt to annualized adjusted EBITDA was 6.4 times, but that figure is somewhat overstated since several acquisitions closed late in the quarter. As a result, there may have been only a few weeks of income in the quarter for certain acquisitions, yet we counted our full debt balance on those acquisitions.

As of year-end, we had $17 million of cash. We also have availability of $64 million today under our revolver with nothing drawn. At, say, 50% leverage, that liquidity creates roughly $160 million of incremental purchasing power.

I mentioned on our last call that we would expect to complete roughly $160 million of acquisitions in 2012, which represents an ongoing 25% increase in our portfolio size. We currently have the liquidity to complete all those transactions without relying on the equity markets.

In general, we continue to see the financing markets improve, and the nature of our properties, with high cash yields and limited leasing costs, is appealing to the lending community. We continue to see the high positive spreads between our going-in cap rates and our financing rates, and as a result, we can pay a high dividend to our shareholders, which averaged over 8% in the fourth quarter.

So in summary, we continue to exploit the attractive acquisition opportunities that are available in our business, combined with favorable debt availability. We continue to experience the high tenant retention and minimal CapEx that is inherent in our business, and we have a sound balance sheet to execute our strategy of generating income plus growth for our investors.

With that, I will now turn it back over to Ben.

Thank you, Greg.

As we mentioned in our previous quarterly call, the Company believes that the ongoing improvement in the general economy will continue to positively impact our own portfolio in terms of occupancy levels and rental rates. The continued lack of speculative development generally across the country, and specifically in our markets, will enhance our performance on these important metrics.

At the same time, we continue to find numerous accretive acquisition opportunities that are attractive on both a relative value and a spread-investing basis.

Thus, we continue to be optimistic about the future for our Company, for our owned assets and for our investment thesis. We believe that our business plan to aggregate and operate a large portfolio of granular and diversified industrial assets will produce strong and predictable returns for our shareholders. Our fourth-quarter operational results provide continued validation for this contention.

We thank you for your continued support. We will now open the floor for questions.

(Operator Instructions). Sheila McGrath, KBW.

Yes, good morning. I was wondering, if you already have $50 million or almost $50 million under contract, it looks like you'll probably be on pace to exceed that $160 million. So I'm wondering how you think about us modeling and new equity? Is there something like a late year -- we should model in some equity or are you thinking about ATM? What are your thoughts there?

Sheila, it's Greg. I think for now we're just staying with our conservative assumptions of $160 million.

As we pointed out in the press release, we do have adequate liquidity to satisfy that investment objective. As you may know, as of April, which is our one-year anniversary of the IPO, we are eligible for things like an ATM program, which obviously is ideally suited to us because we can sell equity in a very modest amount, which matches our granular acquisition strategy.

So at this point, I think it's probably a little premature to give any expectations about selling equity, but we do have the flexibility through an ATM if we had that luxurious problem where we exceed our acquisition targets and we can take advantage of that.

This is Ben, Sheila. I would suggest that the acquisition market is, as you've correctly characterized, is robust, and so we will be watching our pace going forward and we'll certainly talk to you about it as we see continued success in that area.

Okay. Great. Could you just tell us also on the Fuller Brush, the impact? Where did that hit on the income statement? Where were those adjustments hitting?

Hi, Sheila, it's Bill. $400,000 of that was a reduction of rental income and $300,000 was an increase to property expenses.

Okay. (Multiple speakers). And then, should we -- right now, you wouldn't -- since you already got paid, is it going to be a positive impact to first quarter, do you think, on FFO, or --

Well, the way it works is the tenant pays after they file bankruptcy for -- they paid in full for rent due post petition.

So at this point, we don't have enough visibility to know whether we'd be able to reverse any of those reserves that we took in the fourth quarter. And I'd probably add that of that $700,000, $300,000 was in cash and $400,000 was a straight-line reserve.

So at this point, we're really not in a position to be able to anticipate whether we would be able to reverse those reserves that we took in the fourth quarter. And as far as we know, they're paying in full for their rental obligations post-filing.

So as long as they're paying in full, which we do not know how long that continues, obviously, because that's a matter for the bankruptcy, it will be net neutral to this quarter because there wouldn't be increases or reductions in reserves as long as that was recurring.

Okay, that makes sense. What about availability on the line? You have a $100 million line of credit, and how much is available currently?

Right now, it's about $70 million. We have about $135 million of unencumbered assets, and they are zero drawn and the advance rate is 50%. So altogether, about $65 million to $70 million, which, together with our cash, provides our liquidity.

Last question, on the 2013 maturity, is there any -- because the interest rate environment is so favorable, is there any possibility that you could address that ahead of time?

Yes, we definitely will. It's a disproportionately large debt balance in our balance sheet. It was a loan that was originally part of STAG III, which was rolled up into the REIT.

It was currently originated -- it was, at the time, originated by [Angwahl]. It is now held by Wells. It has a debt yield, which means NOI divided by the debt balance of -- in the mid-13%. So it obviously is very high cash flow coverage.

We've been talking to Wells and a few other banks about taking that rather lumpy maturity, which is not due until October 31, 2013, and laddering it out over time so it's a much more manageable piece of debt.

Having said that, again, it has a very high debt yield on it, a very diverse and high cash flow and group of assets as collateral.

And it's currently on swap, so it has a fairly low current interest rate on it.

Yes, the rate today is -- the swap burned off at the end of January, so the rate today is LIBOR plus 300. So it's a tad under 3.5%, so it's obviously pretty favorable financing as it is today.

Okay, thank you.

[Zee Zhang], Bank of America Merrill Lynch.

I just have a question. Can you talk about the spike in sequential same-store expenses? I know you talked about $300,000 of that was from the Fuller Brush reserve, but can you talk about if there was anything else going on during the quarter?

No, there really wasn't. I think I mentioned in my remarks that one thing that is a little unusual is we are comparing sequential quarters right now, as opposed to year over year since we don't have those.

There are some vacant buildings, not a lot, but a few in our portfolio. So the vacant building costs tend to be a little higher in the fourth quarter than the third quarter, particularly for those properties in the Midwest. So there is a little bit of that seasonal drift, if you will.

And then, the other major component, which we discussed, was the Fuller Brush reserve, which would have been included in the same-store portfolio.

Okay. And then, on the Fuller Brush, thank you for the additional color, but could you also give us a sense of financials for their business and how far they are from turning profitable?

I think you'd probably be best served just going on their website and getting that information. It's something far better for them to disclose as to what their financial status is and their prospects going forward.

They're a private company. We're not at liberty to disclose the information that we have.

[Sheree Nagareon], Cantor Fitzgerald.

This is Evan Smith on the line with Sheree. Just curious what cash leasing spreads would have been in the fourth quarter, excluding that one lease that rolled over from month to month.

I'll have to get back to you. They would have been slightly positive. I think that one lease was about 35,000 square feet or so, and it was the one that dragged the average down to net negative, but I'll get back to you on that.

But again, unlike some of the peers that have rolled down between 5% and 10% for the balance of the year 2011, we actually rolled up on a positive, both cash as well as GAAP basis.

I think I did explain in my remarks that that rolldown was a little unusual in that it was one of these holdover tenants where you typically charge a premium rent, and then as they evolved into a longer-term lease, they went more to a market standard and that was the result of the rolldown.

And then, of the expirations in 2012 that have been addressed already, can you get some color on the cash leasing spreads you're seeing there?

Yes, I think it's probably better to address the entire year. It is interesting, for example, in 2011 I would have expected us to roll down probably 2% to 3%. In fact, we actually rolled up 1% to 2%.

I think our expectation overall for 2012 is to roll down again sort of 2% to 3%. We have obviously seen improved leasing activity in our markets, and so, you know, we're taking a snapshot today in March. Our hope would be that those rental rates will continue to improve, tenant demand will continue to improve, and those leasing spreads will continue to narrow. So I would expect perhaps a modest decline through the balance of 2012.

And then, one more question. In terms of the property that was disposed of, where was that? And then, are there any other dispositions at this point that are planned for 2012?

The one disposition was in Amesbury, Massachusetts. It was a relatively small asset. I think we booked about a $300,000 gain, which was a bit surprising because we obviously bought it fully occupied and we sold it empty.

So just philosophically, we sell properties not to sort of value add buyers who are going to buy a vacant building and lease it up -- that is what we can do, but there was a user-buyer who was interested in the property and paid what we felt was the full price. To my knowledge, there are no other dispositions -- go ahead, Dave.

We actually have a building under contract in Youngstown, Ohio, for a close in the second quarter. It's also a sale to a user.

So typically, we don't have a particularly active disposition strategy.

Our buildings, once they become vacant, which obviously is not very often, are available for lease or for sale. Typically, we find more value by leasing those properties, but occasionally you do find a user that's particularly interested in the property. If it makes economic sense to us, we will sell it.

Dave, could you -- this is Ben. Just some idea of the size, how big a building?

It's 152,000 feet, which is about 15% of our current vacancy.

It is a functional manufacturing warehouse building in Youngstown that we found a user-buyer for and should -- we should break even on the sale, I believe (multiple speakers)

(Multiple speakers) our book costs, we think.

Okay. And then, one last question, the increase in G&A from the third quarter, is the $2.5 million in the third quarter a better run rate to look at going forward?

Let me talk to the G&A a little bit. You know, there was a little bit of confusion out there. We actually perhaps, unlike some other IPOs, actually came in within our G&A budget. In fact, we were a bit under.

Some of you may recall when we went public that we announced that we were going to have a G&A budget of $9.2 million for all of 2011 when we went public in April. We ended up coming in about $8.7 million, so we actually came in under our G&A budget for a first-time IPO.

On the last call, Sheree, which you were not on, or Evan, I mentioned that we would expect G&A in 2012 to be $12 million, based upon an acquisition line of about $160 million, and that is still our expectation.

David Rodgers, RBC Capital Markets.

This is Mike Carroll. Can you give us some color or additional color about your pipeline? What's the typical size of the deals? Are they still your typical $6 million to $8 million deals? The credit quality of the tenants, maybe, and the locations of those assets?

This is Ben. Our expectation is over the long term is that we will -- well, our intent is to keep buying the same types of buildings we bought through the execution in the last year and before. And the expectation is that the average deal size will be in the $6 million to $8 million range.

That said, we do have some assets that are -- I think we've stated we buy between $5 million and $25 million. We have some assets in our pipeline that are closer to $20 million. And indeed, some of the assets that we will -- we know we will acquire, that I mentioned that we have under contract, are of the larger variety.

The type of tenant credit remains fairly constant. We've spent a lot of time -- not a lot of time -- but we're very cognizant of the fact that we don't want to introduce undue correlated risk to the portfolio. So the metrics that would induce that type of correlated -- potential correlated risk, like overconcentration in a particular lease year, overconcentration in a geographic market, overconcentration to a particular industry, or overconcentration to any particular credit, all of those things we'll make sure that we don't engender that added risk to the portfolio from undue correlated risk.

So I think the answer, in short, is we're buying the same stuff we've always bought. We think the market is pretty robust right now in terms of opportunity, but we're really just buying the same things we've always bought.

Mike, the other thing I might add is -- we're probably reiterating, is that if you look at the nature of our tenant base, 62% of our tenants are publicly rated, either the tenant or the parent, and 33% are investment grade. And again, we have typically a larger average tenant, which is on the order of about 175,000 square feet, so on average our tenant quality is quite good.

Great. And then, what type of tenants are typically in your month-to-month lease category? Do they usually stay or do -- month-to-month, will you be able to put them in your portfolio, I think like the tenant you were talking about earlier on the call, or do they typically leave the portfolio?

This is Dave King. The month-to-months that we currently have on the books are largely expansion -- swing space expansions of existing tenants. So they are using excess space in the building while we continue to market it for a longer-term use.

We also have one tenant who recently converted out of month-to-month to a short-term, relatively short- to medium-term lease. So they do sometimes stay in the building for longer terms.

In the first quarter, that would be.

That is a good response. And then, I saw that your expense cover ratio jumped up a little bit in the quarter. Is that going to be typical with maybe the new acquisitions you completed in the quarter and it should stay around that high 60% to low 70% range, or is it going to be lower, like it was in the third quarter?

Yes, the tenant recovery ratio should continue to increase, assuming our acquisitions that we're buying are triple net, which primarily they are. So that ratio will continually increase with our acquisitions.

Yes, as you think about it, if the portfolio was constant, that ratio would stay constant. But as you add 100% occupied properties, which are, for the vast majority, triple net, you will tend to squeeze that margin higher over time.

Thanks, guys.

Michael Mueller, JPMorgan.

A few things. First of all, in terms of occupancy, can you talk about where you see occupancy going by year-end, thinking more on a same-store basis with the existing portfolio where it's not impacted by what you buy or what you sell?

I mean, we have had -- in the fourth quarter, we had 40,000 feet of (multiple speakers) leased.

I think subsequent to quarter end, the pace has picked up a little bit. I think Dave mentioned we're selling a building that is -- we are under contract to sell a building that represents 15% of our existing vacancy. I think we've actually done leasing since quarter end of about the same amount, about 15% of our vacancy -- current vacancy.

So, you have -- as you might expect, all of our vacant assets are out for either lease or sale, so we're trying to fill them. So you expect progress along that front.

If you think about the predilection of tenants -- the high predilection of tenants to stay, and circa 85% are long term, I think we're expecting 2012 to be a year like that. The combination of creating very little vacancy, I think our roll this year is, what, 12% or something like that?

Yes.

So 15% of 12% is the activity that -- 15% of 12% would be (multiple speakers).

(Multiple speakers)

Yes, you're -- the activity that we had in the first quarter is actually, in terms of increasing occupancy, is actually larger than our full-year loss of occupancy, just on those kind of metrics.

Obviously, we're at 107 tenants -- 107 buildings right now. On a probability basis, I think we can talk easily to increasing occupancy over the year, so we would add to the higher occupancy level. But we are, although diversified 107 tenants, the probability is that all doesn't work out exactly as expected, so there could be some variability around that, but the trend certainly is towards higher occupancy as the year does on.

Okay. Going back to Fuller for a second, how long were they on the watch list? What sort of communications did they give to you? Was a surprise at all or is it something you planned for?

Well, we've bought the property in 2007, I believe. At the time, they were a fairly stable company.

They've been purchased by a private equity shop, and those folks tend to have a habit of doing debt finance to equity distributions. Their core business became more difficult over time. I think we put them on the watch list probably in October and November, based on not a payment issue as much as sort of published financial information that we were aware of.

So you don't need to necessarily go on a watch list because of a payment issue. We're obviously keeping close tabs on the credit of all of our tenants, and if there's something that's coming to our attention other than a payment issue, we're obviously aware of that.

So it was on our watch list. We actually were able to apply a security deposit to offset our rent in the fourth quarter. And right now, we are just sort of waiting to see how the bankruptcy proceedings are going to unfold.

Got it, okay. Last question, I think I may have missed this, so I apologize for asking this again. Going back to the financing of the $160 million for this year, I know you mentioned you had about $70 million credit line availability. Can you walk through how you get there without equity, number one?

And number two, even though you may be able to, how far would you let the credit line run up to -- let the debt move up to before you contemplated pre-emptively issuing a little bit of equity or finding another source of equity?

Yes, no, it's a good question.

The basic math I was doing, if you take our cash and our undrawn capacity under the revolver, it's about, call it, $80 million at the end of the year. If you assume 50% leverage, that would give you $160 million of purchasing power. If you ran out that $160 million acquisition program and you fully financed it, because in essence what I was doing in my description is financing 100% of each of those acquisitions, your net debt to annualized adjusted EBITDA would run about 7.5 times.

You may recall from our S-11 that we mentioned we'd run that ratio somewhere between five times and seven times, so we would be at the high end of that range. It probably wouldn't be ideal, but it would be something that would be possible.

I think, from a prudent standpoint, we would probably not let it run quite that high, but it will be a function of where our share price is and what other opportunities are available to us in the acquisition space.

Okay. I mean, do you see -- like, assuming the first line of fire is using the credit line, do you see issuing some sort of mortgage financing to pay off the credit line in the middle or are some of the properties you're looking at, do most of them tend to be encumbered? I mean, how are you thinking about (multiple speakers)

Most of the assets that we acquire we acquire free and clear. There is -- occasionally we will take on debt, but generally are acquiring assets free and clear and putting our own mortgage financing on them.

We certainly will look -- as the balances may build on the credit line, we will look at permanent financing that off. As I think a number of people have mentioned, it is a very good long-term debt market. There's a lot of providers and the rates are low.

So we're generally looking to add to our long-term debt and move off of the credit line. That being said, the credit line gives us the flexibility to acquire assets on a more nimble basis.

Got it. Okay.

We promise not to fall in love with LIBOR-based financing.

There are no further questions at this time. I would like to hand the floor back over to management for closing comments.

This is Ben. Thank you all for your good questions and for listening in on our earnings call.

We are quite pleased with our results to date. I think 2011 was obviously a very interesting year for the Company, having become a public company, but we are very confident of our ability to move forward along the path that we've established, and we look forward to having you all as shareholders for the foreseeable future. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.