Gladstone Commercial Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.31.13 | About: Gladstone Commercial (GOOD)

Gladstone Commercial (NASDAQ:GOOD)

Q2 2013 Earnings Call

July 31, 2013 8:30 am ET

Executives

David J. Gladstone - Founder, Chief Executive Officer, Chairman, Executive Committee Chairman, Chairman of Offering Committee, and Member of Investment Committee

Robert G. Cutlip - President

Danielle Jones - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

John M. Roberts - Hilliard Lyons, Research Division

John Massocca

Operator

Good morning, and welcome to the Gladstone Commercial Corporation's second quarter ended June 30, 2013 conference call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. David Gladstone. Please go ahead, sir.

David J. Gladstone

Thank you, Denise, and thanks to all of you for calling in. We enjoy this time we have with you on the phone, and I wish there was a lot more time to do this. But unfortunately, it's once a quarter.

Again, please come by and visit us if you're ever in the Washington, D.C, area. We're located in a suburb called McLean, Virginia, and you have an invitation to stop by and see us here. You'll see a great team at work. There are about 60 members of the team now, and we're no longer a small business. And by the way, we have a couple of puppy dogs that come in every day. We're a dog-friendly office.

Now let me read the forward-looking statements. This report that we're about to give may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements involve certain risks and uncertainties that are based on our current plans and we believe those plans 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 those factors listed under the caption Risk Factors of our company's 10-K and 10-Q filings that are filed with the Securities and Exchange Commission. Those 10-Ks and 10-Qs can be found on our website at www.gladstonecommercial.com and on the SEC website. The company undertakes no obligation to publicly upgrade or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise.

In our talk today, we plan to talk about funds from operation or, as we call it, FFO. And since FFO is a non-GAAP accounting term, I need to define FFO now as net income, excluding gains and losses from the sale of real estate and any impairment losses from the properties, plus depreciation and amortization of the real estate assets. The National Association of Real Estate Investment Trusts, or NAREIT, has endorsed FFO as one of the non-accounting standards that we can use in the discussion of REIT, of our REIT and all REITs. Please see our 10-Q filed yesterday with the SEC and our financial statements for a detailed description of FFO.

Now let's start off by hearing from the President, Bob Cutlip. Bob, go ahead.

Robert G. Cutlip

Thanks, David. Good morning, everyone. During the quarter, we acquired 2 additional properties, funded and completed an expansion at another property and issued common equity in 2 separate underwritten offerings to fund these and future acquisitions.

After the end of the quarter, we placed long-term debt on one of the properties acquired during the second quarter, and we also acquired 2 additional properties, while simultaneously issuing long-term debt on both of these properties as well. That's a total of about $100 million in new acquisitions since we last spoke in April. Our pipeline is robust, and we hope to announce additional acquisitions in the near future.

Now for some details. As I mentioned earlier, during the quarter ended June 30, we acquired 2 additional properties. The first property acquired was a forward purchase of a build-to-suit, a light industrial manufacturing facility with 170,000 square feet. The purchase price was $13.4 million, which equates to an average cap rate of 8.8% over the life of the lease. The property is located in Vance, Alabama, adjacent to the Mercedes-Benz assembly plant and other manufacturing plants.

We funded this acquisition with proceeds received from our common equity raise and have pledged this asset to the borrowing base under our line of credit. The sole tenant in this property has a 10-year lease with several renewal options.

The second property acquired was a 92,000 square foot office building purchased for $14.5 million with an average cap rate of 10.2% over the life of the lease. The building is located in Blaine, Minnesota, a suburb of Minneapolis.

We funded this acquisition with proceeds received from our common equity raise. We subsequently placed 10-year mortgage debt on this property in July. The tenants' in-place lease has approximately 7 years remaining, with several renewal options.

We also funded a $3.3 million 102,000 square foot recently completed expansion of our property located in Clintonville, Wisconsin. In connection with the expansion of the property, we executed a lease amendment to extend the lease for an additional 8 years until 2028. The lease was also amended to provide for an increase to the rental income, which equates to an average cap rate of 11.3% over the life of the lease.

After the end of the quarter, we acquired another 2 properties. The first property acquired was a 320,000 square foot multi-story office building located in Austin, Texas. The purchase price was $57 million with an average cap rate of 8.3% over the life of the lease. We funded this acquisition with proceeds from our recent common equity raise and an issuance of $35.3 million of mortgage debt on the property. The tenant has leased the property for 7 years and has additional options to renew the lease.

The second property we acquired after the quarter ended was a 115,000 square foot office building located in Allen, Texas. The price was $15.2 million, and the rental income stream equates to an average cap rate of 9.3% over the life of the lease. We funded this acquisition with proceeds from our recent common equity raise and the issuance of $8.9 million of mortgage debt on the property.

There are 2 tenants in this property, the largest of which has 9 years remaining on its lease and occupies 73% of the space. The second tenant has 8 years remaining on its lease.

Shifting to our portfolio. As of today, all but 4 of our buildings continue to be fully occupied, and all of the occupied buildings' tenants continue to pay as agreed. Three of these buildings are 100% vacant, and one is partially vacant. The leases on the 3 vacant buildings comprise 1.3% of our annualized rental income as of June 30, 2013. We are actively seeking new tenants for these properties. And to this end, we have executed a lease with a new tenant for the entire Hazelwood, Missouri, building. The lease is scheduled to begin August 1. Our building located in Roseville, Minnesota, remains partially vacant, and we continue to aggressively pursue new tenants for this building.

Switching to mortgages. Collateralized mortgage-backed securities, or CMBS, market has improved, although there has been some recent volatility, and it's expected that the CMBS market will expand its lending levels in 2013. In addition, regional banks, insurance companies and other non-bank lenders have become quite competitive and are viable sources to finance our real estate activities.

We've seen an uptick in interest rates over the past several months as spreads widened once the demand for higher rates in the CMBS marketplace actually took hold. However, interest rates remained historically low, and we continue to actively try to match-fund our acquisitions with cost-effective mortgages. Depending on several factors, including the tenant credit rating, the location of the building, the building configuration and the terms of the loan, we are seeing interest rates in the marketplace today ranging from the upper-4s to the mid-5% levels.

To this end, subsequent to the end of the quarter, we issued a new mortgage on our Blaine, Minnesota, acquisition for $8.2 million. This mortgage was issued at an interest rate of 5%. On the other hand, the mortgage debt placed on our Allen, Texas, property was issued at 4.2%.

Turning to our tenants. We continue to improve the value of our existing portfolio of properties by reviewing and renegotiating existing leases and performing improvements at our properties. To this end, we were able to renew 5 of the 6 leases that were originally scheduled to expire in 2013.

We also are working diligently on our leases that come due in 2014 and 2015, and have already renewed 4 of the 6 leases that will expire in 2014. Locating new tenants and signing leases with the existing tenants for these buildings may require some capital outlays for tenant improvements and leasing commissions.

In summary, at quarter end, all of our existing tenants are paying as agreed and our portfolio was 96% leased. We acquired 2 additional properties and completed an expansion of another property during the quarter ended June 30, which was our seventh consecutive quarter of increasing our asset base.

And we acquired another 2 properties after the end of the quarter. These 4 properties comprise approximately $100 million of new assets, and our pipeline of possible acquisitions remains strong. We expect to close on additional properties in the upcoming months. Please stay tuned.

And now, I'd like to turn it back to Dave.

David J. Gladstone

All right. Thank you very much. That was a good one, a good presentation. Now let's turn it over to our Chief Financial Officer and Treasurer Danielle Jones for a report on the financial results. Danielle?

Danielle Jones

Thanks, David. Good morning, everybody. Our quarterly results were strong and reflect our growth from our recent acquisitions. This is evidenced by our total assets increasing to $594 million from our new acquisitions during the quarter, which is a 5.2% increase from last quarter.

The amounts outstanding under long-term mortgages and our line of credit fell to about $370 million, which was a slight decrease from the end of the first quarter. It was primarily due to the additional common equity raised during the second quarter. In addition, our stockholders' equity, including our Term Preferred Stock, increased about 26% from the end of the quarter to $205 million, again, from the issuance of common stock during the quarter.

Reviewing our upcoming long-term debt maturities, we have mortgage debt in the aggregate principal amount of $12.1 million payable during the remainder of 2013 and $24.5 million payable during 2014. The 2013 and '14 principle amounts payable includes balloon principal payments due in December of this year and June of 2014. However, we are initiating conversations with these lenders in advance of these maturities and anticipate being able to extend the maturity dates or refinance with new lenders.

The tenant of the property where our debt matures in December of this year recently extended their lease for an additional 10 years, thus we believe we will be able to refinance this mortgage relatively easily. We intend to pay the additional debt amortization payments from operating cash flow and borrowings under our line of credit. The weighted average interest rate on our existing mortgages remains at 5.6%.

Now let's address equity. As I mentioned, we completed 2 overnight offerings of common equity during the quarter, issuing a total of about 2.7 million shares of common stock. We issued 1.2 million shares in the first offering, which closed in April, at a public offering price of $18.90 per share, and the net proceeds to us after deducting offering expenses were about $22.6 million.

Later in the quarter, we issued another 1.5 million shares of common stock, which initially closed in June with a partial exercise of the over-allotment option closing in July, at a public offering price of $18.82 per share. Net proceeds to us after deducting all the operating -- offering expenses were approximately $26.3 million. We used the proceeds from both of these offerings to acquire additional real estate.

We did not use our ATM program, or at-the-market program, during the second quarter since the issue of common stock and the overnight offerings. However, we will likely use the ATM program in the third and fourth quarters, so we continue to raise additional common equity to further our goal of reducing our leverage without impacting our stock price.

Turning to our line of credit. We had $11.2 million outstanding under the line at the end of the quarter, at a weighted average interest rate of approximately 3%. We currently have $27.9 million outstanding under the line after using a portion of the availability to fund the 2 acquisitions in July.

We continue to only use our line to make acquisitions that we believe can be financed with longer-term mortgage debt or that we believe are good additions to our borrowing base. As you may recall, our customary business model calls for us initially to borrow from the line of credit to buy properties. We then obtain longer-term fixed rate mortgages as soon as we can.

By doing this, we are able to secure the difference, or spread, between the rent coming in and the mortgage payments going out, thus locking in the profits for 5 to 10 years or, in some cases, longer. From a liquidity perspective, the proceeds from the mortgages then pay down our line of credit, thus making the line available for the purchase of our next property.

Our line of credit does mature in December of this year. However, we are currently in discussions with our lenders to implement a new line of credit. We anticipate closing on the new line in the next few weeks, and we'll make an announcement when this happens.

With the current aggressive credit and equity markets, our business model adjusted so that we are matching as closely as possible long-term leases with longer-term mortgages. If we do not believe we will be able to source attractive debt on new acquisitions, then we will only buy properties that already have long-term mortgages on them.

Currently, we have enough availability to fund our current operations, deals in our pipeline and any upcoming improvements at certain of our properties.

Our debt-to-equity ratio at the end of the quarter, excluding our new tranche of Term Preferred Stock, fell to 2.2:1 as a result of the additional equity raised this quarter. We will continue to focus on decreasing our debt-to-equity ratio over the next couple of years, as we continue to issue more common stock to boost overnight offerings under our ATM program.

As of today, our available liquidity is approximately $18.8 million, which is comprised of about $6.4 million in cash and an available borrowing capacity of $12.4 million under our current line of credit.

As you remember, the borrowing capacity on our line is limited to a percentage of the value of properties pledged as collateral to line plus both the amount outstanding under the line and our outstanding letters of credit. With the capacity under our line and our current cash flows from operations, we have sufficient liquidity to fund our operations and service our debt this year and also perform capital improvements at our properties and maintain our distributions to our common shareholders.

In addition, we continue to have the ability to raise $153 million of additional preferred, or common equity, through the sale of securities that are registered under our shelf registration statement in one or more future public offerings. Our shelf registration statement expires in September of this year, but we plan to file a new shelf registration statement next month.

And now, we'll discuss the operating results for the quarter. Please note that per share numbers referenced are fully diluted weighted average common shares. FFO available to common stockholders for the quarter was approximately $4.6 million or $0.36 per share, which was about a 7.5% increase in total FFO when compared to the first quarter. And FFO was approximately $8.8 million or $0.74 for the 6 months ended June 30, 2012 -- '13.

FFO increased primarily because of the increase in operating revenues derived from the 2 properties acquired this quarter, coupled with a full quarter of earnings from the property acquired at the end of March. This was partially offset by a slight increase in interest expense from the mortgage debt issued at the end of the first quarter, coupled with the slight increase in overall operating expenses.

We were not able to pay out a large portion of our incentive fee this quarter because of the dilution from the equity offerings during the quarter. However, we do believe our payout ratio will increase in the second half of the year since we were able to deploy these equity proceeds early in the third quarter.

We do believe the second half of '13 will fuel growth for FFO as we've put over $100 million of asset from the books in the past several months.

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

David J. Gladstone

All right. Danielle, that was a good report. We encourage all the listeners to read our press releases and our quarterly reports that were filed yesterday with the SEC called Form 10-Q. There's a lot of good information in that document, and you can find them on our website at www.gladstonecommercial.com and also on the SEC website.

You can stay up-to-date on the latest news involving Gladstone Commercial and our other public companies. You can follow us on Twitter under the name GladstoneComps, that's C-O-M-P-S. And on Facebook, keyword is Gladstone Companies, and you can go to our general website to see more information about all of our companies at www.gladstone.com.

The main news to report this quarter is that we were, first of all, able to acquire 2 new properties during the quarter, complete an expansion for another property and also issue common stock under 2 separate underwritings. After the quarter end, we closed 2 more properties and were successful in putting this equity that we've been raising to work.

This is very positive news for all of the shareholders. We've added, really, quality real estate to our portfolio and grown our assets in excess of $100 million thus far during 2013. As we continue to grow and our market capitalization increases, you should see a higher trading volume in our stock and hope to see a corresponding uptick in the stock price.

Even though we recently acquired a large amount of properties, we continue to have a great pipeline of potential properties that we're interested in acquiring. And because of that pipeline, we hope to be able to grow the asset portfolio more during the second half of 2013.

With the increase in the portfolio of properties comes greater diversification, and we believe that gives more certainty to the earnings of the company.

On another note, we've been able to find some attractive long-term mortgages to finance our unencumbered properties and the mortgage market from lenders is getting much better. We have long-term mortgages on 68 of our 85 properties that we own now. Most of the properties -- most of the remaining properties are pledged as collateral to our line of credit and would provide us with additional liquidity.

We also continue to look at properties with mortgages on them that we can assume or secure financing close simultaneous with the acquisition. When we don't close debt simultaneously, we have been successful in obtaining mortgages on the properties a few months later.

We are focusing our efforts now on finding good properties and long-term financing that match our long-term leases. Being able to lock in these long-term financings is very good for us in the future. We are much more optimistic that things are going to be positive for the next year or so. So while we continue to proceed cautiously, we're expecting some new transactions and some new growth for this year.

Much of the industrial base that rents industrial and commercial properties remain steady. Most of them are paying their rents. There are still some businesses that are having problems, and the economy is still not in good shape; however, we expect the growth in 2013 to be very nice for this real estate investment trust.

Incidentally, we've just hired a strong real estate person to join our Los Angeles office and he should start in August. This will allow us to look at more properties out West. If you looked at the map of our properties, you'd see that we are highly deficient in the West; we don't have anything out there. So we're expecting this person to come on and build up our West Coast investments and diversify us even more.

Folks, while I'm optimistic that this company will be fine in the future, we continue to be cautious on our acquisitions as we've done in the past years. We made it through the last recession without cutting the dividend or having a lot of problems with tenants. And if there's another recession lurking on the horizon, I think this portfolio will continue to stand the test [indiscernible].

Distributions in July 2013. The board voted to maintain the monthly distribution of $0.125 per common share for July, August and September or an annual run rate of $1.50 per share -- per year. And this is very attractive REIT simply because we've now paid 108 consecutive common stock cash dividends, and we went through the recession without having to cut that.

Because the real estate can be depreciated, we're able to shelter the income that's coming in. Distributions in 2012 were 100% return of capital and that means they're tax-free. You don't have to pay tax on them. This is a very tax-friendly stock and, in my opinion, a good one for personal accounts that are seeking income.

The return of capital, by the way, is due to the depreciation of the real estate assets and other items that has caused earnings to remain very low after depreciation, and that's why we talk about FFO, because this adds back the real estate depreciation.

Depreciation of a building is a bit of a fiction since at the end of the depreciation, say 20 or 30 years, the building is still standing. And if you own stock of a non -- in a non-retirement account as opposed to an IRA or retirement account, you don't pay any taxes on that part. It is sheltered by the depreciation. That's considered a return of capital.

However, of course, return of capital does reduce the cost basis on the stock, which may result in a larger capital gain when the stock is sold. Again, this is a great stock to hold in a personal account because it's so tax-friendly.

With the stock price at around $18.30, the distribution yield on the stock now is about 8.2%. This is a very strong yield considering that it's tax-friendly. Many REITs are trading at much lower yields. I was just reading a report that said the entire REIT universe is trading at about a 3.8% yield. And, folks, if we could trade at that 3.8% yield, obviously, we'd be closer to $39 a share.

And even in our own area called triple-net REITs, NNN REITs, those are trading at about a 5.2%, and if we were there, we'd be over $28 a share. So we believe there's a lot of opportunity here. There's room for the yield expansion, as they call it, and the stock, as more people come in and buy the stock and bid up the price.

The board will vote in early October, during our regular scheduled quarterly board meeting, on the declaration of the monthly distribution for October, November and December, so you'll see that coming out at our next meeting.

Now we'll have some questions from our loyal shareholders and analysts, who follow this wonderful real estate investment trust. So Denise, if you'll come on and help us, please, we'd like to answer some of those questions.

Question-and-Answer Session

Operator

[Operator Instructions] We have a question from Ken Roberts from Hilliard Lyons.

John M. Roberts - Hilliard Lyons, Research Division

David, John Roberts. I think Danielle mentioned you got about $18.8 million in available capacity left for purchases. Obviously, that's not going to buy you much. Given where the stock is, you're probably not going to want to issue equity with it coming down. What's your thoughts at this point? Are you looking more towards preferred or...

David J. Gladstone

Well, first of all, that $18.8 million is under our current line of credit. We haven't moved over to our new line of credit yet, so wait for that press release before you make any decisions about availability. It will change as we go forward.

John M. Roberts - Hilliard Lyons, Research Division

Okay. So you have a little bit more availability then?

David J. Gladstone

The one that we're negotiating and, hopefully, we'll announce sometime in the next couple of weeks is an unsecured line of credit, so it should free it up pretty dramatically.

John M. Roberts - Hilliard Lyons, Research Division

Super. What size are you looking at for your pipeline right now?

David J. Gladstone

Bob, you want to answer the pipeline question?

Robert G. Cutlip

Sure. We -- the kind of the sweet spot for us, John, is anywhere between $5 million and $30 million to $35 million. When you look at our acquisitions that took place in the last year, we averaged just under $14 million in acquisition. And that compares historically to about $8 million, between $8 million and $9 million. But we're seeing this year that with the sizes that are out there in the marketplace, that's going to -- it's going move up. I think it's going to probably move to the mid-teens on an average basis, which I think is really good at this point in our growth of that size because of diversification, both from having more properties which kind of lowers your risk.

David J. Gladstone

Bob, talk about the size of the backlog. You normally tell them what we got that's currently getting close to closing and then also the total backlog that you work with.

Robert G. Cutlip

Yes. John, we try to keep about $250 million in the pipeline. And that's among a number of phases from under review to letter of intent to negotiating contract to due diligence and closing. And today, we have $9.6 million in due diligence. I really should say it's about $15 million because we have another expansion that has been executed on one of our existing properties that we will be funding over the next several months. So about $15 million in due diligence. We have $12 million that's in a letter of intent stage, and then the balance of up to -- our current pipeline is about $220 million. The balance of that is just under review and that's about 11 additional properties. So we're not at $250 million right now. But in the summer, we typically have a slowdown with everybody on vacation. We expect it to pick back up probably in September. But it's still a pretty healthy backlog for us. And we said last year that at the end of the year, that with us doing about $107 million last year, we want to try to repeat that this year and be consistent and deliver to the market what we say we're going to do. And so at this point right now, we are at about $108 million that we've already acquired. And so I think we will certainly better that before the end of the year. But -- we're encouraged, but as you know, the interest rates have been a little bit volatile over the past 60 days. They're settling down now. There's no movement in the cap rates even with that interest rate volatility. So we're being cautious and sticking to our knitting, so to speak, and staying in the secondary markets.

David J. Gladstone

So John, you have any other questions?

John M. Roberts - Hilliard Lyons, Research Division

Yes, well, I'll ask -- first, I'd put a comment and I've heard from other people, no budge in cap rates either. It looks like sellers are sort of sticking tough and are not recognizing the new environment yet. But the only thing I'd like to discuss is the $57 million acquisition you made in Texas. That's a little bit out of your normal size range. Maybe just give us a little more color on that, why that came up, how and if you're looking at those sort of things in the future?

Robert G. Cutlip

Sure. We -- it is a little bit outside of our ballpark that we have competed in, in the past. But when we looked at this, we looked at a number of things on this, John. Number one, we saw what was happening in Austin. I've been traveling out to L.A. quite a bit when we were -- David and I were trying to hire a person to run our Western region. It was amazing. When I was out there, I was listening to advertisements by Governor Perry in the state of California telling people to move to Texas because it's a pro-business state, doesn't pay taxes. And there has been an influx of additional high-tech companies into, particularly, Austin. Dallas has received quite a bit of response from that, as well. But this building is a former Dell building built in 2000 in the Parmer corridor, which is the technology corridor there. You've got Samsung, you've got Oracle, you've got Apple, and Apple's doing an expansion right now. You've got eBay, you've got PayPal and a number of other corporations that are along that corridor. And so we felt that with that acquisition, it being 1 of 4 innovation centers that GM is now bringing all of their IT there -- let's say, their advanced IT activity in-house, it would be a very sound investment for us, because the building is subdividable. And with the tenant placing a lot of their own money in that business and it being split across 4 different locations, we felt it was just a very, very great opportunity for us to make a very sound investment for us in a corridor that's going to remain viable for many, many, many years.

Operator

Our next question is from Dan Donlan from Ladenburg Thalmann.

John Massocca

It's actually John Massocca here for Dan. I just had a question. So how -- so for lease up for some of your vacant properties -- sorry if you already addressed this. I hopped on the call late here. And how is that going particularly for the Minnesota property?

Robert G. Cutlip

I'll address that and I'll talk -- if you want me to, I can address the couple of others that we have, as well. I mean, the Minnesota property, as we indicated in our last call, is probably one of our biggest challenges. It is a Class B office property. But, amazingly, at this time, we do have 3 very sound prospects and a potential buyer. The 3 prospects range anywhere from 10,000 to 60,000 square feet, although one of those prospects have an expansion requirement to 150,000 square feet. So the activity has picked up. And as you recall, they're big floor plates, so our focus is on call centers, back-office operations. One of the prospects is a software developer, and we're very encouraged about that. So the activities picked up. We, right now, do not forecast having that building fully leased until the first quarter of 2015, so we're trying to be conservative and cautious, although being very aggressive in the field and being there with the brokers a lot. The acquirer is a data center operator, and they are interested in the building for their own individual use. And as you may recall, we have Unisys in there for 1/3 of the building, and that is not an issue. It can be easily demised, and they like the idea of generating some extra income as well. So we'll see how it plays out. We just have to be very aggressive and stay on the brokerage community and stay engaged with the economic development agencies.

John Massocca

Sounds good. And then in that same kind of vein, what are you seeing just kind of color in terms of '14 -- 2014 people releasing some of your coming lease expiring out there?

Robert G. Cutlip

We have 6 leases that will be expiring in 2014, and we have already renewed 4 of those, so we're encouraged. We're trying to stay about from 18 months out, as soon as they'll allow us to talk with them, we are with our tenants. I mean, unlike, I would say, a lot of triple-net operations, we -- our property management group stays very engaged with the tenants. So 18 months out, we start talking.

John Massocca

All right. And then to kind of switch gears a little bit here. I know you kind of already talked about this in terms of the Austin acquisition. But transactions -- some of the acquisitions you did in the first quarter were at a 9.5% cap rate. Obviously, it came down to an 8.5% cap rate subsequent to the quarter end. I mean, is that -- how much of that is driven by asset-specific things or are you seeing kind of compression -- some kind of cap rate compression in the market out there driving a little bit of that?

Robert G. Cutlip

We're really not seeing -- I mean, I think in the major markets, you are seeing cap rate compression. But in the secondary markets that we've been operating, we will be anywhere from the low-8s to the mid- to high-9s, depending upon the market that it's in, the tenant credit as how we really underwrite it and the releasability of the building. So we're really staying pretty much within the range of where we want to be. The property, again, in Minnesota that was over 10%. Okay, that's in the suburb of Minneapolis; it's not near in. And so we demanded a much higher cap rate than we want. If we couldn't have received that cap rate, we would've not been in the race, but as it turned out, it made sense for us, it made sense for them. You take that down to GM with the Austin property, and you're in a very releasable high-tech corridor that is going to remain stable for years. So you're not going to get that high of a cap rate in that market with that tenant with that use.

David J. Gladstone

Denise, do we have anyone else that wants a question answered?

Operator

[Operator Instructions] Sir, we have no further questions at this time.

David J. Gladstone

All right. Thank you, Denise, and thank you, all, for calling in. That's the end of the conference call.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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