Gladstone Commercial's (GOOD) CEO David Gladstone on Q4 2016 Results - Earnings Call Transcript

| About: Gladstone Commercial (GOOD)

Gladstone Commercial Corporation (NASDAQ:GOOD)

Q4 2016 Results Earnings Conference Call

February 16, 2017 08:30 AM ET

Executives

Michael LiCalsi - President, Gladstone Administration, General Counsel & Secretary

David Gladstone - Chairman and CEO

Mike Sodo - CFO

Bob Cutlip - President

Analysts

John Roberts - Hilliard Lyons

Laura Engel - Stonegate Capital Partners

John Massocca - Ladenburg Thalmann

Operator

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 the host of this conference call, Mr. Michael LiCalsi. You may begin.

Michael LiCalsi

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

As many of you know, I’m the President, 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. And 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.

There are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements including all of the Risk Factors included in our Forms 10-K and 10-Q that we filed with the SEC. And they 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 REIT. Now, 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. And we believe this is a better indication of the operating results of our portfolio and allows better comparability of period-over-period performance. And to stay up-to-date on our fund, as well as all the other Gladstone publicly traded funds, 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 Companies. Finally, you can visit our general website for 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-Q 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 these can be found on our website, www.gladstonecommercial.com.

So today, we’ll begin the presentation by hearing from Gladstone Commercial’s President, Bob Cutlip.

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; 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-year upon construction completion in June of this year; 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; executed one new lease with a tenant to occupy the remaining space in Burnsville, Minnesota property, extended the leases with the 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 U.S. REIT Index.

Subsequent to the end of the quarter, we sold a non-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 as at 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 held 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, and publicly traded REITs were net sellers for the year. Now, whether this leads to some cap rate expansion, remains to be seen. Our team will continue to monitor market conditions, and we’ll actively investigate opportunities and acquire properties when the tenant credit, location and asset returns are attractive and promote our measured growth strategy.

Now for some Company-specific details. During the quarter ended December 31st, we acquired a multi-storey 103,000 square foot office building located in Philadelphia in 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 headquarter. 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 Lear [ph] industrial facility adjacent to the Mercedes-Benz assembly plant in Vance, Alabama. Upon construction completion, the lease term resets the 10-year 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 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 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 efficiency. 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 a letter of intent stage and the balance is 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 property.

We only have one fully vacant property remaining today and that is our property in North Eastern 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, and our portfolio is currently 97.9% occupied.

In total, for 2015 and 2016, we successfully concluded 16 of 18 lease expirations, resulting in over 1 million square feet of leasing activity. And in 2016 alone, we sold six properties in non-core markets. These results combined with our acquisition 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 with 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% or 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% as highs 50% of their leases expiring during the same period. The majority of our capital availability will be used to pursue growth opportunities because we don’t 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 I think it’s important to note that our refinancings continue to lower our loan to value, lower our annual interest costs and amount of debt maturing reduces through 2017. This combination of our improving capital structure, our lower annual debt costs on our same-store property 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 over to Mike for report on the financial results.

Mike Sodo

Thanks, Bob, and good morning. I’m happy to be participating on this call after taking over as CFO during the fourth quarter. I’ll 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, and slightly decreased from the third quarter. This was largely a function of increase in common shares, which I will expand on later in my remarks.

Our fourth quarter results resulted in increase in total operating revenues of $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 with increased landlord 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 get further into our debt activity and structure. [Ph] We continue to have a strong balance sheet as we grow our assets and focus on decreasing our leverage. We reduced our debt to growth 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 several 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 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 $8 million mortgage note. Over the past 12 months, we’ve refinanced close to $80 million of debt, primarily with 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 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 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 the 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 that has slightly higher rates than we’ve experienced in the prior 24 months. Interest rates have been very volatile since the presidential election. Since November 8, the yield on a 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 of the unknown future for the U.S. economy. In response to this volatility, banks have widened out their spreads 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 that said, interest rates still do remain attractively low from a historical perspective and we’ll continue to actively try to match our acquisitions with cost effective debt. Depending on several factors including the tenant’s credit rating, property type, location, terms of 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 it to our equity during the fourth quarter, which I made mention of previously. As Bob stated previously, we completed the direct placement of common equity in December, totaling $13.9 million. This placement was executed at an opportunistic time as the Company has just been included in RMZ Index. While putting a minor temporary dilutive drag on FFO, we believe it was a solid execution to provide capital for acquisitions in 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 use these funds primarily for 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 available borrowing capacity of $13.8 [ph] 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 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 and -- 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’re 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 yearend. 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 with next chapter.

And with that, I’ll turn the program over to David.

David Gladstone

Alright, Mike. That was good report. Good to know the details; and Bob Cutlip, that was an excellent report as well. And Michael LiCalsi, you do the introduction better than I do. We have to maybe change the way we do these things as we begin. I think the main news again is the new property for a little over $25 million, we have raised some common and preferred to get ready for the quarter that we’re in, putting some more money to work and lease more vacant space and renewed all of the 2016 leases except for a small office lease, so leaving only about 4.4% of forecast rents expiring to the beginning of 2020, so long time before we have any leases coming due, and refinance many of the loans and position ourselves really for more growth.

As many of you know, this Company didn’t cut its monthly cash dividend during the recession and that was quite a success story as we watch many other good RIETs cut their distributions and many of them have never recovered from the beginning of that disastrous period.

We are in a great position, I think if the economy slips again. Here is 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 and they know there will be enough liquidity, if they want to sell or they need to buy some more.

We were included in the MSCI U.S. REIT Index; that’s certainly been a great help to us. It’s a mark of distinguishing when you finally reach that size. However, consistently, we want to build our assets and equity base, and doubled over the size -- the size is doubled over the last five years. With the growth, we hope to see more buyers coming into the stock that should hopefully help us increase the price; it’s still at the low end of the scale. We’re raising preferred stock, the Series D, which has 7% yield; that’s permanent preferred, hang on to it for life time. We have a new webpage, gladstonecommercial.com that explains that preferred, and you can’t redeem it -- I think it is five years now.

So, it’s 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’re not really common stock buyers; they prefer the stocks that these companies buy. But hopefully, they get to know us and pass our name on to some other folks.

I think the outlook for this Company is really promising, potential quality products; properties that we’re putting in the portfolio now. We expect to continue to grow the asset portfolio even more in this next year that we’re in. With the increase in the portfolio of properties comes greater diversification. And I think that will be better earnings to -- however, [ph] 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’re focusing our efforts on funding excellent properties, good long-term financing to match long-term leases and that’s 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 that those won’t be re-leased, even the same tenants re-upping. So, we are much more optimistic about this Company’s cash flow. Much of the industrial base and businesses that are running these office properties, like the ones we have, I mean, it’s 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 the rents, I think the future is really bright for this Company. It’s a strong underwriting team that’s 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’ve done in past years. We made it through the last recession and quite frankly I think we can handle most anything that the economy wants to throw at this point in time.

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

Because real estate can be depreciated, we are able to shelter the income of the Company. The return on 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 IRA or Keogh. 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’s why we talk about FFO and core FFO, because this is adding back the real estate depreciation. Depreciation of a building is system accounting thing for tax purposes. If you own the stock and a non-retirement account as opposed to having -- and your IRA, you don’t pay any taxes on that part. So, it’s sheltered by the depreciation and is considered a return on capital.

However, the return on 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’re 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 have the operator come on-board 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 on-board, please?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from John Roberts with Hilliard Lyons.

John Roberts

Good morning, David, Bob.

David Gladstone

Good morning.

John Roberts

You had -- that large purchase you made, it’s much larger than you typically have done in the past. Is there a change in strategy to go for larger size property versus maybe what you have historically?

Bob Cutlip

No, I think John, our sweet spot is still anywhere from 10 to as high as 30 million. As you know, we’ve been averaging -- from the inception of the Company, we’re right like 9 million to 10 million, but really over the past four years, we’ve 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’re able to get with the long-term, really long-term lease, we felt it was worthy of investment. But, I think you’re going to still see us somewhere between, for the most part, between 15 and 20, 22 million to 25 million. Getting above 30 to 40 still at our size is -- Dave and I just think it’s -- we don’t want to get 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 don’t want to have that opportunity. So that sweet spot is going to stay 10 to probably 30 million.

John Roberts

Great. That’s good color. And what should we expect on security instrument wise? You did quite a bit on the ATM and common and preferred. Should we look at somewhere in the 10 to 15 a quarter type number, is that a good number for us to model in?

Mike Sodo

So, as we look back historically over acquisitions, we’ve 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’d be reasonable to assume that new property acquisitions would be approximately 50% leverage, 50%, 55%. So, as you’re solving for those numbers, John, I think you’re probably in the right range. For us, it’s really an exercise and being prudent in the timing of issuances within the common and preferred. We don’t want to be doing that in 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 I can properly guide through the ATM program and do those issuances. Fortunately with the common being at 20 bucks a share, Series D is roughly 25 to 30. Those are places at which we can do accretive deals through the ATM.

John Roberts

Super. Thanks a lot.

Operator

Our next question comes from Laura Engel with Stonegate Capital Partners.

Laura Engel

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 can you also comment on kind of what type of pricing power, you all are seeing as far as inventory that’s available versus you’re potentially increasing the rates as you renew or get new tenants? Thanks.

Bob Cutlip

Okay. I think on the renewal side, I think what we’re 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 want the flexibility. So that drives our renewals more than anything else.

And for new leases, they really have range from five to seven years. So, we try to get it extended as much as possible. But I think tenants with what’s going on with the changeover of the government and where interest rates are going and accounting changes, the 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 in probably the five to seven-year. But, most of the deals that we are chasing out there are actually 10-year leases and beyond. So, I’m not that concerned. And from a pricing standpoint, in the 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’ve 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 to 2% to 3% escalations year-over-year, you’re in the real estate business, you’re 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.

Laura Engel

Right, okay. Okay, great. Well, I appreciate the color. And congrats on the strong quarter and I will get back into queue.

Operator

Our next question comes from Joe [Indiscernible] Services.

Unidentified Analyst

Good morning. Thanks for taking my question. And I apologize if you’ve covered this matter already, because I haven’t been listening to your conference calls every quarter. This was at some point last or the year before, you announced you were going to call the Series B Preferred, if I remember correctly, but then you didn’t announce. So, you have the -- that was an ATM program for the Series B. Am I correct introducing [ph] you’ve decided not to call the series?

Bob Cutlip

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

Unidentified Analyst

So, what do you…

Mike Sodo

Sorry, the coupon in the Series D is 7, the series -- you maybe misinterpreting the Series B for the Series C that was actually redeemed in 2016. Is that possible?

Unidentified Analyst

No, no, no. You said the lower coupon Series B, is that more than one Series B.

Mike Sodo

Series A that’s 7.75; 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’s duck. There is no other activity for the Series A or B currently.

Unidentified Analyst

Okay. Are you issuing more Series B, as in boy?

Mike Sodo

No, we have not really. No.

Unidentified Analyst

No, okay. I thought the news release said something about an ATM program for Series B. Perhaps I misread it.

Mike Sodo

The program is actually just not actively being utilized.

Unidentified Analyst

You have it but you’re not using it?

Bob Cutlip

Correct. We were only issuing through the Preferred Series D.

Unidentified Analyst

Okay, alright. That’s all I had. Thank you very much.

Operator

Our next question comes from Jeff Rounder [ph] with UBS.

Unidentified Analyst

Good morning, David. Good morning Bob; and congratulations on a very nice quarter. David, I have a follow-up question for you from the first caller. I’m a little bit confused or a little bit conflicted in that. On the one hand, I understand you’d 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 spaces continues to climb and is pretty higher right now. So, obviously, any issuance of common shares would mean we have to invest the money. I’m getting the impression that maybe the investments are as attractive now as they were over the last number of years. Can you reconcile that?

David Gladstone

Sure. The situation is always for us is the difference between the ramp 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 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’s just that every now and then the marketplace kind of craters goes the wrong way and we have to stay out for a while. Right now, it’s slow, because I think the pricing hasn’t quite caught up with what’s going on in the debt marketplace.

So we are finding transactions. And as long as we can do 20 or so million every quarter, I think it’s a good run rate. And so, far we’ve been able to do that. I would love to go faster, but I just think it takes a lot of effort that we don’t have the ability to do to put a lot more to work. So, we raise money as we needed. 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 then put it to work. So, you don’t 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 and to match this new thing that we’re 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.

Unidentified Analyst

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 whereas many REITs and obviously BDCs cut their dividend, Gladstone Commercial maintained that solid $1.50 dividend and certainly you guys need to be congratulated for that.

David Gladstone

Thank you very much. Can we have the next question, please?

Operator

Our next question comes from John Massocca with Ladenburg Thalmann.

John Massocca

Good morning, everyone.

Bob Cutlip

Good morning, John.

John Massocca

So, 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 for leasing of that vacancy, but not including the fully vacant property?

Bob Cutlip

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 multitenant property in Indianapolis, and we have a small 2,900 square foot vacancy there. And this year, we have another 2,000 that we are discussing with the tenant, but there is only 2,900 square feet there. But then, you’ll recall, our Maple Heights property in Ohio -- Central Ohio, we have about 100,000 square feet that’s vacant in that warehouse facility that we have one prospect for that entire space. But that’s all we have. And then, in Raleigh, North Carolina, we have 114,000 square foot warehouse facility and it’s about 6,000 square feet vacant -- 7,000 square feet vacant there. That’s about it.

John Massocca

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

Bob Cutlip

That’s right. That’s correct.

John Massocca

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

Bob Cutlip

It’s kind of a little bit of both, John. We do not have a desire to be in that industrial market. Most of the people, who, from a prior life I’m very familiar with, are very strong; they are chasing cap rates way down, as you know from exit 8 to exit 12; it’s extremely strong there. And so, this is a building that was built in the early 80s, it’s very little clear height; there is only 3.5 years left on the lease, possibility of them renewing, but if we can -- we bought it from $8.2 million and if you can sell it for 12.8, I’d rather take that money and put it in our target market that you’re familiar with as we’re going forward, and that’s our plan.

John Massocca

Okay

Bob Cutlip

So, both opportunistic and it was a non-core location we wanted to get out of.

John Massocca

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 within industrial sector that are newer, maybe higher clear height than that or is that kind of a space 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?

Bob Cutlip

We will -- 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 put 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’re seeing in the e-commerce, where the urban logistic centers are going to be very, very important. And those are probably going to 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 precast or tilt wall construction.

Operator

[Operator Instructions] I’m not showing any further questions at this time. I’d like to turn the call back over to David.

David Gladstone

Okay. Thank you and thank all of you for your questions. We really like the questions, it gets us to give you more information that you’re looking for. And we’ll see you next quarter, should be a good quarter ending March 31st. That’s the end of this call.

Operator

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

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