Q3 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to the Gladstone commercial Corporation's third quarter earnings Conference call.
At this time, all participants Arnie listen only mode. Later, we'll conduct a question answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone phone.
As a reminder, this conference is being recorded I would not to turn the conference over to your host Mr., David Gladwell Gladstone I'm sorry go ahead Sir.
Okay. Thank you Stephanie has a nice introduction and we are coming to you from the town that as the World famous Washington National Baseball team just one the World series in case, you wondering why we still celebrating here.
We do it by this time, we have with you on the phone and wish they had more time like this and start off with Michael account say who's actually and is Washington National Baseball team uniform. So Michael go ahead, maybe on a full year a form of [laughter] kind of silly, but that's okay.
Today's report May include forward looking statements other than Securities Act from 933 under Securities Exchange Act of lighting 34, including those regarding our future performance. These forward looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable and many factors may cause our actual results to be materially different from any future result.
It's expressed or implied by these forward looking statements, including all risk factors in our forms 10- Q1 0-K and other documents. We followed you guys see see find all these on our website www Dot Gladstone commercial dot com, specifically, the Investor Relations page on the Fccs website, which is www that SCC G O V.
Now the company undertakes no obligation to publicly update or revise any of these forward looking statements whether as a result of new information future events or otherwise except of course as required by law that today, we will discuss FFR, which is funds from operations.
FFO was a non-GAAP accounting term defined as net income excluding the gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of any real estate assets.
Also this to discuss core FFO, which is generally f. FFO adjusted for certain other nonrecurring revenues and expenses and we believe this is a better indication of our operating results and allows better comparability of our period over period performance and please take the opportunity to visit our website once again Gladstone commercial Dodd.
Tom you can sign up for our email notification service on online there could also find us on Facebook key word there is the Gladstone companies and we even have are on Twitter handle and that add gladstonecomps at today's call is simply an overview of our results. So we ask that you would review our press release and Form 10-Q again, both issued yes.
Today for more detailed information again, those can be found on the Investor Relations page of our website.
Helping them, we have Bob Cutlip.
So on commercials, president they'll take off.
Thank you Super Nancy and good morning, everyone. During the third quarter, we acquired a 78500 square foot industrial property and debt in Texas.
Acquired at 211000 square foot to building industrial property and Temple, Texas recast the company's line of credit and term loan and implemented energy savings improvements at three office properties to reduce operating costs.
Subsequent to the ended the quarter, we entered due diligence for the acquisition of 65000 square foot industrial property in Indianapolis.
And our due diligence for the acquisition of a 231000 square foot industrial property in Indianapolis.
Entered due diligence for the acquisition of a 241000 square foot industrial property in Jackson, Tennessee have to lease amendments negotiated an out for signature a 100000 square foot office tenant in Denver, Colorado, any 40000 square foot office tenant inmates in Ohio, and completed a public offering of six and 5% so.
Busy perpetual preferred stock.
As I've noted in the second quarter, we're beginning to enjoy the benefits of our teams focused efforts across all functions to improve operating results. This has been accomplished through three major activities.
Acquired accretive assets during the period from 2012 through 2018, the average GAAP cap rate on acquisitions was 8.7% with mortgage debt place at a 4.6% interest rate.
Renewed expiring leases and released vacant space, we maintained occupancy greater than 96% during the highest lease expiration period in company history.
And refinance maturing mortgages at lower leverage levels, we lowered our leverage from a high of 63% in 2013% to 45.9% as of the ended the third quarter.
The results of these efforts equate to increasing cash flow year after year and an improved capital structure as we approach $1 billion in total assets after depreciation.
And the outcome of the recent recast of our line of credit and term loan and the successful offering of six in five these percent perpetual preferred stock further demonstrates the improvement in our operating position, which we believe will create opportunities for growth Mike is going to expand upon the characteristics of these capital events shortly.
Our investment in asset management activities continued to generate positive op momentum for our operations during the quarter.
We acquired a 78500 square foot industrial building and Denton, Texas, the acquisition price was $6.5 million and the going in and GAAP cap rates are 6.4, and 7.1% respectively.
The unexpired lease term is 12 years.
We also acquired at 211000 square foot to building industrial property in temp and Texas. The acquisition price was 14 million the going in and GAAP cap rates are 6.98, 0.2% respectively. In the transaction was structured as a 20 year sale lease back.
Subsequent to quarter end, we entered due diligence on three industrial properties.
A $9 million building in Jackson, Tennessee, and two buildings totaling $13.7 million in Indianapolis.
The average GAAP cap rate on the properties is 7.5% and the weighted average remaining lease term is approximately 10.2 years.
We expect each of these properties to close during the fourth quarter subject to the successful completion of our due diligence.
Our asset management team continued to deliver on improving our same store operations from a leasing perspective, our Midwest team has a lease amendment for signature for a 40000 square foot office tenant in Mason, Ohio, which will extend the lease through April of 2030.
As compared to the current lease expiration date of June of 2020, and will require no tenant improvements without amortization of all costs.
In our mountain West team has a lease amendment for signature, which extends a 100000 square foot tenant in a Denver Multistory office property from September of 2021 through September 2026.
These combined efforts served to increase the weighted average lease term on our entire portfolio.
And from an operation standpoint, our team has implementing energy savings improvements at three office locations in Ohio, Indiana. These programs require no capital expenditures by Gladstone.
Lower energy consumption in the states.
Upgrade building equipment and lower going forward operating costs for the tenants.
We plan to implement these energy savings projects at other locations as appropriate.
Anticipating that many on the call are interested in lease expirations through 2020, I wanted to summarize the teams thoughts.
During the remainder of 2019, we have three leases expiring representing $2.4 million of annual GAAP rent.
We have active prospects for each of these buildings at this time.
During 2020, we have eight leases expiring.
Representing $8.8 million of annual rent $6.6 million of this total expires during the second half of the year.
Now to tenants have formally notified us that they are vacating the premises and we are actively marketing those spaces now.
In fact, we are in lease negotiations for 50% of one of the buildings, representing a 10 year lease term with occupancy commencing upon the existing lease expiration date.
And we're in conversation with the balance of the tenants and are hopeful of positive outcomes with renewals.
For GM with a lease expiration date of August 30, Onest 2020, we're pursuing two scenarios.
They renew their lease or they vacate all or a portion of the space.
They are not required to provide notice until December of this year. Therefore, we have begun to actively plan a really scenario right preparing space design concepts for a multitenant or full building user and are engaging the market to identify potential tenant prospects and to validate current market rents and tenant improvement requirements.
This information is helpful for either renewal negotiations or a new lease scenario.
I think it's interesting to note that our GAAP rent at the property of $14.50 per square foot Triple net compares favorably in the Submarket with current space offerings in the low to mid $20 per square foot on a triple net basis.
Market conditions are worthy of some comment national research firms have noted that single property listings and closings are down as much as 10% for the first two quarters of 2019 versus the prior year volumes and our estimating a similar maybe somewhat lower result for the third quarter.
Entering the limits your if this cycle the estimate that both pricing and investment sales volume maybe peaking in.
In addition, we have noticed there's an apparent buyer seller disconnect in the office sector as evidenced by several notable properties returning to market after being under contract now with any information in mind significant capital is still available on the sidelines with considerable interest in us real estate and the expectation is for the 2019 investment sale.
As volume to be similar to that of 2018, which is really still quite healthy for the industry. Our team is going to continue to monitor market conditions and actively investigate opportunities that promote our measured growth strategy.
As it relates to growth opportunities. We have noted an increase in activity in sales listings as of late our current pipeline of acquisition candidates as approximately $300 million in volume.
Representing 25 properties 22 of which are industrial.
Of this total approximately $140 million is either in the letter of intent or due diligence stage and the balances under initial review.
As I've noted previously we have made a conscious effort to increase our industrial allocation. Our focus is in fully developed industrial parks with properties that are 50000 to 300000 square feet in size and occupied predominantly by middle market non rated tenants it tenant profile, which we believe we can underwrite with.
Proven credit underwriting capabilities.
This property type is also considered last mile in nature with the recent explosion in e-commerce activity.
To show evidence of this strategy from the last week of September 2018 through the end of October 2019, just over 12 months, we've acquired $114 million of properties over 80% of this volume or $96 million were industrial properties. These properties are located in our target locations and.
The average GAAP cap rate is 8.1%.
We believe this shift to increasing industrial allocation of our portfolio will result in the long term benefits of lowering tenant improvement cost, reducing the intensity of our property management activities and improving operating efficiencies.
So in summary, our third quarter activities continued our acquisition and leasing success refinance maturing mortgages amended and extended our credit facility issued equity through our ATM program is positioning us well to pursue growth opportunities.
Now lets turn it over to Mike for report on the financial results. Good morning, I'll start by reviewing our operating results for the third quarter 2019, all per share numbers I referenced are based on fully diluted weighted average common shares.
FFO and core FFO available to common stockholders are both 39 cents per share for the third quarter and $1.16 and $1.18 per share respectively for the first nine months of 2019.
This performance demonstrates the accretive yet prudent growth at the company is completed in recent years as well as the performance of the in place portfolio inclusive of maintaining 99% occupancy.
Addition to these accretive deals our same store cash rent growth continues to be 2% on annual basis. Prior to 2018 core AFFO hovered in the dollar 50 $1.54 per share range for the past number of years as we de Levered the balance sheet and the drop lease roll over 2018 results demonstrated our highest core FFO per share and we intend to continue to grow.
Stability for our shareholders as well as increasing the industrial allocation of the portfolio.
Our third quarter results reflect an increase in total operating revenues to 28.7 million, including $100000 and lease termination and contraction revenue as compared to total operating expenses of $19.4 million for the period.
Now, let's take a look at our debt activity and capital structure, we continue to enhance our strong balance sheet as we grow our assets and focus on decreasing our leverage we've reduced our debt to gross assets by nearly 15% to 45.9% over the past five years through refinancing maturing debt and financing new acquisitions at lower leverage levels. We believe that we are one to two per.
And away from our target leverage level, which means that nearly all raise equity will be allocated to accretive acquisitions. We believe that this will put us at the proper leverage level going forward.
We continue to primarily use long term mortgage debt to make acquisitions as we grow through disciplined investments. We'll also look to expand our unsecured property pool with additional high quality assets overtime. We expect this will increase our financing alternatives as we continue to manage our balance sheet, we have repaid $55 million of debt over the past 24 months, often with new long term bearable.
Mortgages at interest rates equal to the one month LIBOR plus the spread ranging from 2.5% the 2.75% we've placed interest rate caps on all new variable rate loans. We also added some of these properties to our unencumbered pool under our line of credit whether advance a permanent placement disposition or in an effort to provide more flexibility in the future by increasing the size.
Total unencumbered assets.
As Bob mentioned, and we discussed last call, we amended extended an upsize our existing credit facility in term loan on July 2nd this highly efficient execution was well supported by not only our existing lending group, but also with the addition of Goldman Sachs and Wells Fargo.
Buying facility was increased by $100 million to $260 million with the term loan being the majority of the facility at 160 million, including a delayed draw component. The entire facility was extended for nearly two years with a 10 basis point rate improvement all term loan borrowings continue to be hedged with LIBOR rate caps in the 2.5% to 2.75%.
Range.
In addition, and after quarter end, we did successfully issue our new series six and five 8% perpetual preferred on October four totaling $69 million.
A significant institutional and retail support this execution allowed us to redeem our previously existing series C. N series, B preferred which on a weighted basis were nearly 100 basis points above the new series Eve from a coupon perspective, we believe these capital market transactions continue to speak to the growth of the company and balance sheet enhancements that had been achieved as well.
The long term prospects for further prosperity with incremental bank back and going forward and access to efficient capital looking at our debt profile and with the credit facility recast complete 2019 in 2020 loan maturities are very manageable with no maturities remaining in 2019, and only $20 million coming due in 2020 number of these loan.
We have extension options, we've continued to proactively manage and improve our liquidity and maturity profile over time.
Depending on several factors, including the tenants credit property type location terms alif leverage in the amount in terms of loan were generally seeing all in rates on refinances and new acquisition debt ranging from the mid 3% to low 4% range. We continue to minimize our exposure to rising interest rates with over 90% of our existing debt being fixed rate or hedged to fix the interest rate swaps.
And caps.
Remained active in issuing our common stock using our ATM program during the third quarter net of issuance costs, we opportunistically raised $7.4 million to common stock sales, while we continue to view the ATM as an extremely efficient way to raise equity we continually keep our assessment of the relative value of the common stock as compared to trading prices in mind as we determined window raise capital.
As of today, we have $4 million and cash from $31 million of availability under our line of credit with our current availability and access to our ATM programs. We believe that we have significant incremental flexibility to fund our current operations properties. We are underwriting in any known upcoming improvements at our properties. We encourage you to also review our quarterly financial supplement posted on our website, which provide.
It's more detailed financial and portfolio information for the quarter, we feel good about continuing to execute our business plan during the remainder of 2019 and beyond as we continue to increase our high quality asset base and consumers continue to improve our metrics, we're focused on maintaining our high occupancy with strong credit and real estate with minimal near term lease expirations, along with manageable loan matures.
These are deployment of capital will be heavily focused on high quality real estate acquisitions with strong credit tenants.
Institutional ownership of our stock increased by more than 17% at the beginning of 2016% to 58% as of September Thirtyth, Bob and I continue to be after the meeting with current and potential institutional investors portfolio managers investment banks and the like we look forward to further engaging with not only our existing investor based lenders and coverage analysts, but also establish.
We're seeing new relationships as the company moves forward to its next chapter and now I'll give it back to David.
Right. Thank you very much Mike Atlas Good report and good report from Bob Cutlip, and Michael Licalsi as well it was.
Very nice quarter, acquiring industrial properties, and Denton, Texas, and a two building industrial property in Tempe, as well temple as well and that's near Austin, Texas, We recast the Companys credit line and term loan. So the good shape, there and we did issue the series C preferred in September .
30, the team is growing the portfolio and a really good pace and doing a great job managing the balance sheet.
Continue to believe that they have promising list of potential quality properties with good tenants and expect a number of acquisitions over the next two to three quarters.
The middle market business area is still very strong well, you're seeing our tenants being able to pay their rent. So as a result were cranking along its.
Good time to be in this business.
In October the board voted to maintain a monthly distribution of 12.5 cents per common share for October November December .
Annual run rate or $1.50 per year.
As a very attractive rate or well manage read like ours, which we believe is an excellent investment for individuals that won't monthly income I.
I know you are asking US again, when we're going to increase the distribution. Our policy is not to discuss the strategy or board matters prior to the adoption, but we're going to be focused heavily on it in January . However, we do hope to make some small increases we don't like staying at $1.50, we want to increase it per year just to keep.
With inflation.
Now paid 177 consecutive common stock cash distributions and we went through the recession as you know without cutting the distributions.
Moving on I heard that record stocks, now and $23.19 distribution yields about 6.5%.
It's a really good rate considering that whole net universe is trading at about 4.4% yield and if our stock was near we'd be over $30 a share. So we still have plenty of room to run.
A lot a chance that the price could expand even further.
Okay, I'm going to top tier definitely if you will come onboard and.
Some of our listeners asked some questions. Thank you ladies and gentlemen, if you have a question at this time. Please press the star and then the number one on your telephone touch Touchpad. If your question has been answered all you wish to remove yourself from the Q. Please press the pound key.
Your first question comes from the light and Rob Stevenson with Janney.
Hi, Good morning, guys. Bob can you talk about where you're seeing the most opportunity acquisition wise and whats the sort of pipeline for maybe later half a fourth quarter and into 2020 look like today is that still largely industrial and you still able to hit the yields that you've been achieving on recent try.
It's actions.
Yeah, Rob very good question I mean, the team has made I think an excellent transition to focusing on industrial and I think because of the engagement of our regional teams from junior investment salespeople to senior investment salespeople were able to stay in what we call that sweet spot of somewhere between five.
And $25 million per copy and where we're seeing the opportunities are in the Midwest as I've indicated Indies is been a very good player for US Columbus is a very good player for US Philadelphia is a very good player for us.
Chicago now, we're seeing a couple because of our stock price, where it is and where debt is that we're able to see some there even in the suburbs of Atlanta, and I must say suburbs of Atlanta wouldn't we did that or Gil acquisition, that's untipped in Georgia, but and David It had had commented Bob wherein the heck of you kind of behind this building I go lists.
Plus.
We can work also in outside of let's say Dallas.
And in Austin as well.
Those those those will be good gateway markets, though we're not going to be able to play because a cap rates are still too low for us, but we will be able to still stay in that.
Going in cap rate low to high Sixs mid sevens too high sevens on the on the GAAP cap rate. So long as are our stock price holds and and the debt stays as it is.
Okay and then.
Bob David I mean, given the comments on exploring some sort of.
How much dilution would you'd be willing to take on sale of office assets and redeploying into industrial if it meant.
How do you guys think about that with the board in terms of the sort of triangulation of earnings growth earnings cover or dividend coverage and dispositions.
As Mike and I and David have said, we want to exit these noncore single property markets, but selectively and the reason that its selectively is that the tenants are good rent payers and we've been through renewal with most of them. So you're probably going to only see us exit $10 million to $15 million, a year, which I think is not going to create an issue.
For us as we look forward to increasing the dividend and we've worked extremely hard now to get get our AFFO payout ratio down to at par, which Mike can address a little bit more if he wishes and and so I feel confident that that we're going to be able to increase that dividend and as David said earlier when we start.
We want to make sure that we can do it.
And with our pipeline really improving dramatically and with the shift to two industrial where we are re tenanting costs. Our tenant improvement costs are much less I feel confident we're going to be able to do it.
Yeah, Rob we've been debating this at every board meeting probably for the last year year and a half.
Beginning to move up the dividend by little tiny some margins of increases, but all total during the year would be enough to keep ahead of inflation and with inflation being as low as it is you don't have to do a lot. We just don't want to be sort of static bond fund with the same dividend forever and today. So.
I can't give you more information in that because it's on the agenda to talk about again in January .
Okay, and then Mike.
In the various capital raises how much dry powder do you have for acquisitions without raising additional capital or taking.
Leverage levels out of whack.
Sure. So as of today I made mention on the call Rob I mean, we have about for $4 million to $5 million a cash on hand, 30 plus million available on the credit facility. So you're looking at 35 without raising a dime and doing those deals. If you did not have access to the ATM program.
The ATM program has been active in every month of 2019, the expectations should be based upon a fairly robust pipeline that we will be active in the near term to incrementally increase that liquidity.
Okay. Thanks, guys.
Q.
Next question.
Your next question isn't the line of Henry Coffey with Wedbush.
Yes, good morning, everyone I don't know whether its winning the world series are putting out a phenomenal quarter, but you guys. The tone is more upbeat that it's been in a long time so congratulations.
Yes.
It is good news or a bad news everyone. We talked to in the commercial real estate space tells us multifamily is.
Really active.
Industrial is really active.
There's there's sort of inflationary.
Values are inflated or not I never know whether a good market is good news or bad news for someone whose primary goal is investing in new properties. So what are your thoughts on the overall tone in the market.
Even though the mouth active industrial is.
Henry the markets very good as you know our background here as then lending in investing in small businesses for years and years and years. So when we see a tenant that mid sized businesses and has a good balance sheet and APEA now we feel pretty comfortable with that we're able to underwrite them and so the tone today.
They are in most of them are in a growth mode.
So that is encouraging to us.
Particularly with the type of asset the smaller asset that we have our are focusing on.
So and.
Thanks, a positive.
I think we get that part.
The the thought process in terms of.
Outlook for.
2020 is obviously going to be very solid as you start thinking about a recession, how would the business adjust.
This is industrial a stronger asset class versus office versus other assets.
I know all I mean, we have the we know what you did last time was really good so.
Henry all of these assets are only as good as the tenants. If you look at our business, we're really buying when we buy a building we're buying.
Tenet and we're buying.
Leasing agreement so we are investigating.
And what's the outlook is going to be like and I think we've chosen tenants that will survive nicely through any kind of normal recession, if we have some kinda off.
Kind, a recession will will have pain like everybody else, but at this point in time, we're feeling really good the.
Retail climate is very strong today and so many of our tenants on in that part of the world.
I think we have clear vision about the next six months and maybe even a year, but nobody knows much further than that.
Great well, thank you very solid quarter.
Thank you Hank.
Next question. Your next question is from the line of Craig Sarah with B. Riley FBR.
Hi, good morning.
Incentive it's kind of northern Ohio.
50% of the building.
And then the asset that is in Columbus, Ohio, it's less than 20% of the building.
So we have active prospects for those two assets.
And for the Tulsa asset. We also have we have a long term opportunity. There that is probably maybe two to three months off from a final decision. Then we have a short term opportunity that we're pursuing for that Tulsa asset as well so encouraging because the the office asset in Columbus is.
Is an excellent mixed use environment and.
We're somewhat partially encouraged about the industrial asset in Maple Heights, Ohio.
Got it and do you have a sense of where the current rents are at those properties relative to market and kind of where the rents are rolling up or down.
The the rents in the Maple Heights office or right at market.
And then if I talk about the asset that's in Columbus, Ohio.
I think we are at or a little below market there and in the Tulsa market, we're probably to be brutally honest, we probably 5% to 10% above market based on our current rent.
It's just when you get into a long term lease with net leases.
Thats, 2% to 3% Escalations and you go through a correction, it's difficult to be at market, but I feel very good about the Maple heights, and the and the Columbus asset for sure.
Got it.
And switching to to acquisitions I think last quarter.
You have you guys had thought maybe you'd hit you know 115, maybe upwards of 125 million of acquisitions for this year I think after this quarter and what you disclosed here that sort of under.
Once you are probably a little closer maybe 90 91 million.
Are you far enough along in the remainder of your pipeline to maybe still hits in acquisition total in that range or is that maybe a bit stretched at this point.
I think that we're going to be somewhere between 110 at 125 million.
The desire for a lot of these sellers to close by the end of the year I feel very confident that we're going to be in that one tend to 125 range.
Got it and just when we when we think about that 300 million dollar pipeline that you guys discussed.
You know conceptually is it's going to be more or less what you've been doing I understand its tilted to industrial but sort of.
Mid western shall we say industrial sort of middle market type of properties or is there anything shifting in the pipeline.
I think Midwest has has been a very good player for us, but we're starting to see opportunities continue to see opportunities in Florida.
And in Georgia.
And I think that we you'll hear us doing a bit more in Georgia, and South Carolina going forward and surprisingly you know.
Our our south central leader.
Is finding assets in Dallas and Houston.
So are we going to go out far west only if it's a portfolio if it's a portfolio of five to six properties, where it makes sense to put them together, we will do that but otherwise we're really going to be focused more on the Midwest southeast in south central.
Okay. Thank you.
Next question. Please your next question from the line of John Masako with Landenburg Thalmann.
Good morning.
On a John so understanding that maybe what do you understand that your.
GM asset in Austin is R&D focused and not manufacturing even with that was there anything that maybe came out of the recently.
Agreed to kind of labor contract with GM gives you any kind of.
Insight as to what do you think it's going to end up doing would that property was there anything in there that you given what happens in that Austin facility. You think may continue to be a focus or not a focus going forward for them.
You know we have not been given any direct information from them.
Overly concerned because our dog on our our current GAAP rate is probably five to $6 below current current asking lease rates and.
Having wants the property myself and it really setting up really well as to 160000 square foot buildings with creative office and us being in the Parmer technology corridor, we have already received.
Interest from a couple of prospects, even though the notice period hasn't even notice period notification hasn't actually come to us so.
I'm not overly concerned do I wish that they will renew oh, yes, theres no doubt about that but but if they don't being in Austin and that market being extremely hot we feel very encouraged long term.
Okay very helpful color.
And then can you maybe walk us through the impact of the clean energy improvement program that Youve accomplished at some of your office properties, how big is maybe the opportunity set.
Realized that within the existing portfolio and maybe how impactful is that to operating expenses.
Well I can.
I have a little knowledge, so im dangerous, but I can give you a summary of how the program is set up it it's really a combination of of the state and of the local jurisdiction and of lenders, who and companies who can provide these.
Let's say improvements in Hvdc systems led lighting and the analysis that is done indicates that the cost to replace this equipment.
Enables enables the tenant at the ended the day to realize anywhere from 10 to maybe 20% reduction in utility costs, not overall operating costs, but in utility costs and it also is a function of of part of the payment is done by them increasing.
Their taxes, but then you'd have lower operating costs and at the end of the day, everybody wins and sometimes it's a state programs, sometimes it is not a state program.
But it is being done it any kind of offices or you have a gross lease in place and therefore it flows through to your to lower operating expenses for you.
It's going to benefit the tenant because the way the way we have most of our leases when we actually acquire the property. If it's a gross lease for the most part everything above that is is paid for by the tenet and what happens John is that their taxes go up but the utilities go down and so at the end.
Our benefit is that we don't have to put any capital in the building, we get building improvements and the tenant at the end of the day pays less which encourages them to renew.
And then moving to the balance sheet.
Here in the near term.
Yes. Good question, John I think it the dual track strategy appreciating were at great environment, where the one month LIBOR is right on top of the tenure.
There is very attractive long duration money when coupled with long leases. So I would say roughly half of the acquisitions were continuing to put mortgages on generally in the mid to high 3% range, but to your point.
We have aspirations to continue to grow and we are approaching out of depreciation a billion dollars of assets.
We look at the balance sheet within the land, so where we will want to finance properties over the next.
Our unencumbered asset pool via the expanded credit facility.
The call at 25% to 27% range, we know to get the private placement you need to be in the mid to high Thirtys and corporate unsecured as slash investment grade calls for a roughly 50% with pro forma to 60.
Makes sense. Thank you very much that's it for me.
Our next question please.
I'm showing no further questions at this time.
I'd like to turn the call back to David Gladstone.
Ladies and gentlemen, this concludes today's conference. Thank you for participation.
And have a wonderful day you may now disconnect.