Q4 2019 Earnings Call
All participants are not listen only mode. After the speaker presentation, there will be a question and answer session.
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David Gladstone. Please go ahead Sir.
Alright, Thank you Joe well for that nice introduction and thanks, all of you could call again this morning.
We enjoy the time, we have with you on these phone calls I wish we did it more times every year, but once a quarter.
Well hear from Michael account see our general Counsel and Secretary give you the legal and regulatory matters concerning this call Michael Thanks, David Good morning, everyone. Today's report May include forward looking statements on those Securities Act. The 1933 Securities Exchange Act and thinking 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 believed to be reasonable.
The main factors may cause our actual results to be materially different from a future results expressed or implied but these forward looking statements, including all the risk factors in our forms 10-Q, 10-K and other documents we file with the FCC you can find them on our website.
W.W. Dot Gladstone commercial dot com, specifically, the Investor Relations page, where on the Fccs website, which is www dot SCC Dusty Ob.
We undertake no obligation to publicly update or revise any of these forward looking statements whether as a result of new information future offense or otherwise except as required by law.
Today, we will discuss Epo, which is funds from operations.
It was a non-GAAP accounting term defined as net income excluding the gains or losses from the sale of real estate lending impairment losses on property, plus depreciation and amortization of real estate assets.
Also discuss Epo as adjusted for comparability and core FFO, which are generally epo adjusted for certain other nonrecurring revenues and expenses and we believe these metrics are better indication of our operating results and allow better scalability of our period over period performance.
Yes that your visit our website once again Gladstone commercial dotcom sign up for our email notification service, but also find us on Facebook keyword. There is the Gladstone companies and we even have on Twitter handle in that add gladstonecomps.
Today's call is an overview of our results. So we ask that you review our press release in the form 10-K that we issued yesterday for a more detailed information again do you can find them on the Investor Relations page of our website.
I'll pass the presentation over to Gladstone commercial President Bob Cutlip.
Thanks, Mike Good morning, everyone. During the fourth quarter, we acquired at 212000 square foot industrial property in Indianapolis at 241000 square foot industrial property in Jackson, Tennessee.
A 117000 square foot industrial property in Carrollton, Georgia.
Six building 509000 square foot industrial portfolio in five separate markets.
Extended the lease for a 40000 square foot tenet inmates in Ohio through 2030.
Executed at 36000 square foot tenure lease enough Ridley, Minnesota office property and completed a public offering of six in five 8% series C perpetual preferred stock.
Subsequent to the ended the quarter, we acquired a 65000 square foot industrial property in Indianapolis.
Prior to 327000 square foot three building industrial portfolio in Houston, Saint Louis and Charlotte.
And our due diligence to acquire a 504000 square foot industrial property in Chatsworth, Georgia.
Executed to lease amendment to extend a 100000 square foot tenant in Denver, Colorado through 2026.
And extended the lease for a 78000 square foot office tenet in Springfield, Missouri also through 2026.
As we noted on our third quarter called our investment strategy is emphasizing an increase in our portfolios industrial allocation.
Which we believe will improve our property operating efficiencies reduce capital expenditure levels and potentially result in improved valuation over time.
To that and our industrial allocation was 33% on January Onest 2019, and has increased to 38% by year end.
From April 2019 through January 2020, our investment volume was approximately $160 million all of which were industrial properties and providing further evidence of that commitment to increase the industrial allocation.
And our intent is to continue to overweight industrial acquisitions market conditions permitting of course in the developed submarkets of our targeted locations.
Our primary focus has been and will be acquisition candidates ranging in size from 50000 to 300000 square feet.
During the quarter, our investment in asset management activities continue to generate positive momentum for our operations.
We acquired nine properties, all industrial equating to $62.4 million in investment volume.
The transactions included a 212000 square foot property in Indianapolis for $8.2 million with a lease expiration date of April 2033, and a GAAP cap rate of 7.8%.
241000 square foot property in Jackson, Tennessee for $9 million with a lease expiration date of August 2029, and a GAAP cap rate of 7.4%.
A 117000 square foot property in Atlanta, Submarket $8 million, where the lease expiration date of December 2031, and a GAAP cap rate of 7.4%.
And a six building 509000 square foot portfolio in five markets throughout the south and southwest for $37.2 million with a lease expiration date of December 2029, and a GAAP cap rate of 7.2%.
Subsequent to quarter end, we acquired a 65000 square foot industrial property in Indianapolis, The acquisition price was $5.3 million and the GAAP cap rate is 7.2%.
This acquisition was also a partial upright transaction for us.
We also executed a 20 year sale leaseback transaction with a tenant occupying three industrial buildings in Houston, Saint Louis and Charlotte The acquisition prices 34.6 million and the GAAP cap rate of 7.6%.
And we are currently and due diligence to acquire a 504000 square foot Cross dock facility for $30.3 million. The property is located at North West, Georgia Inland Port served by a class one railroad.
This distribution center ships raw materials to three manufacturing facilities operated by the tenant.
We expect this property to close an early to mid March pending successful completion of due diligence.
Our asset management team continued to deliver on improving our same store operations.
From a lease renewal standpoint, our Midwest team executed a 40000 square foot lease amendment for office tenant and Mason, Ohio, which will extend the lease on two thirds of the space through June of 2030.
Our south central team extended the seven the lease for our 78000 square foot Springfield, Missouri office tenant through 2026.
And our mountain West team extended the lease for a 100000 square foot Denver office tenant through September of 2026.
Combined effort served to increase the weighted average lease term on our entire portfolio.
And from an operations standpoint.
Our asset management team is implementing energy savings improvements at three office locations in Ohio, and Indiana. These programs require no capital expenditures by Gladstone.
Lower energy consumption to the states.
Upgrade building equipment and lower going forward operating costs for our 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 and our current activities.
During 2020, we have eight leases expiring representing $8.8 million an annual straight line rent.
$5.8 million of this total expires during the second half of the year.
Three tenants have formally notified us that they are vacating the premises at the end of March and the end of June respectively, and we are actively marketing those spaces now.
We at least 50% of one of the buildings for a 10 year lease term with occupancy commencing upon the existing lease expiration date, and we have active prospects for the other spaces as well.
We at least 50% of.
Excuse me I have already referenced the 40000 square foot lease extension of our Mason, Ohio tenant earlier, and we will not expand upon that at this time. In addition, we have lease amendments out for signature with our Raleigh, North Carolina tenant who occupies to adjacent properties, 100% of a 58000 square foot office building and 20% of a 150.
1000 square foot industrial building.
The amendments will extend the office lease for five years and the industrial lease for one year.
GM will not renew their lease at our Austin, Texas property at the end of August.
We have begun actively marketing the building and have prospects ranging from one third to as much as the entire 320000 square foot space.
We have a website for the property marketing materials for prospects and floor plans illustrated on architectural boards set up in the lobby to assist us as we conduct property tours.
I think it's interesting to note that our GAAP rent at the property a $14 at 50 cents per square foot compares favorably in the Submarket with current space offerings in the low to mid $20 per square foot on a triple net basis.
And for the balance of the expiring tenants. We're in active conversations with them and are hopeful of positive outcomes either relating to new leases or.
Market conditions are worthy of some comment national research firms have noted that investment sales volume was down for the third quarter versus the prior years volume and are estimating a similar result for the fourth quarter.
Completing the 11th year. This cycle, the researchers estimate that both pricing and investment sales volume, maybe peaking possibly with the exception of industrial.
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 that information to mine significant capital still available on the sidelines with considerable interest in U.S. real estate. Our team will continue to monitor market conditions and actively investigate accretive opportunities that promote our measured growth strategy.
And as it relates to growth opportunities.
And sales listings have moderated but continue to be strong our current pipeline of acquisition candidates is approximately $260 million in volume representing 17 properties 15 of which are industrial.
This total approximately $50 million it either in the letter of intent or due diligence stage and the balances under initial review.
So in summary, our fourth quarter activities continued our acquisition and leasing success.
Refinance maturing mortgages issued equity through our preferred series E issuance as well as common equity issuance through our ATM program and collectively positions 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 fourth quarter 2019, all per share numbers I reference are based on fully diluted weighted average common shares.
FFO adjusted for comparability in core FFO available to common stockholders were 39 cents and 40 cents per share respectively for the fourth quarter and $1.55 and $1.58 per share respectively for the year. This performance demonstrates the accretive prudent growth of the company has completed in recent years as well the performance of the in place portfolio.
In addition to these accretive deals our same store cash rent continues to grow at 2% on annualized basis with a number of years of improving the balance sheet behind us, including de leveraging the portfolio and with some substantial acquisitions. Both at the end of 2019 and early part of 2020.
Excited about the prospects to grow profitability for our shareholders as well as increasing the industrial allocation of the portfolio. These new investments will provide significant contribution to the company's performance in aspirations for core FFO growth in 2020 and beyond.
Our fourth quarter results reflect an increase in total operating revenues to 29.4 million, including $60000 in lease termination and contraction revenue as compared to total operating expenses of 22.5 million for the period.
We continue to enhance our strong balance sheet, as we grow or assets and focus on decreasing our leverage we've reduced our debt to gross assets by nearly 15% of 46% over the past five years through refinancing maturing debt and financing new acquisitions at lower leverage levels. We believe but we are 1% to 2% away from our target leverage level, which means that nearly all raise equity.
We'll go toward accretive acquisitions, 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 over time, we expect this will increase our financing alternatives as we continue to manage our balance sheet, we repaid $61 million addendum.
For the past 24 months, often with new long term variable rate mortgages that interest rates equal to the one month LIBOR.
The spread ranging from 2.5% to 2.75% we've placed interest rate caps on the all new variable rate loans. We also added some of these properties to our unencumbered pool under our line of credit whether in advance of permanent placement disposition in an effort to provide more flexibility in the future by increasing the size of our total unencumbered assets as Bob.
Mentioned and was discussed last call during the fourth quarter. We did successfully issue our new series E fixed and five eight perpetual preferred on October four totaling $69 million outstanding.
With significant institutional and retail support this execution allowed us to redeem our previously existing series, a and series B preferred stock, which on a weighted basis were nearly 100 basis points above the new series E from a coupon perspective, we expect that this will further contribute to profitability in 2020 and beyond.
We've also been extremely active and issuing our common stock using our ATM program. It's of note that we changed ATM sales agents in December with Goldman Sachs Stifel and Baird now leading this program during the fourth quarter and net of issuance costs, we opportunistically raised $24 million through common stock sales. In addition, we've also resulted in incremental.
$28 million already in 2020.
It's meaningful and extremely cost efficient means of raising capital demonstrates both the poor performance of our new sales agents as well as increased investor demand for our stock. We believe these capital markets transactions continue to speak to the growth of the company and balance sheet enhancements that had been achieved as well as the long term prospects for further prosperity within credit.
Incremental bank backing going forward and access to more efficient capital looking at our debt profile 2020, and 21 loan maturities are very manageable with only $20 million and $27 million coming due respectively number of these loans have extension options. We've continued to proactively manage and improve our liquidity at maturity profile over time, depending on.
Several factors, including the tenants credit property type location terms of the least leverage in the mountain terms alone were generally seeing all and rates on new debt ranging from the mid to high 3% range.
We continue to minimize our exposure to rising interest rates with over 90% of our existing that being fixed rate or hedge to fix their interest rate swaps and caps.
As of today, we have $4 million in cash and $35 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 were underwriting in any known upcoming improvements at our properties.
We encourage you to also review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter. We feel good about continuing to execute our business business plan through 2020 and beyond as we continue to increase our high quality asset base and continue to improve our metrics. We're focused on maintaining our high occupancy was strong credit than real.
Just a.
Institutional ownership of our stock increased by 17% since the beginning of 2016% to 57% as of December 30, Onest, Bob and I continue to be very active and meeting with current and potential investors portfolio managers coverage analysts investment banks and the like we look forward to establishing new relationships as the company moves forward next.
After.
Regarding our common stock dividend in January the board voted to increase the monthly distribution to 12.515 cents per share for January February and March. While this is a modest increase its noteworthy as this is the first dividend increase that we've had an over 10 years. We believe that this is an attractive yield for a well managed REIT like ours and continue.
To provide excellent investment opportunity for those pursuing stable monthly income.
We've now paid 180 consecutive common stock dividends.
We went through the great recession, without reducing or suspending these payments and now I'll turn the program back to David Okay that was a good report Mike and also a good one from open Michael account C.
The very very nice quarter current spot today, and the numbers and the transaction we acquired the industrial properties with credits.
Yeah.
For stock in October.
Just been a bang up quarter on of the best that we've had.
Thats starting to come.
The teams growing this portfolio us in pace doing a great job managing the balance sheet.
Tended to believe we have a promising list.
Potential quality properties that we can acquire the pipeline looks good.
Middle market of business like many of our tenants is doing fine today and our tenants are paying their rents the economy is excellent.
Asked I've seen in my entire career.
And of course, the teams, making acquisitions for this company, maybe just first class.
Just two years.
And we're financing these long term leases with long term mortgages, we like to match the book as they say this should help us whether any kind of downturn thats coming close and I don't think theres anything insight right now.
Stock closed Wednesday, 20, 194 distribution yield is about 6.8%. Many other Reits that are out there trading is about 190 of them trade at a much lower yields so it makes room for us to.
For the price of the stock to go up horse.
Yields and hopefully we'll stay the same as we.
The business, we started to increase the dividends just keep up with inflation.
While the increase for the quarter were small it's a beginning.
Goal of keeping up with inflation in.
You're keeping your buying power and the same are stronger.
Okay, Let me stop here and at Joelle, If you will come on we'll get some questions from.
That are listening in.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question past. The pankey. Please stand by will be compared to Q1 day roster.
Our first question comes from garage Mehta with National Securities. Your line is now open yes. Thanks.
Good morning.
My first question that I have is on acquisitions.
If I look out for acute Onrad do you guys acquired $62 million.
All facets, one keys in our own like 65 and shooting assets under due diligence. Thank you mentioned I mean I would.
I think about 2020 is that 60 65 million dollar is that like downright run rate to look out or you think that their volumes go down later in the year.
I think it will slow down Gaurav I believe you know, we we think that and Mike and I have discussed it with the acquisition team and market conditions.
And you know, we should be able to achieve north of 150 million thats kind of our goal.
But no I don't see a run rate of 65 million a quarter I'd.
Yeah, we went into a very very good let's say window of opportunity with these assets.
And so when you look at having $260 million in our pipeline.
Thats, a little bit lower than it has been in the past so.
Coming out of the shoot with the with $40 million in the first month and having having where we are there I feel very good about achieving our goal of 150 and it could be north of that but but we're not going to be on a run rate of 60 to 70 million dollar quarter no.
Okay can I think Bob in your prepared remarks, you talked about buyer seller disconnect on the office sector side, and maybe timberland from color on what's driving that.
You know its.
It's interesting read the point in the cycle, where my opinion.
The smart sellers are recognizing that if their properties are long in the tooth or are they need capital expenditures why not sell it and instead of putting more capital in the building and just take their proceeds and reinvest in so a number of the properties. We have looked debt have had significant capex required.
Vince deferred maintenance and we're not in the business of doing that you know our goal and our objective and really our strategy for our teams is the first three years of of of operation. We don't want to put any capital in the building doesn't make sense. So so that's where we're seeing some disconnect. We had a property come back to us which we.
Ultimately elected not to pursue we were not the preferred buyer, but it came back in and that was one of the issue. So we're just very vigilant about it.
Capital expenditures for offices as office properties as you know are extremely high.
These of the industrial and so that's why our emphasis has shifted a bit to the industrial side. We still are looking for office, but we just think it's a bit more difficult right now.
Okay and then.
Lastly.
Occupancy aside it dipped to 97% in for Q.
Tim Good Margolyes explorations in 220, I mean, how should we think the log on to your occupancy expectations going forward.
Well, we we you know we've always prided ourselves and stand above 96% occupied I think you know we will be able to maintain that of course, the the white elephant in the room and being transparent is our tenant there in Austin GM.
Fortunately as I indicated we're seeing very very strong prospects with.
Rental rates much higher than what GM is paying us right now so I feel very encouraged that we're going to stay in that you know high 90%.
Occupancy.
Okay. Thank you that's all I had.
Thank you question. Please.
Our next question comes from Barry Oxford.
And your line is now open.
Great Great Bob along the same line.
When you were talking about buildings with low capex and so when you have attendant vacate.
Do you look at the possibility of selling that asset.
That is correct, we will do that in particularly if it's if it happens to be in what I would consider to be a noncore location or the configuration is such that we would have to expand more dollars. Then we think is appropriate.
And in in the past we have done that as I think as I think we've reported you know we've exited a lot of single tenant.
Let's say not single property not noncore.
Buildings over the last three to four years and we'll continue to do that.
But yes, we look very much at the configuration, we look into location and we look at the redeployment.
Into our let's say target markets.
Okay great.
Switching gears, just a little bit Wally you using the up reach structure you have an ATM in place how do you see using the up retained the ATM when each one.
I'll feel that one Barry.
With respect to the ATM as Weve message fairly consistently our sweet spot of deals that are.
Generally south of $30 million, a we intend on utilizing our ATM and almost solely on the common side. That's what we've done over the last 18 months to source the equity requisite to that and that's with us underwriting deals called in 50% to 52% leverage level.
I think you know its worthy of note the ATM activity, we had in the three months.
The prior three months.
In a 12 week period, we issued north of $52 million of equity by ATM, which is by far the most we've ever been able to do in that Shoretel span.
So it gives me confidence that I can raise the capital for those traditional acquisitions.
Yes, I caveat that with if we contemplate larger individual assets or portfolios that tip above $30 million.
We may need to contemplate going to the overnight markets. We may need to also contemplated going it overnight markets if individual deals that on their own or smaller but they also backup on the calendar in the same way.
So it will likely be a blend but majority of equity will be raised by ATM and then possibly an overnight at some point subject to deal flow.
With respect to the operate.
Format and structure and offer Oh, we love that obviously, having the operate be live. It is the most efficient way for us to issue capital I will say since we started issuing opie units.
Some time ago. It is a dialogue we have with all a prospective sellers and we will continue to contemplate that but to be fair to it.
Vast majority of our.
Proceeds have not been an opioid structure, but I would theorized that there will be a couple more deals during this year that they take some or all units.
Great.
On the debt side as we move forward into 2020, how are you thinking about unsecured debt.
Long term aspirations, but we're we're in a place where we are taking looking at things with the conservative lens today, Barry as David mentioned, Oh, we want to match the book a we no. If you had the crystal ball at told US what was going to how from a macro economic perspective, I would love.
To see it.
But you know with us being where we are in the cycle, we're being very conservative overtime. We do continue to have aspirations to get to those unsecured pockets of debt capital being private placement corporate unsecured et cetera, but we will prove to be prudent in the way we walk in that direction.
Great. Thanks, guys. Appreciate it thanks, Bert and next question.
Our next question comes from Rob Stevenson with Janney.
Your line is now open.
Hi, Thank you. So David you won't have to hear me ask when the board is going to increase the dividend this quarter, but one question on the dividend.
Coverage is obviously much better than it's been in the past how are you guys thinking about office dispositions as you triangulate earnings growth the dividend and the need for equity to fund acquisitions main at this point are at or dispositions of office assets more or less likely going forward.
I'll I'll address that initially David may want to add to it but I you know I think you when we look add dispositions, it's not so much whether its office or industrial yes, we want to increase our industrial location, it's whether or not this property is in one of our target markets.
And whether or not to configuration is such that it would be difficult to release the property.
And so office is probably a higher probability because as everybody knows if the tenant moves out to your tenant improvement cost your capex because of equipment replacement et cetera, et cetera is much higher so I would say that you know if I had to handicap it.
I would say probably a two thirds office one third industrial we have a property in Syracuse, New York right now that we have have released its an industrial property has a very excellent tenant in it but we're not going to be in Syracuse from a portfolio standpoint, so as an opportunity presents itself and we can redeploy that industrial those into.
Estriol proceeds we will do so.
It's always a fine line that we walk through Rob in terms of trying to determine which assets to Keith in which to like Bob and his team have identified 20 markets that they like they want to stay in those 20 markets. They've got good coverage there and it got good knowledge of what the markets like and so the old way.
Doing business here was if it looked like it was a great tenant and that was then.
Could be in Tim about two and we'd still take the deal we've gone away from that are much more.
Identifying markets and making sure that weekend, we can find tenants for anything that comes up so right now I'd say, there's no push to sell off any of the any of the buildings right now and but time you never know somebody comes along and likes that when we get calls from brokers.
All the time, saying would you sell us as so and so building and and some of those instances the answer is yes, but no no defined.
Push to push all of the rental properties out the door to somebody else.
Okay, and then Bob appreciate the color on the various leases that are expiring in the renewal status. What are we talking about in terms of the annual revenue from the known move out to meet GM alone is 4% of your revenue how much is the rest combined on a rough basis, just trying to get a feel for how much revenue as a brisk if the all of these.
Thank you didn't you add some extended period of downtime in terms of the overall financial impact.
Well, let's let me the you know we indicated that we had like about 8.8 million expiring this year.
Right now inclusive of the leases out for signature we've taken care of about $1.4 million that already.
And so I'm looking at probably exclusive of GM. Another 2.7 million that we've got to take care of this year and with that in mind I feel very good with the exception of one property in.
In Minneapolis, which is a single storey property, it's about $1.4 million in.
Straight line rent, it's a good property, but theres no transaction velocity. There. So so if I had to handicap. It exclusive of GM I would say that my risk is somewhere between 1.4 and $1.8 million.
But you know that can change because as you know market conditions can vary I'm I'm cautiously.
On optimistic about GM, but it's like anything else right now the the Austin market is on fire and a lot of companies are wanting to relocate there and we have.
We just received our most recent market update on that property and.
We have four new prospects that are in excess of 100000 square feet in the market right. Now. So we have a total of approximately six that have held or kind of what I would call kicking the tires.
As you know when I know market conditions could go flat quickly. So the sense of urgency is there with the team I think we have a great marketing team there.
Our leadership Buzz and each day and Perry Finney are doing a great job and aggressively doing that but.
But bottom line, that's what I believe is our really biggest exposure.
GM plus that maybe 1.4 to 1.6 million.
Where where what Submarket is the G.M. asset in and how much Capex do you think you would need to re tenant that if it's in the it's in the Parmer corridor.
Which is a very very strong quarter, where oracle pay Pal all of them are there across the street from US is an excellent mixed use development actually that was as is being developed and has been to then developed by the company you sold the property to us.
I think it varies depending upon the.
The tenant improvements and the costs are going to vary in Austin today be brutally honest their rent the rents are in the as I indicated in the low to mid Twentys cash basis going in versus where we are at at that point, but the tenant improvements depending upon the low.
Thanks.
The term vary anywhere from 32 as high as $80 a square foot that have been done.
And that's that's significant I don't believe we will be going that high with with our property and the reason being is.
I wanted a number of times its excellent creative office, if it turns out to be a single single single tenant I think we will be at the low to mid mid range is that if it does go to Multitenant, then we will be to the mid to the higher higher range Theres no doubt about it.
Okay.
And then you cut out when you were talking about the acquisition for the Georgia inland Port property, how what is the the dollar value there and sort of cap rate and you said I think I think I heard mid March close.
Yes in mid March close, it's a little over $30 million.
Acquisition price over 500000 square feet as I can recall and the cap rate is just south of seven.
Okay.
Mike could you talk about the 1.8 million impairment charge during the quarter is that just one asset where was that.
Sure Rob, Yes, that's a legacy asset office asset that is in the suburbs of shore Charlotte North Carolina, It as an asset Gladstone commercial bought in 2004.
It's something that has been vacate went vacant in 2019.
And we had been contemplating.
Hi, there release scenarios or sales scenarios.
In short we were approached by.
The identified perspective buyer subject.
Got culmination of due diligence.
Late late 2019, they've offered us price that we like like Bob mentions office buildings from a release perspective tend to have.
Significant T.I. or Capex requirements, we have no appetite for that with this assets. So.
You know nothing is guaranteed but we look forward to selling the assets redeploying the capital.
Okay, and then last one for me I know, it's been talked about on prior calls, but any new or incremental thoughts by management or the board. These days on the likelihood and or timing of internalization.
No we right now feel very good about our cost structure at our size right now, having having us be externally advised makes all the sense in the world because of the shared costs that we have.
No I'm sure it will always come up by the board and by David over the next probably two to three years, but right now we feel very good about a current structure and our our cost relating there too because I think we're really aligned with the shareholders. The way our cost structure is set up right now.
Thanks, guys.
Thanks.
Thank you. Our next question comes from Henry Coffey with Wedbush Securities. Your line is now open.
Yes, good morning, everyone and thanks for taking my questions.
I know you don't like to give guidance and and berries questions and your answers were very helpful around the subject but.
Is there a lot or earnings sensitivity here in your view of.
Couple of pennies that just doesn't seem like a big bird I'm also looking at.
The fact that you're sort of two year lease renewal was.
13, 14% last year no. It's 15, 16%. So it's it's not a it's not a big challenge and I don't know if you can put some numbers to it or or maybe you're not comfortable going there.
Yeah, Henry all feel Thats, and we're not comfortable putting out formal numbers generically I'll speak to kind of performance of 19, and our aspirations for 20 and beyond.
As everyone on this call knows core FFO was relatively flat in 2019 after a breakout year in 2018.
Number of things play into that I say big picture takeaways are that we continued our deleveraging efforts de leveraging the portfolio by a point. So we continue to issue equity and underwrite new newer deals at lower leverage levels as well as closing half of the entire 2009.
Teen activity in November and December and specifically of that call. It north of 60 million, we closed during that time period.
Approximately 90% of that closed on the back half of December. So there was effectively no participation in 2019 earnings.
We wake up on January 1st having those assets now in our portfolio fully contributing Saf AFFO as well as core FFO our aspirations here as we have leverage almost in the right place with one to two points over time to be Don.
Our aspirations are to maintain occupancy.
Continue to grow by north of $150 million a year.
And manage the debt stack efficiently as well tapping the equity capital markets. Our hope is here, we can get to a point in time, where on an annualized basis, we can demonstrate 1.5% to 3% growth in core FFO on an annualized basis and again, that's all caveated based upon what.
Happens with the macro economy as well as.
Our performance, but that is our goal.
The misery index is lower than it's been since Reagan's day. So I think it's difficult to think of a negative outcome on the economy. It's it's always out there.
But it looks like you're in pretty good shape. It's just a question of how much growth do we get in the second half the 2019.
Well, that's that and as well as Wes.
Terms and conditions.
Which these guys are competing as you know we're not big transactions were doing dealing mostly with middle market size tenants and there's lots of those you have to like potato chips, you got to eat a lot of them to make it work, but these guys are good at putting together deals closing in diligence and all of that.
So I think we're going to be strong throughout this year and again.
It all depends on something bad happening like the Corona virus.
Beating up in the United States and people, becoming very conservative in their business outlook. So right now we're right in the waves and it's great to move along at this pace Ben.
Do you tell us which way the economy's go in and we will tell you what we're going to do.
Super Thank you David.
Well go.
Next question please.
Thank you.
As a reminder to ask a question you need to press Star one on your thoughts on our next question comes from John was talking with Ladenburg. Your line is now open good morning.
Good morning, John how are you now that I'm, just kind of touching on acquisitions again, I mean, given whats kind of great tangibly in the pipeline you talked about Carol 10, and then what you've already closed year to date I'm just.
Wondering why 100, fiftys kind of number out there and maybe what seems like if that is the number than there is almost like kind of oh.
A bit of a slow down you're expecting kind of the midpoint of the year is it something where is it just the lumpiness of the business or is there some bigger macro dynamic that's driving.
End of a significant amount of deal flow here.
From the end of last year to kind of the beginning of this year and then maybe more conservative outlook going forward.
I think you know if I take a look at it our size is well John.
From 2012, 2018, we averaged about 105 million as we were growing to get to ability that assets in a prior life. Once we got to that point and we had more float we had more institutional coverage. We had actually just a lot more shares and more demand for the stock we were able to jump it too.
150 to 175 million.
I think that's kind of what we're looking at here, we may have a blowout year, where we do over 200, but by the same token you know our whole approach. The business is is a measured growth strategy and we've got to make sure that we achieve and Mike keeps us on the straight narrow that we're getting 100 in a quarter to 150.
This is points overall cost of capital, which you know varies during the year and so for us to say, we can do a 150 to 175, I really like that number which really means we're growing it doubled continuing to grow at double digits. Once we get to two to two and a half billion that number will probably jump up.
Well above 200 million.
Okay, but if if we do stand that number then it should be kind of a front end loaded year, just given both Georgia and what you already close.
Yes, it could be but you know.
I will tell you are acquisitions team is not stopping it if we identify and we've been fortunate in that in the pricing from about 5 million to 25 to 30 million that we can be very very competitive on the industrial side as I indicated earlier in my comments, it's been very difficult for us to find office properties that makes sense right now.
But the math right John I mean to the extent we closed the acquisition in March we will have done north of 70 million.
Likely before March 15, so clearly that implies based upon the target of 150 to 175 million that it will be front end loaded.
Like that because it puts wind at our back going through the year from an FFO per share standpoint, okay.
Then on switching to kind of the in place portfolio and leasing commissions jumped a little bit and for Q. If my math is right.
Sorry, 10 improvement.
How do you kind of expect tenant improvements and leasing commissions to trend really at the beginning of this year, you announced a lot of kind of re leasing activity.
Obviously GMV is going to be its own thing, we talked a lot about that maybe outside of that.
How should we expect kind of leasing commissions in T.I.s to trend this year.
Well, let me for the deals that we have done let me go through and tell you what what we are spending.
The Mason, Ohio property.
No T.I.s, but they can spend money, but it is amortized over the term of the lease.
So that's a positive.
If we look at.
Our Indianapolis property, where our existing tenant extended their lease through 2031, and then took another nine 9000 square feet that T.I., which are going to be spending. This year is about $6 a square foot on the 76000 square feet.
The.
Salt Lake City property, where we did about we did a 6600.
Where foot new deal that's $9 per square foot, then I'm going to tell you because we are always transparent the deal that we did in Minneapolis to replace.
The tenant who is moving out at the end of March that that lease was for 35000 square feet and the tenant improvements is $40.
But then viastat, which excuse me the tenant out in Denver.
That we just extended their lease through 2026.
Tenant improvements there is $15 and then the 78000 square foot renewal that we just did in Springfield, Missouri was $5. So with the exception of that one tenant in Minneapolis, which is a very difficult market and a lot of this includes some capex too tough to demise it into a multi tens.
At building.
I feel that our numbers are are are fairly decent.
No, particularly when I look at the Denver property and I look at the Springfield, Missouri property, both of which our office properties as is the property in Mason, Ohio. So that's kind of actuals, Mike you might want to add in sure Yeah, and John you're right.
Capex and T.I. during the fourth quarter was one 1.6 million.
For the entire year it was only 2.3.
From a leasing commissions perspective, it was $300000, but that was pretty much run rate with up 1.2 million for 2019, Bob giving you the specifics on to a aquas eight a. property by property basis, and explicitly talked about GM I would say from a big picture perspective, and putting GM aside.
Slide.
Our all in Capex Ti leasing commission expectations for 2020 or in the call it $5 million to $7 million range.
That's very very helpful. That's it from me. Thank you very much.
Next question.
Thank you. Our next question comes from Craig.
B. Riley FBR. Your line is now open.
Hey, good morning, guys.
Ill jump back on so I apologize if you covered this but I do want to circle back to GM I think in the past you thought that they didnt renew the worst case would be that it might thinking about six months to release the asset and then you would get a higher rent is that still your thought process here I'm not going to make a commitment on if I said that in the past that is in error.
And I'll be hopefully honest about it I mean in this market you never know.
We are hopeful that we will have some leasing in that property before the end of the year.
What's encouraging Craig is that is that there's a number of prospects from 100 to over 300000 square feet in the market and are only two existing properties that have that much square footage available unless you want to build a new facility, which is going to take two to two and a half years.
So with the number of prospects that are out there I am.
You know I am cautiously optimistic that we're going to have some prospects. We did send a proposal out to one tenant.
For the entire building, whether or not that is going to come to fruition I have no idea I mean.
It's it's it's not a challenging market because there's a lot of activity in Austin, but but I would.
I would be extremely happy if we did it in six months I do believe with the activity we're going to have some we're going to have success before the end of the year.
Okay, Great and one more for me did you cover which asset you're looking to sell this quarter.
We did but very briefly Craig it's a vacant office asset in the suburbs of Charlotte North Carolina, we've owned the asset since 2004.
We expect that to close in the first quarter will be redeploying those asset those dollars into pending acquisitions.
Got it and just one more for me.
A question about eastern metal supply.
It looks like they have a number of other locations are they potentially a feature source of additional acquisitions or do you you think you're probably full with with that tenant as we stand to that.
I think were full with them.
From the standpoint, we we.
It's an excellent rebuilding.
Complex in markets that we want to expand.
Into and Fortunately our leader on the acquisition side Buzz Cooper. This is this is his second acquisition with the seller of the property. So it could be that we may not be with eastern metal supply, but we could have an opportunity with one of their other companies that they want to do a sale lease back on.
Okay, great. Thanks.
That's correct.
Thank you I'm not sure.
Other questions.
I'm not showing any further questions at this time I would now like to turn the call back over to David Gladstone any further remarks.
Alright, Thank you very much allowance a good meeting for us. Thank you all.
The next quarter.
Paul.
Ladies and gentlemen, this concludes today's conference call. Thank you. So participating you may now disconnect.
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