Q2 2020 Gladstone Commercial Corp Earnings Call
Second quarter, ending June 30 of 2020, <unk> earnings call and webcast.
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I would now like the hand, the conference over to your Speaker today, David Gladstone. Please go ahead.
Well. Thank you Sarah I was a nice introduction and thank you all for calling yen. That's an interesting time to talk about real estate, but.
We still enjoy these times, we have with you on the phone and wish we had more time to talk with you and certainly enjoy the questions and at the end.
Now well hear from Michael accounts. He is our general counsel and Secretary he'll give us legal and regulatory matters concerning that all of their report that weve, given and yesterday Michael Thanks, David. Good morning. Today's report May include forward looking statements under the Securities Act was 1933 Securities Exchange Act of 1934, including those rigs.
<unk> or future performance. These forward looking statements involve certain risks and uncertainties that are based on our current plans, which we believed to be reasonable.
Many factors may cause our actual results to be materially different from a future results expressed or implied to these folks statements.
Factors listed our forms 10-Q, and and other documents we file Jesse.
Find them on our website, which is www dot Gladstone commercial dot com for on the Fccs website at Www <unk> got GLP. Another 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.
Today, we will discuss AFFO, 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 lending impairment losses on property, plus depreciation and amortization of real estate assets will also discuss FFO as adjusted for comparability in Korea.
Oh, which are generally AFFO adjusted for certain other nonrecurring revenue and expenses.
Lead these metrics are a better indication of our operating results and allow better comparability of our period over period performance.
Please take the opportunity to visit our website once again Gladstone commercial dot com.
Got up for email notification service, but also find us on Facebook. The key word there is the Gladstone companies, we even have a from Twitter handle in that add Gladstonecomps. These calls an overview of our results. So we ask that you review our press release form 10-Q, both issued yesterday for more detailed information again those can be.
We found on the Investor Relations page of our website with that ill turn the presentation over to glass of commercials, President Bob Cutlip Bob.
Thank you Michael Good morning, everyone. During the second quarter, we executed a lease amendment to extend a 59000 square foot office tenant in Raleigh, North Carolina through 2025 extended a 22000 square foot industrial tenant in Raleigh through 2021 extended a 5000 square foot office tenant in Minneapolis through 2023 X.
Q2 to lease to expanded tenant by 17000 square feet in Columbus, Ohio with a lease expiration date of December 2025 extended a 26000 square foot office tenant and Greentree, Pennsylvania through 2031 and collected 98% scheduled rental income for the month of April May and June.
Subsequent to quarter ended we executed a lease amendment to extend a 42000 square foot office tenant enrichment through 2026.
Sold our 347000 square foot industrial property, and Maple Heights, Ohio for $11.4 million, resulting in a net capital gain of $1.2 million and collected 99% of scheduled rental income in July.
As noted on our first quarter call. Our investment strategy is emphasizing an increase in our portfolio is industrial allocation, which we believe will improve our property operating efficiencies reduce capital expenditure levels and potentially result in improved valuation over time.
From January 2019 through June of 2020, our investment volume was $201 million all of which were industrial properties, providing further evidence of this commitment.
Our industrial allocation has increased from 33% in January 2019% to 43% today with an objective of achieving a 60% allocation within the next 18 to 24 months.
During the second quarter, our investment opportunities were limited due to the effects of covert 19.
We didn't acquire any properties during the quarter.
However, sales listings have in fact increased in numbers recently at this time, we have a 153000 square foot industrial property in the I 70 corridor of Indianapolis, that's in the due diligence process.
Total cost us approximately $10.6 million with a 10 year remaining lease term and a GAAP cap rate of 8%.
The expected closing date September onest.
Our asset management team continued to deliver on improving our same store operations.
During the second quarter the team executed for lease extensions three office properties and one industrial property totaling approximately 113000 square feet.
These extensions required no tenant improvements.
The team also expanded our anchor tenant by 17000 square feet in a Columbus, Ohio office property and a now occupied the entire building.
Reconfirming the objective of our Anchorage Multitenant program.
Subsequent to the ended the quarter, our 42000 square foot office team Tenet in Richmond, Virginia extended their lease through 2026 with no tenant improvement requirements.
In combination all of these transactions increased the straight line rent associated with these properties by approximately 14% over the extended lease terms.
And reflecting on the first six months of the year. The team completed eight leasing transactions seven of which were office properties totaling 362000 square feet with a weighted average lease term of 6.6 years. The weighted average straight line rent increased by 5% and the overall tenant improvement allowance.
Proximately $6 per square foot, which in our opinion is a very favorable number with a larger percentage of office versus industrial transactions that were completed.
The onset of the Cobot 19 virus has required increased emphasis on portfolio management.
The company has successfully implemented a work from home arrangement for our employees.
However, our active tenant engagement program continues and is delivering positive results.
With an emphasis on tenant credit we have always engaged our tenants quarterly to discuss the recent financial performance and this strategy has us drably strong ties, which heat with each of them.
During this pandemic, we have appropriately increased our connections with our tenants.
Some interesting and favorable characteristics of our tenant profile were included in our business update press releases.
84% of tenant revenue is from tenants, who on average contribute 1% or less of company revenue.
And the hospitality oil and gas and airline industry is only comprised 2.5% of annual revenue.
The challenges are rising as a result of the virus prompted us to immediately connect with all of our tenants at the onset, which we have completed and we'll continue to do.
There have been and we expect there will be requests from tenants for rent deferral, and we will address them as we were notified by the respective tenant.
Our strategy is to offer rent deferral not renovate meant to limit the deferral to a one to three month period, if at all possible.
To have tenants continue to pay a portion of their rad during the deferral period and to require repayment of the deferred rent over a six to 12 month period.
There is no doubt that each agreement will have unique business terms.
However, the key objectives are to be maintained or increased core AFFO per share and to return cash flow to the proper previous level as soon as possible.
The company granted rent deferrals to three tenants in April representing approximately 2% of total monthly rental income throughout the second quarter.
These tenants continue to pay partial rand the deferrals ranged from one and a half to three months and the payback period ranges from six to nine months.
Currently scheduled to ended March 2021.
We expect to continue to have conversations with other tenants requesting short term concessions and we'll report the results of those conversations as they take place.
And a number of our tenants are taking advantage of the federal programs available to them and we are hopeful of positive outcomes on their applications.
Anticipating the many on the call are interested in lease expirations through 2020 and beyond.
I wanted to summarize the teams thoughts and our current activities.
We have one lease expiring between now and year end that has not been negotiated that leases with GM and as I indicated in our first quarter call. They will vacate our Austin, Texas property at the end of August.
Our active marketing of the property with assistance from the local chamber of Commerce has resulted in 11 current prospects for the building.
Ranging from 65000 square feet.
To 320000 square feet, which of course is the entire building.
It continues to be interesting to note and report that our GAAP rent at the property of $14 at 50 cents per square foot.
Triple that compares favorably in the sub market with current space offerings in the low to mid $20 per square foot on a triple net basis.
Unfortunately, cobot 19 has nearly eliminated property tours in Austin unless the virtual.
We have in fact created a virtual tour for our property and are using it through our connection with the chamber and with our brokers prospects.
With considerable interest from the West coast, and Chicago as well as a large Austin prospect and Teslas recent decision to build a gigafactory there we expect a positive outcome.
Yes must remain patient and persistent with the ongoing fight virus impacts.
Long term, we are positive about our same store performance as lease expirations for 2021, and 2020 to average approximately 5% based on projected rental income.
Therefore, overall cash flow should be stable with limited risk, enabling the team to focus on growth.
Market conditions are worthy of comment, particularly with the adverse effects from the onset of the coded 19 virus.
Economic forecasters are estimating that both second and third quarter GDP, maybe negative and of course, there estimates do vary.
This slowdown in economic activity will certainly impact our industry and has had a dampening effect on investment sales volume as April and May and I believe June volumes were down compared to 2019 and port authorities reported drops in container volume ranging from 10% to 30% compared to the same period last year.
However, the continued interest in industrial properties, particularly those related to E. Commerce has resulted in no increase in cap rates for this product type in several markets.
There is however, some expansion of cap rates for smaller properties that are more manufacturing in nature, and particularly for sale leaseback transactions in select markets in the sizes here are anywhere from 50000 to 200000 square feet and this is a product type that matches, our interest in our underwriting strength, particularly for middle market non.
Rated companies seeking capital to reinvest in their business.
We will continue to monitor the evolving conditions and adjust our strategy accordingly.
And as it relates to growth opportunities investment sales listings have moderated driven primarily by the effect of the virus. Our current pipeline of acquisition kind of candidates is approximately 265 million in volume representing 16 properties all of which are industrial the 16 properties, one properties and due diligence to earn the letter.
Intense stage and the balance or under initial review.
Because of the stay at home direct is in many states. Several the properties in the pipeline are what I would call I'll hold position.
Our team is staying actively engaged however in these markets as we believe acquisition opportunities will arise that we can and we will pursue.
So in summary, our second quarter activities reflected strong leasing and rental collection success continued active engagement to identify industrial acquisition opportunities and collectively positions us well talk to growth opportunities.
Now lets turn it over to my partner, Mike for a report on the financial results, including our capital markets activities. Thanks, Bob and good morning, everyone I'll start by reviewing our operating results for the second quarter of 2020, all per share numbers I reference are based on fully diluted weighted average common shares.
FFO and core FFO available to common stockholders 40 cents and 41 cents per share for the quarter, respectively. Specifically core up AFFO was 40.5 cents per share a rounding up to 41 cents FFO and core FFO available to common stockholders were both 80 cents per share for the first six months of year.
This performance demonstrates be accretive yet prudent growth at the company is completely in recent years as well as 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, our second quarter results reflected stable total operating revenues of $33.5 million as compared to total operating expenses.
24.1 million for the period, excluding one property impairment charge.
As Bob laid out our team is actively engaged with every tenant of ours as we intend to maximize shareholder value through and beyond the cobot 19 pandemic. We're pleased with the teams and portfolios performance through July and believe we performed exceptionally but these are unchartered times, which we will continue to navigate together.
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 46.5% over the past five years through refinancing maturing debt and financing new acquisitions at lower leverage levels. We believe that we are 1% to 2% away from our target leverage level long term.
Term, which means that nearly all raised equity will 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 overtime. We expect that this will increase our financing alternatives looking at our debt profile as of today, our 2020 and 21 loan maturities are very manageable with only 3 million.
And 21 million coming due respectively.
We have continued to proactively manage and improve our liquidity and maturity profile over time, we continue to minimize our exposure to rising interest rates with over 90% of our existing debt being fixed rate or hedge to fix through interest rate swaps and caps.
While entering the second corner with sufficient liquidity, we've been modestly active and issuing our common stock in preferred series E stock utilizing our ATM programs during the second quarter net of issuance costs, we opportunistically raise $500000 through common stock sales and $1.9 million through preferred stock sales, we continue to manage liquidity.
And the balance sheet to ensure that we have sufficient liquidity for upcoming capital requirements.
As of today, we have $3 million in cash and $36 million availability under our line of credit.
With a current availability this strong performance of the portfolio and access to our ATM programs. We believe that we have significant incremental flexibility to fund our current operations near and long term properties that we are underwriting and 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 plan as we continue to manage our existing portfolio increased our high quality asset base and continue to improve our metrics, we're focused on maintaining our high occupancy with strong credit and real estate.
Institutional ownership of our stock has increased over time to 60% as of June thirtyth, nearly a 20% increase over the past four years, Bob and I continue to be very active and meeting with current and potential investors portfolio managers coverage analysts investment banks in the like we look forward to establishing new relationships as the company moves forward to its next chapter.
[music].
Regarding the common stock dividend, we did increase in the first quarter in while the increase was small we have also announced though we are leaving the dividend as is again in the third quarter, we have not cut nor suspended the dividend since our IPO in 2003.
Our stock closed on Monday $18.54, the distribution yield on our stock is about 8.1%. Many Reits are trading at much lower dividend yields in higher multiples now I'll turn it back to David.
Okay. Thank you Mike I was a good one and Bob Cutlip did a good jobs. So did Michael I think the team has performed very well and.
We are hurt a little bit by the virus and governments reaction. The real problem. Today is we have no idea how either part of the U.S. government or the local governments will react to the virus. So theres just a big unknown out there.
I've heard a lot today about the numbers of new transactions and leases and all that's impressive.
We've collected rents that were due during the first and second quarter. So we're in good shape there.
We've executed lease extensions strong there.
We got rid of one.
One building, we owned in Maple Heights, Ohio, We may sell a few more during the next quarter, but our goal is to keep ourselves above all of the problems that are going on here.
The team is strong.
Good professional team men.
Presuming pursuing quality properties on the list of acquisitions, but most of these we're looking at the strong credit tenants.
They are great 10, Thats, an excellent investments if you can get somebody with some financial strength and not enough part of the economy, that's going to collapse the middle market businesses like the many tenants were in as a place that almost all of US here yours truly has been added for his whole career.
Financing and working with middle market tenants.
We are not up and stratosphere of the big tenants, we've got a few of those but most of our middle market companies that we underwrite as if we will making a loan to them from a bank.
These are times that have never been seen before we're in the middle of pretty strong recession at this point in time, but we're doing a fantastic job I think Ken.
I'm going to stop here and let the people that are smarter than I am asked some questions and we'll do the best we can to answer them. Operator, if you will come on please and let's get some questions from those smart people out there.
Thank you.
As a reminder to ask a question you would need to press Star then one on your telephone.
Withdraw your question. Please press the pound Keane again that is star then one.
He would like to ask the question.
Our first question comes from the line of Colorado meta with National Security.
Your line is now open.
Thanks, Good morning, Oregon, most concerning growth was good morning.
Last question how is on on the disposition was holding if you could provide some color on on the property that you sold.
I think I think you ultimate some comment on.
On your expectation, maybe you said a few more in the next quarter. So maybe provide some color on on your.
View on disposition, then how should we think about it.
Certainly.
This property, we acquired a number of years ago and it was occupied by Pennzoil.
They elected to move onto that property and so we converted to a multitenant building.
It's not in a high lets say transaction velocity location and the configuration is a bit irregular Laura and so we felt the best thing for us to do since we did not want to expand our portfolio in this part of Ohio.
Was to exit that property and use those proceeds to to really reinvested industrial but in the markets that we have been targeting recently.
Unfortunately, we came out of this with a capital gain.
And if I'm looking at us going forward.
We are looking at a few properties that are what I call single story.
Non core office properties.
That overtime, we have one and two believed to move out of anyhow, and we're getting the getting the opportunity to do so I do not see any other industrial properties short term that would be on the disposition list, but we will selectively.
Continue to look at these Qantas noncore single property markets, particularly single storey office.
That we can exit and redeploy the proceeds Mike and I really believe and we've said at a number of times are trying to.
Exit properties, but try to stay under lets say $15 million to $20 million a year.
In our exiting of of our product and then redeploy that capital base Opportunistically as we can as our teams identify new industrial properties primarily.
Other question.
Yes, as a follow up there was a property impairment charge in second quarter could you provide some color on on that charge.
Sure Aguilera legacy asset office asset.
That is currently vacant it would be one of the.
Prospects to potentially fill up the remainder of that target of $15 million to $20 million of dispositions.
It's something that we will have we're having discussions.
On both leasing and sales scenarios, but that would be something that again, we would view as one of our handful of noncore assets that we are contemplating a disposition it was bought.
Seven years ago.
Okay. Thank you. Thank you. Thank you other questions.
That's all thank you thanks, Bob.
Thank you. Our next question comes on the line of Rob Stevenson with Janney. Your line is now open.
Good morning, guys, Bob what's the level of T.I.s, the GM property needs in order to re tenant.
Ill, let me look at it and approach it two ways.
As as I've indicated our current GAAP rent is like at 14 50.
If we really can be in will be probably the low cost provider out there. So if in fact, the rents are in that 18 to let's say 20 to $22.
Range I anticipate that our T I will be somewhere between close to around $25. However, if as you get further and further into the longer term leases with a lot more.
It could go as high as between 30 and 35, but then the rents are going to be in the mid to upper 20 $20 per square foot. That's what we're looking at right now Thats. The guidance, we've received from our brokers and and kind of from the chamber and the development authority as to what people are seeking when you look at other locations like to CBD.
And the domain there in the mid to high Thirtys and even low fortys from a rental rate standpoint, so so I feel very good about.
Where we believe we'll be going over the next number of months. Once this once the virus you know kind of old enables us to to open up that city, a little bit more and get some more property tours.
And what's the sort of timeframe I mean.
You are going to have GM moving out at the end of August.
How long of a process is it to deploy that sort of 25, or even 30 or $35. A T.I.s is that a few months was at six months I mean, how extensive is that work that you're going to need to do in parts of the building is that a situation, where you're not going be ready to occupy.
Until sometime.
Mid first quarter of 2021 are you going to be able to be able to start occupancy by year end of this year, if you get a tenant in there.
I think it depends on the specific tenet.
GM did.
Great job of creating really really designing and constructing creative office space in that building having walked it I mean that building has has raised floor has 10 foot ceilings. It has its really column free when you look at it and having actually.
Having walked it after it was completed right at the early two thousands of the Dell Michael Dell's team allowed us to walk through that building as we were developing similar properties in the research triangle, you have to 40000 square foot floor plates.
Under the building in immediately you have access to elevators, but each of the wings that are 40000 square feet have their own private elevator. They have their own service elevator. So the flexibility that Michael Dell and his team put into that building is really great for social distancing and as I indicated column free cash.
I'm free floor plates are really very positive now I would say that with the backlog that we have as I've indicated and we have three to four that are very very interested once we can get.
Actual tours of the building, we're probably looking at a six to eight month period for the entire building we have pro forma that we're going to do either multitenant or single tenant right now the tenants range as I indicated there from 65 to 320000 square feet.
Our really strong prospects are from 150 to the full full size of the building. So I still think it's I still think it's going to be probably six to eight months from the time that we really can't actively get into that building, which hopefully is going to be within the next 30 60 days, that's the whole okay, but.
It sounds like it going on with the with I can't drive was going to go on with this virus, but but to your point, Bob though in a multi tenant scenario. If that's the way we would go it would take six eight months to have that building fully occupied correct, but there would be staggered occupancy subject to tie in square footage requirements fourth quarter end first.
Yeah, good point good okay.
Okay. So at this point it sounds like that's 25 to 35 range for T.I.s doesn't include a substantial amount for taking a single tenant property and converting it to multi time thats already more or less set up that way that maybe some costs, but it's not huge in terms of what it's going to costs year to multi tenant so I don't think so.
Rob because the size of the tenants that were seeing really would either occupied one side or the other of a full floor plate or multiple stories. So so and the way. The building is designed you can really secure each of the floors and Thats was very positive from my perspective.
Makes me a bit optimistic because we can show tenets that that may be both in the tech business or in the healthcare business or the financial institutions is that we can secure youre area very simply in very efficiently.
Okay.
Mike given your comments about the common stock valuation and also trying to stick with about $15 million to $20 million target for dispositions. How are you thinking about the relative attractiveness of common versus preferred.
And is there really you know an opportunity here to increase dispositions to fund.
Acquisitions, a bigger percentage of that $265 million pipeline actually pencils for your guys sure. So I guess I would start with the backdrop out we have almost $40 million of liquidity today.
As a refreshed forever one in terms of where our equity desires of been over the last 24 months since July Onest of 2018, we've done something in the neighborhood of $150 million of common issuances via overnight, but predominantly through ATM as well on the preferred side net of redemptions.
And we've only done 20 million, but Rob So your point and obviously demonstrated during the second quarter with us only doing $500000 on the common side and doing 1.9 million on the prep side.
And the comment by the way it was done at 1971 and the prep was done at an average share price of 20 to 52 as compared to its par value up 25 foot.
In this.
Exceptional time period with the pandemic I mean, we are sensitive to the Dave yield and issuing the preferred at a weighted 20 to 52 implies doing that at a 735 dividend yield as compared to our current common dividend yield of eight one and it would be as if we issued common at 2040 so.
So the long lens here is we continue to heavily overweight toward common, but we need to get more stability, because we don't love the share price where it is.
So we will.
Contemplate tapping minorly into the pref, but from from a aggregate prep load as compared to enterprise value, we're probably in 11% to 12% range and Rob as you know and we've consistently messages to and demonstrated there isn't a massive appetite to overweight on pref, even if perpetual in nature. So.
So I think with our existing liquidity not being able to predict.
Share prices, but but having access to those ATM programs as well as some modest dispositions.
Speaking freely I'm not going to get caught short and we will be able to support the pipeline of industrial acquisitions that Bob laid out.
Okay.
With that as the backdrop I know that Youve historically done a moderate amount of.
Positions in order to cover the dividend and not have the variability, but theres been a lot of talk out to one of the political parties on potential changes to the 10 31 program as a way to raise revenue are you thinking about putting in any potential strategies like selling even more noncore assets into the year end, depending on how the election is.
Is leaning in sort of turns out.
To get ahead of that.
You know is that entering the the board stock David at this point in time, how are you guys thinking about any of that as it pertains to the business model.
I think the big problem, Rob is trying to figure out which way the wins are blowing in the political area because one side seems to want to close down the tire.
Once again.
The side wants to open at wide open so trying to figure out who's got the upper hand is always going to be difficult.
I look at this is a different way you can hide Monte dei hide is the wrong term, but you can put your money in something like Treasury bills, but now you're actually paying.
Keep it in Treasury bills, you're not making any money or you can biased stock like ours and I just think for people who are trying to avoid the big problems out there in the cobot market place. Today. This is a good place to go and say and and something that pays you are different.
Decent yield and at the same time has.
As a way of getting your money back as everybody knows we are very focused on making the dividend payment and that's our almost our sole reason for living every day and so I don't think that the board or high or any of the team members want to convert this into something else I think we're right on where we are.
Our today, and we're just going to keep going but going slower and more deliberate and yes, we will sell some buildings, but it's not to meet the dividend. It's because it's out there in a space that we don't want on one of the big problems of selling something as we've got a lot a good buildings that we are not.
Favorable toward in terms of long term.
But you hate to sell them because they are paying as agreed and so it's really hard to say to somebody.
I want to get out of this one because they are paying and then you've got to go find something a place to put the money. So there's a there's a balance that we're looking for here and my goal is for this company just to continue to hold on tight.
My own belief is that there will be something that we'll turn the corner on.
This cobot 19, I am personally a believer in hydroxide chloroquins as one other ways to stop this thing, but I know thats against most everybody that's out there on the government medical profession.
But I've just seen it and action I have two doctors one loves it gives me long stories and the other one doesn't.
Like it and so I don't know where the this is a political matter on whether this is just something that is ingrained in People's mind is that hydroxide chloroquine doesn't work period and then the other side says, but we've got thousands and thousands of people on hydroxide chloroquine for other than this and is no setback.
So somewhere along here the.
I don't know clouds will open in the Sunshine will come through and I know the American medical profession is really strong on finding solutions to these kinds of problems, though I don't know offense answering your questions, but thats, where we are today and the goal is not to change what we're doing but to do more of.
The things that we're doing at just a slower and more methodical pace.
Okay. Thanks, guys. Appreciate it thanks, Okay. Thank you thanks, Rob question.
Thank you. Our next question comes from the line John less soccer with Ladenburg Thalmann. Your line is now open.
Good morning put it on our underwriting John how are you.
Good.
Alright fair to bring back GM again in Austin, but can you remind us or maybe provide some color on what carrying costs at the Austin property would be in terms of tax expense security utilities et cetera, just any kind of color. There I mean, that's 4% of straight line rent but.
And maybe what additional impacts going to be during a period, where GM not there and as did.
I can address what I think the opex is going to be.
I don't have the interesting from a interest for the the debt with me right now John but the.
The opex is going to be somewhere between six and $8 per square foot.
It will definitely be less it. It is currently just because without occupancy you're not spending as much money on a lot of the the common area cost that you typically would in turn into the building, but we can get that interest information to you and we'll email it to you after the call.
Hi, guys look very opex that is that correct.
And then with regards to some of the re leasing in the quarter you provided some very helpful detail on.
Kind of the straight line rent increases, but could you provide some color maybe broadly are specifically on movements and cash right.
Well it at the 14% raise you probably looking at a 2% to 3% because most of those most of those renewals are five to six years.
So you're probably looking at a cash increase of anywhere from two to maybe three or 4% no more than that.
Okay.
And then broadly speaking outside of GM. How is the office leasing market looking has told me been an impediment to leasing or maybe seeing more interesting suburban office.
Given kind of space you can offer the parking you can offer all of that.
I will tell you I have just been so impressive encouraged with what our team has done on these office properties, we right now.
The one property in Minneapolis that we leased 50% of it in the first quarter. We now are down to the final strokes for another 10000 square feet, there and that is a suburban office property and we competed believe or not with the CBD property and I think one of the reason is that there is is is not not at large.
Migration, but I think there's more of an interest of getting outside of the CBD, particularly for our types of tenants are types attendance. You know are in buildings that are under five to six stories. So we're not the urban type tenet.
A tractor of that type of of company. So I believe when I look at where we are going.
Going forward.
Probably next year have.
Oh, it's going to be it about for office properties that that we're going to have lease expirations and in one industrial.
And we started off with between almost not with nine we've renewed some of those already but I think there'll be a challenge I mean, I'm, just being honest theres going to be a challenge on the renewal of office tenants, but I think because of the mission critical nature of those properties and the tenants that I see before me here on this.
Yes, I think we're going to be in very good shape to at least probably maintain.
The the straight line rent.
That means and probably we may have a little bit of a drawdown, but not significant.
Okay. Any have you see I know, it's kind of early days have you seen any of the tenants you may be traditionally you'd be looking at kind of urban infill CBD office.
Be interested in some of your properties or is it and it's still maybe too early in the.
And of.
Outlook.
In a pandemic world. It's a really good question John I think it's just a little bit early because people just can't get out into a properties.
We're getting a lot of hits on telephone calls, but we're not getting any.
Any really tours on those that we currently have that are vacant.
And we have vacancies in Ohio, and Illinois and of course in Minneapolis.
Yes are we getting calls for sure, but we're not getting tumors because most of these cities are shut down or excuse me shutdown.
Okay, and then one last kind of quick one.
You mean provide some color on the decision to change the base management fee calculation at two based on assets versus total equity essentially what drove that signal is kind of your your guys reasoning there.
Sure well, it's something we've kicked around for many many years, John and we talk to it with people like yourself as well as as Bob and I are out doing non deal road shows are road shows.
I think we all.
As we think about it there was been some noise in terms of the concept of being able to issue equity just to increase the base management fee. I mean, we are truly in the business of.
You know.
Running AARP and managing our portfolio, we did a very detailed analysis.
I'd say for co bid, we probably would have made this change a quarter earlier, but at that point. It was all hands on deck to ensure that we collected the rents that we did.
Which was we believe pretty exceptional for a company of our size, but if you go back five years.
On average.
The base management fee under this new calculation was somewhere in the 43 basis points to 43.3 basis points average.
So the concept here with the keep things either neutral or shareholder friendly on the margin on the go forward and to make it all just really based upon what the heck is our portfolio look like.
Out of particular point in time and.
Obviously being externally advised and while I only work for this company Bob only works for this company.
Our sister Les and agricultural read had gone to this type of concept a couple of quarters ago and my understanding is that was favorably received.
Okay. That's it for me. Thank you very much next question.
Thank you. Our next question comes from the line of Craig The Sarah with B. Riley FBR. Your line is now open.
Appreciate the color on vacancy being in Ohio, and Illinois, Minneapolis, but sort of specifically can you talk about sort of the sequential increase in vacancy from first quarter to second quarter, where those smaller tenants or were there any larger tenants what types of tenants et cetera.
We had a single storey 92000 square foot office property in.
In Minneapolis go vacant at the end of the first quarter.
That was that was our that was our biggest hit Craig.
And and that's one of the single stories at.
Mike just related that we have impaired that property.
It's interesting in this same park Blackstone is just acquired three other properties in that same part that are single storey office and so.
We're going to exit that exit that property, but it's somewhat encouraging to me that that blackstone's come into that park and now we're starting to get some interest on people who may want to acquire the property.
So I think looking at your supplements I think that that was included at first quarter. So there was no incremental increase in vacancy from March thirtyth to the end of June.
No there was a mark.
Failing to recall, which parcel was that got us down to below the 96, the sale of the Maple Heights asset in July real time today, we're north of 97% occupancy. So there might be a couple of square footage, Craig but that would would have been.
Okay. That's helpful.
And as far as your revenue with or any contras items expensed against rental revenue this quarter, maybe tenant receivable write offs or anything else like that.
No write offs I would say that under the new GAAP guidance and obviously you know for folks like yourself that are covered us for a number of years, you'll see on the PNM all.
The lease revenue numbers are as well as the operating expenses have dramatically gone up I would advocate for every analyst to look at those on a net basis being.
Your lease revenue less property operating expenses for comparability again, some of that is a GAAP exercise and modification and guidance also.
We've had some integration projects internally that have now enabled us to track even triple net expenses. Some even at tenant managed properties. So we are grossing up our income statement there as a function of that.
And now that recovery revenues.
Balance that tenants are obligated to pay as let's see.
They have some lumpiness in nature, so from period to period they may fluctuate.
And that may cause a little bit less of a trend I would say from an absolute cash rent perspective.
Cash ran in the first quarter was 28.5 million and in the second quarter is 28.8, so trending the right way benefiting from the first quarter.
Acquisitions that we executed.
Okay. Thanks to the color.
Thanks.
Other questioning.
We have no further questions in the queue at this time.
All right well, we thank you very much all of you for the good questions that you gave us and we enjoyed talking with you again Michael.
And certainly five always available to try to answer any questions.
At the end of this call. Thank you all for calling in.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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