Q4 2021 Gladstone Commercial Corp Earnings Call
Speaker 1: you
Speaker 2: Greetings and welcome to Gladstone Commercial Corporation, fourth quarter and year-end earnings kg
Greetings and welcome to Gladstone Com.
Corporation fourth quarter and year end earnings conference call.
Speaker 2: At this time, all participants are in a lesson only.
At this time all participants are in a listen only mode.
Speaker 2: Our question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker 2: I would now like to turn the conference over to your host, Mr. David Gladstone, Chief Executive Officer. Thanks.
I would now like to turn the conference what do your host Mr. David Gladstone, Chief Executive Officer.
Thank you and what do you see.
Speaker 3: Well, thank you, Peter, for that nice introduction. And thanks to all of you for calling in this morning. We enjoy the time we have with you on the phone and wish we had more time to talk with you. But no.
Well, thank you Peter for that nice introduction and thanks to all of you for calling in this morning, we enjoy the time with that with you on the phone and wish we had more time to talk with you but.
Speaker 3: once a quarter. Now let's hear from Michael O'Kelsey, our General Counsel and Secretary, to give you legal and regulatory matters concerning this call report.
It's once a quarter.
Now, let's hear from Michael accounts say, our general Counsel and Secretary to give you a legal and regulatory matters concerning this call report Michael.
Speaker 4: David, good morning everybody. Today's report may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934. Including those regarding our future performance, these forward-looking statements involve certain risks to our team that are based on our current plans, which we believe to be reasonable. How many factors may cause our actual results to be materially different from any future results?
David and good morning, everybody. Today's report May include forward looking statements under the Securities Act of 933, and the Securities Exchange Act of 1934, including those regarding our future.
Performance. These forward looking statements involve certain risks.
Our plan, which we believe to be reasonable and many factors may cause our actual results to be materially different from any future results expressed or implied by these forward looking statements, including all risk factors in our forms 10-Q, 10-K and other documents that we filed with the SEC you can find all these on the investors page of our website, which is Gladstone commercial.
Speaker 4: expressed or implied by these forward-looking statements, including all risk factors in our forms 10Q, 10K, and other documents that we file at the SEC. You can find all the...
Speaker 4: On the investors page of our website, which is GladstoneCommercial.com, also you can find them on the SEC's website, which is sec.gov. And we undertake 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 as required by law. But today we'll also discuss FFO, which is funds from operations. Now, FFO is a non-GAAP accounting term defined as net income.
Also you can find them on the SEC's website, which is SEC dot GOP and we undertake no obligation to publicly update or revise any of these forward looking statements.
As a result of new information future events or otherwise, except as required by law. Today. We will also discuss <unk>, which is funds from operations now <unk> 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.
Speaker 4: excluding gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets.
Speaker 4: We'll also mention FFO as adjusted for comparability and core FFO, which are generally FFO adjusted for certain other non-recurring revenues and expenses.
We'll also mentioned <unk> as adjusted for comparability and core <unk>, which are generally <unk> adjusted for certain other nonrecurring revenues and expenses and we believe these metrics are a better indication of our operating results and allow better comparability of our period over period performance now we ask that you take the opportunity to visit.
Speaker 4: We believe these metrics are a better indication of our operating results and allow better comparability of our period over period performance. Now we ask that you take the opportunity to visit our website. Once again, that's GladstoneCommercial.com. Sign up for our email notification service. You can also find us on Facebook. Keyword there is the Gladstone Companies and on Twitter, at GladstoneCops. Today's call is an overview of our results.
Our website once again Thats Gladstone commercial dot com sign up for our email notification service you can also find us on Facebook keyword. There is the Gladstone companies and on Twitter at Gladstone comps that today's call is an overview of our results. So we ask that you review our press release and Form 10-K , both issued yesterday for more deep.
Speaker 4: So we ask that you review our press release and Form 10-K both issued yesterday for more detailed information. Again, investors page of our website is where you can find those. I will hand the baton over to Gladstone Commercial's co-president Bob Cuff.
<unk> information against the Investor's page of our website, where you can find those now I'll hand, the baton over to Gladstone Commercial's, President Bob Cutlip.
Speaker 5: Thank you, Mike, and good morning, everyone. During the fourth quarter of 2021 and ending January 31, 2022, we continued our focus on industrial acquisitions and improving our operations.
Thank you, Mike and good morning, everyone. During the fourth quarter of 2021, ending January 31, 2022, we continued our focus on industrial acquisitions and improving our operations. We acquired a 161400 square foot industrial facility on 24 acres in Monroe, North Carolina, Charlotte suburb for $12.
Speaker 5: we acquired a 161,400 square foot industrial facility on 20.4 acres in Monroe, North Carolina, a Charlotte suburb, for $12.8 million with 7.9 years of remaining lease term in a gap cap rate of 5.7%.
$8 million with seven nine years of remaining lease term and a GAAP cap rate of five 7% acquired a 120000 square foot industrial facility about seven five acres in the Atlanta, Georgia, MSA for $12 million with 15 years of remaining lease term and a GAAP cap rate of seven 3%.
Speaker 5: acquired a 120,000 square foot industrial facility on 7.5 acres in the Atlanta, Georgia MSA for $12 million with 15 years remaining lease term and a gap cap rate of 7.3 percent.
Speaker 5: acquired a 300,000 square foot industrial facility on 16.3 acres in Crossville, Tennessee for $29 million with 11 years of remaining lease term and a gap cap rate of 6.5%.
Acquired a 300000 square foot industrial facility on $16 three acres in Crossville, Tennessee for $29 million with 11 years of remaining lease term and a GAAP cap rate of six 5%.
Speaker 5: leased the 42,900 square foot industrial facility in Redding, Pennsylvania through June of 2031.
The 42900 square foot industrial facility in reading, Pennsylvania through June of 2031 <unk>.
Speaker 5: renewed and extended the lease at our 71,800 square foot industrial property in Syracuse, New York through May of 2035, sold a 42,200 square foot single-story office property in Richmond, Virginia, extended the lease of our 127,000 square foot tenant at the Mercedes Benz assembly plant in Vance, Alabama through 2032, and collected 100% of cash based rents during the fourth quarter.
We renewed and extended the lease at our 71800 square foot industrial property in Syracuse, New York through May of 2035 sold of 42200 square foot single story office property in Richmond, Virginia.
Extended the lease of our 127000 square foot tenant at the Mercedes Benz Assembly plant in Vance, Alabama through 2032, and collected 100% of cash base rents during the fourth quarter.
These investments in re leasing activity further reinforce our strategy to increase our portfolio's industrial allocation and improved property operations, while removing noncore assets.
Speaker 5: These investments in releasing activity further reinforce our strategy to increase our portfolio's industrial allocation and improve property operations while removing non-core assets.
Recent acquisition activity has been quite strong.
Speaker 5: Recent acquisition activity has been quite strong. The third and fourth quarter investment volume totaled $80.5 million with a gap cap rate of 6.85%. All properties were industrial.
Third and fourth quarter investment volume totaled $85 million with a GAAP cap rate of 685% all properties, where industrial for the full year, we invested just under $100 million at an average GAAP cap rate of 7% and a weighted average lease term of 13 four years.
Speaker 5: For the full year, we invested just under $100 million at an average gap cap rate of 7% and a weighted average lease term of 13.4 years.
Speaker 5: The acquisition volume since 2019 is approaching $400 million and all assets have been industrial in nature.
The acquisition volume since 2019 is approaching $400 million and all assets had been industrial in nature.
Speaker 5: Our industrial allocation has increased from 33 to 51 percent during this period, and our near-term objective is to reach 60 percent within the next 12 to 18 months.
Our industrial allocation has increased from 33% to 51% during this period and our near term objective is to reach 60% within the next 12 to 18 months our success on the industrial side has been with acquisition candidates in the 50000 to 300000 square foot range and we expect to continue this focus.
Speaker 5: Our success on the industrial side has been with acquisition candidates in the 50,000 to 300,000 square foot range and we expect to continue this focus.
Speaker 5: Our asset management team continued to deliver on improving our same store operation.
Our asset management team continued to deliver on improving our same store operations year to date ended December 31, the team extended expanded <unk> leased one 6 million square feet covering 15 tenants with an average weighted lease term of seven seven years and a tenant improvement allowance of just $2 92.
Speaker 5: Year-to-date and on December 31st, the team extended, expanded, and or leased 1.6 million square feet, covering 15 tenants with an average weighted lease term of 7.7 years and a tenant improvement allowance of just $2.92 per square foot. The annualized straight line rent of these transactions totals $13.6 million and we had an increase in our straight line rent of approximately 7%.
<unk> per square foot.
Annualized straight line rent of these transactions totaled $13 6 million and we had an increase in our straight line rent of approximately 7%.
Speaker 5: Some important leasing highlights are as follows. 57% of our Austin office property was leased, equating to approximately 95% of the annual straight line rental income received from the prior tenant, who occupied the entire building. The current straight line rent on an annual basis is approximately $4.4 million.
Some important leasing highlights are as follows 57% of our Austin office property was leased equating to approximately 95% of the annual straight line rental income received from the prior tenant who occupy the entire building. The current straight line rent on an annual basis is approximately $4 $4 million the lead tenant in our 100 <unk>.
Speaker 5: The lead tenant in our 123,500 square foot industrial property in Raleigh, North Carolina, expanded into the entirety of the building and extended the lease through December of 2032.
<unk> 3500 square foot industrial property in Raleigh, North Carolina expanded into the entirety of the buildings and extended the lease through December of 2030 to the.
Speaker 5: The entire 238,300 square foot vacant property at the Port of Catoosa in Tulsa, Oklahoma was leased through 2033. And the tenant in our 315,000 square foot industrial property in the Detroit MSA extended their lease through 2029.
The entire 238300 square foot vacant property at the Port of <unk> in Tulsa, Oklahoma was leased through 2033 and the tenant in our 315000 square foot industrial property in the Detroit MSA extended their lease through 2029.
Speaker 5: These transactions will directly benefit our 2022 operating performance. And we have but 4.3% of our leases expiring during the current calendar year, which will be quite manageable for the team and will enable us to continue our emphasis on top-line rental growth through expansion of our portfolio.
These transactions will directly benefit our 2022 operating performance and we have but four 3% of our leases expiring during the current calendar year, which will be quite manageable for the team and will enable us to continue our emphasis on top line rental growth through expansion of our portfolio.
Speaker 5: Our rent collection experience continues to be strong. 100% of fourth quarter cash rent collections were paid. In fact, our rent collections were 100% for all of 2021.
Our rent collection experience continues to be strong.
100% of fourth quarter cash rent collections were paid in fact, our rent collections were 100% for all of 2021.
Speaker 5: We are very pleased with our portfolio and tennis performance during these challenging times for all industries.
We are very pleased with our portfolio and tenant performance during these challenging times for all industries.
Speaker 5: I want to highlight again with you some important succession planning decisions that have been recently announced for the team. Buzz Cooper, our Chief Investment Officer and with us here today, was promoted to Co-President as of January 11th.
I want to highlight again with you some important succession planning decisions that have been recently announced for the team Buzz Cooper, our chief investment officer and with US here today was promoted to co president as of January 11th at the same time I announced David My intention to retire honorably out June 30 of this year I have enjoyed every minute of my time with this too.
Speaker 5: At the same time, I announced to David my intention to retire on or about June 30th of this year. I've enjoyed every minute of my time with this team. It truly has been the pinnacle of my career, and I thank David, the team, and of course my wife and family for their support and guidance. I wish everyone the very best going forward.
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Really has been the pinnacle of my career and I think David the team and of course, my wife and family for their support and guidance I wish everyone. The very best going forward.
Speaker 5: We've been on a great journey together, have grown the business, improved our metrics, and delivered on what we said we would do. And that is just not my assessment. Our investors have communicated that to us during roadshows and virtual visits.
We've been on a great journey together have grown the business improved our metrics and delivered on what we said we would do and that is just not my assessment, our investors have communicated that to us during roadshows and virtual visits.
Speaker 5: And I say to all of our investors that Gary, Buzz, and I appreciate all of your comments and suggestions as to how we can improve our operations.
And I say to all of our investors that Gary Buzz and I. Appreciate all of your comments and suggestions as to how we can improve our operations.
Speaker 5: Buzz will lead us to the next level in the times ahead. He has been with commercial since our IPO, has acquired and managed more assets than any other leader in the company. Buzz understands our team culture in our go-forward strategy.
Does will lead us to the next level in the times ahead. He has been with commercial since our IPO and has acquired and managed more assets than any other leader in the company both understands our team culture and our go forward strategy.
Speaker 5: You will get to know him with Gary's and my assistance quite soon. He knows and will approve upon that strategy with the assistance and leadership of Gary, the regional leaders, and our regional asset management teams. Now I'd like to ask Buzz to summarize our assessment of current market conditions and our acquisition pipeline opportunities.
You will get to know him with Gary and my assistance quite soon he knows and will approve upon that strategy with the assistance and leadership with Gary the regional leaders and our regional asset management teams.
Now I'd like to ask Buzz to summarize our assessment of current market conditions.
And our acquisition pipeline opportunities.
Speaker 6: Thank you, Bob, and I wish to express my gratitude and appreciation for the faith and trust that you, David, and the board are placing in me.
Thank you, Bob and I wish to express my gratitude and appreciation for the faith and trust that you David <unk> are placing in me.
Speaker 6: I look forward to building upon the past performance as I believe we now have in place the talent to provide strong growth for our company and shareholders.
I look forward to building upon the past performance as I believe we now have in place the talent to provide strong growth for our company and shareholders as.
Speaker 6: As Bob stated, this is reinforced by the results and production for the latter part of 2021 anticipated in early 2022.
As Bob stated this is reinforced by the results in production for the latter part of 2021 and anticipated in early 2022.
Speaker 6: Market conditions are worthy of comment, particularly with the continued effects of COVID-19 virus.
Market conditions are worthy of comment, particularly with the continued effects of COVID-19 virus.
A review of research reports relating to industrial and office statistics for the fourth quarter reflects both improvements and continued challenges for CBRE.
Speaker 6: A review of research reports relating to industrial and office statistics for the fourth quarter reflects both improvements and continued challenges.
Speaker 6: Investment sales volume for all property types was approximately $750 billion for the year 2021 and is the highest since.
Investment sales volume for all property types was approximately 750 billion for the year 2021 and is the highest since.
2007.
Speaker 6: Prices for all property and types increased by 22.9% in 2021, according to real property analysts.
Prices for all property types increased by 22, 9% in 2021, according to real property analytics.
Industrial overall activity continues to be strong with vacancy at the four to four 5% level, depending upon the research report net absorption exceeding 100 million square feet per quarter for the year and over 500 million square feet is under construction.
Speaker 6: Industrial overall activity continues to be strong with vacancy at the 4 to 4.5 percent level depending upon the research report.
Speaker 6: Net absorption exceeding 100 million square feet per quarter for the year, and over 500 million square feet is under construction.
Speaker 6: Low supply and chain disruption is creating challenges for all product sectors.
Those supply chain disruptions disruption is creating challenges for all product sectors E Commerce and logistics demand continue to drive the industrial sector.
Speaker 6: e-commerce and logistics demand continue to drive the industrial sector.
Speaker 6: Office vacancy in the 4th quarter of 2021 saw an increase in demand per CBRE. Net absorption totaled 18.7 million square feet in the 4th quarter, with overall vacancy rates dropping 20 basis points to 16.6 quarter over.
Office vacancy in the fourth quarter of 2021, an increase in demand for CBRE net absorption totaled $18 7 million square feet in the fourth quarter with overall vacancy rates dropping 20 basis points to 16 six quarter over quarter.
Speaker 6: This is the first drop in vacancy since mid-2019, and first positive absorption compared to the prior six.
This is the first drop in vacancies since mid 2019, and first positive absorption compared to the prior six quarters.
Speaker 6: The vacancy level does not include significant sublease space available on a national basis.
Vacancy level does not include significant sublease space available on a national basis.
Speaker 6: New supply activity continues as just under 100 million square feet is under construction.
New supply activity continues is just under 100 million square feet is under construction.
Supply chain issues have created an increase in cost for materials and has caused a strain on their availability.
Speaker 6: supply chain issues have created an increase in cost for materials and has caused a strain on their availability.
As it relates to our growth opportunities, we are seeing an increase in investment sale listings. Our current pipeline of acquisition candidates is approximately $350 million in volume representing 17 properties, one of which is office with a balance being industrial.
Speaker 6: As it relates to our growth opportunities, we are seeing an increase in investment, sale, andllor only with other
Speaker 6: Our current pipeline of acquisition candidates is approximately $350 million in volume, representing 17 properties, one of which is office, with a balance being industrial. Attjiang This packet was just used to
17 properties, three proprietors and due diligence totaling $32 million.
Speaker 6: Four properties are in the letter of intent stage totaling $108 million and the balance are under initial review.
<unk> properties are in the letter of intent stage totaling $108 million and the balance are under initial review.
Speaker 6: Our team is staying actively engaged in the markets as we believe acquisition opportunities continue to arise as we can pursue and will pursue.
Our team is staying actively engaged in the markets as we believe acquisition opportunities tend to arise as we can pursue and we will pursue them.
Speaker 6: So in summary, our full year and fourth quarter activities collected strong leasing and rental collections success.
In summary, our full year and fourth quarter activities selected strong leasing and rental collection success continued active engagement to identify industrial acquisition opportunities and collectively positions us well to pursue growth opportunities.
Speaker 6: continued active engagement to identify industrial acquisition opportunities.
Speaker 6: collectively positions us well to pursue growth opportunities.
Speaker 6: Now let me turn it over to Gary for a report on the financial results, including our capital market activities. Gary? Thank you, Buzz, and good morning, everyone. I'll start my remarks by reviewing our operating results for the fourth quarter of 2021. All per share numbers I reference are based on fully diluted weighted average common share.
Now, let me turn it over to Gary for report on the financial results, including our capital markets activities. Gary. Thank you Buzz and good morning, everyone. I'll start my remarks by reviewing our operating results for the fourth quarter 2021, all per share numbers I reference are based on fully diluted weighted average common shares.
Speaker 7: FFO and core FFO available to common stockholders were both 40 cents per share for the quarter respectively.
<unk> and core SSO available to common stockholders were both <unk> 40 per share for the quarter respectively.
Speaker 7: FFO and core FFO available to common stockholders during the fourth quarter of 2020 were $0.37 and $0.38 per share respectively. FFO adjusted for comparability and core FFO available to common stockholders for the full year 2021 were $1.60 and $1.57 respectively.
<unk> and core <unk> available to common stockholders during the fourth quarter of 2020 were <unk> 37, <unk> 38 per share respectively, <unk> adjusted for comparability and core <unk> available to common stockholders for the full year 2021 were $1 60, and $1 57, respectively <unk>.
Speaker 7: FFO and Core FFO adjusted for comparability available to common stockholders during the full year 2020 or $1.56 and $1.57 per share respectively. Our same store cash rent in the full year 2021 grew at a 3.2% overall over the full year 2020.
On core SSO adjusted for comparability available to common stockholders. During the full year 2020 were $1 56, and $1 57 per share respectively. Our same store cash rent in the full year 2021 grew at a three to three 2% overall over the full year 2020.
Speaker 7: Our fourth quarter results reflected total operating revenues of $35.3 million with operating expenses of $25.4 million, as compared to operating revenues of $32.9 million and operating expenses of $24.7 million in the same period.
Our fourth quarter results reflected total operating revenues of $35 3 million with operating expenses of $25 4 million as compared to operating revenues of $32 9 million and operating expenses of $24 $7 million at the same period.
Yes.
Speaker 7: We continue to enhance our strong balance sheet as we grow our assets and continue to focus on reducing our leverage. We have reduced our leverage to gross assets over the past six years by over 20% to 45.5% through refinancing maturing debt and financing new acquisitions at lower leverage levels. We believe we are 1 to 2% away from our target leverage level.
We continue to enhance our strong balance sheet as we grow our assets and continue to focus on reducing our leverage we have reduced our leverage to gross assets over the past six years by over 20% to 45, 5% through refinancing maturing debt and financing new acquisitions at lower leverage levels. We believe we are 1% to 2% away from our.
Target leverage level.
Speaker 7: we continue to primarily use long-term mortgage debt to make acquisitions. As we grow through disciplined investments, we also continue to expand our unsecured property pool with additional high-quality assets. Over time, we expect this will increase our debt financing options.
We continue to primarily use long term mortgage debt to make acquisitions as we go grow through disciplined investments. We also continue to expand our unsecured property pool with additional high quality assets over time, we expect this will increase our debt financing options looking at our debt profile, 61% is fixed rate.
Speaker 7: Looking at our debt profile, 61% is fixed rate, 33% is hedged floating rate, and 6% is floating rate, the majority of which are borrowings under our revolving credit facility. As of today, our 2022 and 2023 loan maturities are manageable, with $95 million coming due in 2022 and $65 million coming due in 2023. We will refinance these amounts at the appropriate time.
33% is hedged floating rate and 6% is floating rate the majority of which are borrowings under our revolving credit facility as of today, our 2022, and 2023 loan maturities are manageable with $95 million coming due in 2022% and $65 million coming due in 2023, we will refinance.
These amounts at the appropriate time.
Speaker 7: As of the end of the quarter, we had $33.6 million of revolving borrowings outstanding.
As of the end of the quarter, we had $33 6 million of revolving borrowings outstanding.
Speaker 7: While entering the fourth quarter with sufficient liquidity, we've been active in issuing equity through our At the Market, or ATM, program. During the full year 2021 and net of issuance costs, we raised $36.6 billion through common stock sales. We continue to manage our equity activity to ensure that we have sufficient liquidity for upcoming capital requirements.
While entering the fourth quarter with sufficient liquidity, we've been active in issuing equity through our aftermarket or ATM program. During the full year 2021, and net of issuance cost we raised $36 $6 billion through common stock sales, we continue to manage our equity activity to ensure that we have sufficient liquidity for ups.
<unk> capital requirements as of today, we have approximately $27 $9 million in cash and availability under our line of credit with our current availability the strong performance of our portfolio and access to our ATM program. We believe that we have significant incremental flexibility to fund current operations near and long term.
Speaker 7: As of today, we have approximately $27.9 million in cash and availability under our line of credit.
Speaker 7: With our current availability, the strong performance of our portfolio, and access to our ATM program, we believe that we have significant incremental flexibility to fund current operations near and long term. 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 encourage you to also review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter.
Speaker 7: Institutional ownership of our stock has increased over time to 50.5% as of December 31st. We continue to be very active in meeting with current and potential investors, portfolio managers, coverage analysts, and investment banks. We look forward to establishing new relationships as our company grows. We have raised our common stock dividend to $37.5 million.
Institutional ownership of our stock has increased over time to 55% as of December 31, we continue to be very active in meeting with current and potential investors portfolio managers coverage analysts and investment banks, we look forward to establishing new relationships as our company grows we have raised our common stock dividend to <unk>.
37.
Speaker 7: 0.62 cents per share per quarter or $1.50.48 per year. We have not cut or suspended the dividend since our IPO in 2003. Our common stock closed on Tuesday, yesterday night at 21.59.
Six two cents per share per quarter or $1 $54 <unk> per year, we have not cut or suspended the dividend since our IPO in 2003, our common stock closed on Tuesday yesterday at 20 159.
Speaker 7: distribution yield on our stock is at 6.97 percent. Many REITs are trading at much lower yields. And now I'll turn the program back to David. All right, thank you. That was a good report, Gary, and a good one from Bob, certainly from Buzz Cooper. Welcome on board Buzz for your first time through. Michael LaCalci also made a contribution to...
The distribution yield on our stock is at $6, 97%. Many Reits are trading at much lower yields and now ill turn the program back to David.
Alright, thank you.
Good report Gary Good one from Bob.
Certainly from Buzz Cooper and welcome onboard Buzz for your first time through.
Michael accounts. He also made good contribution to telling the world and the team has performed very very well and we have not been hurt much by the various government reactions.
Speaker 3: telling the world and the team has performed very, very well and we've not been hurt much by the various government reactions to the virus.
The buyers so nice quarter guys.
Speaker 3: You have heard a lot today about the number of transactions and new leases for the quarter and it is impressive. We've collected 100% of the cash based rents during the fourth quarter. We acquired three industrial assets during the quarter for a total investment of $53.8 million.
You have heard a lot today about the number of transactions and new leases for the quarter and it is impressive.
Collected 100% of the cash base rents during the fourth quarter, we acquired three industrial assets during the quarter four and a total investment of $53 8 million.
Speaker 3: two industrial properties and extended the leases in January 2022.
Two industrial properties and extended the leases in January of January of 2022.
And we executed 15 lease transactions this year, representing about $36 million.
Speaker 3: And we executed 15 lease transactions this year representing about $13.6 million of enterprise straight rent.
Straight rents.
Speaker 3: Commercial team is growing. The real estate we own is at a good pace and we're adding to it.
Commercial team is growing.
The real estate, we own is at a good pace and we are adding to it.
Speaker 3: company outlook I think is strong, the professionals behind it are strong. So at this point in time our acquisition team is seeking more strong credit tenants. We are tenant oriented as opposed to real estate oriented and if the tenant can pay it usually means everything is okay.
Company outlook I think is strong the professionals behind it are strong.
So at this point in time, our acquisition team is seeking.
More strong credit tenants, where tenant oriented as opposed to real estate oriented and if the tenant can pay it usually means everything's okay.
Speaker 3: We know that the quality of the tenant and the real estate make excellent investments and that's what we shoot for every time we're out there in the marketplace.
We know that the quality of the tenant and the real estate make excellent investments and that's what we shoot for every time, we're out there in the marketplace.
Speaker 3: Our asset managers are actively managing the properties that we own today, and we continue to grow those in value. It's just a different environment we're in today, but the team is up for the challenge.
Our asset managers are actively managing the properties that we own today, and we continue to grow those and value.
It's just a different environment, we're in today, but the team is up for the challenge.
Speaker 3: The middle market business is like many other of our tenants have been challenged with previous government restrictions related to viruses, inflation, supply chain disruptions. Would our tenants continue to pay their rents? These are times that have never been seen before and there will be future challenges.
The middle market businesses like many of our tenants have been challenged with previous government restrictions related to viruses inflation supply chain disruptions with our tenants continue to pay their rents.
Other times that have never been seen before and there will be future challenges.
Speaker 3: But we have a first class team and they're doing a fantastic job. Okay, Paul, if you'll come on now, we'll answer some questions from those who are calling in.
We have a first class team and they're doing a fantastic job.
Okay, Paul if you'll come on now we'll answer some questions from those who are calling in.
Thank you.
Speaker 2: Thank you. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the line.
At this time.
Conducting a question and answer session.
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One moment, please while the poll.
Four questions.
The first question is from Rob Stevenson with Janney. Please go ahead.
Speaker 2: The first question is from Rob Stevenson with Jaini.
Speaker 8: Good morning, guys. Bob or Buzz, what's the current acquisition pipeline? How much is under contract or letter of intent? And how should we be thinking about 2022 acquisitions? You did $100 million last year. Any reason to think that the 2022 acquisitions won't be in the same ballpark?
Hey, good morning, guys, Bob Buzz, what's the current acquisition pipeline, how much is under contract or letter of intent and how should we be thinking about 2022 acquisitions, you did $100 million last year any reason to think that the 2022 acquisitions won't be in the same ballpark.
Speaker 5: I'll start and then Buzz will add to it because Buzz really understands what's going on in every one of our markets.
I'll start and then Basel add to it because it does really understands what's going on in every one of our markets.
Speaker 5: You know, we've got like, as he indicated, $32 million that's in due diligence. That's under contract.
We've got like as he indicated $32 million thats in due diligence that's under contract. We've got another 100 to 110 that is in the letter of intent stage and were expecting probably a third of that to convert to a contract within the next probably 30 days and I think what we need to think about Rob is look at the last two.
Speaker 5: We got another 100 to 110 that is in the letter of intent stage, and we're expecting probably a third of that to convert to a contract within the next probably 30 days. And I think what we need to think about, Rob, is look at the last two quarters. The third and the fourth quarter, as I indicated, we acquired 80 million. You know, that's an annualized of about 160 million.
<unk>, the third and fourth quarter as I indicated we acquired $80 million.
That's the annualized of about $160 million and.
Speaker 5: And I think what's transpired is Buzz has really got a great team in place right now who really are well connected in our secondary growth markets. And so I would expect, you know, with what we have right now, that we, for a calendar year basis, will be looking well north of 120 million. Now, if, you know, all bets are off, if interest rates go through the roof, and we have to be conservative, because we are conservative, and care about cash flow stability.
And I think what's transpired is buzz has has really got a great team in place right now who really are well connected in our secondary growth markets and so I would expect.
With what we have right now.
We for a calendar year basis, we'll be looking well well north of $120 million now if.
All bets are off if interest rates go through the roof and we have to be conservative because we are conservative and care about cash flow stability, but I think right now.
Speaker 5: But I think right now, it's improving for us. So Buzz, why don't you even expand upon all that. Thank you, Bob. And Rob, thank you.
It's improving for us so buzz why don't you even expand upon all of that thank you Bob and Rob. Thank you.
Speaker 6: One thing I would note is, to Bob's point, 32 million that we do have in diligence in the legal process and underwriting of the tenancy.
One thing I would note is to Bob's point 32 million that we do have in diligence and the legal process and.
Underwriting of the tenancy and third party reports.
Speaker 6: Behind that, we do have some 110 million that we are deep into discussions on and in LOI. I believe that we will move a great portion of that forward, if not all. One thing to note is that these are also cross-regional opportunities, taking us from the southeast and Florida over through and hopefully into the west in Denver.
Behind that we do have some $110 million that we are deep into discussions arent and in LOI I believe that we will move a great portion of that forward if not all one thing to notice that these are also cross regional.
Opportunities, taking us from the southeast and Florida over through and hopefully into the west in Denver. So the team is actively looking for what I will say or perhaps a little more creative opportunities for us as it relates to our traditional acquisitions, but the pipeline is strong and we've seen a.
Speaker 6: So the team is actively looking for what I'll say are perhaps a little more creative opportunities for us as it relates to our traditional acquisitions. But the pipeline is strong and we've seen an uptick here as it relates to the marketplace and properties out for consideration. So we feel very confident going forward.
Uptick here as it relates to the.
The marketplace and properties out for consideration so we feel very confident going forward.
Speaker 8: Okay. And how are you guys thinking about dispositions this year?
Okay, and how are you guys thinking about dispositions this year.
Okay.
Speaker 5: You know, Gary and I have been stating on most of the calls that we'd like to limit our dispositions to $15 to $20 million per year. However, you know, if we...
Gary and I have been stating on most of the calls that we'd like to limit our dispositions to $15 million to $20 million per year. However.
If we see something that is going to be a very significant increase in our capital gain that we can redeploy.
Speaker 5: see something that is going to be a very significant increase in our capital gain that we can redeploy the cash proceeds. It could go higher than 20 million, but right now we're still estimating 15 to 20 million. And that's kind of on an average basis when we look two to three years out. But it could increase depending upon any crazy, let's say offers that we receive that make sense for us long term.
Cash proceeds it could go higher than $20 million, but right now, we're still estimating $15 million to $20 million and thats kind of.
On an average basis, when we look two to 332 to three years out, but it could increase depending upon any crazy.
Let's say offers that we received that makes sense for us long term.
Speaker 8: And how are you thinking about the Austin office asset at this point?
And how are you thinking about the the Austin office asset at this point.
Speaker 5: I'm going to let Buzz expand upon that because Buzz was responsible for the tenant that we have in there right now, his team, and let him expand upon that.
I'm going to let buzz expand upon that because buzz was responsible for the tenants that we have in there right now his team.
And let him expand upon that I live and breathe that asset.
Speaker 6: I live and breathe that asset. It has obviously we've refilled it, if you will, to approximately over half of the building at a rental rate that gives us approximately 90% of the cash we were receiving in Austin off that asset at the time that tenant left.
It has obviously we've read.
Filled it if you will to approximately over half of the building at a rental rate.
Gives us approximately 90% of the cash we were receiving.
In Austin off that asset at the time that.
That tenant left.
Speaker 6: We have had some looks. Texas did go through, hit an increase in the virus, if you will. So the past 60 days have been relatively quiet, coming out of the new year and so forth. However, recently there has been an uptick in interest.
We have had some looks.
Texas did go through us.
<unk>.
Increase in the virus if you will so the past 60 days, it's been relatively quiet coming out of the new year and so forth. However, recently there has been an uptick in interest.
Speaker 6: Our leasing team is actively aggressive down both in Texas, but also nationally and internationally as relates to trying to bring tenants
Our leasing team is actively aggressive down both.
In Texas, but also nationally internationally as it relates to trying to bring tenancy as you may know Austin is exploding everyday it seems either a new tower has been announced to be built where new tenants such as <unk> coming to town, taking a large bit of space.
Speaker 6: As you may know, Austin is exploding every day it seems. Either a new tower is being announced to be built, or new tenants such as TikToks coming to town, taking a large bit of space.
Speaker 6: We also saw some activity as relates to announcements, nothing concrete from the tendency of life sciences actually across our
We also saw some activity as it relates to announcements nothing concrete from tenancy.
Of life Sciences actually across our from our building on parmer. So we feel very confident that we're going to get some hits here relatively soon we've had a couple people we've traded paper with they have not come to fruition for various reasons.
Speaker 6: from our building on Palmer. So we feel very confident that we are going to get some hits here relatively soon. We've had a couple of people we've traded paper with. They've not come to fruition for various reasons. But as pointed out, I'm sure previously on calls, we have a strong rental rate that's at 1-4 million East of St Louis.
But as pointed out I'm sure previously on calls we have a straw.
Strong rental rate that's it.
Speaker 6: very well north of where we exited with GM historically. So we believe there's good upside there and hope to have it filled relatively soon.
Very well north of where we exited with GM historically so.
We believe theres good upside there and hope to have it filled relatively soon.
Speaker 8: Okay, and then just one last maintenance one for me. Gary, what was the common and preferred capital that you issued in the fourth quarter? The release had the 2021 full year information, but I didn't see the quarterly issuance on the common and preferred.
And then just one last maintenance one for me Gary what was the common and preferred capital that you issued in the fourth quarter. The release had the 2021 full year information, but I didn't see the quarterly issuance on the common and preferred.
Speaker 9: I believe it was.
And believe.
Okay.
Sure.
Speaker 8: give me a minute good idea i think i'll talk wanted the alpaca whatever so we have it in our in a release bro all of all all open i think that's appreciate the time all next question please
Give me a minute.
We can follow up offline.
For sure we have it in our in our release.
I'll follow up on you alright, thanks, guys I appreciate the time.
Next question please.
Okay.
Thank you.
Speaker 2: The next question is from John Masocha with Ladenburg-Talman. Please go ahead. Good morning everyone.
The next question is from John Mashelkar.
Ladenburg Thalmann. Please go ahead.
Good morning, everybody.
Hey, John .
Speaker 10: So maybe going back to the pipeline a little bit.
Is there any going back to the pipeline a little bit.
Whats kind of the overall cap rate outlook for the potential acquisitions that are in the pipeline and the comparable with what was closed in <unk> or has there been any shift.
Speaker 10: What's kind of the overall cap rate outlook for the potential acquisitions that are in the pipeline? Is it comparable with what was closed in 4Q or has there been any shift?
Speaker 10: in cap rate, I know it's early days, but you shift in cap rate given some of the changes in interest rates here.
And cap rate I know, it's early days, but any shift in cap rate given some of the changes in interest rates here recently.
Speaker 5: Well, in 2021, the average cap rate was about 7%.
Well.
In 2021, the average cap rate was about 7%.
And I think.
Speaker 5: that what we're looking at here, you know, from a long-term standpoint as well as short-term, is we are looking at, on industrial, anywhere from five and a quarter to six going in cap rate, and then we're looking at office product that is at least 50 to 75 basis points higher, and of course it depends on the market, depends on the credit, and it depends on the term and the configuration. But I see us staying at that level, John .
What we're looking at here.
From a long term standpoint, as well as short term.
We are looking at industrial.
Real anywhere from five and a quarter to six going in cap rate and then we're looking at office product that is at least 50 to 75 basis points higher and of course it depends on the market depends on the credit and it depends on the term and the configuration, but I see us staying at that level John .
Speaker 5: you know, Buzz, you might want to expand upon it as to what we really now have that's closing in the next three months.
Buzz you might want to expand upon it as to what we really now have that's closing in the next three months.
Speaker 6: And to Bob's point, the average cap rate there is consistent with what we accomplished in 2021.
And to Bob's point, the average cap rate there is consistent with what we accomplished in 2021.
Because of these cros.
Speaker 6: of these cross regional opportunities the cap rates are a little higher which works to our benefit and we are getting longer term so I would expect them to be very similar to where we were in 2021 of course there's interest rate factors coming into the new deals that will have an effect but I think we'll be pretty close to where we are today if not better.
Regional opportunities that cap rates are a little higher which works to our benefit.
And we are getting longer term, so I would expect them to be very similar to where we were in 2021.
Of course, there is interest rate factors coming into the new deals that will have an effect, but I think we'll be pretty close to where we are today if not better.
Okay I think.
Go ahead.
Speaker 5: I was going to say, I think as we've noted in the past, we stay very close to Gary and his team as to what our true cost of capital is. And that of course varies based on debt changes as well as equity costs. And so, you know, we just will not go forward with anything unless we have a 50 to 75 basis point spread over our cost of capital. And we have done that religiously and intend to do that going forward.
I'm going to say I think as we've noted in the past week, we stay very close to Gary and his team as to what our true cost of capital is and that of course varies based on that changes as well as equity cost and so.
We just will not go forward with anything unless we have a $50 to 75 basis point spread over our cost of capital and we have done that religiously and intend to do that going forward.
Speaker 10: Okay, and then maybe looking at the in-place portfolio and putting Austin to the side a little bit because it's its own specific thing. What's the outlook for the lease up or sale of some of that remaining, let's call it non-Austin create?
Okay.
And then maybe looking at the in place portfolio.
And putting Austin to the side, a little bit specific thing and what's the outlook for the lease up or sale of some of that remaining let's call. It non Austin vacancy.
Okay.
Speaker 6: Are you referring to within the next, this calendar year? Just in general, I mean, I know it's not a huge number, but I mean, rough numbers. Let's say you still have kind of 2%, maybe a little less than 2%, somewhere between 2 and 1% of the portfolio that's vacant. That's not the Austin building or the remaining vacancy in the Austin building, and just what's kind of the outlook for any resolution to that vacancy going forward.
Are you referring to within the next this calendar year.
Just in general.
I know, it's not a huge number but I mean rough numbers lets say you still have kind of 2%, maybe little less than 2% somewhere between two and 1% of the portfolio.
Let's take it thats not.
The Austin building or the remaining vacancy in the office building and just whats kind of the outlook for.
Any resolution to that vacancy going forward.
Okay. John we've got three leases that are expiring this year one in June one in July and one in October all three of those tenants. So that you know have told us they are going to depart.
But one of the properties that is the lease expiration is in July we're in final negotiations with a tenant to take that space and then there is a property.
Lake City, and we have a good prospect for that Thats at about 40000 square feet.
And then the properties that.
The lease expires at the end of October in South Carolina, Columbia, South Carolina.
And we've got one one strong prospect for the entire building I think if I had to to to put a probability on it I feel very good about two of those but it's it's out in the future. All three of those are office properties and so we will be aggressive to lease the space.
Speaker 5: to put a probability on it. I feel very good about two of those, but it's out in the future. All three of those are office properties. And so we will be aggressive to lease the space.
Speaker 5: particularly under current conditions. You want to expand upon that?
Particularly under current conditions, but if you want to expand upon that.
To Bob's point, we are aggressively working on the leasing side of all of those equations as well.
Speaker 6: To Bob's point, we are aggressively working the leasing side of all those equations as well. As I referenced with the office market coming back a little bit, there have been inquiries relative to certain assets, whether it's a user that may wish to purchase it or occupy it or a value add shop. So we're looking at all alternatives.
As the as I referenced with the office market.
Coming back a little bit there has have been inquiries relative to.
Certain assets, whether it's user that may wish to purchase it or occupy it or a value add shop. So we're looking at all alternatives.
Okay.
Speaker 10: Okay, and then on the balance sheet side of things, you know, what does the market look like for refinancing some of the debt that's maturing? Where are you seeing rates today? And how is the outlook for, you know,
And then on the balance sheet side of things.
What does the market look like for refinancing some of the debt Thats maturing.
Where are you seeing rates today and how is the outlook for.
Speaker 10: kind of refinancing with mortgages versus going to more unsecured finance.
Kind of refinancing with mortgages versus going to more unsecured financing.
Okay.
Speaker 7: Well, this is Gary. We are, of course, seeing interest rates go up a little bit. I mean, we are seeing, you know, the Fed is saying they're going to raise rates in March and so forth, but
Well. This is Gary we are of course seeing interest rates go up a little bit I mean, we are seeing the fed is saying theyre going to raise rates in March and so forth but.
Speaker 7: The rates haven't really increased that much at this point, so I don't think it's going to really hurt our balance sheet or our income as we go forward to refinance. As you referred to, unsecured, that could be a potential option, so we're looking at these things.
The rates haven't really increased that much at this point. So I don't think it's going to really hurt our balance sheet or income as we go forward to refinance them.
As you referred to unsecured.
That could be a potential option. So we're looking at these things and we are looking at the interest rates, but so far we have not seen them bump up to a point, where they're going to be significant problem.
Speaker 7: and we are looking at the interest rates, but so far we have not seen them bump up to a point where they're going to be significant problems.
Speaker 10: I mean, if you had to say, and I understand obviously by the time you come to refinancing, the markets may have moved one way or another, but is it kind of roughly a flat event? Could it potentially be a creative refinancing, not a creative refinancing? How are you thinking about that today?
I mean, if you had to say and I understand obviously by the time you come to refinancing the markets may have moved one way or another but.
Is it kind of roughly a flat event could potentially be accretive refinancing non.
Non accretive.
The financing how are you thinking about that today.
Speaker 7: the mortgages coming due have, I don't have the exact interest rate in my mind right now, but it's significantly over 4%. So right now we would see a refinancing of those mortgages as accretive given today's interest rates.
The mortgages coming due have.
I don't have the exact interest rate in my mind right now, but it's it's significantly over 4% so.
Right now we would see a refinancing of those those mortgages as accretive given today's interest rates.
Speaker 10: Okay. Um, very helpful. Uh, that's it for me. Congratulations, buzz. And I think we're going to have you on for one more call, Bob. So I might save my congratulations, but if not, congratulations to you as well.
Okay.
Helpful. That's it for me congratulations, but I think we're going to have Jan for one more call Bob sunlight save my congratulations, but if not congratulations to you as well.
Speaker 5: Thanks, John . This is Gary again. I do have a – there was a previous question about the amount of equity from our ATM that we sold during the fourth quarter and that was net of proceeds $12.4 million.
Thanks, John and this is Gary again I do have there was a previous question about the amount of equity from our ATM that we sold during the fourth quarter and that was net of proceeds of $12 4 million.
Speaker 7: of the 36.6 we sold for the full year 2021.
Of the $36 six we sold for the full year 2021.
Okay next question.
Speaker 2: Thank you. The next question is from Craig Quesera with B.
Thank you. The next question is from Greg <unk> with B Riley. Please go ahead.
Speaker 11: Hey, good morning, guys. I may have missed this. But what was the contribution to revenue this quarter from the Austin assets that were leased in the in the third quarter, the former GM assets in Saw.......................
Hey, good morning, guys I may have missed this but what was the contribution to revenue this quarter from the Austin assets that were leased in the third quarter the former GM.
Assets.
Speaker 7: That's about $1.6 million.
That.
<unk>.
One $6 million.
Speaker 7: For the quarter of the fourth quarter, which was the first full quarter of that asset.
Per quarter to quarter for the for the quarter of the fourth quarter, which was the first full quarter of that asset.
Speaker 11: Got it. So there was no there was no free rent period tied to that those assets correct? That's straight.
Got it so there was no there was no free rent period tied to that those assets correct.
Rate line.
Speaker 11: Got it. Okay. And I feel like earlier this year, you had leased up some vacancy in Tulsa. And I think that tenant was expected to start paying in the fourth quarter. Can you give us a sense of what they're paying and sort of what the outlook is there for 2022?
Got it okay.
And I feel like earlier this year, you had leased up some vacancy in Tulsa.
And I think that tenant was expected to start paying in the fourth quarter can you give us a sense of what they're paying and sort of what the outlook is there for 2022.
Speaker 6: I don't have the rental figure right off the top of my head. Outlook is very good. They've made great improvements within the property. And are going to look to, I believe, start their.
I don't have the rental figure right off the top of my head.
The outlook is very good they've made great improvements within the property.
And are going to look to I believe start there.
Sure.
Shop working.
Producing product by the end of this quarter they are paying rent currently.
Speaker 6: producing product by the end of this quarter. They are paying rent currently.
Okay, Great. That's it for me thank you.
Next question.
Speaker 2: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to Mr. David Glaston for closing As you can feel the days started breakin my
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. David Gladstone for closing remarks.
Speaker 3: All right, thank you all for listening and thanks to Rob and John and Craig for good questions. We hope to see you again next quarter and Right now we're doing well and I think the outlook is good as well. That's the end of this call.
Alright, Thank you all for listening and thanks to Rob and John and Craig for good questions and we hope to see you again next quarter.
Right now were doing well.
The outlook is good as well at the end of this call.
Speaker 2: Thank you. This concludes today's conference. You may disconnect your lines at this time.
Yes.
Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.
Speaker 1: you
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