Gladstone Commercial Corporation (NASDAQ:GOOD)
Q2 2016 Earnings Conference Call
July 26, 2016, eight:30 am ET
Executives
David Gladstone – Chairman & CEO
Michael LiCalsi – General Counsel, Secretary & President, Gladstone Administration
Bob Cutlip – President
Danielle Jones – CFO
Analysts
John Roberts – Hilliard Lyons
John Massocca – Ladenburg Thalmann
Larry Raiman – LDR Capital Management
Operator
Good day women and gents, and welcome to the Gladstone Commercial Corporation’s Second Quarter Earnings Ended June 30, 2016, Earnings Call and Webcast. At this time, all participant strains are in a pay attention-solely mode to scale back background noise. But later we might be holding a query-and-reply session after the ready remarks and directions will comply with at the moment. [Operator Instructions]. As a reminder, in the present day’s convention name is being recorded.
I might now wish to introduce your first speaker for as we speak, David Gladstone. You have the ground sir.
David Gladstone
Thank you, Andrew. Nice introduction and we thank all of you for calling in. We all the time take pleasure in these occasions that we have now collectively on the telephone and need we had extra occasions to speak to you. If you’re ever within the Washington D.C. space, we’re situated within the suburb referred to as McLean Virginia and you’ve got an open invitation to cease by and see us should you’re right here on this space. You will see a terrific staff at work; we’ve got over 60 members of the staff now. So it is a robust Growing Group.
We’ll now hear from Michael LiCalsi, our General Counsel & Secretary. Michael can also be the President of Gladstone Administration which serves because the Administrator to all the Gladstone Funds and associated corporations as nicely. He will make a quick announcement relating to a few of the legal and regulatory issues regarding this name and report. Mike?
Michael LiCalsi
Good morning, everybody. The report you are about to listen to might embrace ahead-wanting statements inside the which means of the Securities Act of 1933 and the Securities Exchange Act of 1934, together with statements with regard to the corporate’s future efficiency and these ahead-wanting statements contain sure dangers and uncertainties which are based mostly on our present plans, which we consider to be affordable.
And there are lots of elements which will trigger our precise outcomes to be materially totally different from any future outcomes expressed or implied by these ahead-wanting statements, embrace all of the Risk Factors included in our Forms 10-Okay and 10-Q that we filed with the SEC. And they are often discovered on our web site www.gladstonecommercial.com and on the SEC’s web site www.sec.gov.
The firm undertakes no obligation to publicly replace or revise any ahead-wanting statements, whether or not because of new info, future occasions or in any other case, besides as required by law. And in our report as we speak, we additionally plan to speak about funds from operation, or FFO. FFO is a non-GAAP accounting time period, outlined as internet revenue excluding the good points or losses from the sale of actual property and any impairment losses from the property plus depreciation and amortization of actual property belongings. The National Association of REITs has endorsed FFO as one of many non-accounting requirements that we will use in dialogue of REITs. Now please see our Form 10-Q, filed yesterday with the SEC, and our monetary statements for an in depth description of FFO.
And as we speak we additionally plan to debate core FFO, which is usually FFO adjusted for property acquisition prices and different non-recurring bills. And we consider this can be a higher indication of the working outcomes of our portfolio and permits higher comparability of interval-over-interval efficiency. And to remain up-to-date on our fund, in addition to all the opposite Gladstone publicly traded funds, you’ll be able to enroll on our web site to get e-mail updates on the newest information. You also can comply with us on Twitter, username, GladstoneComps; and on Facebook, key phrase, The Gladstone Companies. Finally you’ll be able to go to our common web site to see extra info www.gladstone.com.
And the presentation at present is an summary. So we ask that you simply learn our Press Release issued yesterday, and in addition evaluation our Form 10-Q for the quarter ended June 30, 2016. Please additionally see the monetary complement which supplies additional element on our portfolio and our outcomes of operations. These can all be discovered on our newly redesigned web site gladstonecommercial.com.
Now we’ll start right now’s presentation by listening to from Gladstone Commercial’s President, Bob Cutlip.
Bob Cutlip
Thanks, Michael. Good morning everybody. During the second quarter we acquired a $17 million property situated in Salt Lake City, Utah; raised $25 million in a direct placement of most popular fairness; and carried out an ATM program on this new most popular; executed two new leases with tenants are partially vacant Maple Heights, Ohio, and Minneapolis, Minnesota properties; bought a non-core property situated in Dayton, Ohio; executed contracts to promote our properties situated in Angola, Indiana, Rock Falls, Illinois, and Montgomery, Alabama; refinanced $26.2 million of maturing mortgage debt at decrease rates of interest; and redesigned our web site to offer higher info to our buyers, analysts, funding gross sales and leasing brokers; and included a brand new part in our most popular inventory.
Subsequent to the top of the quarter we additionally introduced the redemption of the remaining $13.5 million of our excellent Series C in August.
We had one other wonderful quarter as we executed new leases to extend the occupancy of our portfolio to 98.5%. We additionally put one other excessive performing asset in our portfolio. We proceed to be happy with our exercise and have a wholesome pipeline of acquisition candidates totaling about $300 million.
Our acquisitions group has spent appreciable time over the previous a number of months connecting with our friends to find out the course of the market. Interest fee volatility, a understand international financial slowdown, and an power glut raised our considerations. Our findings mirror that the most important internet lease friends have famous that they are going to be decreasing their internet acquisitions quantity this yr and even pausing because of the perception that valuations look like too excessive. These ideas, in addition to as lowered yr-to-date funding volumes in comparison with 2015, as reported by market analysis companies, could possibly be indicating that cap charges might broaden within the months forward. Our group goes to proceed to watch market circumstances and can actively examine alternatives, and we’ll purchase properties when the tenant credit score, location, and asset returns are accretive and promote our measured progress technique.
Now for some particulars for the quarter. During the quarter ended June 30, we acquired a 107,000 sq. foot multi-storey workplace constructing situated in Salt Lake City. The buy worth was $17 million and the typical cap price over the lease time period is eight.four% very accretive for our shareholders. Convergys Corporation occupies 100% of the area and is the second largest supplier of enterprise course of outsourcing options within the U.S.
Our acquisitions group has been putting vital focus on buying properties in progress markets. The hallmark of our persevering with excessive occupancy stays and goes to proceed stay thorough tenant credit score underwriting and the mission important nature of the property.
Location can also be necessary. In closing transactions in progress market results in properties in land constrained places additional time and hopefully subsequent will increase in property values that may profit our shareholders. Over the previous two years, to advertise this technique, we have invested in Phoenix, Salt Lake City twice, Denver 3 times, Dallas 4 occasions, Austin, Atlanta twice, Indianapolis, Columbus Ohio twice, and Minneapolis.
The final 4 acquisitions have been in Atlanta and Salt Lake City, two markets through which we want to improve our focus. Our asset administration staff continues to be busy leasing our out there area. As famous, we elevated our occupancy in our Minneapolis constructing by executing a brand new lease for 13,000 sq. ft bringing the occupancy to about 80% within the property.
We additionally elevated the occupancy in our Maple Heights, Ohio, warehouse facility by executing a brand new lease for 40,000 sq. ft bringing that occupancy to about 93%. We solely have one vacant property remaining at the moment and that is our property in Eastern Massachusetts an 86,000 sq. foot freezer cooler industrial facility, and we’ve got three full constructing prospects right now for that property.
We have efficiently prolonged all of our leases that have been initially set to run out in 2016 aside from a 2,900 sq. foot workplace area in our multitenant workplace property in Indianapolis. In complete for 2015 and 2016, we efficiently concluded 16 of 18 lease expirations, and in doing so transitioned to actually a full service actual property working firm reflecting a capability to execute efficiently in each part of the property’s lifecycle. My many because of our asset administration, acquisition, and capital groups working collectively to realize these successes.
We bought one property and have 4 further properties underneath contract on the market as a part of our capital recycling program. These belongings are thought-about non-core in our efforts to maneuver out smaller single asset markets and redeploy the proceeds in our goal places. The higher information for our general progress technique is that solely four% of forecast rental revenue is expiring over the subsequent 4 years by way of 2019 throughout a interval that we anticipate the business goes to expertise headwinds sooner or later.
So our money rents will probably be secure and rising and our occupancy ought to stay excessive even when financial circumstances deteriorate. This is a vital reality for our shareholders, as nearly all of our friends have a minimal of 25% and as excessive as 54% of their leases expiring throughout this similar interval.
The majority of our capital availability will probably be used to pursue progress alternatives as a result of we don’t anticipate assembly vital capital for tenant enhancements and leasing commissions to retain tenants or to launch vacant area or to fund working deficits.
Danielle, our CFO, goes to increase upon our refinancing actions however I feel it is necessary to notice that our refinancings proceed to decrease our mortgage-to-worth, decrease our annual curiosity prices, and the quantity of debt maturing reduces via 2017.
So in abstract, we acquired one other property in Salt Lake City, leased vacant sq. footage, refinanced maturing mortgage debt at decrease rates of interest, and refinanced maturing time period debt by way of decrease value most popular.
Organizationally, we accomplished the redesign of our web site which offers larger info for our buyers, analysts, funding gross sales, and leasing professionals. And our staff continues to have a robust pipeline of acquisition candidates, and can adhere to our technique of solely buying properties in progress markets which might be accretive to our operations.
Now let’s flip to Danielle Jones, our Chief Financial Officer, for a report on the monetary outcomes.
Danielle Jones
Thanks, Bob, good morning everyone. We proceed to have a robust stability sheet as we systemically develop our belongings and focus on reducing our leverage. We have lowered our debt-to-gross asset degree to 54% from 57% on the finish of 2016 via refinancing maturing mortgage debt at decrease leverage ranges. We anticipate to proceed this technique over the subsequent a number of years. We proceed to make use of our line our credit score to make acquisitions that we consider could be financed as longer-time period mortgage debt that we consider are good additions to our unsecured property pool.
Long-term mortgage debt continues to be obtainable however at barely greater charges than we skilled throughout 2015. The yield on the 10-year treasury has been very risky regardless of the Federal Reserve’s efforts to boost rates of interest; the yield on the present 10-year treasury is 90 foundation factors decrease than it was originally of 2015. Since the start of 2016, the yield on the 10-year treasury has been as excessive as 2.2% and as little as 1.three%.
This volatility has been pushed by international uncertainty, questions relating to the power of the financial system, and the Federal Reserve Bank’s said want to extend rates of interest. In response to the volatility, CMBS lenders turned a much less dependable supply of mortgage financing as they improve the unfold to which they have been prepared to make loans. The banks have additionally widened their spreads by 10 to 25 foundation factors and the life insurance coverage corporations have reintroduced for us. Banks particularly try to maneuver into the vacuum left by the CMBS lenders.
The CMBS mortgage originations down by greater than 40% yr-to-date, the life insurance coverage corporations and banks have turn into extra selective in figuring out which properties they’ll finance. However rate of interest nonetheless stay attractively low and we proceed to actively attempt to match our acquisitions of value efficient mortgages.
Depending on a number of elements together with the tenants credit score fee and property sort location, the phrases of the lease leverage and the quantity and time period of the mortgage we’re usually seeing fastened rates of interest starting from four.6% to about 5%. To this finish, we repaid $26.2 million of maturing mortgage debt this quarter by refinancing $9.5 million with new variable fee mortgage debt with an rate of interest cap on one in every of these properties and two different beforehand unsecured properties and the rest was borrowings beneath a line of credit score and money on hand.
The weighted common rate of interest on the maturing debt was 6.three% and the speed on the brand new mortgage debt is about three.2% as we speak, over a three% lower within the mortgage debt that was repaid. Over the previous 18 months we’ve refinanced $105 million of debt with $53.1 million of latest debt at a brand new weighted common rate of interest of two.84%. Prior to the refinancing mortgages had a weighted common rate of interest of 5.83%.
The mixed refinancing will scale back our annual curiosity expense by roughly $three.1 million and that’s straight to the underside-line.
Looking at our upcoming maturities we now have remaining balloon principal funds on two mortgages of $21 million payable within the fourth quarter of 2016.
We anticipate with the ability to refinance these loans with a mixture of latest mortgage debt and fairness. The weighted common rate of interest on the 2016 debt is four.54% and whereas our rates of interest might improve, we nonetheless anticipate to realize at the very least 100 foundation level rate of interest discount once we refinance these loans.
We even have $61 million of mortgage debt maturing in 2017. So weighted common rate of interest on this debt is 6.1%, so once more we anticipate to have the ability to obtain higher charges that may go straight to the underside-line. We are targeted on our technique of decreasing our leverage by decreasing our weighted common mortgage to worth on each newly issued debt and refinanced debt. We have decreased our mortgage to worth from a excessive within the mid 60s in 2009 to 54% as we speak.
Turning to fairness. We raised, as Bob talked about, about $25 million of the 7% most popular fairness in our new Series C. We used the funds to redeem $25 million of our 7.125% Series C time period most popular that was maturing in January of 2017. We have introduced that we’ll redeem the remaining $13.5 million of the Series C time period most popular in mid-August.
We additionally put an ATM program in place on the Series C. We now have ATM packages on our widespread inventory and our most popular inventory. We raised each widespread and most popular fairness through the quarter for an combination of $eight.7 million beneath each of those packages. We use these funds for our new acquisition, refinancings, and constructing and tenant enchancment at sure of our property.
As of as we speak our out there liquidity is roughly $31.6 million comprised of $three million in money and an obtainable borrowing capability of $28.6 million beneath our line of credit score. With our present availability and entry to our ATM packages we have now sufficient availability to fund our present operations, offers in our pipeline, and any recognized upcoming enhancements at our property.
Now I am going to talk about the working outcomes for the quarter. All per share numbers are referenced are absolutely diluted weighted common widespread shares. Core FFO out there to widespread stockholders was $9.three million or $zero.39 per share for the quarter which elevated barely from the primary quarter. Our outcomes have been impacted by a rise in rental revenues from releasing vacant area coupled with decrease property working bills from elevated occupancy and a lower in curiosity expense from the decrease rates of interest achieved in our refinancings. This was partially offset by a rise in most popular dividends paid in the course of the quarter because the Series D most popular charges closed on the finish of May and the Series C most popular shares weren’t redeemed till finish of June.
We encourage you to additionally assessment our quarterly monetary complement posted on our web site beneath shows which offers extra detailed monetary and portfolio info for the quarter.
While we proceed to have challenges as we work on debt maturities and the headwinds from the worldwide macro financial circumstances, we consider we’ve the proper workforce in plan and place to reposition and proceed our progress actions. We are assured of the rest this yr and into 2017 we might be profitable as we proceed to extend our asset and fairness base and reduce our leverage. We are targeted on sustaining our excessive occupancy.
And now I am going to flip this system again over to David.
David Gladstone
Okay, thanks very a lot. Good report, Danielle, good ones from Bob Cutlip and Michael LiCalsi too. Just to reiterate in abstract the actual massive issues that occurred this quarter we acquired a brand new property for $17 million, raised $25 million in new everlasting most popular and redeemed $25 million of time period most popular inventory. On leasing vacant areas we proceed to extend the general occupancy, we renewed all the 2016 leases apart from small workplace lease leaving solely about four% of the forecasted rents expiring till the start of 2020.
We refinance maturing loans at decrease rates of interest and positioned ourselves for extra progress. We’ve continued so as to add high quality actual property to the portfolio and positive if the prevailing properties. As lots of you understand, we did not minimize the month-to-month money distribution through the recession that was fairly a hit story as we watch most of the good corporations that reduce their distributions, most of them have by no means recovered from the dividend that that they had again on the unique degree.
We’re on a fantastic place to not have issues if the financial system hits the skids once more. Here is what we’re doing right now. We want to extend the widespread inventory market capitalization so as to improve the buying and selling quantity, to offer a few of the institutional buyers who need to purchase a variety of the inventory the power to try this. The institutional consumers all the time need to know the variety of shares excellent, so in the event that they purchase $10 million to $20 million value of our inventory then they know there can be sufficient liquidity, in the event that they need to promote.
We nonetheless do not have sufficient shares excellent to offer them that confidence. However we have been persistently constructing our belongings and fairness base and we have truly doubled the dimensions within the final 5 years. With this progress, we hope to see extra consumers coming into the inventory and will hopefully assist improve the worth to decrease value of capital for us; that is a key factor that we have all the time been working for is getting the inventory worth again up.
We raised extra most popular inventory within the Series D that has a 7% yield and we’ve a brand new webpage at www.gladstonecommercial.com that explains the popular. We can’t redeem this new most popular for no less than 5 years and we intend to scale back our Series C most popular to zero in August. Continue to have a promising record of potential high quality properties that we’re eager about buying. Because of this record of properties we anticipate to proceed the expansion in belongings throughout 2016. With the rise of properties means far more diversification and we consider a greater earnings and please know that the worth that you need to pay as we speak to get good buildings with good tenants continues to be very excessive they usually yield very low, so we’ve got to be very cautious and ensure we do not attain for a transaction.
We are focusing our efforts on good lengthy-time period properties. We put financing in place to match these lengthy-time period leases. We would like to lock within the lengthy-time period financing and that permits us through the 2016 and 2020 time interval, we solely have four% of the forecasted rents coming in due and we now have ample time to lease these up in the course of the subsequent 4 years. I forecast we’ll ultimately get to 100%.
We’re rather more optimistic at present that issues are going to be constructive to us. We really feel actually good concerning the future, a lot of the economic base and the companies that lease industrial and workplace properties like those we’ve got stay regular and most of them are paying their rents. And as you understand, we have now a terrific credit score underwriting group that underwrites our tenants and contemplating the monitor document because the tenant paying the lease, I feel the longer term is vibrant. This is a robust underwriting staff that is stored us greater than 96% occupied since 2003.
While we’re optimistic of our firm, we shall be high-quality sooner or later I feel. Bob and I’ll proceed to be cautious in our acquisitions as we have finished prior to now years. We made it by means of the final recession about slicing the dividend and having a variety of issues from our tenants and if one other recession is lurking on the horizon, I feel our portfolio will proceed to face up towards that check.
Distributions earlier this month, the Board voted to take care of month-to-month distribution at $zero.125 per widespread share for July, August, and September for the annual run fee of $1.50 per yr. This is a superb engaging price for nicely managed REIT like ours, we now paid 138 consecutive widespread inventory money distributions and we went by way of the recession with out chopping any of our distributions and that is now greater than 13 years and that is only a fantastic monitor report.
Because the actual property could be depreciated, we’re capable of shelter the revenue of the corporate and return signifies that we’ve a return of capital of final yr was 79% on the widespread inventory, this can be a tax pleasant inventory, if you wish to put it in your personal private account relatively than our tax deferred like an IRA or KEOGH. The return of capital is especially because of the depreciation of the actual property belongings and different gadgets and it is brought on earnings to stay low after your subtract the depreciation. That’s why we all the time speak about core FFO as a result of that is including again the actual property depreciation. After all depreciation of a constructing is mostly a fiction sense on the finish of the depreciation interval, the constructing continues to be standing. So should you personal inventory in a traditional time and account versus having in an IRA or retirement plan, you do not pay any taxes on that half that is sheltered by the deprecation as that is thought-about a return on capital.
IRA, as you all know, return on capital does scale back your value foundation within the inventory which can end in a bigger capital good points tax once you promote the inventory. The inventory closed yesterday at $17.80. The distribution yield is about eight.45% now, super yield, NAREITs are buying and selling at a lot decrease yields now, the triple internet REIT enterprise which we’re thought-about a part of is at four.7%. So if our inventory is buying and selling at that yield, our inventory shall be priced at over $31 per share.
So there’s loads of room for enlargement of the inventory-based mostly on the triple internet REIT inventory costs. Even if it moved down to six% that may have the inventory worth at $25 and we now have been over $20 up to now. My guess is that as buyers proceed to find our firm and we’ll see the worth of the inventory improve within the yield consistent with the opposite REITs. There is just no cause that I can consider for REIT to commerce in such a excessive yield given the monitor document and the previous lack of leases coming due.
I do know analysts all the time speak about, we’re externally managed. However being externally managed permits us to entry a staff of credit score underwriters in contrast to some other managed REIT on the market, excessive occupancy degree is a testomony to the entry we now have to the credit score underwriters, and we’ve additionally carried out an evaluation of the price to function REITs and we are not any larger than any of the opposite REITs whether or not it is internally managed or externally managed.
And people we have been reducing our leverage each quarter, you assume with the power that we now have, we would not — we might need to leverage up as a lot as attainable however we’re decreasing our leverage, we’re now closing in on 50% leverage that is about $1 of fairness for excellent for all of the buildings that we personal. And given the monitor report of regular revenue for the final 13 years that quantity of leverage to me could be very conservative.
Our Board will vote in mid-October in the course of the common scheduled quarterly board assembly on the declaration of the month-to-month distribution to our October, November, and December and so prepare for that.
Now we could have some questions. So Andrew if you’ll come on, we’ll get some questions from our stockholders and analysts for this excellent REIT.
Question-and-Answer Session
Operator
[Operator Instructions].
We shall be taking our first query from the road of John Roberts with Hilliard Lyons. Your line is open.
John Roberts
Just needed to get somewhat extra shade on kind of your anticipate — I feel Bob made some $300 million in potential acquisitions kind of in your pipeline. I am simply making an attempt to get a greater really feel on what quantity you anticipate probably closing for the rest of the yr?
David Gladstone
Okay, Bob he’s going to take over that.
Bob Cutlip
Hey, John.
John Roberts
Hey, Bob.
Bob Cutlip
How are you doing?
John Roberts
I am going nice, how are you?
Bob Cutlip
Pretty good, actually fairly good. You know I am all the time optimistic however like proper now we’ve got one property that’s in due diligence. We have and that is about between $22 million and $24 million. We have two different properties in letter of intent stage that’s in extra of $30 million. One of these is what I might think about to be a completed deal as a result of it is an enlargement of an present facility that we have now subsequent Mercedes-Benz Assembly plant in Alabama and we now have one other property in letter of intent stage in Phoenix, Arizona, that is additionally within the excessive 20s.
So I am inspired however one of many issues we’re discovering, John, is that we have been amazed [ph] on various properties and abruptly they’re coming again to us and our leaders within the area notably within the Mid-West and the Western area are seeing a bit of little bit of cap price enlargement in a few of the markets not all of the markets however in a few of the markets that we’re taking a look at.
So we’re nonetheless being just a little cautious however as you’ll be able to see we’re seeing properties just a little bit larger in volumes than we have had up to now. We’ve averaged about $16 million to $18 million for acquisition over the previous three to 4 years and now we’re within the low to mid 20s, which is considerably encouraging to me as we get bigger. So I can not offer you a full particular quantity on it however you possibly can see from the pipeline past simply the preliminary assessment we now have, we now have a variety of belongings which are wanting fairly good for closing between now and doubtless the start of the fourth quarter.
John Roberts
Super. Had some nice shade. The different factor I simply needed to ask, you checked out any clearly your little capital constraint at this level. Are you taking a look at any non-conventional capital?
David Gladstone
No, John we’ve not checked out something non-conventional we both do most popular or widespread when it comes to capital. So we do not.
John Roberts
Not taking a look at convert, is there something alongside that line David?
David Gladstone
No, I feel we will increase just about all the popular we need to at this time limit at 7 and sure we might get just a little bit lower cost if we went to converts simply have not checked out that I feel the inventory goes to bounce up fairly fast.
John Roberts
Great, okay thanks.
David Gladstone
Next query?
Operator
[Operator Instructions].
We have a query from the road of John Massocca from Ladenburg Thalmann. Your line is open.
John Massocca
The query on for the collection of the termed — the collection you time period most popular are you able to give any colour on the way you guys plan on taking off the rest of the stability there?
David Gladstone
Yes, we’ve got actually robust line of credit score. So we’re additionally within the market with our ATM program, aftermarket program and its producing fairly good success proper now on this new most popular that we now have. The establishments are liking the thought which you could’t pay it again or cannot redeem it for 5 years. So we’re getting fairly good transactions there and the widespread inventory appears to be going very properly. So between the widespread inventory, the popular inventory, and our line of credit score we will simply take out $13 million.
Danielle Jones
And David simply add on this, John that is Danielle, we have truly already put our intent to redeem that’s we’re planning to redeem that on August 19 then we’ve got present availability to go forward and do this.
John Massocca
Okay, that is sensible. And then touching perhaps extra to the tendencies entrance, what are the plans for the proceeds or the — or belongings are at present underneath contract to be bought?
Bob Cutlip
Well it might be a mixture of the — of use for working capital and as David and I’ve talked prior to now, we’re getting out of those smaller markets in order that we will redeploy the capital into our goal markets. So for instance the 4 properties that we’ve got underneath contract proper now, proper now these proceeds can be used for the acquisition that we’re planning in Florida and the opposite one which we’re wanting as partial anyhow and in addition to one in Phoenix.
So we’re not in any massive rush, John, as a result of you understand most of those properties we have already been via renewals, they usually’ve been by means of the recession, so they’re robust corporations however simply over time we expect placing our capital in these goal markets goes to enhance our working efficiencies and in addition over time as we do exit a few of these we shall be promoting three to 5 belongings which can end in cap fee compression as in comparison with one-off in small markets. So it should be a piece in progress, no massive rush however it might be was redeployed in these goal replacements.
John Massocca
That makes loads of sense. And then a fast detailed query, it look like there’s another revenue that got here on this quarter that was tied to the Newberry property?
David Gladstone
Danielle what’s that?
Danielle Jones
So that was a tenant that vacated that property, it was some settlement revenue we acquired, there was some points with some deferred upkeep and capital, so we reached the settlement with them. And a part of it was the repairs about $800,000 for repairs and the surplus of it which is what you see within the different revenue line was thought-about legal settlement revenue. So it is a one-time factor.
John Massocca
So that is utterly one-time.
Danielle Jones
Yes.
John Massocca
That makes a variety of sense. Thank you very a lot everybody.
David Gladstone
Okay. Any different questions?
Operator
We have a query from the road of Larry Raiman from LDR Capital Management. Your line is open.
Larry Raiman
Thank you. Good morning and good job on the quarter and the decision. A fast query once more almost about your core portfolio, might you describe what proportion of the tenants on lease had stipulated lease bumps and do you account for that on a straight line foundation. I am simply making an attempt to get on the core portfolio progress, if no transaction exercise was finished, what is the embedded progress within the portfolio?
David Gladstone
Bob?
Bob Cutlip
Hey, Larry, all of ours have stipulated rents, lease progress. We have a number of properties which might be CPI associated however most of them are between 2% and three% and sure Danielle can could also be add to this however we do account for them in a straight line foundation.
Danielle Jones
Yes that is right. They are all accounted on a straight line foundation. So when transit rental revenue progress can be on progress from our portfolio.
Larry Raiman
So to comply with-up, I recognize that and thanks for that reply there. On a reported foundation, the place you are reporting core FFO and FFO that’s straight line your money circulate on a comp foundation could possibly be totally different and could possibly be rising the place as a core might not since you already accounted for the straight line acknowledgement of that lease. Would that be truthful to say?
Danielle Jones
That’s truthful, sure.
Larry Raiman
And could also be that could possibly be useful for buyers to see that money move development along with the reported core and primary FFO quantity not simply to make it too complicated nevertheless it may assist each the embedded money move progress within the portfolio.
Bob Cutlip
That’s a great level Larry and as well as as a result of we — as a result of we actually on each deal we do, we do secured fastened fee debt and we’ve got locked in that return and that improve in money circulate yr-over-yr as in comparison with if we had variable fee debt in a rising rate of interest surroundings. So that is why we’re very excited concerning the subsequent three to 4 years with only a few leases rolling and our money, money revenue goes to be rising yr-over-yr as a result of we have locked within the debt value.
Larry Raiman
Okay. Thank you after which only one ultimate comply with-up and I’ll again to the ground for anybody else. So there is a query and that’s on the debt abstract, only a comply with-up and simply you remark, you might have fastened price financing after which additionally variable price financing with caps, might you describe the proportion of that breakdown fastened fee versus variable with caps?
Bob Cutlip
Danielle can we all know the quantity?
Danielle Jones
For our complete portfolio, I might say a lot of the variable fee is on the refinancings we’ve finished prior to now 18 months. So I might say perhaps $55 million to $60 million of our complete mortgage debt is variable fee however once more all of them have rate of interest caps that caps on, it’s sometimes LIBOR plus 2.5, 2.25 to 2.75 after which we, we put three% curiosity cap on the LIBOR one there.
Larry Raiman
Okay. So will the remaining 90 — so these $530 million of debt, about 10% is the variable fee with the cap the remaining is fastened price financing?
Danielle Jones
Yes that is ballpark quantity however that is right sure.
Bob Cutlip
All proper, subsequent query?
Operator
I’ve no different questions within the queue right now. But I’ll give another name for questions. [Operator Instructions].
And I am not getting any additional questions; I’ll flip the again over to Mr. Gladstone for closing remarks.
David Gladstone
All proper, thanks, Andrew, and thanks all for calling in. That’s the top of this name.
Operator
Ladies and gents, thanks once more on your participation in right now’s convention. This now concludes this system. And chances are you’ll all disconnect right now. Everyone have an incredible day.
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Gladstone Commercial (NASDAQ:GOOD): Q2 FFO of $zero.39 in-line.
Revenue of $21.25M (+2.7% Y/Y) beats by $zero.15M.
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