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Edited Transcript of GOOD earnings conference call or presentation 29-Apr-20 12:30pm GMT

Q1 2020 Gladstone Commercial Corp Earnings Call

McLean May 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Gladstone Commercial Corp earnings conference call or presentation Wednesday, April 29, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David John Gladstone

Gladstone Commercial Corporation - Founder, Chairman & CEO

* Michael B. LiCalsi

Gladstone Commercial Corporation - General Counsel & Secretary

* Michael J. Sodo

Gladstone Commercial Corporation - CFO

* Robert G. Cutlip

Gladstone Commercial Corporation - President

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Conference Call Participants

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* Barry Paul Oxford

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Gaurav Mehta

National Securities Corporation, Research Division - MD & Equity Research Analyst

* Henry Joseph Coffey

Wedbush Securities Inc., Research Division - MD of Equities Research

* John James Massocca

Ladenburg Thalmann & Co. Inc., Research Division - Associate

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Gladstone Commercial Corporation's First Quarter Earnings -- ended March 31, 2020 Earnings Call and Web Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. David Gladstone. Thank you. Please go ahead.

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [2]

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Well, thank you, Jimmy, for that nice introduction, and thanks to all of you for calling in. This is David Gladstone, and we do enjoy this time we have with you on the phone. I wish you we were doing it more than just once a quarter. All the people here are healthy. We've got some people working from home and some here in the office. We designated as an essential business, so we do have people working here in the office, and everything seems to be going fine.

So at this point, then I'll turn it over to Michael LiCalsi. He's our General Counsel and Secretary. He's going to give you a legal and regulatory matters concerning call in and the report. Michael?

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Michael B. LiCalsi, Gladstone Commercial Corporation - General Counsel & Secretary [3]

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Thanks, David, and good morning. 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 and uncertainties that are based on our current plans 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 that we include in our forms 10-Q, 10-K and other documents that we file with the SEC. To find these on our website, which is gladstonecommercial.com, specifically, it's on the Investor Relations page on the SEC's website, which is www.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.

Today, we will discuss FFO, which is funds from operations. And FFO is a non-GAAP accounting term, defined as net income, excluding the gains or losses from the sale of real estate and any impairment losses on property, plus depreciation and amortization of real estate assets. We'll also discuss FFO as adjusted for comparability and core FFO, which are generally FFO adjusted for certain other nonrecurring revenue 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.

We ask everyone to take the opportunity to visit our website, once again, gladstonecommercial.com. Please sign up for our e-mail notification service there. You can also find us on Facebook, keyword is The Gladstone Companies, and our Twitter handle is @GladstoneComps.

Today's call is simply an overview of our results, so we ask that you review our press release and Form 10-Q issued yesterday for more detailed information. Again, you can find them on the Investor Relations page of our website.

Now with that, I'll hand the baton back to Gladstone Commercial's President, Bob Cutlip. Bob?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [4]

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Thanks, Michael. Good morning, everyone. During the first quarter, we acquired 65,000 square foot industrial property in Indianapolis; acquired a 321,000 square foot 3-building industrial portfolio in Houston, St. Louis and Charlotte; acquired a 504,000 square foot industrial building in Chatsworth, Georgia; executed a lease amendment to extend a 100,000 square foot tenant in Denver, Colorado; extended the lease for a 78,000 square foot tenant in Springfield, Missouri; extended the lease for a 54,000 square foot tenant in Delaware, Ohio; and sold a noncore office property in North Carolina.

As noted on our fourth quarter call, our investment strategy is emphasizing an increase in our portfolio's industrial allocation, which, we believe, will improve our property operating efficiencies, reduce capital expenditure levels and potentially result in improved valuation over time. To that end, our industrial allocation was 33% on January 1, 2019, and has increased to 41% as of March 31, 2020. From January 2019 through March 2020, our investment volume was $201 million, all of which were industrial properties providing further evidence of this commitment. And our intent is to continue to overweight industrial acquisitions, market conditions permitting, of course, in the developed submarkets of our targeted locations. Our primary focus has been and will be acquisition candidates ranging in size from 50,000 to 300,000 square feet.

During the quarter, our investment in asset management activities continued to generate positive momentum for our operations. We acquired 5 properties, all industrial, equating to $72 million in investment volume. The transactions included a 65,000 square foot property in Indianapolis for $5.2 million with an average remaining lease term of approximately 7 years and a GAAP cap rate of 7.2%. A 321,000 square foot 3-building portfolio in Houston, St. Louis and Charlotte for $34.6 million with a lease expiration date of January 31, 2040, and a GAAP cap rate of 7.6%. And a 504,000 square foot cross-dock facility in Chatsworth, Georgia for $31.9 million with a lease expiration date of August 31, 2030, and a GAAP cap rate of 6.9%.

The first quarter investment volume is consistent with our strategy to continue to increase our industrial allocation. And the 65,000 square foot property also adds to our Indianapolis concentration. The 3-building 20-year sale-leaseback transaction are in markets we wish to increase our presence. And the Chatsworth property is at an inland port location in Northwest Georgia, which coincides with our desire to acquire industrial properties at these Class 1 railroad terminal locations in the eastern half of the United States.

Our asset management team continued to deliver on improving our same-store operations. Our South Central team extended the lease for our Springfield, Missouri 78,000 square foot office tenant through May of 2026. The tenant improvement package was $5 per square foot. Our Mountain West team extended the lease for our 100,000 square foot Denver office tenant through December of 2026. The tenant improvement allowance is $15 per square foot. And our Midwest team extended the lease for our 54,000 square foot Delaware, Ohio industrial tenant through February 2028 and no tenant improvement allowance was required. These combined efforts serve to increase the weighted average lease term on our entire portfolio.

And from an operations standpoint, our team is implementing energy savings improvements at 3 office locations in Ohio and Indiana. These programs require no capital expenditures by Gladstone, lower energy consumption in the states, upgrade building equipment and lower going-forward operating costs for our tenants. We plan to implement these energy savings projects at other locations as appropriate.

The onset of the COVID-19 virus has required increased emphasis on portfolio management. The company has successfully implemented a work-from-home arrangement for employees. However, our active tenant engagement program continues and is delivering positive results. With that emphasis on tenant credit, we have always engaged our tenants quarterly to discuss their recent financial performance, and this strategy has established strong ties with each of them. During this pandemic, we have appropriately increased our connections with our tenants.

Some interesting and favorable characteristics of our tenant profile were included in our business update press releases. First, 84% of tenant revenue is from tenants, on average, contribute 1% or less of company revenue. And the hospitality, oil and gas and airline industries comprise just 2.4% of annual revenue. The challenges arising as a result of the virus prompted us to immediately connect with all of our tenants, which we have completed. There have been, and we expect there will be, requests from tenants for rent deferral, and we will address them as we are notified by the respective tenant. Our strategy is to offer rent deferral, not rent abatement, to limit the deferral to a 1- to 3-month period, if at all possible, and require repayment of the deferred rent over a 6- to 12-month period. We will also attempt to include lease extensions and rental rate increases in the agreements. Now there is no doubt that each agreement will have unique business terms. However, the key objectives are to maintain or increase core FFO per share and to return cash flow to the proper previous level as soon as possible.

Specific noteworthy highlights of our team's rent collection performance through April are as follows. All cash-based rent for March was paid as scheduled. And approximately 98% of April scheduled base rent has been paid. The company granted rent deferrals to 3 tenants in April, representing approximately 2% of total monthly rental income. These tenants continue to pay partial rent. The deferrals range from 1.5 to 3 months, and the payback period ranges from 6 to 9 months. We continue to be in conversations with other tenants requesting short-term concessions and will report the results of those conversations as they evolve. And a number of tenants are taking advantage of the federal programs available to them, and we are hopeful of positive outcomes on their applications.

Anticipating that many on the call are interested in lease expirations through the beginning of 2021, I wanted to summarize the team's thoughts in our current activities.

At lease expiration on March 31, 2020, a tenant vacated a 74,000 square foot multi-story office building in Fridley, Minnesota, a suburb of Minneapolis. We have leased 50% of that building for a 10-year lease term with occupancy that commenced on April 1. We also have 2 10,000-square-foot prospects for the balance of the vacant space. We have lease amendments out for signature with our Raleigh, North Carolina tenant who occupies 2 adjacent properties, 100% of a 58,000 square foot office building and 20% of a 115,000 square foot industrial building. The balance of the industrial building is occupied by a single tenant under a long-term lease. The office lease will be extended for 5 years and the industrial lease for 1 year. No tenant improvements are required for the lease extensions.

As noted last quarter, GM is expected to vacate our Austin, Texas property at the end of August. Our active marketing of the property with the assistance from the local chamber of commerce has resulted in 2 prospects for the entire building and 2 additional prospects, each for approximately 1/3 of the building. It's interesting to note that our GAAP rent at the property of $14.50 per square foot compares very favorably in the submarket with current space offerings in the low to mid-$20 per square foot on a triple net basis. And for the balance of the expiring tenants through the first quarter of 2021, we are in active conversations and are hopeful of positive outcomes.

Market conditions are worthy of comment, particularly with the adverse effects from the onset of the COVID-19 virus. Economic forecasters are estimating that second quarter GDP may drop by double-digit numbers. This slowdown in economic activity will certainly impact our industry. Real Capital Analytics, a noted national research firm, stated that the buyer pool is shrinking for commercial properties during the first quarter. From 2016 to 2019, the U.S. market saw, on average, 2,100 unique buyers each month. This number reduced during the first quarter and is estimated at 790 buyers in March. This will almost certainly have a dampening effect short term on investment sales volume as we enter the second quarter. In addition, conversation with investment sales professionals indicate that cap rates for industrial and office properties appear to be expanding in a number of markets, which could be positive long term for everyone. East Coast ports have reported that they are expecting import volumes for the first half of 2020 to be as much as 10% below the levels for the same period in 2019. They are expecting import volumes to expand in the third and the fourth quarter.

We will continue to monitor the evolving market conditions, and we'll adjust our strategy accordingly. And as it relates to growth opportunities, investment sales listings have been moderated, driven primarily by the effect of the virus. Our current pipeline of acquisition candidates is approximately $255 million in volume, representing 18 properties, 16 of which are industrial. Because of the stay-at-home directives in many states, a number of these properties are currently in a hold position, but with some of the states opening up soon, we believe that, that hold position will move to more positive condition soon. Our team is staying actively engaged in the markets as we do believe acquisition opportunities will arise that we can and will pursue.

So in summary, as one may conclude, our entire team across all our disciplines are contributing to our success and overall stability. Our first quarter activities reflected strong acquisition results and leasing success, refinanced maturing mortgages, issued common equity through our ATM program and collectively positions us well to pursue growth opportunities.

Now let's turn it over to Mike for a report on the financial results.

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [5]

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Good morning. I'll start by reviewing our operating results for the first quarter of 2020. All per share numbers I reference are based on fully diluted weighted average common shares. FFO and core FFO available to common stockholders were $0.39 and $0.40 per share, respectively. This performance demonstrates the accretive yet prudent growth that the company has completed in recent years as well as the performance of the portfolio in place. In addition to these accretive deals, our same-store cash rent continues to grow at 2% on an annualized basis. With a number of years of improving the balance sheet behind us, including deleveraging the portfolio and substantial acquisitions, both at the end of 2019 and the early part of 2020, we're excited about the prospects to grow profitability for our shareholders as well as increasing the industrial allocation of the portfolio.

As Bob laid out, our team is actively engaged with every tenant of ours as we intend to maximize shareholder value through and beyond the COVID-19 pandemic. We're pleased with the team's and portfolio's performance through April, but these are unchartered times, which we will continue to navigate together. Our first quarter results reflected an increase in total operating revenues to $33.6 million as compared to total operating expenses of $24.1 million for the period. We continue to enhance our strong balance sheet as we grow our assets and focus on decreasing our leverage. We've reduced our debt to gross assets by nearly 15% to 46% over the past 5 years through refinancing maturing debt and financing new acquisitions at lower leverage levels. We believe that we are 1% to 2% away from our target leverage level, which means that nearly all raised equity will go toward accretive acquisitions. We continue to primarily use long-term mortgage debt to make acquisitions. As we grow through disciplined investments, we'll also look to expand our unsecured property pool with additional high-quality assets. Over time, we expect this will increase our financing alternatives.

As we continue to manage our balance sheet, we've repaid $63 million of debt over the past 24 months, often with new long-term variable rate mortgages at interest rates equal to the 1-month LIBOR plus a spread ranging from 2.5% to 2.75%. We have placed interest rate caps on all new variable rate loans. We also added some of these properties to our unencumbered pool under our line of credit, whether in advance of permanent debt placement disposition or in an effort to provide more flexibility in the future by increasing the size of our total unencumbered assets.

Looking at our debt profile, 2020 and 2021 loan maturities are very manageable with only $7 million and $21 million coming due, respectively. A number of these loans have extension options. We have continued to proactively manage and improve our liquidity and maturity profile over time. We continue to minimize our exposure to rising interest rates with over 90% of our existing debt being fixed rate or hedged to fixed through interest rate swaps and caps.

We've also been extremely active in issuing our common stock using our ATM program. During the first quarter in net of issuance costs, we opportunistically raised $28 million through the common stock sales at an average net share price of $21.22. This meaningful and extremely cost-efficient means of raising capital demonstrates investor demand for our stock in normalized economic times and was extremely well-timed prior to the outbreak of COVID-19. All the equity was raised in January, which is, of note, as it resulted in a onetime drag on core FFO of nearly $100,000, as it supported all first quarter acquisitions, including the March $32 million acquisition in Georgia. This drag clearly will not exist in the second quarter and forward.

In total, our fourth quarter and first quarter ATM equity raise activities fully supported the nearly $135 million of acquisitions we've made between November 1 and mid-March. Also, as mentioned on our last call, we did successfully issue our Series E 6 and 5/8% perpetual preferred in October, totaling $69 million outstanding, using the proceeds to redeem our previously existing Series A and Series B perpetual preferreds. The dividend savings from redeeming these securities equates to an excess of $400,000 a year. We believe these capital markets transactions continue to speak to the growth of the company and balance sheet enhancements that have been achieved as well as long-term prospects for further prosperity with incremental bank backing going forward and access to more efficient capital.

As of today, we have $3 million in cash and $29.5 million of availability under our line of credit. With our current availability, the strong performance of our portfolio and access to our ATM programs, we believe that we have significant incremental flexibility to fund our current operations near and long term, properties we are underwriting and any known upcoming improvements at our properties. We encourage you to also review our quarterly financial supplement posted on our website, which provides more detailed financial and portfolio information for the quarter.

We feel good about continuing to execute our business plan as we continue to manage our existing portfolio, increase our high-quality asset base and continue to improve our metrics. We're focused on maintaining our high occupancy with strong credit in real estate. Institutional ownership of our stock has increased over time to 56% as of March 31. Bob and I continue to be very active in meeting with our current and potential investors, portfolio managers, coverage analysts, investment banks and the like. We look forward to establishing new relationships as the company moves forward to its next chapter.

Regarding the common stock dividend, we did increase it in the first quarter, and while the increase was small, we have also announced that we are leaving the dividend as is in the second quarter. We have not cut or suspended the dividend since our IPO in 2003. Our stock closed yesterday at $16.05. The distribution yield on the stock is currently 9.4%. Many REITs are trading at much lower dividend yields.

And now I'll turn the program back to David.

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [6]

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Okay. Thank you, Mike. That was a good report. And Bob, you and Michael LiCalsi did a good report, too. I think we have not been hurt much by all the government regulations on this new virus that's out there. We had a nice quarter after all. And I think the quarter ending June 30 will be a good quarter as well. Heard a lot today. The team is hard at work. They acquired 5 industrial properties with good credit tenants. They collected all of the rents that were due in the first quarter and 98% of the April rents are in. We've got a few negotiated short-term rental deferrals. I think we'll collect those. And we've executed on several leasing initiatives, which I think will be strength going forward because they're good for us.

The commercial team is growing the real estate assets in the company at a really good pace. As you saw, we did a lot in this quarter just ending. The team is doing a great job of managing the properties that the company owns. Our team has some very strong professionals, and they continue to pursue the quality properties on the list of acquisitions that they're reviewing. Acquisition team is seeking strong credit tenants; they know great tenants make excellent investments. Our asset managers are actively managing. We are developing a good group of asset managers. And it's just a different environment now. But quite frankly, this seems like an excellent buying opportunity. So we're looking at everything that we see with the idea that in 6 months, we'll be all looking back and wish we'd done this or that. So we're making our statements now.

The middle market businesses, like many of our tenants in our buildings, they're challenged with the government restrictions related to the new virus that we have. But the tenants are paying their rents or committing to pay us if we deferred a little bit of it. These are times that have never been seen before. But our team is just first class, and I think they'll do a good job for us. So I'm going to stop here.

And Jimmy, would you come on and moderate so we can get some questions from the people out there listening to this.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Gaurav Mehta with National Securities.

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Gaurav Mehta, National Securities Corporation, Research Division - MD & Equity Research Analyst [2]

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First question on your tenants. I was hoping if you could break down what you're seeing or hearing from your office versus industrial tenants?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [3]

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We -- I mean, the comments and the receipt of requests have been more from the office side. What's interesting is that we're receiving requests that I think are valid requests from some of our more middle market companies who are needing requests, but we're also receiving what I would call opportunistic requests from very, very strong tenants. One of them told us that they sent this letter, this form letter out to 90 landlords. And of course, a multibillion-dollar company with over $1 billion in cash, we're not going to address those. But Gaurav, we have received more from office as compared to industrial. I don't know if that's going to change going forward, but we really have received nominal requests at this point.

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [4]

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Another question, Gaurav?

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Gaurav Mehta, National Securities Corporation, Research Division - MD & Equity Research Analyst [5]

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No. I had a follow-up on the GM. I think you talked about having multiple prospects for that building. Are those the same prospects that you were talking to that you talked about on the last earnings call? Or are these new guys that you're talking to?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [6]

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There's -- 2 of them are the same, and 2 of them are new. We did have a couple of, let's say, smaller tenants that were interested. They've gone quiet on us. One of the larger tenants is there in Austin. And the other one is in California, well-known name. In talking with the chamber and with our investment sales broker, if Governor Abbott does open up the state here soon, they expect to see activity pick up.

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Operator [7]

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Our next question comes from Rob Stevenson with Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [8]

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Bob, are you getting any additional term or rate or something else from the tenants in exchange for the deferrals, not only the couple that you've done thus far, but any ask going forward?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [9]

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We have been in negotiations with people who have wanted rent abatement. And for those, we have required extensions. Fortunately, the request was withdrawn. What we prefer, if we can, is to maintain the core FFO per share and to get the cash back as soon as possible. Many of the tenants are not really interested in doing extensions at this time. But if, in fact, any rent abatement is requested, there will be an extension so that we will maintain our FFO per share. I mean I'd love to do extensions. We have asked on each case. But with the 3 that we've done so far, they're just -- they're repaying within 6 to 9 months, and that is acceptable to us. But we'll see how it goes forward, Rob.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [10]

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Is there an interest charge on that 6 to 9 months?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [11]

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No.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [12]

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Okay. Mike, when you look at the cash and debt capacity, what's the liquidity today, a month after the balance sheet numbers? And how much of that are you guys willing to deploy into acquisitions in the next quarter or 2, given the likely state of the U.S. economy?

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [13]

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Sure. Rob, with respect to liquidity, as I made mention, on our revolver, we have $29.5 million of availability. We also typically carry $2 million to $5 million of cash. Today, we have $3 million. So we're in excess of $30 million of availability, as we think about obligations specific to the cash tax. As I made mention, we did repay mortgage subsequent to quarter end. So the only -- we only have $7 million of mortgages coming due in 2020. So we certainly can cover that. As to deploying capital into potential acquisitions, that's largely subject on cost of capital. Today, with our stock is trading north of $16, it's had a 9.4% div yield. As you know, we are generally doing deals at roughly 50% LTV. And there are pockets of debt capital that are still free. But with the 9.4% div, that's challenging. So what we've been guiding to is, with optimism, that we get to the back half of second quarter with much more normalized environment from a personal and professional basis as well as the stock market basis. So we real time course-correct for what makes sense for us from an investment strategy perspective, really on a daily basis.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [14]

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Okay. And then the covenant page in the supplemental was very helpful. So the tightest one looks to be the dividend payout. Is that covenant on a trailing 12-month measurement?

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [15]

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That's correct. Trailing 12, and it's at 95%. If you peeled it back, the last couple of quarters have been slightly below the 95%. So as we look at Q2 and Q3, we will have the benefit of 6 months of activity, sub-95%, but our aspirations are to continue to dial that number down over time.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [16]

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And how challenging in your conversations with the lender is it to get a temporary waiver on that if it was needed for a quarter or something like that, or 2?

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [17]

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Sure. We are very fortunate to have through April, a highly performing office and industrial portfolio. So I would not say those are top of mind discussions. But I will say that we are talking to the entire lending group, made up of 6 banks, and that went from 4 to 6 just last year, that refinanced, as we look back in the rearview, was a fantastic way for us to avoid any type of refi risk. I can't ever promise the future. But I think our lending group has been supportive in very challenging times in the past at a higher leverage level. And aspires to continue to be supportive, if we ever needed any type of modification. But to be fair, they're doing a hell a lot more hand-to-hand combat with retail, hospitality, et cetera.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [18]

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Okay. And then last one for me. Have you guys issued anything under the series F at this point?

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [19]

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Not to date. I would say, Rob, from a long-term perspective, we do not have significant desire to massively overweight on preferreds, although we will issue preferreds, traded as well as potentially nontraded. If you think about today, the common has a div yield of 9.4%, the Series F div yield is 8.1%. So if there was need for incremental capital, we could tap into it, but we have not to date.

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Operator [20]

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Our next question comes from Barry Oxford with D.A. Davidson.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [21]

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Just to build on Rob's question regarding the dividend, especially if you're pushing up against covenants and you have a high payout ratio, and you have a high yield at 9%, arguably, maybe you're not getting full credit in the marketplace, why not make an adjustment to that dividend. And David, if you want to comment, too, that would be great.

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [22]

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We don't cut the dividend. I own a lot of stock, and I don't -- I like my dividend.

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [23]

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Barry, specific covenant package as well as getting credit in the marketplace. To be fair, we are not really any tighter than we have been during my 3.5-year tenure here. So these numbers do not reflect anything that has been adversely impacted based upon the portfolio performance because, again, we've been highly performing. I think, again, we can never predict the future, but the aspirations are when we all get out from underneath this pandemic, that in a normalized environment, people will appreciate that we continue to be trading at a relatively significant discount even as compared to net lease peer set, and we will see a recovery in the share price. So today, we are pleased with the performance. It was just a matter of a few weeks ago where we had Board meetings and concurred to leave the dividend as is. You've heard David's comments as well. So understanding there are other people out there that out of need or strategically that are making cuts. That is not top of mind to us.

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Robert G. Cutlip, Gladstone Commercial Corporation - President [24]

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And to add another comment to that in conversations with some of my colleagues at Tier 1 banks who have been with me since I joined the company in 2012 and have seen how we have evolved through the years, they said, based on your history and what you have done, we don't think it's wise at this point for you to lower the dividend. And they said, if the economy completely falls apart, then you'll go with other people as they lower their dividend, you'll do the same. But they're telling me, Bob, you guys have come a long way, you're in a great position. The next couple of years ahead of you look very, very good. Why would you do that? So as David has said and Mike has reconfirmed, that's why at the last Board meeting, we said we're just holding the dividend.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [25]

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Right. No, I can appreciate all that. Bob just, again, just a little bit to acquisitions. You mentioned or you feel like that cap rates kind of have backed up a little bit. Are you -- is it more in the 25 or 50 basis point range?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [26]

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What we're hearing from investment salespeople is that industrial is anywhere from 15 to maybe 25, and office is anywhere from 30 to 50. That is predominantly more in the Midwest as compared to some of the southern markets. And of course, we're not actively pursuing the West Coast acquisitions. So they don't -- those expansions don't apply to the West Coast.

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Operator [27]

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Our next question comes from Henry Coffey with Wedbush.

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Henry Joseph Coffey, Wedbush Securities Inc., Research Division - MD of Equities Research [28]

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What are the bright spots and the dark spots inside this equation? Are there areas of your portfolio where because of shop-at-home as opposed to stay-at-home and the like and potential shortening of the supply chain, we're seeing some big positive moves? Are there areas, obviously, of your portfolio where there may be some clients that are going to suffer permanent impairment here?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [29]

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I think the ones that I would be most concerned with and -- are probably the retail, which is very small percentage, but we have some daycare centers that those people can't work. I mean, and they're in states where they're shut down right now. So if I had to think about a dark spot, I think it would be that. I think a -- maybe a gray spot that is not really dark, but we've got to watch the automotive industry. We got to see where that goes forward. Fortunately, one of our tenants is connected to the auto industry is doing the PPE equipment as well. And so that's encouraging. And 2 of the tenants are very large and they're stable. But we've got to watch that very closely because if it extends for the next 2 to 3 months on the auto industry not coming back, then I would be concerned there.

On the bright spot, I think, it sounds crazy, but this -- our middle market approach to the business, companies who have been in business a long time, they're not really huge assets. They're assets on the industrial side that are primarily under 300,000 square feet. Those are good going concerns. And I do believe with now some of the onshoring of manufacturing, it's not going to happen tomorrow, but we're starting to see some of these clients pick up more work in the future. That is programmed. It's not there now because things have slowed down for everyone. But I'm just cautiously optimistic that for the most part, that is going to be a bright spot for us. And we think, although it's not a bright spot today, as I've indicated in the past, and I indicated in the call today, we are very interested in the inland port expansion program that is taking place between the ports and the Class 1 railroads. With all the deepening of the ports on the East Coast and the shifting of some of the manufacturing from China to Singapore, Vietnam and India, and with the ability to do larger TEU ships up to 14,000, we think that we're going to be able to partner with these ports and Class 1 railroads at these inland port locations to acquire properties that are in our size. They're not going to be the large size. They're going to be transload facilities. They're going to be sale-leaseback opportunities. But there is -- that's kind of a silver lining that I'm looking at, Henry, right now.

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Henry Joseph Coffey, Wedbush Securities Inc., Research Division - MD of Equities Research [30]

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Is there anyone in your portfolio who's benefiting from all this shop-at-home distribution?

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [31]

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Yes. I think there's -- Henry, it's a mixed bag, but some of the people that are in our warehouses or last mile people as well as on the retail side where stuff comes in and then goes back out to the grocery store or wherever it's going, we've got some that are -- if you go to the hardware store today, and it's an independent, it's probably our group that's doing that. So you -- when you do an underwriting, you trace all the way back where the dollars are going to come from and why they're going to come. So whether you're doing an underwriting for a retail shop, we have -- what do we have 2 or 3 -- we have 2 or 3 -- we...

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [32]

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Walgreens.

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Robert G. Cutlip, Gladstone Commercial Corporation - President [33]

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Walgreens.

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [34]

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Three Walgreens. I mean, Walgreens is cranking along. They're not having a big problem because they're selling. And we have, as Bob mentioned, a couple of daycare centers, they're closed. So they've got no revenue coming in. And one of the reasons they're closed is because the state has closed them. But when they come back up, I don't know exactly that, but my guess is most families are getting a little tired at working and living together. And the day cares will fill up again. No guarantee of that, of course, but these are temporary things that are going on. We do 6 weeks or 8 weeks of this kind of stuff and then start to open up. I think people are getting bullish enough so that those will come back pretty quick. I can't predict the future and neither can anybody, but when we do an underwriting, if it has some question about where the money is coming from, we just don't do it. We're always looking for strength. So I think we're in good shape. And time will tell. We'll see next quarter, and we'll have gone through the most difficult period. That is the reopening period that we're going through now. And I think it's going to be pretty good.

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Henry Joseph Coffey, Wedbush Securities Inc., Research Division - MD of Equities Research [35]

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Well, thank you for your comments, and it's nice being with a company that has your history.

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [36]

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Well, we've been around for a while, and we've paid our dividend forever and a day, and there's no desire to cut the dividend even if it would make our financial numbers look stronger in a temporary way. We want to stay with our shareholders and pay them dividends.

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Operator [37]

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Our next question comes from John Massocca with Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [38]

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As you look at kind of the balance of properties that kind of aren't leased at quarter end, I mean, has the current kind of pandemic and also maybe the volatility in commodities impacted some of your potential re-leasing operations there?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [39]

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On the re-leasing side, John, is what you're talking about?

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [40]

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Yes, on the releasing side.

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Robert G. Cutlip, Gladstone Commercial Corporation - President [41]

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Yes. I think when I think of what we have vacant right now, Central to Northern Ohio has absolutely shut down. And we have 2 properties there that are partially leased because they're multi-tenant buildings, but they're not fully leased. And we've seen that activity drop. Minneapolis has come back. And in fact, as I indicated, we've re-leased 50% of the building that went vacant at the end of March and with 2 more prospects for that facility. And then there's another facility there in Minneapolis that the tenant is going to be vacating in the next, I think, 2 months -- or excuse me, next month, but we have 2 prospects. One is a charter school, which we're seeing a lot more interest in charter schools at some of these single-story offices that we have. But I think Central and Northern Ohio is going to be a difficult play for us. There's no doubt about it. We -- on the other side of it, have a property in Easton Commons in Columbus, and the anchor tenant there -- a tenant moved out at the end of last year and the anchor tenant has agreed to take the balance of the building. So I'm encouraged there. So it's kind of a mixed bag. It depends upon, I think, the specific location of the property. If it's not in a location where you have more of an urban mixed-use area on the office side, we will have difficulties. But as you can see from the ones we're now getting larger activities, if they're in stronger markets, we're seeing activity, and I don't believe we're going to have difficulty. As you know, my big elephant in this room is GM, and we've got to press that to get that to conclusion here over the next several months.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [42]

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Okay. Just as a reminder, is this -- that Tulsa asset still in your guys' portfolio and still vacant?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [43]

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Yes. Yes. We have -- that's the one in Port of Catoosa in Tulsa. Yes, it's still in our portfolio, and we do have a prospect for the entire building. It's on a shorter-term lease, but we're expecting an RFP for that in the next week or so.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [44]

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And no single asset though makes up a big percentage of the vacancy as it stands today, right? Obviously, it depends on [half of them and] that would be a significant portion.

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Robert G. Cutlip, Gladstone Commercial Corporation - President [45]

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Exactly. Every other one is around 1% or so or less.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [46]

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Okay. Digging a little deeper on the kind of portfolio as it stands today. On the industrial side, I mean, have you seen kind of a difference in impacts within your industrial assets with regards to, say, manufacturing properties versus what would be kind of categorized distribution assets? Has that been reflected in maybe deferral requests or just kind of overall sentiment as you've reached out to tenants? And then roughly, what is maybe the breakdown between those 2 categories as it pertains to, like, the size of your portfolio?

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Robert G. Cutlip, Gladstone Commercial Corporation - President [47]

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I would say one of our deferrals is a manufacturer just-in-time for an assembly plant -- assembly plant. And as I indicated, I -- depending upon how the auto industry goes, we have 1, 2, 3 assets up in the Detroit area that service General Motors and Ford. Those could be question marks for us. But I would say that if I had to split between distribution and manufacturing, I would say that we're probably 40% manufacturing and 60% distribution. And quite frankly, we've not received much -- very few calls. I mean most of the calls have been more on the office side than on the industrial side.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [48]

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Okay. That makes sense. And then switching gears to the balance sheet. Sorry if I may have missed this in the prepared remarks. But what is kind of the availability and maybe pricing on property level debt today that you're seeing?

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [49]

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Yes, sure. So single asset financing, we've seen as low as the high 2s to the high 3s. So about 100 basis point bandwidth, call it, 2.75% to 3.75% on the type of assets that we've been pursuing. Obviously, there are challenges today from a timing perspective, if not in other ways, in terms of getting that type of financing, John, I mean, practically speaking, it's a challenge to get an appraiser to go out and look at a property. But single-asset financing is very efficient. The dislocation on the equity side is more of the roadblock and obviously, we have our credit facility as well, which is very efficiently priced with material availability as well as an accordion feature that we could go back to talk to our lenders about.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [50]

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Okay. It sounds a bit like the -- any kind of restrictions on property level financing are almost more operational rather than a willingness for banks to lend. Is that a fair characterization?

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Michael J. Sodo, Gladstone Commercial Corporation - CFO [51]

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CMBS has been shut. But single-asset financing does exist. It is out there. And we've had those conversations. It is not our world today. But obviously, the investment-grade bond market has been open and has been the most efficiently priced market. High-yield is there. It's a little expensive. But yes, the short answer is there are alternatives and opportunities to borrow and some assets from the banks to lend.

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Operator [52]

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And I'm showing no further questions in the queue at this time. I'd like to turn the call back to David Gladstone for any closing remarks.

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David John Gladstone, Gladstone Commercial Corporation - Founder, Chairman & CEO [53]

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Well, thank you all for calling. I think we're in good shape today. Hopefully, our tenants continue to pay. We've had good luck with them so far. And I think this is a short-term problem, we'll turnaround strong as we get into the summer months. That's the end of this, and thank you all for calling in.

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Operator [54]

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Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program, and you may now disconnect.