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Gladstone Commercial Corp (GOOD) Q2 2019 Earnings Call Transcript

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Gladstone Commercial Corp (NASDAQ: GOOD)
Q2 2019 Earnings Call
Jul 31, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

David Gladstone -- Chairman and Chief Executive Officer

Hello, this is David Gladstone, and we don't have an introduction because they're having some kind of fire at the place that's handling this, but Sydney was on and she's very good at giving introductions and we always enjoy this time that we have with you guys and wish there were more times to talk like this. We're going to start-off with Michael LiCalsi, our General Counsel and Secretary, who give the legal and regulatory matters concerning this call. Michael?

Michael LiCalsi -- General Counsel and Secretary

Thanks, David, and good morning. Today's report may include forward-looking statements under the Securities Act of 1933, 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, which we believe to be reasonable. 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 you can find in our Forms 10-Q, 10-K and other documents that we file with the SEC.

Those can found on our website, specifically the Investor Relations page www.gladstonecommercial.com. or 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. And today we will discuss FFO, which is, funds from operations. 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 core FFO, which adjust FFO for certain other non-recurring revenues and expenses. We believe this is a better indication of our operating results and allows better comparability of our period-over-period performance.

Please take the opportunity to visit our website, once again, gladstonecommercial.com, sign up for email notification service. It can also be found on Facebook, at keyword the Gladstone Companies, and on Twitter to handle there 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, both of which were issued yesterday for more detailed information. Again you can find those on the Investor Relations page of our website.

With that, I'll hand the presentation back over to Gladstone Commercial's President, Bob Cutlip. Bob?

Robert Cutlip -- President and Executive Managing Director

Thanks, Michael, and good morning, everyone. During the second quarter, we acquired a two-building 383,000 square foot industrial portfolio in Ocala, Florida, acquired a 54,400 square foot industrial property in Columbus, Ohio, acquired a 676,000 square foot industrial property in Tifton, Georgia. Executed a lease amendment to expand our anchor tenant in an Indianapolis office property, resulting in a fully leased building, executed both our lease amendment with our existing tenant and a new lease in Salt Lake City, increasing the occupancy of the office property of 100%, held 16 meetings every week with investors, coverage analysts and lenders. Refinanced $21.5 million in mortgage debt and approached our long term leverage target with our book leverage totaling 45.6%.

Subsequent to the end of the quarter, we acquired 78,500 square foot industrial property in Denton, Texas. We catch company's line of credit and term loan and entered due diligence for the acquisition of a 211,000 square foot industrial property in Denton, Texas. As these activities reflect our team had a very busy second quarter. As noted on our first quarter call we're beginning to enjoy the benefits of our team's focused efforts across all functions to improve operating results. This has been accomplished through three major activities; number one we acquired accretive assets. During the period from 2012 through 2018 the average GAAP cap rate on acquisitions of approximately $105 million per year was 8.7% with mortgage debt placed at a 4.6% interest rate. Number two, we renewed expiring leases and we released vacant space. We maintained occupancy greater than 96% during the highest leases expiration period in company history. And number three, we refinanced maturing mortgages at lower leverage levels. We've lowered our leverage from a high of 63% in 2013 to 45.6% as of the end of the second quarter.

The results of these efforts equate to increasing cash flow year-after-year and an improved capital structure as we approach $1 billion in total assets. And the outcome of the recent recast of our line of credit in term loan inclusive of adding additional syndicate partners further demonstrates the improvement in our operating position, which we believe will create opportunities for growth. Mike is going to expand upon the characteristics of this recast shortly.

Our investment and asset management activities continued to generate positive momentum for our operations during the quarter. We acquired a 383,000 square foot two-building industrial portfolio along the I75 quarter in Ocala, Florida. The transaction is a 20 year sale lease back. The acquisition price was $19.1 million and the going in and GAAP cap rates are 7% and 7.7% respectively. We also acquired a 54,400 square foot industrial property in Columbus, Ohio. The acquisition price was $3.1 million, the going in and GAAP cap rates 7.5% and 7.9% respectively, and the remaining lease term is seven years.

The size of the land parcel enables us to nearly double the size of the building, offering long term flexibility for our tenant. We concluded the quarter by acquiring a 676,000 square foot industrial property in Tifton, Georgia. The acquisition price was $17.7 million and the going in and GAAP rates are 8.5% and 8.9% respectively. The remaining lease term 8.5 years. The tenant chose this location along the I75 quarter due to its proximity to the port of Jacksonville, where imports inventory and exports product to international customers. In addition, the tenant was able to get the property designated as a foreign trade zone to gain beneficial tax treatment of its operations and streamline the customs process. All of these characteristics serve to solidify their commitment to the property. Subsequent to quarter end, we acquired a 78,500 square foot industrial building in Denton, Texas. The acquisition price was $6.5 million and the going in and GAAP cap rates are 6.4% and 7.1% respectively. There are 12 years remaining on the existing lease and we did just close this property yesterday. We have also entered due diligence for a 211,000 square foot industrial property along the I-35 quarter north of Austin, Texas. This transaction is expected to be structured as a 20 year sale leaseback.

Our asset management team continued to deliver on renewal and releasing efforts. With our Midwest team, expanding the anchor tenant in an Indianapolis office property by 9,000 square foot to increase their position to 89% of the 87,000 square foot building. The tenant also extended their entire lease through 2031. This transaction also brought the total occupancy in the building to 100%. This success reinforces the viability of our anchored multitenant strategy, that we initiated five years ago. Our Mountain West team leased 24,000 square feet in a Salt Lake City office property, increase in the occupancy to 100%. The existing tenant expanded by 17,000 square feet and the balance of the space was leased to a third party. Tenant improvement costs for the entire 24,000 square feet totaled just $3 per square foot.

Anticipating that many on the call are interested in lease expirations through 2020. I wanted to offer the team's thoughts for your information. During the remainder of 2019, we have three leases expiring, representing $2.4 million of annual GAAP rent, $2.1 million of this total expires on December 31. One tenant has formally notified us that they are vacating at the end of the year and we are actively marketing the space and have prospects at the property, which is located at Tulsa's Inland port.

During 2020, we have eight leases expiring, representing $8.8 million of annual rent. $6.9 million of this total expires the second half of the year. Two tenants have formally notified us that they are vacating the premises and we are marketing those spaces now each of which has active prospects. We're in conversation with the balance of the tenants and are hopeful of positive incomes with renewals. For GM with a lease expiration date of August 31, 2020, we are pursuing two separate scenarios. They renew their lease? Or they vacate all for a portion of the space. They are not required to provide notice to us until December of this year. Therefore, we have begun to actively planned a really similar by preparing space design concepts for a multi tenant or full building user and or engaging the market to identify potential tenant prospects and to validate current market rents and tenant improvement requirements. This information is going to be helpful for either renewal negotiations or a newly scenario. I think it's interesting to note that our GAAP rent at the property of $14.50 per square foot compares favorably in the submarket with current space offerings in the low-to-mid $20 per square foot on a triple net basis.

As it relates to growth opportunities and our strategy we have noted an increase in activity and sales listings as of late. Our current pipeline of acquisition candidates is approximately $260 million in volume, representing 17 properties, 13 of which are industrial of this total, approximately $55 million is either in the letter of intent or due diligence stage and the balance is under initial review.

As noted previously, we have made a conscious effort to increase our industrial allocation. Our focus is in fully developed industrial parks, with properties that are 50,000 to 300,000 square foot in size 24 to 28 foot clear heights in the warehouse. Ample trailer parking and occupied by middle market non-rated tenants. A tenant profile which we believe and our history represents we can underwrite with our proven credit underwriting capabilities.

The larger properties are trading well above replacement costs in several markets, and we do not believe that is an appropriate strategy for us. To show evidence of this strategy from the last week of September through the end of June, just over nine months, we have acquired $95 million of profits. 80% of this volume or $76 million dollars were industrial properties.

And in the second quarter alone, our investment volume was $40 million, all of which are industrial. The properties are located in our target locations and the average GAAP cap rate over the nine month acquisition period is 8.2%. We believe this shift to increase in the industrial allocation of our portfolio will result in a long term benefits of lowering tenant improvement costs, reducing the intensity of our property management activities and improving operating efficiencies.

So in summary, our second quarter activities continued our acquisition and leasing success, refinance maturing loans, issued equity through our ATM program is positioning us well to pursue growth opportunities.

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

Mike Sodo -- Chief Financial Officer

Good morning. I'll start by reviewing our operating results for the second quarter of 2019. Our per share numbers I referenced are based on fully diluted weighted average common shares. FFO and core FFO available to common stockholders were both $0.38 per share for the second quarter and $0.77 and $0.78 per share respectively for the first half of 2019. This performance demonstrates the accretive yet prudent growth of the company has completed in recent years, as well as the performance of the in-place portfolio inclusive of maintaining 99% occupancy. In addition to these accretive deals, our same-store cash rent growth was 2% in the second quarter of 2019 as compared to the second quarter of 2018. As Bob mentioned prior to 2018, core FFO hovered in the $1.50 to $1.54 per share range for the past number of years. As we de-levered the balance sheet and addressed lease rollover. 2018 results demonstrated our highest core FFO per share in the company's history and we intend to continue to grow profitability for our shareholders, as well as increasing the industrial allocation of the portfolio. Our second quarter results reflect an increase in total operating revenues to $28.2 million as compared to total operating expenses of $19.1 million for the period.

Now let's take a look at our debt activity and capital structure. We continue to enhance our strong balance sheet as we grow our assets and focus on decreasing our leverage, reduced our debt-to-gross assets by nearly 15% to 45.6% over the past five years, through refinancing maturing debt and financing new acquisitions at lower leverage levels. We believe that we are 1% to 2% away from our target leverage level, which means that nearly all raised equity going forward will be allocated to a creative acquisitions.

As we've discussed this with analysts, investors and lenders, we believe there is agreement that this will put us at the proper leverage level going forward. We continue to primarily use long-term mortgage debt to make acquisitions. As we grow through disciplined investments, we also look to expand our unsecured property pool with additional high quality assets. Over time, we expect this to increase our financing alternatives. As we continue to manage our balance sheet, we've repaid $55 million of debt over the past 24 months, often with new long term variable rate mortgages at interest rates equal to the one month LIBOR plus a spread, ranging from 2.5% to 2.75%.

We 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 with an 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. As Bob mentioned we amended, extended and upsized our existing revolving credit facility in term loan on July 2.

This highly efficient execution was well supported by not only our existing lending group, but also with the additions of Goldman Sachs and Wells Fargo. We believe this continues to speak to the growth of the company and balance sheet enhancements that have been achieved, as well as the long term prospects for further prosperity with incremental bank backing going forward.

The combined facility was increased by $100 million to $260 million, with the term loan being the majority of the facility at $160 million, including a delayed draw component. The entire facility was extended for nearly two years with a 10 basis point rate improvement. Our term loan borrowings continue to be hedged with LIBOR cap rates or rate caps in the 2.5% to 2.75% range.

Looking at our debt profile and with the credit facility recast complete 2019 loan maturities are very manageable with only $18 million coming due in a number of these loans having extension options. Further, we have less than $25 million of mortgages maturing in each of 2020 and 2021. We have continued to proactively manage and improve our liquidity and maturity profile over time. Depending on several factors, including the tenants, credit, property type, location, terms the lease, leverage and the amount and term of the loan. We're generally seeing all-in rates on refinance and new acquisition debt ranging from the high 3% to mid 4% range.

We continue to minimize our exposure to rising interest rates with over 90% of our existing debt being fixed rate or hedged to fixed to interest rate swaps and caps. We've remained active in issuing our common stock using our ATM program. During the second quarter and net of issuance costs we opportunistically raise $19.2 million through common stock sales. On a year-to-date basis, we raise in excess of $35 million. While we continue to view the ATM as an extremely efficient way to raise equity, we continually keep our assessment of the relative value of our common stock as compared to trading prices in mind as we determine when to raise capital.

As of today, we have $2 million in cash and $41 million of availability under our line of credit. With our current availability and access to our ATM programs, we believe that we have significant incremental flexibility to fund our current operation, 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 during the remainder of 2019 and beyond, as we continue to increase our high quality asset base and continue to improve our metrics, including core FFO and leverage. We're focused on maintaining our high occupancy with strong credit in real estate with minimal near term lease expirations along with manageable loan maturities are deployment of capital will be heavily focused on high quality real estate acquisitions with strong credit tenants.

Institutional ownership of our stock increased by more than 15%, since the beginning of 2016 to 56% as of June 30. Bob and I continue to be active in meeting with current and potential institutional investors, portfolio managers, investment banks and the like. We look forward to further engaging with not only our existing investor base lenders and coverage analysts, but also establishing new relationships as the company moves forward to its next chapter.

Now I'll turn it over to David.

David Gladstone -- Chairman and Chief Executive Officer

Thank you, Mike. That was a good report and good report from Bob and Michael LiCalsi as well. So we've informed our shareholders very well. This is a very, very nice quarter. A lot of things going on. We acquired a portfolio in Ocala, Florida and got a nice industrial property in Columbus, Ohio, and another one in Tifton, Georgia. And thank all of the lease amendments that are going on now, Indianapolis, for example, is resulted in a fully leased building in both of the -- executing both of these lease amendments with our tenants and new leases in Salt Lake City, that means that one is now fully leased refinance $21.5 million and mortgage debt. I think a very important event happened this quarter, we have a new line of credit for the business now. And the significance here is not so much the rates, it's the strength of the liquidity that we have in places, all of you know, when a recession hits liquidity is the key topic. So now we have some protection there.

We continue to believe that we have a good list of quality properties, good tenants, expected number of acquisitions over the next two to three quarters. We've reached a point which is a significant one, that we've now reduced the leverage in the portfolio to a point that we don't need to use new money or money coming in to reduce our leverage further. So we're in a position to put all of our new equity into new tenants and new properties. And I think that's a significant change in the marketplace.

Middle market businesses today. As many of you know, the tenants are doing fine, tenants are paying their rents and the middle market of the United States is very strong. In July, the board voted to maintain a monthly distribution of $0.125 per common share for July, August and September, that's an annual run rate of a $50 per year. This is a very attractive rate for, well, manage REIT like ours. We believe the excellent investment for individuals that want monthly income. I know you want to know when we're going to increase the distributions and I hope we can discuss a small increase in the next two board meetings. We've now paid 174 consecutive common stock cash distributions and we went through the past recession 10 years ago without cutting any distributions, we want to maintain that record.

The stock closing Wednesday at $21.36. The distribution yields about 7%, many REITs are trading at much lower yields. The general trading area today for REITs is about 4.45%. And if we were trading at that, that remain the stock would be at $33 per share. I think we've got a lot of room for expansion of the stock price to be closer to the REIT industry stock average.

Okay. Let's stop here and have some questions. Operator, I don't know, Sydney, whether the fire alarm has stopped in your place, but it has. Would you come on and tell them how to ask questions?

Questions and Answers:

Operator

Yes, of course. Thank you. [Operator Instructions] And our first question comes from Barry Oxford with D.A. Davidson. Your line is open.

Barry Oxford -- D.A. Davidson -- Analyst

Great. Thanks, guys. You guys were moving along it from an acquisitions side very slow pace. But then this quarter, you know, again, a very nice pace. And then when you guys talk about the future again, you know what you guys done subsequent to the quarter and what's in the pipeline. So I guess my question really revolves kind of what's changed kind of in the last 90 days that you guys are seeing in the marketplace?

David Gladstone -- Chairman and Chief Executive Officer

Well, the year started off very, very slow, we could not find deals that made any sense at all. The buyer seller disconnect was pretty strong. Second quarter beginning at the end of the first quarter into the beginning of the second quarter, we saw a lot more listings. I think it was just a delay from just the listing standpoint. As you saw there, you know, we think we've got a pretty strong pipeline right now, but it's still very competitive. I mean, in reading from RCA Real Capital Analytics, they've indicated that during the first six months of this year, the industrial listings are down compared to the same period last year. But they still say that, you know, overall, 2019 should be like 2018.

So we're just cautiously encouraged that we're going to continue to see these deals. And as you know, our deals really run more from $5 million to $20 million, not the larger deals. We think, we can compete so much better there in our market. So hopefully this will continue.

Barry Oxford -- D.A. Davidson -- Analyst

Great. Great. And then with the ATM and the pipeline, $250 million that you alluded to. Is the ATM enough to keep you guys at a leverage neutral basis?

David Gladstone -- Chairman and Chief Executive Officer

Yeah, Barry, I think for the normal ones and twos and those acquisitions that are sub $25 million to $30 million , the ATM is sufficient that I have visibility as they come down the pike to source the requisite equity to fund those deals, you know, to the extent we contemplate any acquisitions north of that level or if we have multiple acquisitions that hit within a 30 to 45 day window, then subject to where the share prices, we would contemplate optionality via overnight or follow on. But, you know, we can course correct as we go in terms of whether that's fully ATM or bifurcated between ATM any type of offering activity.

Barry Oxford -- D.A. Davidson -- Analyst

Got you. Perfect. I appreciate that, Mike. I'll yield the floor. Thanks so much.

David Gladstone -- Chairman and Chief Executive Officer

Thank you. Next question.

Operator

Thank you. And our following question comes from Robert Stevenson with Janney. Your line is now open.

Robert Stevenson -- Janney -- Analyst

Good morning, guys.

David Gladstone -- Chairman and Chief Executive Officer

Good morning, Rob.

Robert Stevenson -- Janney -- Analyst

Can you talk a little bit about the where for the 11 leases that you have expiring over the next 18 months where the expiring rent is versus market. And is there any of those leases that the triple net lease on our ending basis is going to be materially above market?

David Gladstone -- Chairman and Chief Executive Officer

Let me address the largest one first. GM, as I indicated, our current GAAP capital -- our current rent GAAP rent is $14.50 a square foot and deals have been done in the market in the mid 20s on a net basis. And so I think, we're still going to be waiting until we will hear from GM. But in that case, I think without a doubt we would have an uptick in the rental rate. When I think about the others it's interesting, this year so far we have had a flat renewal, all of our renewal stayed at the same kind of GAAP rental rate. Last year we had a 6% increase over the expiring rents. So, if I had to handicap this, I would say that we are probably looking at no more than probably, let's say minus 3% to plus 3% on the GAAP rent over the next 12 to 18 months. We do have one lease, though, that I think, and I will address that one. That's the one at the end of the year, which is at that Tulsa Inland port where I think we may have as much as an 8% to 10% reduction in the cash rent, which will probably turn out to be about 3% to 4% maybe 5% reduction in the GAAP rent.

Robert Stevenson -- Janney -- Analyst

Okay. And then how are you guys thinking about the office portfolio as a potential source of capital going forward? I mean, is that your intent at this point to, sell selectively, sell in greater chunks, maintain it. I mean, how should we be thinking about that and how are you guys sort of evaluating the potential of asset sales versus raises under the ATM?

David Gladstone -- Chairman and Chief Executive Officer

I think any dispositions at this point are going to be really selective and they're going to be focused as much as we've talked in the past on single property markets that are more, let's say, tertiary in nature whether it's office or industrial. We're not going to abandon the office market. You know, our intent is to increase the allocation to industrials so that we get actually a swap to where we are today. We're at maybe 65%-35% and we'd like to change that around. And it's going to take us probably three years or so. But I think in the markets where we attack and we acquire, which are not -- aren't those fully developed submarkets. I think we'll be successful.

Robert Stevenson -- Janney -- Analyst

Okay. And then lastly, on the Austin industrial field, that you are under due diligence, I mean, that's a pretty hot industrial market. I mean, was this something that you guys sourced, you know, through relationships or something that's allowing you to get to a cap rate that makes sense for you guys versus what one of the bigger players or a private equity could wind up paying?

David Gladstone -- Chairman and Chief Executive Officer

It was through a broken relationship with Buzz Cooper, who runs our South Central region. And this is a manufacturing facility and it just still happens. And I think this goes back to our history of working with PE companies. We came to know this PE company quite well and even through our other sister funds and talking with other people, we got very comfortable with the owner as well as with the tenant in the long term viability of the deal. And so -- and manufacturing is probably also moves a little bit toward a higher cap rate -- fewer distribution place.

Robert Stevenson -- Janney -- Analyst

Okay. Thanks, guys. Appreciate it.

David Gladstone -- Chairman and Chief Executive Officer

Thank you. Other question.

Operator

And our following question comes from Henry Coffey with Wedbush. Your line is open.

Henry Coffey -- Wedbush Securities -- Analyst

Yes. Good morning, everyone. Would that potential headwind in terms of the impact on GAAP rents that you discussed. What are the real drivers to getting FFO up over $0.40, which obviously would be a big part of being able to increase the dividend? Is it the other -- is it going to be more properties and better leverage and essentially accretive acquisitions? Are there other aspects on the property management cost that you can better leverage and improve efficiency there? Or is there contrary to what you said -- are the new assets you're going to have room for rental increases? What are the -- what's the equation that gets us over $0.40?

David Gladstone -- Chairman and Chief Executive Officer

I think it's accretive acquisitions just what transpired during this quarter. The acquisitions that we did equate to about $3.3 million in annual rent, but a lot of that occurred near the end of the quarter. And with the pipeline, the way it's set up and I think if interest rates continue to stay in, as Mike indicated, the high 3s to mid 4s on margin and we can continue to do 8% to 8.3%, 8.4% GAAP rent. That's what's going to deliver the increased FFO per share. I think one of the characteristics of the net lease business is, when you're doing seven to 10 year leases, you typically are going to be going through a recession. And if you have contractual rent increases as we do, which is 2% to 3%. If you go through a recession. There's going to be some discount to the market rent in some markets, but that's why we're focusing right now all of our acquisitions and growth markets, because with growth markets, you still have a much more stabilized situation. So, Henry, I think the focus primarily is accretive acquisitions at our lower debt costs, which I think improve our margins.

Henry Coffey -- Wedbush Securities -- Analyst

When we read this one other question, when we read real capital analytics as well as we did actually did a virtual call -- conference call on this with a couple of commercial real estate broker originators. Everybody sees industrial as just a hot -- hot area, lots of transaction, lots of activity. Is that an opportunity for you all? Or do you see that more as a problem that the supposed enthusiasm over industrial properties?

David Gladstone -- Chairman and Chief Executive Officer

We've made a commitment that our size range for industrial properties is going to be somewhere between 50,000 and 300,000 square feet. And if you look at a lot of the national brokerage firms as to what has been the largest amount of transaction velocity, it has been in the under 200,000 square foot range. The big boxes have kind of slowed a bit. And because of our ability to go into these developed submarkets whereby there's very limited land. Most of these properties are 24 to 28 foot clear the real load. Some of them are cross stock and front loader.

But a lot of them are middle market tenants. And that's where our strength plays. And I think in reading a lot of research about what's going to happen with home delivery. I mean, one research report indicated that home delivery could increase as much as 50% to 70% over the next three to four years. That only means more interest in that last mile type of industrial property and that's where we can play. We're not going to be playing in the 600,000 to 1 million square footers for the most part. We're going to be playing in those more developed markets where we have the credit underwriting capability and now also the real estate knowledge to buy in the right locations with the right configurations.

Henry Coffey -- Wedbush Securities -- Analyst

Great. Thank you very much.

David Gladstone -- Chairman and Chief Executive Officer

I'm encouraged about it. I think we have a great long term play in that size of the industrial market.

Henry Coffey -- Wedbush Securities -- Analyst

Thanks, everyone.

Michael LiCalsi -- General Counsel and Secretary

Keep telling David, you want to stay conservative on the dividend. And David, keep telling the guys you want to see them grow the FFO and we'll all succeed. So great quarter. Thank you.

David Gladstone -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And our following question comes from Craig Kucera with B Riley FBR. Your line is open.

Craig Kucera -- B Riley FBR -- Analyst

Hey, good morning. I wanted to circle back to get a little more detail on the lease expirations that you're aware of over the next couple of years. Is the building in Tulsa, I guess first, what is the square footage of the rent currently at that building. And is that an office building? Or some other type of a building?

David Gladstone -- Chairman and Chief Executive Officer

It's at the -- the port there in Tulsa, it's an industrial building and we're working with the port authority there. In fact, we have two very strong prospects for the entire building. It's over 300,000 square feet. I don't have the market rent right now, but I believe it's about its north [Phonetic]. Anthony, you might correct me, is a little over $7 a square foot. But since there are very, very few, there's no other building at the port that has 100,000 square feet of availability. And so that's encouraging to Buzz Cooper, who's leading that region, as well as Perry Finney, who's his Senior Asset Manager on the deal. So we're cautiously encouraged that we're going to be able to lease that. But as I indicated, I think, I think the rents good could drop 5% to 10%. I mean, I'm just being transparent about what I think the market conditions are.

Craig Kucera -- B Riley FBR -- Analyst

Got it. And who is the current tenant there, that it's vacating?

David Gladstone -- Chairman and Chief Executive Officer

[Indecipherable]

Craig Kucera -- B Riley FBR -- Analyst

And just so I understand, based on your commentary on renewals, the lease expansions you had this quarter, were those effectively at flat rents with where the existing tenants were at?

David Gladstone -- Chairman and Chief Executive Officer

Yes. Yes. The new lease in at Morgan Stanley, that Morgan Stanley building in Salt Lake City. That new lease is at about a $1.5 below where the original rent was. What transpired is that which is amazing is that Morgan Stanley came to us. They had a right to terminate part of their lease. They vacated 24,000 square feet. So we then put it on the market. And then when we started getting walk-throughs in the building, they came back and said that they wanted to take back 17,000 square feet. And so they took this 17,000 square feet back. And, but then -- other tenant, which was 6,000 square feet, their rent is about a $1.50 to $2 per square foot, less on 6,000 square feet.

Michael LiCalsi -- General Counsel and Secretary

But I think a real takeaway there, Craig, is that 23,000 square feet did not participate in Core FFO during the second quarter, so 17,000 of that, is going back online and being released in third quarter in July. And then the remaining 6,000 that [Indecipherable] mentioned to they are occupying in September.

Craig Kucera -- B Riley FBR -- Analyst

Got it. And as far as the leases expiring next year, I think you mentioned two of eight where you'd already been notified excluding GM. Can you give us a sense of the size of those, whether it's the rents or the square footage that you're aware of that's expiring next year?

Michael LiCalsi -- General Counsel and Secretary

I can give you the building size. I can probably also give you the rent on their both office buildings. The rent on a 90,000 square foot office building is $16 a square foot and then on a 74,000 square foot building, the rent is $1,095.

Mike Sodo -- Chief Financial Officer

[Speech Overlap] Yes, so we're pretty encouraged we're starting to see a number of prospects for both of these properties. And they're both in Minneapolis.

Craig Kucera -- B Riley FBR -- Analyst

Great. And one more for me, I think, you know, we were looking for you guys to close on about one $150 million of acquisitions for the year, you had a pretty nice step up here in the second quarter. Are you feeling like that's a pretty reasonable assumption for the year? Or is that, you know, given the size your pipeline make you feel differently about what you might close in the second half of the year?

David Gladstone -- Chairman and Chief Executive Officer

No, I think Mike and I truly believe we're going to be in the $110 million to $120 million range, maybe peaking at $125 million depending upon what happens over the next 60 days. But I'm encouraged a bit about the listings. We'll just have to see how it plays out over the next 60 to 90 days.

Craig Kucera -- B Riley FBR -- Analyst

Okay. Thanks.

Mike Sodo -- Chief Financial Officer

Thanks, Greg.

David Gladstone -- Chairman and Chief Executive Officer

Next question.

Operator

Thank you. And our following question comes from the line of John Massocca with Ladenburg Thalmann. Your line is now open.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

David Gladstone -- Chairman and Chief Executive Officer

Good morning, John.

John Massocca -- Ladenburg Thalmann -- Analyst

Just one kind of quick follow up on the tenant move outs. What's kind of maybe the expected downtime on the 2019 move out that you already know about?

Mike Sodo -- Chief Financial Officer

On the 2019 or 2020?

John Massocca -- Ladenburg Thalmann -- Analyst

Yes, 2019.

Mike Sodo -- Chief Financial Officer

2019 the only, the move out that we have are one that just took place on June 30th, which is a 64,000 square foot office property in Charlotte, and then the other move out is the one at the end of the year with that property in Tulsa, which is the 300,000 square foot industrial property at the port.

John Massocca -- Ladenburg Thalmann -- Analyst

And just kind of -- as you look at that, maybe, well, what do you think the downtime could potentially be on both of these assets?

Mike Sodo -- Chief Financial Officer

Well, on the office property, you know, if I knew that, I probably would be doing something else. I think on the office property, we're probably looking at a fourth quarter, we have two very strong prospects for the entire building. And then one prospect for half of the building, that's the office property. And we're waiting on feedback from a proposal that we have sent on that property. And then the property at the end of the year Buzz Cooper and his team believes that we really will have limited and maybe no downtime on that property at the end of the year. Right now, we're forecasting that property will be leased during the first quarter of 2020.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then in terms of kind of maybe just the top line rent number. I was all surprised that rent only increased $60,000 quarter-over-quarter, given the kind of amount of acquisition activity you guys completed in both 1Q and 2Q in the timing, particularly of the Ocala acquisition. Well there's something that's maybe within that rent number, that we're not seeing today because of the accounting changes that caused 2Q '19 to be lower versus run rate or 1Q '19 to maybe be elevated versus run rate? How should we view is kind of the rent on a go forward basis?

David Gladstone -- Chairman and Chief Executive Officer

Well, speaking specifically to the only $60,000 top line increase, John, you know taking your point, obviously the signature brands acquisition in April, materially contributed to it -- being a $380,000 to property portfolio, but that was offset by the contract -- the interim contraction at Morgan Stanley. Again, that's not participating in top line revenue at the end of February. So, on that total square foot, is the 23,000 square foot. We locked for the quarter, call it, 160, 170 [Phonetic] grant of rent and again, that'll come back on and Q3 in two different stages. That was also the increase from signature brands has also mitigated by the disposition of our non-core single storey office building, in Maitland, Florida that took place in the first quarter.

So, I would say it was more so specific to some acute events and onetime events, but for southwards, going away, appreciating now Morgan Stanley, we'll be back. Signature brands will continue to participate in the fourth quarter. And the audio acquisition we closed on June 18, just didn't have enough time to participate in that top line revenue, but when we get into a full three month cycle in Q3, that $17.5 million acquisition will materially participated in it with a quarterly rent of $400,000.

John Massocca -- Ladenburg Thalmann -- Analyst

Very helpful. And then lastly, on the acquisition side of things, within kind of your industrial targeted acquisitions, how are you looking at maybe manufacturing versus warehouse and distribution? And are you seeing any kind of the additional cap rate you can get on manufacturing assets that might make them look relatively attractive?

David Gladstone -- Chairman and Chief Executive Officer

Yeah, I truly believe, John, that we are receiving, you know, a higher cap rate on the manufacturing and its stick your real estate. So we really like that because typically they have invested a lot of money into the property, and with their workforce right around that area, it's unlikely for them to leave. So we you know, if I look at what we have acquired in the last nine months, over two-thirds of that is primarily manufacturing and I like that. I think it's in our business. If I were in the multi-tenant business where I'm, you know, value add I might like distribution more, but I think in our business, we are a long term holder, we like the manufacturing play and we do. We will get -- we do get higher cap rates in manufacturing.

John Massocca -- Ladenburg Thalmann -- Analyst

Understood. Thank you. That's it for me.

David Gladstone -- Chairman and Chief Executive Officer

Next question.

Operator

I'm showing no further questions at this time. I would now like to turn the call back to David Gladstone for closing remarks.

David Gladstone -- Chairman and Chief Executive Officer

Okay. Thank you all for tuning in. Hope you see what a good quarter we've put up for this last quarter. I think the quarter ending September 30 will be another good quarter. So that's the end of this call. I'll turn it back to Sydney.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

David Gladstone -- Chairman and Chief Executive Officer

Michael LiCalsi -- General Counsel and Secretary

Robert Cutlip -- President and Executive Managing Director

Mike Sodo -- Chief Financial Officer

Barry Oxford -- D.A. Davidson -- Analyst

Robert Stevenson -- Janney -- Analyst

Henry Coffey -- Wedbush Securities -- Analyst

Craig Kucera -- B Riley FBR -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

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