David Gladstone - Chairman & CEO Michael LiCalsi - General Counsel, Secretary and President, Administrator Bob Cutlip - President Danielle Jones - CFO & Assistant Treasurer.

John Roberts - Lyons Capital.

Welcome to Gladstone Commercial Corporation Second Quarter Earnings Call and Webcast. [Operator Instructions]. I will now turn the conference over to your host David Gladstone. Please begin..

All right. Thank you, Torren that was a nice introduction and we appreciate all of you calling in. We really do enjoy these times on the phone, wish we had more times to talk. If you’re in Washington, DC area we’re located in the suburb called McLean Virginia and have an open invitation to stop-by and see us and say hello.

It's about 50 people here and we are a bigger team now and we’re always inviting people to come by and see us.

Some of the people here have dogs or they bring them to work so we have a few dogs here to greet you as you come in and now I will turn it over to Michael LiCalsi, he is a General Counsel and Secretary officer, also serves as President of the Gladstone Administrator which serves as an administrator to all of the Gladstone Funds and the related companies as well.

He will make a brief introduction and announcement regarding the legal and regulatory matters concerning the call.

Micheal?.

Good morning, everyone. The report that you are about to hear may include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regard to the future performance of the Company.

These forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable.

There are many factors that may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all the factors listed under the caption Risk Factors in our Forms 10-K and 10-Q that we filed with the SEC and those filings can be found on our website at gladstonecommercial.com and on the SEC's website at sec.gov.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. And in our report today, we also plan to talk about funds from operations, or FFO.

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 from the property, plus depreciation and amortization of real estate assets.

And the National Association of REITs or NAREIT, has endorsed FFO as one of the non-accounting standards that we can use in discussion of REITs. And please see our Form 10-K, filed yesterday with the SEC, and our financial statements for a detailed description of FFO.

And today we also plan to discuss core FFO today which is generally FFO adjusted for property acquisition costs and other non-recurring expenses. We believe this is a better indication of the operating results of our portfolio and allows better comparability of period-over-period performance.

And to stay up-to-date on our fund, as well as all of the other Gladstone publicly traded funds you can sign up on our website to get e-mail updates on the latest news and you can also follow us on Twitter, our username is GladstoneComps and on Facebook, the keyword, The Gladstone Companies.

And finally you can visit our general website to see more information at www.gladstone.com. In the presentation today is an overview and we ask you to read our Press Release issued yesterday and also review our Form 10-Q, for the quarter ended June 30, 2015. Both of these documents are on our website www.gladstonecommercial.com.

And now we will begin the presentation by hearing from our President, Bob Cutlip..

Thanks, Michael. Good morning everyone.

During the second quarter we acquired two properties and issued new debt on both of these properties, raised $12.1 million of common equity under the ATM program, modified one lease such as the anchored tenant will expand into the entire next year at the lease exploration of another tenant and refinanced $30.4 million of debt that was maturing in 2015 in a combination of new debt and equity.

Subsequent to the end of the quarter we also amended our fee structure to be more in-line with our peers, leased up partially vacant property located in Raleigh, North Carolina and acquired another property in Atlanta, Georgia for $13 million.

As you can see our acquisitions, capital and asset management teams all contributed to our success this quarter. We have another excellent quarter as we continue to increase our asset base by acquiring new properties. This is our 15th consecutive quarter of closing at least one new acquisition. We crossed the milestone and we now own a 101 properties.

We really are pleased with our activity and consistency and we continue to have a strong pipeline for acquisitions. Now for some details, during the quarter-ended June 30, we acquired two additional properties.

The first property is a 78,000 square foot office building located in Columbus, Ohio, the purchase price was $7.7 million, the average cap rate is 8.3% over the life of the 15 year lease. We funded this acquisition with cash on hand and issuance of $4.5 million of mortgage debt.

The building serves as the headquarters of a privately owned home based healthcare provider. The second acquisition is an 86,000 square foot office property located in Draper, Utah which is a suburb of Salt Lake City. The total purchase price was $22.2 million with an average cap rate of 8% over the life of a 6.5 year lease.

This is our first acquisition in Salt Lake City and we hope to require more assets in this market going forward. We funded this acquisition with cash on hand and issuance of $13 million of mortgage debt.

The tenant is EMC Corporation which is a leading technology company that develops, delivers and supports IT storage hardware and cloud computing software to customers literally throughout the world. Our property has won eight world-wide centers of excellence for EMC.

After the end of the quarter we acquired another facility which properties of 78,000 square foot office building located in Atlanta, Georgia, purchase price $13 million, the average cap rate is 9.9%. We funded this acquisition with cash on hand and issuance of $7.5 million of mortgage debt.

The tenant leased 55,000 square feet of the property for seven years and a remaining 23,000 square feet for 15 years. The tenant of this property is Delta Community Credit Union which is the 23rd largest credit union in the U.S. and the largest in the state of Georgia with 26 branches.

This property houses the flagship retail branch and also serves as an office location. Delta Airlines headquarters is located directly across the street from our property. Our acquisitions team has been placing significant focus on acquiring properties in secondary growth markets.

The hallmark of our continuing high occupancy remains and will continue to remain thorough credit underwriting and mission critical nature of the property.

However closing transactions in growth markets leads to properties in land constrained locations overtime and subsequent increases in property values which we believe will benefit our shareholders.

Over the past two years we have invested in Phoenix, Salt Lake City, Denver three times, Dallas four times, Austin, Indianapolis, Columbus, Ohio and Minneapolis. It's our intent to continue to come up with strategy going forward.

Shifting to our portfolio, as of today we have three vacant properties and two partially vacant properties representing less than 3% of our total annual rent. Our current occupancy is 97.9% and all tenants in our occupied buildings are paying as agreed.

The three for lease properties in submarkets of Minneapolis, Houston and Chicago are receiving considerable interest. We at this time we have prospects for all of the buildings but do recognize that the two properties located into smaller markets will be more of a challenge due to the smaller current leasing velocity in those markets.

Our asset management team has been quite busy year-to-date due to the existing leases and leasing our available space. We renewed approximately 155,000 square feet of office an industrial space at three of our properties at Minneapolis and Raleigh, North Carolina.

The tenant down sized in the Minneapolis property to 74,000 square feet from a 115,000 and extended for 7.5 years. The tenant in Raleigh renewed their entire lease in a 60,000 square foot office building and they also renewed 21,000 square feet in the adjacent 116,000 square foot manufacturing facility which they have previously fully occupied.

Their lease extensions are for five years. Nearly immediately thereafter Sumitomo Electric Corporation leased 87,000 square feet in the same manufacturing facility for 12 years bringing the property to 93% occupancy. Sumitomo's lease commenced at the same day at the first tenant downsizes in the building on August 1.

Also we might have find the lease with the anchored tenant occupying one of our properties located in Columbus, Ohio.

I wanted to remark on this transaction because as you may recall we’re acquiring on a very limited basis, properties that have a lead tenant in the majority of the building on a long term lease and the balance of the property maybe occupied by 2 to 4 tenants.

The intent is to enable the lead tenant to expand overtime in the same facility thus enabling us to retain the tenant and around income stream.

The anchor tenant in the Columbus property is currently occupying 92% of the building and the modification allows this tenant to expand into the remaining space currently occupied by another tenant whose lease expired in December for 2016.

The lease term for the expansion is [indiscernible] with our current lease and both leases expire on December 2023. We have thus converted a higher cap rate multi-tenant building into a single tenant net lease property. We continue to work diligently on the remainder of our leases that come due in 2015.

We originally had 12 leases expiring this year and we have successfully extend the leases for seven of these tenants. We’re negotiating our lease extension with an eight tenant and we have a ninth property in which we have signed a sale agreement to sell the property to a sub-tenant in the fourth quarter.

So we have three properties that are unresolved. Two of the tenants have moved out and we have been notified that other will vacant at the end of the year. To that end we’re aggressively pursuing new tenants for these properties and we’re currently negotiating a direct lease with a sub-tenant in the properties this tenant is vacating at year-end.

The three leases where we know the tenants are vacating comprise less than 3% of our projected 2015 rental income and one-half of this income does not expire until December 2015.

We have already commenced lease renewal negotiations with the three tenants that have 2016 explorations and have a fully executed letter of intent with one of the tenants to extend the lease for five years in the entire building.

And the expiring rents for the next four years ending 2019 represent less than 2% of annualized projected rents for each respective year. So after this year our lease roll-over slowed down dramatically and our existing portfolio will have stable and growing rental income.

And as I’ve noted in the past locating new tenants and signing leases with our existing tenants is going to require some capital [indiscernible] for tenant improvements and leasing commissions. We also entered into an amended and restated management agreement with our external advisor in order to be more in-line with other externally managed lease.

Danielle, will more fully explain this amendment in her segment of the presentation. So in summary at quarter-end all of our existing tenants are paying as agreed and our portfolio is 97.9% occupied. We acquired two properties during the quarter and continue to have a very active pipeline.

Our asset management team was also very busy renewing tenants and leasing our properties and our capital team would issue an equity and refinancing our maturing mortgage debts.

We have consistently increased our acquisition volume over the past three years and we currently have two properties totaling $17 million in due diligence and we have three properties totaling $22 million that are in the letter of intent stage and finally under initial review we had $225 million of properties that we’re investigating.

Our objective as I’ve indicated in the past for our size [ph] to have at least $250 million to $300 million in this pipeline of possible acquisitions with something in each phase from initial review through letter of intent and due diligence.

Our team continues to meet this objective and it has prospects in each phase which we hope is going to be lead to continuing consistent closing in the months ahead. Now let's turn to Danielle Jones, our Chief Financial Officer for report on the financial results..

Thanks, Bob. Good morning everybody. We continue to set an equity base, our total assets increased $830 million from the two acquisitions we continued this quarter. We continue to focus on decreasing our leverage and issuing new equity under our ATM program to help achieve this goal.

We expect the continued decrease in leverage over the next several years through a combination of lower leverage of newly issued debt and refinancing, our maturities is a combination of equity and lower leverage.

The amounts outstanding under long term mortgages and our line of credit of 532 million at the end of the quarter and is representative of funding both of our new acquisitions at quarter.

In addition we have raised over $31 million in common equity under our ATM program during 2015 and have used these funds to acquire properties, refinance maturing debt and to fund capital improvements of certain of our properties.

Debt financing does continue to be available from multiple sources, interest rate has been increasing in anticipation of the federal reserve bank will increase the federal funds rate later this year.

At the end of the second quarter interest rates are about 20 basis points higher than they were at the beginning of the year and about 40 basis points higher than they were at the end of the first quarter.

Interest rate still remained low from a historic perspective and we continue to actually try to match our acquisitions with cost effective mortgages.

Depending on several factors including the tenants credit ratings, property site location, [indiscernible] leverage and the amount in term of loan, we’re generally seeing fixed interest rates ranging from up 4% to 4.5%.

As Bob, mentioned we did refinance of about 30.4 million of mortgage debt that was maturing this year with 21.5 million of new mortgage debt and the remainder was borrowings under our line of credit and cash on hand.

The weighted average interest rate on the maturing debt was 5.3% and the rate on the new mortgage debt is very LIBOR plus 2.25% which is a rate of about 2.5%, this is a 2.8% decrease from the mortgage debt that was repaid. We also [indiscernible] in the rate by purchasing at cap on this floating rate debt at 5.525%.

Looking at our upcoming launch on debt maturities we have mortgage debt in the aggregate of about $8 million payable during the remainder of 2015 and about 100 million payable during 2016. The 2015 principle amounts payable includes a $3.9 million in principle payments that’s due on one more debt that matures in December.

We expect to refinance the remaining mortgage debt with a combination of new mortgage debt and equity. The 2016 principle amounts payments include 92 million of fully principle payments due on nine mortgages that mature throughout the year and we also anticipate being able to refinance these a combination of new mortgage debt and equity.

The weighted average interest rate on the 2016 debt is 5.7%. And while we do expect interest rate to increase from today's lows we still expect to achieve at least a 100 basis point interest rate reduction when we refinance these loans in 2016. We have already begun discussions with lenders on the debt that matures during the first quarter of '16.

We will continue to pay the additional debt amortization payments from operating cash flow and borrow the loan on credit [ph]. We also issued debt during the second quarter of 17.5 million on our new acquisitions at a weighted average interest rate of 3.9%, which was a low end of the range making these deals very accretive for our shareholders.

We continue to implement our strategy of lowering our overall leverage by reducing our weighted average loan to value on both the newly issued debt and refinance debt. We have increased our common market capitalization by 11% over the past year and have issued over 3.4 million new shares of common stock.

We have decreased our loan to value from a higher 67% in 2009 to 52% today. Turning to our line of credit we currently have 53.7 million outstanding under the line at a weighted average interest rate of approximately 3%.

We continue to only use [indiscernible] to make acquisitions that we believe can be finance this longer term mortgage debt or that we will be debt additions to our unsecured property were required under our line of credit.

We also continue to finance the majority of our properties this long term fixed rate mortgages which allows us to secure the spread between the rent coming in and the mortgage payments going out locking in the profit for the length of the lease.

As of today our available liquidity is approximately 15.2 million comprised of 5 million in cash and an available borrowing capacity of 9.2 million under our line of credit.

With our current availability and access to our ATM program we have enough availability to fund our current operations deals in our pipeline and any known upcoming improvements of our property.

Looking at our operating results for the quarter we again report a core FFO number, we believe core FFO which adjust for our property acquisition expenses and other non-recurring expenses allows our investors to better compare period over period results. The per shares number I preference are fully diluted weighted average common shares.

Core FFO available to common stock holders for the quarter was approximately $8.3 million or $0.39 per share which is about a 4.9% increase when compared to the first quarter.

Quarterly core FFO increased because of the additional revenue we achieved from new acquisitions made during the quarter coupled with a decrease in general and administrative expenses. This was partially offset by an increase in property operating expenses and our base management fees from additional shares issued.

We also believe that the recently announced change in our fee structure will improve our results as we expect it to lower certain fees paid to the management company. Since we lowered the base management fee from 2% per year of common stockholders' equity to 1.5% of total stockholders equity for the year.

We also removed the catch up provision of payment from the incentive fee calculation. We lowered the incentive fee to 15% from 20% of our core FFO, we increased the hurdle rate to earn the incentive fee from 7% to 8% from year of stock holders equity which is the larger number than the incentive fee was calculated from the previous advisor agreement.

We put a cap in place in the incentive so that the quarterly incentive fee cannot be greater than 115% of the average quarterly incentive fee paid during the trailing four quarters and we also removed the capital gains from the calculations based incentive fee but we did provide for a capital gain fee of 15% payable each year on the difference between any realized capital gains minus realized capital losses for the year.

We believe these changes perceived is near to the current market [ph] and will facilitate our growth of FFO and distributions to stockholders in the future. We also believe that this amendment will allow us to become more competitive in sourcing and retaining talented, investment and operations professionals.

While 2015, 2016 remains a little bit challenging as we work on the lease renewals and debt maturities. We believe we have the right scene plan in place to reposition and continue our growth activities. We are confident that 2015 will be successful as we continue to increase our asset and equity base and decrease our leverage.

We’re focused on managing our property operating expenses as well. And now I will turn the mike over to David..

That was a good report, Danielle and a good one too from Bob Cutlip and Michael LiCalsi, all have given good reports. Again as you heard the main report for this quarter is that we purchased two properties for about $30 million and placed mortgages on them about 17.5 million locking in the spread between those two.

Refinancing mortgage debt to mature significantly at lower rates, every time we refinance it, it seems to help us out on our income. We raised $12.1 million of common equity and as she was just explaining we amended the fee structure to be more in-line with the competitors and I hope this will increase our FFO quicker than we had anticipated in past.

We have continued to add quality real estate to the portfolio to the existing investments and we grew our asset base again this quarter. As we continue to grow our market capitalization increases and we hope to see higher trading volumes in the stock in the corresponding uptick and the prices of shares.

The distribution rate today is about 9.4% so it's very, very high compared to most of it's other real estate investment trust.

As many of you know the company didn’t cut it's monthly cash distribution during the recession, it's quite a success story and we watched some of the very good companies cut their distributions and mostly have then never came back to the size they were before the recession.

I just wish some of the analyst would pick up this story and play it up stronger simply because it was quite a fee and quite frankly I think we’re still in a position to do that again, should a similar recession come. Hope it doesn’t come but if it does I think we’re ready for it.

You know we all want to increase the distributions but please give us a little credit for some of the very steady cash payments that we have made to our shareholders. Our track record of not cutting the distribution should stack up extremely well against others that have cut theirs and didn’t build it backup to their product levels.

Here is what we’re doing today, we need to increase the common stock market capitalization in order to increase the trading volume and give investors who want to buy a lot of stock and ability to do this.

As most of you know institutions are the largest buyers and holders of REIT stock but the big buyers always want to know how many shares are outstanding because they want to know if they buy $20 million worth of stock that they will be liquidate when they want to sell.

We still don’t have enough shares outstanding to give them that kind of confidence however we have constantly built our asset and equity base we have doubled the size in the last four years and with this growth we hope to see more large buyers come into the stock and that will be helpful to increase the price and lower the cost of capital for us so that we can buy a lot of different properties so that we can have a larger dividend payment.

So we’re buying properties today that will cover the dividend on the new shares so we can issue more shares, again we’re told over and over by investment bankers that we need to be bigger and if we’re bigger we will have more buyers and the yield on the stock will be more in-line with the larger REITs this is called yield reduction, the average is about 6.4% today and of course we’re at 9.4% so we have got a lot of room.

We did study lot of different REITs and what their cost and G&A and all the other ideas about them we amended our fee structure in order to be in more in-line with our competitors who are externally managed and internally managed.

I think this will decrease our gross G&A and hopefully allow us to grow the FFO and ultimately be in a position to increase our dividends.

We continue to have a promising list of potential quality properties, we’re interested in acquiring those because that list of properties we need to continue to grow and it needs to grow as we grow because every year we get bigger so that means that list of properties that we’re seeking to buy and it has to grow as well.

With the increase in the portfolio of properties comes greater diversifications and those diversifications can't protect all of our shareholders including yours truly, we believe it will also contribute to much better earnings.

We’re focusing our efforts to find good properties and long term financing to match them up, being able to lock-in those long term financings to finance those properties it's really good for us in the future between 2016 and 2019, we only have about 2% of our forecasted rents expiring and our debt maturities at 2016 will drop significantly and so we’re setup very well over the next several years and we’re much more optimistic that things are going to be very positive for us over the next few years.

Again I touch on the economic outlook much of the industrial base of business that [Technical Difficulty] our properties remain very steady, and most of them are paying their rents. There are still some businesses that are having problems honestly and the economy is still not in a great shape.

However we expect good growth for the rest of 2015 for this real estate investment trust. I'm very optimistic on our company that we will be fine in the future.

Our [indiscernible] continue to be cautious in the acquisitions that we’re doing, we will buy good properties and underwrite the tenants to assure ourselves that they can make payments during the recession.

We made it through the last recession without cutting dividend or having a lot of problems with tenants, if there is another recession lurking on horizon I think our portfolio will continue to stand the test against that one.

And if the Fed decides to raise interest rates we are really ready for them, we have most of our properties financed with long term fixed rate mortgage debt to match up with the fixed rental payments.

We don’t use a lot of short term debt to hold the properties, we have watched that scenario in the last recession put a lot of people in very difficult positions. In July, 2015 the Board voted to pay a monthly distribution of $0.125 per common share for July, August, September for an annual run-rate of a $1.50 per share.

This is a very attractive rate for such a well-managed real estate investment trust like ours. We have now paid a 131 consecutive common stock cash distribution since inception and we went through the recent recession without touching those, I just think that’s a wonderful story for anybody who find the stock.

Because real estate can be depreciated and we are depreciating ours, we are able to shelter the income of the company in addition because of some losses recognized in 2014 when that one property will be returned to the lender the common distribution in 2014 was a 100% recurring capital that means there was no taxes due on that if you were holding that as an individual.

We don’t expect it to be high in 2015 but the return on capital has historical run somewhere around 80%, so this is a very tax friendly stock in my opinion and a good one to hold in personal accounts seeking income.

The return of capital was mainly due to the depreciation of real estate asset and other items, it's called earnings to remain very low after depreciation. That’s why we talk about core FFO because we adding back the real estate depreciation.

Depreciation of the building is really a bit of a fiction since the end of the end of depreciation period of the building still standing, so if you own stock and a non-retirement camp, as opposed to having an IRA or a retirement plan, you don’t pay any taxes on that part that is sheltered [ph] by depreciation as it is considered a return on capital.

However the return of capital does reduce the cost basis on the stocks which may result in our larger capital gain tax when the stock is sold.

Our stock yesterday was about $16.03, the distribution yield is 9.4%, stock price has taken a hit like many REITs, we have watched the whole REIT industry go down and with the rising interest rates it's caught a lot of investors to flee the bond market and any high yield market which many real estate trust are considered to be in the high yield area.

We are hopeful that our stock price will rebound and stabilize over the next few months and as the uncertainty subsides many of the REITs are trading at much lower yields than our stock and let me just say again, REIT universe is trading at about 4.2% that yield we were trading, that yield will be $35 stock and the triple net REITs are trading at 6.4% yield so if our stock was trading at that, that would be a $23.30 stock, so we have got a lot of room to rise in terms of the yield on the stock today.

I know some analyst would say, oh yeah, but you’re extremely managed and somewhat more leveraged than other REITs but once you take a look at this I would like to say this REIT has a great team and the cost to operate this REIT is not higher than any other REIT out there and with the change in our management contract I just think we will continue [indiscernible] other REITs in terms of our strategy and also if you’ve been watching our borrowing has been going down every quarter recently.

We’re nearly at 50% based on market capitalization of debt to equity that’s about $1 of equity for every outstanding dollar mortgage debt that we have on our buildings. I think that’s very conservative.

The Board will vote mid-October during our regular schedule quarter of the Board meeting and the declaration of the monthly distribution for October, November, December. I just think this is such a solid company I hope you all will go out and buy some more shares.

And now we will stop and have Torren come on and we will have some questions from our shareholders and analysts who follow this wonderful REIT.

Operator would you please come on?.

[Operator Instructions]. We have a question from John Roberts of Lyons Capital. Your line is open..

First what was the process behind the management fee reduction?.

Yes we went through a lot of analysis, we have been doing it for about 7-8 months, looking at different ways to change it and we saw 3 or 4 weeks [ph] that used something that’s very similar to what we have.

So we looked at that and said let's start with that and as you know a lot of the REITs we were out of sort surprised that -- they seem to tinker with their fee every quarter and come up with minor change here or there.

So we thought this would be good starting point, the idea again was to get ourselves in shape so that we could increase the dividend over some period of time.

So we did a lot of study, looked at a lot of REITs that are internally managed, pulled out their G&A of course it's harder to get to those numbers and they always have some kind of extra fee that they charge for and bring an income.

So we have decided that we are trying to follow what the market is doing and that was our best guess of where the market is..

Can you talk a little bit about equity issuance at this point given where the stock price stands?.

Yes we have been reticent to issue a lot of shares at this point in time. I would love to do an equity offering but quite frankly it's just the price has dropped so much and we are not alone. The whole REIT industry has been dropping, so the prices on many stocks are very bargain basement and this one certainly is with such a high yield.

So from my standpoint we’re very going to be very [indiscernible] in raising additional equity, however it's you and the other analyst would put out a lot of buyers on the stock we would probably be able to get the price with that I'm just joking that..

But you have got the buyout there as you know, I can't do it single-handedly unfortunately. Talk a little bit acquisitions, what's the pipeline look like, what are you anticipating, I’ve to think at this point given that you are somewhat capital constraint, acquisition is going to be a little more difficult..

Well you know as I indicated we have a couple of properties of due diligence, one we are anticipating it's under $10 million that we will be closing this quarter, the other one is in due diligence has a delayed probably a delay closing into the fourth quarter because of the seller request.

So I think as David indicated we’re going to hold back and as we typically do we’re going to be looking at even more highly accretive deals before we would bring them to committee. So the competition among my leaders out there is going to become stiffer but that’s just doing it the safe way.

We’re hopeful that with the announcement on the fee structure and how this may change in the future and some of our releasing and renewal activities will generate some additional interest but we’re going to be patient that we’re not going to jump off the [indiscernible]..

One thing to remember here is as you know in historical terms we used to do some very high accretive transaction.

So we know that marketplace very well, because we’re running two business development companies we’re in great position to underwrite the tenant so what may look very risky to some we pretty much reduced the risk by underwriting small or midsized business as a tenant and so we have been pushed back into the category of doing a little higher rate of return in order to cover the dividend on any new shares.

The second point you’re right on target though it has restrained our ability.

We probably have turned down 2 or 3 fairly large transactions that we’re in sort of a mid-range return closer to what we have been doing in order to bolster our size and so we have had to pass those just for the simple reason as we didn’t want to put deal that was probably not going to cover or just barely cover the dividend that we’re having to pay.

So we’re ever mindful and watch what's going on in the stock market because that determines what we can go out and buy..

And you’re looking at things like maybe some higher yield debt type investments rather than strict property investments?.

No we have stayed away from lending simply because most of those high rate loans really mean you’re doing the workout you’re dealing with somebody who has got problems, we did do one transaction in which we were trying to do a construction kind of loan that was going to lead us to the point of owning the property, that didn’t really workout as much as we had hope and so we didn’t end up buying the property but we got a great rate of return.

I guess we would look at a few more of those but it's not on the agenda to do a lot of that..

Are you looking at any -- is it showing any potential non-traditional sort of equity? I know you have got a senior comment out there but anything on the deferred side maybe, because the preferred market is probably a little cheaper at this point for you than the common equity market?.

Yes I love preferred stock as you probably know.

We have been able to issue any permanent preferred recently but obviously we have issues with preferred outstanding to-date and I would love to do some more of that and so when you look at that what do you think we can get in terms of rate today?.

You had talked to the bankers David but I have think -- it's cheaper than your cost of capital [indiscernible] right now..

We agree. So we’re looking at all alternatives but as you know we terminated our senior common, it never really fit into the non-traded REIT area that well and so we never got a lot of traction even though it's very attractive and very much a better opportunity to put those who like the non-traded REIT world. Anyway that’s where we’re..

[Operator Instructions]. We have no further questions. I would like to turn the call over to David Gladstone for any closing remarks..

All right. Thank you all for calling in and we will see you again next quarter. That’s the end of this call,.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day..