David Gladstone - Chairman & CEO Michael LiCalsi - General Counsel, Secretary & President, Gladstone Administration Bob Cutlip - President Danielle Jones - CFO

John Massocca - Ladenburg Thalmann

Welcome to the Gladstone Commercial Corporation's Third Earnings Ended September 30, 2016 Earnings Call and Webcast. [Operator Instructions]. I would now like to turn the conference over to David Gladstone. You may begin.

All right. Thank you for that introduction and thank you all for calling in. We always enjoyed this time we have with you on the phone and wish we had more talks like this. If you're ever in the Washington DC area come by and see us we’re in a suburb called McLean, Virginia and we have an open invitation to stop by and say hello. We have about 60 members of the team now. We'll now hear from Michael LiCalsi, our General Counsel & Secretary. Michael is also the President of Gladstone Administration which serves as the Administrator to all of the Gladstone Funds and related companies as well. He will make a brief announcement regarding some of the legal and regulatory matters concerning this call and report. Mike? You hear first for Michael LiCalsi, our General Counsel and Sec. Michael's also the President of Gladstone Administration which serves as the administration to all the Gladstone public funds and related companies as well. He will make a brief announcement regarding some of the legal regulatory matters and then call for a report. Go ahead Michael.

Good morning, everyone. The report you're 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 company's future performance and forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. And 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 of the Risk Factors included in our Forms 10-K and 10-Q that we filed with the SEC. These can be found on our website www.gladstonecommercial.com and on the SEC's website www.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 operation, 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. The National Association of REITs has endorsed FFO as one of the non-accounting standards that we can use in discussion of REITs. Now please see our Form 10-Q, filed yesterday with the SEC, and our financial statements for a detailed description of FFO. We also plan to discuss core FFO, which is generally FFO adjusted for property acquisition costs and other non-recurring expenses. And we believe this is a better indication of our 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 the other Gladstone publicly traded funds, you can sign up on our website to get e-mail updates on the latest news. You can also follow us on Twitter, username, GladstoneComps and on Facebook, keyword, The Gladstone Companies. Finally you can visit our general website for more information www.gladstone.com. And the presentation today is an overview. So we ask that you read our Press Release issued yesterday, and also review our Form 10-Q for the quarter ended June 30, 2016. We also created a financial supplement which provides further detail on our portfolio and our results of operations. They can all be found on our website gladstonecommercial.com. Now we will begin today's presentation by hearing from Gladstone Commercial's President, Bob Cutlip.

Thanks, Mike. Good morning everyone. During the third quarter we acquired a $23.9 million property located in Fort Lauderdale, Florida raised $30 million in a direct placement of our Series D preferred stock and redeemed the remaining maturing series C term preferred stock. Raised $12 million in net proceeds from sales of our Series D preferred and $10.5 million in net proceeds from sales of our common both through our ATM program. Executed one new lease with a tenant in our partially vacant Chicago industrial property raising the occupancy to 100% and renewed or extended three leases with tenants in our South Hadley, Massachusetts, Richmond, Virginia and Maple Heights, Ohio properties. We sold three properties located in Rock Falls, Illinois and Angola, Indiana executed a contract to sell our Toledo, Ohio property and repaid $12.7 million of maturing mortgage debt and placed $4 million of financing on our previously unsecured property. Subsequent to the end of the quarter we executed a lease amendment with our tenant in our Vance Alabama property to expand that property by 75,000 square feet. The tenant will enter into a new 10 year lease at the expansions completion in mid-2017. We extended the lease with T-Mobile in our Wichita Kansas property for five years, executed a letter of intent with a tenant to occupy the remaining space in our Burnsville, Minnesota property anchored by Bosch and continued our program of meeting with registered investment advisors and institutions to promote our brand. Over the past 3.5 months we have held 22 such meetings and will continue to do so in the future. We had another excellent quarter as we continued to re-lease vacant property and continue our industry high occupancy. We also added another high-performing asset to our portfolio. We continue to be pleased with our activity and have a healthy pipeline of acquisition candidates. As I noted to you during our last quarterly call, our acquisitions team has spent considerable time over the past several months researching the direction of the market. Noted researchers at the beginning of the year had forecasted the market cycle may be peaking, actual data through the first eight months reflects that investment volume is down by about 15% and REITs have been net sellers has been reported by national brokerage firms. Discussions with brokers reflect that listings are up but closings are down. Whether this leads to some cap rate expansion in the future remains to be seen but our team is going to continue to monitor market conditions and actively investigate opportunities and we will acquire properties when the tenant credit, location and asset returns are attractive and promote our measured growth strategy. Now for some company specific details, during the quarter ended September 30th we acquired a 119,000 square foot office building located in Fort Lauderdale. The purchase price was $23.9 million lease term nine years and the average cap rate 8.3%, so very accretive for our shareholders. We place a $14.1 million mortgage note on his property. The building is 100% occupied by Citrix. It's an integral part of a larger Citrix campus in the immediate area which they own. Citrix is a Fortune 1000 and S&P 500 company that enables business mobility through the secure delivery of applications and data to any device on any network. We also executed a lease amendment to expand our tenants facility adjacent to the Mercedes-Benz assembly plant in Vance, Alabama, upon construction completion the lease term resets to 10 years and the average cap rate over the new term for the entire 245,000 square feet is an estimated 10.4%, so also very accretive. Our acquisitions team continues to only acquire properties in strategic secondary growth markets. As I've noted in the past, the hallmark of our continuing high occupancy remains and it is always going to continue to remain thorough tenant credit underwriting in the mission-critical nature of the property. Location though is also important as it can lead to increased property value over time in land constrained locations. So over the past three years to promote this location strategy we have invested in Phoenix, Salt Lake City twice, Denver three times, Dallas 4 times, Austin, Atlanta twice, South Florida, Indianapolis, Columbus, Ohio twice and Minneapolis. This strategy also improves our overall operating efficiency. Our asset management team continued our strong leasing performance. As noted we increased our occupancy in our Chicago building by executing a new lease for 21,000 square feet bringing the occupancy to 100%. We also extended or renewed four leases, two of which were set to expire in 2017. At this time only 0.7% of our rents are expiring in 2017 and 1.3% in 2018. So our team is really staying ahead of lease expirations in general and actively managing our portfolio. We only have one fully vacant property remaining today. Our property in North Eastern Massachusetts, an 86,000 square foot freezer cooler industrial property. We have one full building prospects and one prospect for 50% of the building at this time. We have successfully extended all of our leases that were originally set to expire in 2016 with the exception of a 2900 square foot office space in our multitenant property in Indianapolis. In our portfolio occupancy is currently 97.7%. In total, for 2015 and 2016 we successfully concluded 16 of 18 lease expirations and in doing so transitioned to what I believe is a fully full service real estate operating company reflecting an excellent ability to execute successfully in every phase of a property's lifecycle. As part of our capital recycling program we sold three properties during the quarter and have five additional properties that we're marketing for sale and two of these five are under contract at this time. These assets are considered non-core in our efforts to move out of smaller single asset markets and to redeploy the proceeds in our target locations. As we reflect on our recent portfolio efforts the better long-term news for our overall growth strategy is that only 4.5% of forecast rental income is expiring through the end of 2019. During the period when we anticipate the industry may experience headwinds at some point. So our cash rents should be stable and growing and our occupancy should remain high even if economic conditions deteriorate. This is an important fact for our shareholders as a majority of our peers have a minimum of 20 and as highs 50% of their leases expiring during the same period. The majority of our capital availability is going to be used to pursue growth opportunities because we do not anticipate needing significant capital for tenant improvements or leasing commissions to retain tenants, to re-lease vacant space or fund operating deficits. Danielle, our CFO, separately is going to expand upon our refinancing activities, but I think it's important to note that our refinancings continue to lower our leverage, lower our annual interest costs and the amount of debt maturing reduces through 2017 and beyond. So in summary, our third-quarter continued our leasing and acquisition success we refinanced maturing mortgages at lower interest rates and we redeemed maturing term debt to a lower cost preferred issuance, our team continues to have a strong pipeline of acquisition candidates and will adhere to our strategy of only acquiring properties with credit worthy tenets in growth markets that are accretive to our operations. Now before asking Danielle to speak, as you are aware, we announced Daniel's departure which will become effective today. On behalf of the entire Gladstone team we want to thank her for her significant contributions and really her tireless efforts during her 12 year tenure. We wish her and her family the very best in the future. As you are also aware, we have a new CFO, Mike Sodo to replace Danielle. Mike brings a significant experience in the REIT financial reporting and treasury functions and in communicating and engaging rating agencies, analysts, lenders and investors. As many of you know, he used to be here in McLean, Virginia at Capital Automotive REIT. Now let's turn it over to Danielle for report on the financial results.

Thanks, Bob. We continue to have a strong balance sheet as we systematically grow our asset and focus on decreasing our leverage. We reduced our debt to growth asset level to 51% today from 57% at the end of 2015 and a high in the mid 60% range in 2009. We did this through refinancing maturing mortgage debt at lower leverage levels and redeeming our term preferred stock with equity. We expect to continue to decrease our leverage over the next several years. Long term mortgage debt continues to be available but at slightly higher rates than we experienced during 2015. The yield on the 10 year treasury has been very volatile, despite the Federal Reserve's efforts to raise interest rates to yield on the current 10 years about 50 basis points lower than it was at the beginning of 2015. Since the beginning of 2016 the yield on the tenure has been as highs 2.2% and as low as 1.3%. This volatility has been driven by global uncertainty, questions regarding the strength of the economy and the Federal Reserve Bank stated desire to increase interest rates. In response to this volatility CMBS lenders have become a less reliable source of mortgage financing as they continually change the spreads at which they're willing to make loans. In early 2015, CMBS spreads were between 280 and 300 basis points and by the third quarter of 2016 they had dropped to between 210 and 240 basis points. With the change in the risk retention rules approaching CMBS spreads for loans closing after November 2016 have widened by approximately 30 basis points. The banks have also widened their spreads by 25 to 50 basis points in the life insurance companies and CMBS lenders have introduced floors. Thanks in particular trying to move into the vacuum left by the CMBS lenders. With CMBS loan originations down by more than 40% year to date for life insurance companies and banks have become increasingly more selective in determining which properties they will finance. However, interest rates still remain attractively low and we continue to actively match our acquisitions with cost effective mortgages. Depending on several factors including the tenant's credit rating, property type, location, the terms of the lease, leverage and the amount and term of the loan they're generally seeing fixed interest rates ranging from up about 4.3% to about 5% today. To this end we repaid $12.7 million of maturing mortgage debt's this quarter with borrowings under our line of credit and cash on hand. The interest rate on the maturing debt was 5.8% and the rate on the line credit today is about 3% which is closed with 3% decrease from the mortgage debt that was repaid. We also placed $4 million of debt on a previously unsecured property during the quarter. Over the past 18 months we have refinanced close to $120 million of debt with $57 million of new debt at a weighted average interest rate of 2.91%. We also added some of these properties to her unencumbered pool under our line of credit in an effort to provide more flexibility in the future, prior to refinancing the mortgage had a weighted average interest rate of 5.82%. The combined refinancing will reduce our annual interest expense by approximately $3.4 million which is straight to the bottom line. Looking at our upcoming maturities we have one remaining balloon principal payment of $8.2 million payable in December of this year. We do anticipate being able to exercise the one-year extension option of this note prior to maturity, this note has an additional three one-year extension options through 2020. We also have $61 million of balloon principal payments due in 2017, the weighted average interest rate on this debt is 6.1% and we expect to achieve about a 3% interest rate reduction. We're focused on our strategy of lowering our leverage by reducing our weighted average loan-to-value on both newly issued debt and refinanced debt. Turning to equity, we raised another $30 million of our 7% Series D preferred and used the funds to redeem the remaining $13.5 million of our seven and eight series C term preferred that was maturing in January of 2017. We also raised both common and preferred equity under our ATM programs during the quarter for an aggregate of $22.5 million under both programs. We used these funds for our new acquisition, refinancings and tenant improvements at certain of properties. As of today our available liquidity is approximately $43 million comprised of about $4.3 million in cash and an available borrowing capacity of $38.9 million under our line of credit. With our current liquidity and access to our ATM program we have enough availability to fund our current operations, deals in our pipeline and any known upcoming improvements on our properties. Now we will discuss operating results for the quarter. All per share numbers I referenced are fully diluted and weighted average common shares. Core FFO available to common stockholders was $9.4 million or $0.39 per share for the quarter which increased from the second quarter. Our results were impacted by an increase in rental revenues from leasing vacant space and acquiring new properties coupled with lower net property operating expenses from increased occupancy and lower G&A expenses. G&A expenses were lower due to a reduction in legal, accounting and shareholder related fees. We incurred fees in Q2 related to settlement one of our properties which were not incurred this quarter coupled with lower accounting fees primarily from timing of tax fees. Shareholder related fees were also lower this quarter as an incurred fees during second quarter related to the annual meeting and proxy that were not incurred during the third quarter. We also saw a decrease in interest expense from the lower interest rates achieved on our refinancing. We encourage you to also review our quarterly financial supplement posted on our website under presentations which provides more detailed financial and portfolio information for the quarter. While we continue to have challenges as we work on debt maturities and the headwinds from the global macroeconomic conditions we believe we have the right team in place and plan in place to reposition and continue our growth activities. We're confident that remainder of this year and into 2017 will be successful as we continue to increase our asset and equity base and decrease leverage, we’re focused on maintaining our high occupancy. Now I will turn the program back over to David.

All right. Thank you Danielle. Another good report and certainly a good report from Bob Cutlip and Michael LiCalsi too and I want to say goodbye to our CFO, Danielle Jones so we all wish you well, she did a great deal to help the company grow to where it is today. I also want to say welcome to Mike. Mike Sodo, he is the new CFO who is part of the financial team at Capital Automotive REIT here in McLean when I was on the Board of that great company. He brings a lot of strong skills to the company so we welcoming Mike on Board and you will hear from him next round. The main news to report this quarter is the acquisition of almost $24 million worth of new property and raising preferred stock. We always worry about deferred stock that comes due but we were able to raise additional preferred stock to pay off the old preferred stock that was coming due in 2017. As Bob mentioned, we're leasing more vacant space. We renewed all of the 2016 leases except for small office lease leaving about 4.5% of forecast rental expiring, that is all the way through 2019 to 2020. Refinance maturing loans at lower interest rates and positioned ourselves I think for some very strong growth for the next three or four years. Continued to add quality real estate to our portfolio and shore up the existing properties that we have. As many of you know, this company didn't credits monthly cash distributions during the recession and that was quite a success story. We watched some very good companies cut their distributions and most of them have never recovered to bring their dividend back to the original level. We are in a great position not to have that problem with the economy has a skid again. So I think we are in great shape today. Here is what we are doing today. We need to increase the common stock market capitalization in order to increase the trading volume to give institutional investors who want to buy a lot of stock the ability to do that. These institutional buyers always want to know the number of shares outstanding. So if they buy a lot of shares say $10 million or $20 million worth of our stock then they know they will be able to get liquid in that if they have to sell it. We still don't have enough shares outstanding to give them that confidence, although we have now had a number of very strong well-known institutions come into our preferred stock they haven't ventured into the common stock to integrate amount so far. However, we have consistently built our assets and our equity base, doubling the size in the past five years and with this growth we hope to see the buyers come into the stock and that should be helpful in increasing the price and lowering our cost of capital so that new investments will be accelerated in the dividend payout can be increased. We are raising more preferred stock in that Series D at 7% yield. We have that, we are using our ATM program now to raise a few more of those shares. We have a new webpage in our site I encourage you all to go see it. It is quite innovative and has a lot of good information so head out to www.gladstonecommercial.com that explains the preferred as well as the common stock. We can't redeem this new preferred stock for five years so it has a long-term friendly investor outlook on that one. We continue to have a promising list of potential quality properties to buy. We are interested in acquiring them because of that we expect to continue the growth of the assets of the portfolio or even more next year. With the increase in the portfolio of properties comes greater diversification and we believe better earnings. We're pleased to note that the price to buy good buildings with good tenants is very high these days and we still have a lot of people chasing after almost everything we look at. We focused our efforts to find good properties, long-term financing to match that so we are able to lock in that spread between what we buy it at and the yield versus what we are able to finance it at between 2016 and 2019 we only have about 4.5% of the forecast rents expiring and Bob and his team, the managers, will lease that up as well. So we are much more optimistic now that we have so much behind us in terms of rents coming due. We only have another year of refinancing these properties as well. Much of the industrial base and businesses that rent industrial and office properties like the properties we own remain steady. Most of them are paying their rents. As you know, we have a terrific credit underwriting group here that underwrites our tenants and are considered the track record that they have for paying their rents I think the future is very bright for the ones that we have in our portfolio today. It's a strong underwriting that has kept us above 96% occupied since 2003 when we started this company. While I'm optimistic about the company and I know it's going to be fun, Bob and I will continue to be very cautious in the acquisitions that are made as we have done in the past we made it through the last recession without cutting the dividend and having a lot of problems and I think that just about anything that the government or anybody else can throw at us at this point in time, I think we would survive quite well. Earlier this month the Board voted to maintain the monthly distributions at $0.125 per common share for October, November and December for an annual run rate of $1.50 per year. This is very attractive rate and a well-managed REIT like ours. We have now paid 141 consecutive common stock cash distributions and we went through the recession without even thinking about cutting the dividend it was that strong, that’s more than 10 years and that’s a wonderful track record, because of the real estate can be depreciated, of course, you all know that you shelter the income so that it's more of a return of capital pick about 79% of the common stock in 2015 was a return of capital this is very tax friendly stock. In my opinion, it's a good one to put in your personal account if you're seeking income because you don't pay taxes on that 79% since it's a return of capital. Return of capital is mainly due to the depreciation of the real estate assets and other items and that has caused earnings to remain low after depreciation that's why we talk about core FFO because this is adding back the real estate depreciation. The depreciation of a building is a bit of a fiction for tax purposes since at the end of the depreciation period the buildings usually still standing, in pretty good shape you may have to put a few dollars in to bring it back up but if you own the stock in a nonretirement account as opposed to having it into an IRA or retirement plan you don't pay taxes on that 79% unless you sell the stock and then of course your tax base is a little bit lower. Stock price closed yesterday at $17.85, the distribution yield on the stock is about 8.4% today. I just look at this and can't understand why the yield is so high. The triple net REIT marketplace is trading at about 5.4% yield. If we could just drop it to 7.4% the stock would be $20 a share and of course we make it to 5.4% it would be up about $27 a share. So there's a lot of room for the expansion of the stock based on the REIT stock yields. I just think that over time as we become bigger and more people investigate and know us that yield will go down and be more like the other REITs in our category. Investors continue to discover us. Bob has been on a tear going out and talking to people about the REIT. He has gotten a lot of people interested that probably didn't even know about us before that’s a good reason for the REITs to trade at such a high-yield. It's just no reason at all low lease turnover in the next four years just almost assures you that revenue numbers is there. I know analyst always say the same thing every time I talk to them, I know Bob gets the same question. They always say but you are externally managed. I just want to hit that one more time. We may be externally managed but it allows us to access a team of credit underwriters unlike any internally managed reach. Our high occupancy level is a testament to the access we have to the credit underwriting skills and backgrounds that we have here in this company. We are a REIT that looks first at the tenant to make sure they can pay the rent. I know most REITs look at the real estate first. We do look at the real estate. We do all the classic underwriting of real estate but we also have this whole culture here of credit underwriting the tenants. We don't rely on third-party credit ratings of tenants. We saw what happened to people during the last recession. So we are internally managed in terms of looking at the credit rating of our companies. We have also performed an analysis of the cost of operating REITs and it's not higher - ours is not higher than any other REITs whether it's internally managed or externally managed. As you know, as we get bigger we have adjusted the management fee to keep it in-line with other internally and externally managed REITs. From my perspective I can't see what all the fuss is about. We have been methodically decreasing our leverage every quarter we are now nearing 50% leverage we are about $1 of stock outstanding in dollars for every debt that we have on the buildings and given the track record of steady income for the last 10 years I think that amount of leverage is very conservative considering that we have remained so well leased up. The Board will vote again in mid-January during our regular schedule quarterly Board meeting to declare the distributions for January, February and March. So now, if the Operator will come on we will have some questions from shareholders and analysts who follow this wonderful REIT. Will the Operator please come on and tell the listeners how they can ask questions.

[Operator Instructions]. Our first question comes from the line of John Massocca of Ladenburg Thalmann. Your line is now open.

You just kind of touched on you had an acquisition pipeline going. Can you give us any more detail on that? What is the size of the pipeline? Do you have anything under LOI [ph]?

Right now our overall pipeline is over $325 million. We have at this point, one property in the letter of intent stage, that is out in the West Coast and we have two properties that are really in due diligence. One of those is in Philadelphia and the other one I consider in due diligence it's our expansion of that property we have Vance, Alabama. Until the construction is completed we keep that in due diligence. So the balance of those properties are literally across the country. As we try to tell everybody and its reality, we only focus on the secondary growth markets. So the totality of our pipeline right now is in cities such as Dallas, San Jose, Denver, a couple of properties there we’re chasing, Philadelphia, as I said, Seattle, Nashville and South Florida and then at that property in Vance, Alabama that’s in expansion.

Okay. And then kind of touching on dispositions, I know you guys increased your assets held for sale. What you think of the ultimate size of disposition program or is this something we were going to be selling a couple million dollars of assets every quarter as you look to kind of fine tune the portfolio?

We are approaching it from two separate directions. First of all, I think as David has said and what really surprised me and attracted me to this company, I'm not concerned about the credit. The issue that we are facing and I'm hearing it when I go out and talk with these investment advisors and the portfolio managers, is that they're really like to see us reduce the totality of all of the markets we are in. Our focus really, John, is going to be identifying those single asset markets that are kind of early tertiary. For example, the five that I talked to you about their in Toledo, Montgomery Alabama, South Hadley, Massachusetts, [indiscernible] New York and Hazelton, Missouri and where we are in the cycle right now, where everyone says it is peaking we figure that as the opportunity presents itself we are going to sell those. I can't tell you how many we think we are going to sell but we will probably sell as this market continues to peak and then as David and I have said, we have got great cash flow from these tenants and from the assets. We do want to reduce the total number of markets that we are in. We will continue to do that until the market turns.

Okay. That's absolutely makes sense. Tell me more detail on the existing portfolio. If I look at page 16 of your supplemental the number of percentage of rents you get from publicly traded companies increase pretty dramatically, 19% what drove that? I don't think it was entirely the Citrix acquisition, was it?

Say this again now.

If I look at page 16 of your supplemental versus last quarters kind of same chart you gave there, it says there is a publicly traded companies accounting for 49% of rents - that was about 30% last quarter. So what drove that increase?

You know, I'm going to have to respond back to you. I don't have that specifically with me, John. I will get that back to you before lunch today. Okay?

No problem. That's it for me that.

Okay. Just to finish up on John's point, it's opportunities that come up. We have a said to ourselves let's go after public companies. We have just seen buildings come up that are owned by public companies or rented by public companies. There has been no special desire to go after public versus private.

Our next question comes from the line of [indiscernible]. Your line is now open.

This is actually Rick Murray [ph]. Just curious if you could help us understand the impairment charge in the quarter?

Sure. I can start and then maybe you can talk about the asset specific, Dave. Again Bob, touched on the previous question that we have five assets held for sale. Two of them, the one in South Hadley, Massachusetts we talk about a $1.1 million impairment loss and a one and Hazelton, Missouri we talk about a $700,000 impairment loss on - the one in Hazelton I will say that one actually the tenant had a purchase option that we entered into when we put them in the building. I want to say about 2010 and they exercise that purchase option and so that’s why that property is held for sale and how the impairment came about there. I will let Bob touch on Yankee a little bit more.

Yes, the Yankee Candle is in that property in South Hadley and they have been in the property for a long time. The reason that we had to impair it is that we have several times tried to sell this asset. It is in what is, really it's an industrial assets, 150,000 square foot, irregular configuration in a residential area. So when we acquired the property it absolutely made sense with Yankee in there. They then made this property really their excess storage location and all we are doing now is getting one-year renewals. It's a non-core location for us and so we figured listen, we are going to get the highest and best cost we can right now. Let's go ahead and exit the property and move on down the road. So that's really why we did that one, Rick.

Rick, also that there may be some that are sold for more than we have in them so there may be some gains coming down the road.

There have been gains. Last year, in 2015, we realized net gains of about $1.3 million to $1.5 million. Yes, the number of assets that we have that are being held for sale, a number of those are going to be capital gains. It's just that we think right now we can get the most we can from those assets and try to redeploy those in those growth markets that we are pursuing.

My other question was, I guess a little bit more strategic I'm trying to reconcile your commentary about the Outlook which, frankly, I think is very prudent and thoughtful, but trying to marry that with the focus on maintaining a dividend which is not well covered and perhaps a reduction of the dividend would give you a little bit more flexibility in your deleveraging and also opportunities to take advantage of things that may present themselves in what could be a choppy environment as you suggested.

Rick, what you just a said cut dividend is something that we never mentioned here because we are not going to do it unless we're just forced to. We are going to go forward and we're going to build up the company so that we are in a situation where we are in excess and we aren't in excess of what we're paying out as a dividend and hopefully that occurs soon. The ideas is once we get to that point we can begin to raise the dividend. Our model will be much like in an in or oh in the sense that we would be raising the dividend a little bit every quarter and trying to push forward and continue to increase the dividend because that's who we are after, is dividend lovers.

Yes, let me add to this because Rick, I think I have chatted about this in the past. When we look just back over the last three years starting at the end of 2013 through 2016, because of some of the legacy asset issues and the renewals and the releasing that had to take place we had to pay additional operating expenses and had lost rents that amounted to almost $6.5 million to $7 million over a three-year period with about 19 million to 20 million shares on average that equates a loan to like let's say $0.08 the $0.10 per share but we maintained at $1.50 and David and I were committed to keeping the dividend because we were able to acquire accretive assets and maintain that number. As we go forward now with most of this behind us we think that now that accretion and our continued ability to acquire assets with good, let's say, margins over our costs, our whack, we will be able to be raising that FFO and the core FFO which should translate into some dividend increases. It's just a commitment that we've made throughout the history of the company. We have experienced something that a lot of the, let's say, a lot of the REITs that went public much later than us and after the, let's say the downturn have not had to experience and they are going to be experiencing over the next three to four years and we are not.

[Operator Instructions]. I'm showing no further questions at this time. I like to hand the call back over to David Gladstone for any closing remarks.

All right. Thank you all for calling in and we will talk to you again next quarter.

Ladies and gentlemen thank you for participating in today's conference. That does conclude today's. You may all now disconnect. Everyone have a great day.