Good day ladies and gentlemen and welcome to Gladstone Commercial Third Quarter Ended September 30, 2015 Earnings Call and Webcast. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today CEO, Mr. David Gladstone. You may begin sir.

All right, Andrew. Thanks for that good introduction and thanks to all of you for calling in this morning. We really do enjoy the times that we have with you on the phone, wish we had more time. We also enjoy the question and answers at the end. So hope we have some good questions today. If you’re ever in this area, the Washington DC area we’re in the suburb called McLean Virginia and if you are in this area, you have an open invitation to stop and to see us. It's about 60 members of the team and I am sure some of them [indiscernible] say hello if you stop by and see us. We’re going to start out first with Michael LiCalsi. He is our General Counsel and Secretary, also serves as President of Gladstone Administrator which serves as the administrator to all of the Gladstone Funds and the related companies as well. He will make a brief announcement regarding some of the legal and regulatory matters concerning this call. Michael?

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 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 of the risk factors included in our Forms 10-K and 10-Q that we filed with the SEC. They 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 of these 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 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, generally FFO adjusted for property acquisition costs and other non-recurring expenses. And 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, 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 our 10-Q, for the quarter ended September 30, 2015. Both can be found on our website gladstonecommercial.com. And now we will begin the presentation today by hearing from Gladstone Commercial’s President, Bob Cutlip.

Thanks, Michael. Good morning everyone. During the third quarter, we acquired $113 million office property in Atlanta, Georgia, raised $9 million of common equity under the ATM program, amended our fee structure to be more in line with our peers, leased our partially vacant property located in Raleigh, North Carolina, leased a majority of our vacant property located in Baytown, Texas, modified one lease such that the tenant will expand into the remaining vacant space in our Indianapolis property in the fourth quarter, and refinanced $11.3 million of maturing debt. Subsequent to the end of the quarter, we also acquired one industrial property for $6.5 million in Atlanta, expanded our line of credit to $110 million, adding three banks and reducing the cost on the facility, renewed the lease with one tenant whose lease was to expire in 2015 and completed negotiations with three tenants whose leases are scheduled to expire in 2016. As you can see our acquisitions capital and asset management teams were quite busy and all contributed to our success this quarter. We had another excellent quarter as we continued to increase our asset base by acquiring new properties. This was our 16th consecutive quarter of closing at least one new acquisition. We crossed the milestone and we now own 102 properties. We are extremely pleased with our activity and consistency and we continue to have a strong pipeline of acquisitions. Now for some details. During the quarter ended September 30, we acquired a 78,000 square foot office building located in Atlanta for $13 million. The average cap rate is 9.9%. We funded this acquisition with cash on hand and the issuance of $7.5 million of mortgage debt. The tenant leased 55,000 square feet of the property for seven years and the remaining 23,000 square feet for…

Good morning. We continue to grow our asset and equity base. Our total assets increased $838 million from the one acquisition completed this quarter in conjunction with ongoing tenant improvement projects. We continue to focus on decreasing our leverage and then issuing equity under ATM programs to help achieve this goal. However as Bob discussed, with the drop in our stock price and impact to the entire REIT industry, we exclude the amount of equity issuing under the ATM. We expect continue decreasing leverage over the next several years through a combination of lower leverage on new issued debt and refinancing our mortgage maturities of lower leverage. Looking at our capital structure, the amount outstanding under long term mortgages and our line of credit was $538 million at the end of the quarter. In addition, we raised $36 million in common equity under the ATM program during the first nine months of 2015 and have used these funds to acquire properties, refinance maturing debt and to fund capital improvements of certain of our properties. We also amended our line of credit earlier this month in order to position us for growth over the next few years. We expanded the lines from $75 million to $85 million and also added a $25 million five-year term loan facility. We also expanded the maturity date of the line of credit for one year through August 2018. The interest rate on the line of credit was reduced 25 basis points for each leveraged tier and the interest rate on the term loan is 5 basis points less than line of credit. The total maximum commitment was also increased from $100 million to $150 million. We also expanded the number of banks in the line. In addition to KeyBank, Comerica Bank, we added Fifth Third…

All right. Thank you, Danielle. Good report, good one too from Bob and Michael LiCalsi, and company continues to grow [indiscernible]. Big news again this time is the purchase of the property $13 million and then placing a mortgage on the property for $7.5 million and the real significance of that is locking in the earnings from that property for shareholders come in kind of the disaster that might happen in terms of interest rates, that is in place for the future. We’ve been refinancing our debt and maturities and just a significant of a lower rate. Interest rates were higher seven to 10 years ago when we financed these properties and this year has been a great year to refinance, and 2015 looks great for our refinancing properties and lowering our cost of debt. We raised $9 million in common equity and released some of our vacant space, so overall it was a very positive quarter for the company. We continue to add quality real estate to our portfolio and show up the existing properties and as we continue to grow our market capitalization increases, we hope to see higher trading volumes in our stock and the corresponding uptick in our stock price because the distribution rate today is very high compared to other real estate investment trust. This is just a great stock for people looking for cash dividends that are mostly sheltered from taxes and this year we might be as much as 70% or 80% sheltered, so it would be a great one to put into your first point analysis [ph]. As many of you know the company didn’t cut its monthly cash distributions during the recession because we had everything financed long term, it was quite a success story, we watched some of the great…

[Operator Instructions] And I am showing our first question comes from the line of John Roberts with Hilliard Lyons.

I don’t know if this should go to you or Bob, but property operating expenses were pretty high in the quarter. I was just wondering if there was anything out of the ordinary or why that jump and if that’s something that will continue going forward?

Danielle has got the answer to that. She is the gal with numbers.

Part of it was from the two vacancies in Q2 that hit in Q3 but most of it is really because we bought properties that have or subject to a gross lease, and so you will see an increase in property operating expenses, but you also see an offsetting increase in tenant recoveries, it’s just way we have to account for it.

All right, very good. So should I model that going forward?

Yes, yes, this is probably a good run rate for now, as we re-lease some of the vacant building it should go back down but yes.

How many of the tenant – leases that you have that expire in 2016 or still – you still need to re-sign?

Just the three that I mentioned, we’d already completed a lease renewal of one of our tenant in our anchored multi-tenant building in Columbus is going to take over the balance of the building at the end of 2016 but only the three that I mentioned, those are the only three that we have pending for 2016.

So all the rest are re-signed, you have no others expiring in 2016?

No others expiring and as I indicated, we are hopeful that we will have these three closed before the end of the fourth quarter.

And John, it’s pretty light all the way through 2019 in terms of having anything –-

Yes, this is our biggest year. When David said, with the opportunity we have on the debt refinancing next year, 2017 on up – our maturities also are much lower, so we are much encouraged about the out-years right now.

And what was the average price of stocks sold under the ATM in the quarter?

John, I don’t have that handy but I think it’s somewhere around 16 – it’s in our 10-Q, I will get back to you in a second but I think it’s somewhere in the 16.

Our next question comes from the line of Jeff Render [ph] with UBS.

You’d commented earlier that you were looking to issue more shares so as to make the stock more accessible to larger investors, someone who wanted to buy a large position in the company, they might find it difficult with the only 21 million shares outstanding we have. Do you have a figure in mind as to how many shares you would like to issue over a period of time to bring it up to a sufficient capitalization?

I think once we see the institutions coming into the stock we will know that we really don’t need to do that any more and we can plan on financing things a little different with perhaps preferred stock or some other mechanism but at this point in time I don’t think we are getting the benefit that many of the triple net REITs are getting, our stock is trading way above the 6.4% that’s going on out there and I think it’s primarily because the institutions aren’t buying.

[Operator Instructions] And I am showing we have a question or comment coming from the line of John Massocca with Ladenburg Thalmann.

A quick question on the Phoenix property that’s underlying the one mortgage not payable you have, how is the progress on construction with that property and are you guys still interested in purchasing it, so utilizing the right to purchase it once construction is complete?

John, we have just received certificate of substantial completion. The punch with is just about complete, the tenant will pay starting November 1. We have a right of first offer, so we do not have the right of first refusal or an absolute right to acquire the property, and the developers who are kind of the lead on this have elected to go out and market the property. They are right now in contract negotiations with a third party buyer. The benefit to us on this transaction is that the way we structured it with the developer is that before the developer can receive any proceeds we will receive a 22% return on our invested capital over the time that is invested and I think on this transaction that’s the way it’s going to turn out, if they fall through on this contract, we may have an opportunity to acquire it but the cap rates are very low which is encouraging for the developer and we will just see how it kind of ends over the next probably two months.

But if it did fall through, you would still be interested in buying the property, being your wheelhouse --

Yes, it’s 15 year lease with an excellent credit tenant, it’s the way we underwrite the credit and it’s on a hospital campus in Phoenix, I mean location is great, the use is great, the tenant would be great.

And then speaking with kind of acquisitions, it’s just kind of slower, more kind of incremental acquisition pace that we saw in 3Q something we’re going to continue seeing, like going for a basis, just given maybe cost of financing and the market out there, or is this just kind of a result of the lumpiness of net lease acquisitions?

It’s a combination of all those, John. I mean it’s interesting we went to the net lease conference just recently and in chatting with a number of our peer groups and the larger peer groups, a number of them were staying on the sidelines a bit or looking at much larger acquisitions as compared to what we acquire. Our sweet spot is between 5 million and 30 million but also we have and in talking with our peers, we’re getting called back as being number two or number three and sellers are wanting to see if we are interested, which is telling me, there may be some modification in a market and that’s why we have been somewhat hesitant but the stock price has affected our desire because our cost of equity is higher right now. So we are going to be patient, we want to stick with our underwriting, we will acquire at the cap rates that we have in the past if we can find something in a good secondary growth market.

And John, Ladenburg just needs to weigh into the stock and get it up in the 20s and then we can –

And then focusing on the one property in Eastern Massachusetts, that is coming off lease. You mentioned you got four potential tenants or prospects – so it was three –

It’s three and they had each toured the property, it’s a food grade facility and each of these prospects are food grade users, and so we have just begun discussions with them. There is no letter of intent, we expect RFP soon from them but nothing of substance right now.

And then if you could try to – if potentially leasing didn’t work out, what’s the market like for selling an asset like that?

Well it’s interesting – these three users are interested in acquiring as well as leasing, and it could be that – in fact, we would be selling – could be selling the asset to one of these users. We are seeing in that market that users are more interested in owning right now than in leasing because of the capital they themselves must place in the building. This has freezer cooler space in it now but as we all know when someone comes in, they have little bit modifications to their process in their business. And so if they are going to invest that money, they sometimes wish to own it first and then maybe do a sale-leaseback. End of Q&A

[Operator Instructions] All right and at this time I am showing no further questions. So with that said, I would like to turn the call back over to Mr. David Gladstone for closing remarks.

All right. Thank you all for calling in. We will talk to you again next quarter and should be even brighter next quarter. Thanks again.

Ladies and gentlemen thank you for participating in today’s conference. This concludes the program. You may now disconnect.