Good day, ladies and gentlemen and welcome to the Gladstone Commercial Corporation First Quarter Ended March 31, 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, David Gladstone. Please go ahead sir.

All right, thank you Charlotte for that nice introduction and thank all of you for calling in this morning. We enjoy the time we have with you and we love these phone calls and wish we had more time to do this. And if you are ever in the Washington D. C. area we're located in a suburb called McLean, Virginia and you have an open invitation to stop in and say hello. You'll see a lot of great people here. I think there's almost 60 of us now and we do have couple of dogs that actually come in and will greet you as you come to the door. Like to introduce now, Michael LiCalsi. He is our Internal Counsel and our Secretary; he also serves as the President of our Administrator to present the statement regarding forward-looking statements. Michael, go ahead.

Good morning, everyone. This report may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and of the Securities Exchange Act of 1934 including statements with regards to the future performance of the company. These forward-looking statements involve certain risks and uncertainties that are based on our current plan which we believe is 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 those factors listed under the caption Risk Factors of our company's 10-K and 10-Q filings that are filed with the Securities and Exchange Commission. Those 10-K and 10-Qs can be found on our website at www.gladstonecommercial.com and on the SEC's website as well. The company undertakes no obligation to publicly update or revise any of the forward looking statements, whether as a result of new information, future events or otherwise except as required by law. In our talk today we plan to talk about funds from operations or FFO and since FFO is a non-GAAP accounting term, I need to define FFO 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. 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. Please see our 10-Q filed yesterday with the SEC and our financial statements for a detailed description of FFO. Our shareholder’s meeting will be on May 1st at the Hilton McLean and we invite you all to attend the meeting. We ask you to please vote your shares so that we can ensure a quorum at the meeting. To stay up to date on the latest news involving Gladstone Commercial and our other publicly traded funds please follow us on Twitter, username gladstonecoms and on Facebook keyword; Gladstone Companies. You can also go to out general website to see more information at Gladstone Commercial on all of our funds at www.gladstone.com. And now we'll begin the presentation today by hearing from our President, Bob Cutlip.

Thank you, Michael. Good morning everyone. During the first quarter we acquired two properties and assumed debt that covered both our --, extended our line of credit for the year and amended certain term under the line to reduce our cost. We received an unsolicited offer to sell one of our properties at a nice profit. We issued additional common equity through our ATM program and recorded an impairment loss on one of our properties. We had a good quarter as we continued to increase our asset base by acquiring new properties. This was our 10th consecutive quarter of closing new acquisitions. Market conditions permitting consistency in closing acquisitions quarter after quarter really is a key team objective. All the new acquisitions we closed were tempered by the impairment loss we recorded during the quarter. We are still happy with our overall results and have a strong pipeline of acquisitions entering the second quarter. We impaired a 350,000 square feet, two storey Roseville office facility partially occupied by [UNISYS] because we changed our estimated hold period during the quarter. The impairment charge of $14 million is disclosed in our 10-Q which we filed yesterday. As you are aware we have been trying to re-lease the property for over a year after our tenant [UNISYS] downsized to about one-third of the building in January of 2013. Our leasing team, led by our Managing Director for the Midwest region, and our leasing agent, CBRE have engaged 23 prospects over the past 15 months, including numerous proposals but to no avail. We continue to try to re-lease this space and we currently have submitted an unsolicited proposal for a 40,000 square feet user and are waiting their response. The characteristics of the building present a challenge because of several reasons. First, 180,000 square…

Thanks Bob, good morning everybody. We continued our goal of consistently growing our asset and equity base in the first quarter. While our total assets actually decreased during the quarter because of the impairment loss we recognized this was offset by the acquisitions of two new properties. With the subsequent acquisition of properties in our substantial pipeline we expect our total assets to increase significantly during the second quarter. The amounts outstanding under long-term mortgages and our line of credit increased slightly to about $450 million as a result of the funding of our new acquisitions. Now to upcoming long-term debt maturities, we have the mortgage debt in the aggregate amount of $22.8 million payable during the remainder of 2014 and $42.6 million payable during 2015. 2014 and 2015 principal amounts payable including principal payments due in June of 2014 and three mortgages that mature in the second half of 2015. We are currently in discussions with the lender on the mortgage for our Roseville, Minnesota property that matures in June of 2014 to determine the best course of actions for this property. For the first time we've recognize an impairment loss on one of our properties since inception. The operating expenses, loss revenue and debt service on this property exceeded the rent received by close to $2.4 million during 2013 and the property characteristics present significant challenges even with aggressive leasing efforts. Our objective is to reach a solution that is in the best interest of our shareholders. As for the mortgages that mature during 2015, we do anticipate being able to refinance these mortgages with new mortgage debt. We do not intend to increase the leverage on any of these refinancing in order to continue our strategy of reducing our overall leverage. We intend to pay the additional…

All right. Thank you very much, Danielle. And that was a good report and good report from Bob Cutlip and Michael LiCalsi too. We encourage all of you, all of the listeners and those out there who might listen to this a little later to read the press releases and the quarterly report that was filed yesterday with the SEC and this is the 10-Q that comes out every quarter. There is just an awful lot of good material in those documents and they spend a lot of time putting it together and I think it would be good for you if you have a chance to read through that and digest a lot of that material. And you can also find all of this on our website at www.gladstonecommercial.com and also on the SEC website. I think the main news reported this quarter is that we were able to acquire two additional properties and assumed long-term financing on these properties. This makes it worthwhile as you probably know we already have a couple of those in the portfolio and we extended our line of credit and reduced the overall pricing under the line and we also raised some additional common equity to fund these new deals. We did have to record our first loss, the impairment loss and I sense that helps the incentive of our company by getting rid of that, it's going to be better in the future. We will have our further resolution of this property during the next quarter. But I think you're going to see the impact is positive to the company, getting rid of that one property that we've had so much problems with over the last year. So while we did have a loss we also continue to add quality real-estate to…

(Operator Instructions). Our first question will be coming from the line of John Roberts from Hilliard Lyons. Your line is open.

Good morning, David.

Good morning, John.

First hey, Bob. On the acquisition pipeline you said and I am sorry if you said this already but I was writing quick and missed it, $195 million under review $68 million under letter of intent?

Correct.

And what was the other?

It's $60 million in due diligence.

$60 million in due diligence, got it. And David can you discuss a little bit more the property not the one that you just wrote-down but there is another one with potential for a write-down that you had discussed in the 10-Q?

Bob, you want to answer that you know more about it than I do.

Yes, this is a 150,000 square foot industrial facility in South Headley, Massachusetts and the tenant has renewed it twice for one year after the original lease term was up, and so we will be once again, in fact next week we will be meeting them to talk about a renewal again. The property is located really in a predominantly residential area. There is senior housing there and some multi-family but it works very well for the tenant year in and year out for their overflow requirement, so we will see how it goes.

Great. And…

Small, it's a small, as you might have imagined it's an industrial building so the rents are very low on this property anyhow.

Okay, great. David can we anticipate what about a $1 million reduction in NOI from the property that you wrote-down at this point?

You mean the write-down at South Venue?

No, no the amount of reduction in NOI that you are reflecting in the write-down?

It's shouldn't impact NOI, John the impairment loss and you just write-down the value of the gross real-estate to an impairment charge which actually doesn't impact your FFO but it's not going to impact our NOI right now.

Right, but I mean it's reflecting a potential reduction or an assumed reduction in the income on that property I would assume?

Well right now our operating expenses are in excess of the income on that property, so I don't think it would actually reduce our NOI.

John the way I look at it it's really been [official] to get rid of it because the expenses that we're carrying at that in the meaning we're paying will actually go away. So we're actually expecting an uptick as opposed to a downtick.

Okay, great. And I guess we can pretty much anticipate that what you will get for that property has been reflected in the write-down?

Yes, I don't think it's probably it may not even be worth the first mortgage, I am not sure that we're going to get anything out of it. But my guess is that this quarter that will end up either giving it back or doing some kind of -- or something in order to just get rid of it. It's been a huge drain in terms of expenses but more than that we've had a lot of people working it and now they can turn their attention to putting new deals on the books. I hate to lose anything but we're losing the equity that we have invested in that and unfortunately it's gone.

All right, great. Thanks, David.

Okay, next question.

Thank you. Our next question will be coming from the line of Daniel Donlan from Ladenburg Thalmann. Your line is open.

Good morning everyone, this is actually John Massocca on for Daniel.

Okay. Hi, John.

Could give more color maybe on the CapEx spend in terms of TI and capital improvements you guys thinking you can have over the next two years. Is it actually more weighted towards 2014 or…?

I don't know if we projected those. Bob or Danielle have we projected out at least this year CapEx and fees and expenses perhaps for the -- I don't know that we have 2015 but Bob you're probably on top of that.

Yeah. We right now through the end of 2014 are now expecting approximately from TI and CapEx stand point on a TI side about $2.9 million and about $1.4 million of commission that’s through the end of ’14. And the CapEx is probably going to be somewhere under a $1 million for all of our property, so that’s what it looks like for ’14. Yes we are anticipating more in 2015 as a result of the renewal, and it's hard for me to tell you exactly what they will be since we are in negotiations with those tenants at this time. Now I would say that we will probably be looking at a like amount or maybe if a little bit more than that next year for the same John.

That makes sense and thanks for color. And then in terms of 10.3 cap rate on the Texas asset. Is that something you think you can see more of in the market I mean I know some of that was probably driven by the debt you put on that was already on those properties. But if you have unique assets can you see those higher cap rates?

You know it's as we say it's time the number of deals that you have coming in and that you close it's so lumpy that you run across good opportunities like that and hopefully run across those every quarter. But Bob you are on the firing line with your team in terms of the number of deals out there that you are saying you can pull out more color on that for John.

You know I think John if I had to compare this to the majority of the market I would say that this was more unique then it is standard. I think everybody knows even those interests have flattened a little bit, they are up significantly over 12, 15 months ago. And yet because there so much capital out, there cap rates have really not risen very much at all. In fact I don’t think they’ve really risen at all we are getting a little bit of a benefit in the secondary markets that we are looking at and that’s I am very encouraged about what the team has been able to do and the size of our pipeline and the returns on that pipeline. But we have not seen really any really upward movement in cap rate and just coming from another conference on triple net leases, no one really see in my opinion rates rising in the near term.

That makes sense. And then lastly quick timing question maybe for Danielle. The assets retirement obligations had traditional been positive than it was negative, is that just the end of the obligation or…?

No, it was actually an adjustment we had made from prior year for it was just a one-time adjustment that was made this quarter. Yes it's going to go back to what the normal run rate in each quarter for 2015.

Right, that makes sense, thank you very much everyone.

All right next question please.

Thank you. Our next question will be coming from the line of Jeff Rudner from UBS. Your line is open.

Good morning David and a very nice quarter. I have a couple of questions about a comment you made during your statements after the presentation regarding the fact that because of the aftermarket offering on the one hand you thought there might be more value in the stock and you also thought based on the yield that the price of stock might rise over a period of time. You had mentioned previous quarters that you still plan on having the aftermarket offerings periodically, is that still accurate?

Yeah, the goal is that it's a very low cost way of raising money. Unfortunately you don’t raise a lot of money, so as a result you end up making -- probably avoiding one overnight offering during the year using the ATM.

Okay, but on the other hand if you are assuming that because of the fundamentals the raw fundamentals of the company than the price of the stock might rise out of this mid 17 price area. My experience in the past and I think what investors the potential investors might be concerned of going forward as the stock started to poke up above the $20 levels it has in the past that we might have an aftermarket offering coming so anytime the stock got significantly higher from the current price, as long as we are having the potential of the aftermarket offerings out there people might become concerned about buying the stock much above $19, $20 area. Is that something that you consider of concern also?

Well we always consider concern for anything that knocks the price down so these aftermarket offerings usually and I speak from many of our companies have used it usually don’t damage the stock because they are not putting that many shares and there's a huge limit placed on whichever brokerage house we are using to do the aftermarket. So there is no way of knowing empirically what’s happening, you're really just thinking about it how it will work each time and hoping that you are not damaging the stock price. So our goal always is not to damage the stock price. It didn’t help us in the long run and so as a result we are all pushing that the ATM program works correctly. We’ve seen a lot of larger companies use the ATM program very successfully. I think it's little more difficult for us at this size in order to get a good ATM program going. But if it will help us grow the company and I am all in favor of it.

Okay, thanks very much.

Next question please.

Thank you. (Operator Instructions). And I am not showing any further questions at this time.

All right, well sounds like we are at the end of this program and we thank everybody for calling in and talk to you again next quarter. That's the end of the program.

Ladies and gentlemen, thank you for participating in today’s conference. This does concludes the program and you may all disconnect. Everyone have a great day.