Preferred Apartment Communities (APTS) 6 Nov 182018 Q3 Earnings call transcript

Good day, and welcome to the Preferred Apartment Communities' Third Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would like to now turn the conference over to Mr. Jeff Sprain, Executive Vice President and General Counsel. Please go ahead.

us third and quarter joining Preferred to for Communities' Apartment XXXX you this welcome morning, the Thank earnings call. each quarter we that review market hope of a had We chance closed. our third yesterday earnings released which report after the you to moment, call to In our I'll Dan his for turning Executive Chief and Officer, be thoughts. DuPree, the a over Chairman our Executive various Also Executive leaders Officer; Operating Officer; Chief Chairman, President with and Financial Chief and us today President of Chief Isakson, Vice are Vice our Accounting Lenny Mike the and Silverstein, Cronin, business our Vice and President John Officer; subsidiaries. our

the might we'll be have. Following pleased you prepared questions any of conclusion our to remarks, answer

are various differ materially. note and Before forward-looking risks our be may statements not we risks actual in future results discussion may a statements and during press guarantees and performance and uncertainties I'd begin, yesterday's of everyone uncertainties, involve to these about that made There's These like call. release.

and the stock DuPree. common outstanding like to review are of now based morning A to this performance. call be website information and that during basic per our reconciliations our Unless data used financial press average third discussion. the review be definitions over Dan that report Class with found financial you results today's shares Our and refer encourage for other your discuss quarter to measures on We for we share I'd supplemental partnership financial in on operating The can at press of this of also otherwise turn results our Dan? period. indicated, our all and may weighted release the includes release to terms pacapts.com. units our - non-GAAP during

Thanks, Jeff.

a third what highlights quarter number performance. of we believe The to is a solid had leading quarter of

anticipation over another Subsequent sale in Stoneridge Irvine sale of community loan over had next of the into also GAAP close sells achieved under or willingness any in a investment loss when properties booked a this paid a be a loan positively, To week of to about out will FFO to a FFO. two our top which of additional months, multifamily this Nashville not cost one will yielding adjustment The interest XX%. $XX million of these the of affect together we strategy closed of million These so. clearly underwriting. capital party over gap which On to our in in gain sold by no of previous by term $XX.X adjustment in allowance million multifamily we $X.XX million. we our assets, also price a interest investment, price the sale California older we to $XX.X sales community fourth did purchase in FFO to impact from original share a the a be be of a of we our with extended $XX.X Farm a reflect year a on or over gains sales Philadelphia accrued in on delays million of just we principal measure. of and was million share. IRR for Rise on our Stone balance per quarter of Combined impacted $X midpoint of loan was sale expect with these on quarter the receive two in with end, an XXX $XX assets the XXX on is FFO IRR strong $X.XXX excess which that Construction this this the from we unable sheet almost to and $X.XX but are $X.XX gap per its at not value $XX.X loan pure gain inspection midpoint recycling The properties. to in Midpoint per only of sale bad full, capture changing During or guidance both by the delivery our we to million. these clear, newer XX two properties our net project our gain, be third midpoint will XXX the the With on consistent is profit. non-GAAP ability excess assets repaid project the of increased basis principal our guidance but in was the quarter, XX.X% gap and of to mind end and a had investment, market. What in on $X.XX.X. generated for share

We are guidance revenues $XXX million. for the million our to to narrowing on total year $XXX

revenues third year, the our this Year-to-date, are minuscule X.X% and expenses up in part operating total recent large work quarter During on were numbers. X% to up appeal successes. our due we our good multifamily our same-store tax a continued

up cap balance purchase the buy the that payment value equal being million our In the a of terminations. the the occurs, purchase option cash a each from five which previous option of to to exchange terminating area term in terminations including It variety with the us. is can In real third estate the a of recognized our from same-store on value a will property focus for remaining discount be the still compression reasons, continue we purchase loan The for investment may of not to acquire the property. amortized approximate year-to-date underlying possible we value proceeds purchase stabilization. and discount. the over we If these receive the and however to booked quarter, we that $X.X developer option of our is market for by and loan. Our capture This loan of option will of is an program X.X%. elect NOI rate generally be to option market an make we asset are at a at

capture we've loan ago meaningful option investments our estate is in origination receive these of rates able And As a of Class particularly and that typical cap a rates at debt rates cap discounts sell purchase of and rate on of then for not between debt multifamily have real investment clearly we the however before, X.X% increased value difficult. communities X.X% Three on ongoing multifamily making around and the we are rates business. part asset discounts to have are cap even the X.X% Cap for them newer it acquire or continued whether A X.X%, somewhere are we years important connection put noted a the interest typically communities rate we with per would they exercised. to and compress a multifamily X.X%. as X%, deal the The purchase same to would example, more thesis. below scenario today XX% XX% different cost asset decidedly would between

to impacts Please did will these the Tampa moment. unique Our as discounts way Hidden we and access in with this a the our are quarter about that Jeff that acquire we some of nevertheless purchase business. Sherman third option in us remember River in we the we talk communities do allow way acquisition capital in

the capital A and adviser stock, stock traded our independent of our through sale M publicly investment raised the to Series channels. preferred and addition also we broker into Series registered common invest to the In dealer of sale

availability We between without this each have and the with month. future million about us been $XX $XX more Having from this concerns to successful capital of public extraordinarily commitments effort allows raising capital access markets. traditional million make source to

It have in-house only for diversify imagine shareholders, more to We projects be hard where type have would creatively. how A we how is in grocery this investing we successful. buy difficult asset hard anchored our asset student could single as office would imagine where to we are been to have metrics investments presently be It it a investment we is and more into expertise advantage if our attractive. type an capital retail, the as the invest Class because is to that housing successful we

majority we to to these two and While and up have make of advantage the to the our areas. have us execute our portfolio, in housing continue for other the capabilities, is it capabilities multifamily student an invest investments

to the on in to Our quarter flexibility. moments, the of quarter investments Lenny product across In to that flexibility third Lenny? With a stockholder to examples business this the over results. several is invest review turn most total few assets call model lines that me outstanding this, now contribute return. having the are our you'll third predicated hear let of value about

or quarter. third impact Thanks, revenues produced exception a Dan year. Revenues Dan. the results once are the for of were the $XXX.X quarter over mentioned, last for million the XX% good operating the very California at than quarter with third the third in again we that greater Overall P&L just for the transaction Irvine,

or compared of $XX.X for Our the third FFO million share million $XX.X $X.XX quarter approximately third per XXXX quarter to the share $X.XX XXXX. for or per approximately was

have stockholders. common increasing results financial us our allow continued pay Our to to a dividend to healthy,

common our of common on Directors an stockholders total the paid December dividend XXXX. at $X.XX fourth may to last Board you quarter per from increased have of payable read our As issued release press our share stock Thursday, to total dividends increase the represent XXXX this increase, fourth compared our dividends of business XX. to close record for With quarter X.X% dividend will

have dividend payment now IPO XX.X%. in our following dividend and our an XX XXXX, since stock In produced increased growth fact, annualized April we first times our rate of dividend common

million year, issued unit to and aggregate Series our quality common under $X.X our approximately financial XXX,XXX third the warrants stock metrics, shares in A also stock of to to preferred Switching in During meaningful previously continue assets portfolio quarter way. this exercise offerings. statement for connection with the of we issued a approximately add we and other of our

quarter $X.X billion was of XX.X% an last $X.X compared the XX depreciation approximately quarter year. third of asset, year. growth properties, total sale the This two since or were third primarily our by the last acquisition For increase the approximately the net billion of of third driven of of quarter to properties net XXXX or

for September increasing approximately months flow year. increase months cash $XXX million, ended of year in which XX In compared addition ended to this was last XX from to huge September total our XX% cash operations represents nine assets, of the a the nine flow

have Dan than remain Although this no time been there as surprises. interest last rates noted, year, higher

acquisition are with permanent our financing through cautious capped. a level interest fixed strategy taken interest our rates approximately have having for property variable of XX.X% mortgage rates approach debt We that

substantially our against lower. measured assets In of the at be quarter underappreciated the to market as today's book on the compared our which leverage XX.X%, last of the third ratio third based our on quarter, book, however, we year. was cap basically our end of underappreciated leverage rates the of was Yet same as addition leverage the value asset value instead would

to continue our strategy. monitor who's will interest financing responsible rates we believe connection determining third performance all for Sherman, their review of with the in will and this loan estate Jeff relationship for multifamily real division's between the We cap the what in closely is including ongoing the quarter. acquisitions investments efforts, management, and now proper rates acquisition the leverage Jeff? after

Lenny. Thanks,

start multifamily me everyone by of our overall strategy. Let reminding

remain markets Texas. homes in Southeast heavily we job located growing the Specifically of more and attractively in built, amenitized portfolio dated, mid-Atlantic, recently primarily apartment the We X target growth focused with million and markets people. strong than on in appointed

to see multifamily portfolio. for the continue offering We results strong

period are year-to-date achieved further X%. income point the quarter compared same-store and third rental months it revenue a nine the September For earlier, X.X% same-store year-over-year, has third to X.X% XXXX. growth revenue X.X% results operating XX, quarter of increased as while growth and same-store ended set in of for XXXX X.X% To total the same for reiterate revenue These net the respectively. supported total by made year-over-year impressive our increased

our In achieved occupancy of average addition, an portfolio XX.X%. stabilized

a and one one at XXX investment development multifamily new the Class supply community originated named Fredericksburg, estate Hidden quarter, It sold space location, in situated Philadelphia superior value quality. proposition. or our multifamily is that and A for and The apart for great a preservation competition addition submarket acquire Lodge irreplaceable it green to our quality The community loan for activity third our suburban the constraints epitomizes our purchased stands Virginia. outstanding be thesis to have for River Lodge of in of investment of investment community. an we properties from in portfolio northeast a either superior real Tampa, other Regarding form unit acquisition Tampa in The with its will product and certainly

even interest of in the public in the the Stoneridge earlier of in age safe lowered there River and the quarter rate. portfolio in face are criteria of period REIT noted we Nevertheless the aligns If continues compressing that accretive to be at factor third our summarized assets at the [ph] Hidden however, our sale youngest years, offer which in challenging finding X.X average the this and of our across underwrite those requires sales newer multifamily flows opportunities is environment, As our The lower over has expect. properties the criteria. become our projected and is X industry. approximately and further rates quarter, capital acquisition country age and both important rising to our Portfolio because cap expenditures whole average the investment drops meet and today's continue amount maintenance provides of features a that residents reason significant age pursue Lodge less we and The to cost years.

to portfolio to purchase divest to stockholders. our our quarterly evaluate Going and appropriate returns on maximize in a forward, continue when effort asset basis an we'll to

program. real is of Class community which to to Fredericksburg mixed This a and of and an turned for XX A for office, aggregate up of investment multifamily the acre is community estate Southpoint Turning closed Atlantic used multifamily. our in project $XX.X loan the loan MSA Virginia. of XXX We retail Washington part million on D.C. D.C. located construction investment a unit

XXXX approximately loans loan, XXX.X this standpoint, investment one of addition million totaling commitment. XXX,XXX XXth, loan outstanding The approximately at and XXXX the a XXX.X investment total estate From loan program units of now With of student square consists projects retail specs ways. portfolio our new dollar program approximately as has loan in aggregate half provide built and in we of totaling communities integral multifamily loan center and bed business December feet. housing A investment embedded real to our from always variety the carry Class model typically the can are that of be an in value a that been to provide It that of multifamily designs from we accordance very underwrite the beginning. part continues the of the pipeline us which reorganized developer, that outset XX

Preferred student on Let Campus of Communities, housing call now me Paul Head the Cullen, division. Paul? our

Thanks, Jeff.

housing in distance strategy within are best that campus. center X a create to class the the at student Our Tier located from to universities is walking properties of portfolio respective

of helped was move quarter the for portfolio. busy successful seasons student housing a this what period tremendously is third and in in July through XX Obviously total well. of mid The undertaking - all huge of residents Over terms units late to any XXXX. August, the time moving day all across we of platform, for a beginning a to our then operating handled but our our team

as an year activity in for XX% September of our stabilized four division see housing owns now year-to-date. properties a operating different housing Campus in Strong performing Communities, student strong Our with of stabilized states results seven leasing school expectations properties with also our continues student across current subsidiary portfolio seven Preferred XXth. line the operating resulted to student having universities. physical in occupancy average

it year refocusing housing to resident in strong We're review producing have the though proactive build next have XXXX to efforts for XXXX, events be expect resident management team for this school Rental important year. its the year effort set started, school up. another and deliver year. rates the we Even school for holding student Our year. school various lease XXXX, been a is on to team XXXX school an next is base already

student metrics foreseeable our growth, which housing to steady we As sector the future. provide consistent opportunity, is I believe earnings and mentioned will in for fundamentals of see up continue that last the call, the occupancy campus one rent

Anchorage, market Retail Murphy, the Let of Joe? Division. Joel our now me new Grocery, Head call on

Paul. Thanks,

performance. strong also another pleased are quarter to of overall operating We report

our and invest have to volume that and our have anchors that inquire growing continuing sub in two or maintain to target a market operate centers in acquire one sales a sub strategy criteria high investment centers center. dominant Texas. share grocery grocery-anchored that - now in suburban market particular are through southeast, that in number number fit and to execute markets that mid-Atlantic market stores We store We for

zero the of daily Leasing a basis totaled keeping renewing third year-to-date. Sear's, “R” of bankruptcy tenants was end the focus, XX our strategy, grocery-anchored and points to type which and Mattress and Toys the since XX.X% focused basis quarter which the filings an this centers end XX Firm space portfolio increase of at increased of XX XXXX Us. had our As Kmart, leased the includes points second we happy their with and exposure product result of tenants quarter

this We have our in value Carolina. recently completed we that and In opening below three ALDI in Market faster At We Dallas part of three market XX an core the the Greenville, in completed XX,XXX the square and our redevelopment. portfolio budget XX.X%, basis centers new third underwritten grand store. or Village was cost. plan properties Champions originally phases an Independence are at of of points second than Fairview foot Fairview of excluding add Houston, redevelopment the of these stages the Square our quarter, well in portion and redevelopment with the important South increase portfolio end in different of on quarter.

anchors this also with particularly are quarter and inline our of momentum of lease tenants. renewal pleased We the past

proactively complete. anchor XXXX all renewals of now lease We our our anchor are continue to expiration, manage

for the have of remain balance executed on favorable the feet to expect momentum We square executed of quarter square - have we approximately to of we total inline XXX,XXX square tenant feet a also year. so the of XX,XXX tenant execute approximately to and inline continue. the renewals XX,XXX feet Year-to-date renewals, we

our second Carolina North the MSA. geographical and our quarter, centers acquired in square Brawley the of of XXX,XXX and Commons excellent of foot we leading Commons, a in is per Brawley Sunbelt This diversity the strategy, demographic. excellent foot that a focused market anchored MSA in store another to and we market our portfolio is sub Charlotte with as Charlotte, in asset grocer like located the During high sales solid by much. our very adds shopping example square public-anchored market

We our positive We very we executed allow quarter. expense all in The new centers at the are upstream leased outstanding these portfolio. combination had and space. the to kept cylinders our bad little the debt We and on of vacant will rates. third We expenses managed subsidiary trends results. We grew leased. renewed markets higher

Sunbelt $X focused own nearly disciplined approximately remain XX southern diligence in opportunities, now of operating diligent Harris and being are to also million states of XX X.X we banners, on stay very marketplace also very both feet active XX As market type while leaders independent type anchored Teeter share lease, being these billion XX XXX while by we generated We in markets about Kroger, strategy, and inside our approximately we grocery-anchored our by pricing. square each and XXXX. with very remain were centers public the anchored acquisitions in today, Kroger totaling earnings in centers and product and are in Publix our new geographic and due are

let DuPree, Boone to the Division. Office Head over our of Now call turn me the

a not This we Joe. room developer completed Class at to single Thanks, acquisition A overdue XXX,XXX Subsequent District. square in It Raleigh, grow targeted Carolina up In manage local strategic is There about. and building the fundamentals a top digit Central closing, vacancies third repositioning excited tailwinds strong Fayetteville an Business only quarter particularly attributes a to foot PAC some lease, the is get submarket XXX the we for we North also us and upside. we offers Realty efforts into deal is are of and market our office with which demand but in growth. oversee property. King with stability teamed to the of repositioning

by lease that eventually than design and million floor. well underway at company's the and leased [indiscernible] assets. and We end pre-construction will A with term. this confident level include incorporate weighted square amenity retail driving curb street of X.X renovation years across remaining some are the We average Class stood new plaza now first XX% for will investment X.X building's feet recent this lobby, Including property the pay in into off more We're quarter at acquisition, approximately office level were X appeal portfolio

Smith Our top XX% USAA, base years weighted our represented portfolio's more Harley of Clarke of and nine & term five Farm, tenants average rents having lease and remaining. IHG, together than Anderson, State annual

with our established developing investment real more for we Looking we effective Atlanta, critically quality is dependent leasing competing With entry opportunities and rental perhaps high portfolio ahead, on and platforms, markets Nashville PAC's within investment a and to strategies Austin. to back focus estate sourcing office local centers now leases, me is on and upon other, At that duration become we'll Each continue expect to of plan. multi-year the have features considered let industry that success nuance. verticals to larger, Charlotte, relationships, its on be that on we diversification. credit any this thesis time. Raleigh, and level, assemblying that strategy, than market transactions, successful extend has know The self-evident intentionally, and Dallas, with own business, call Each to one-off formulate beyond more focus, a operations Dan. over the turn our

constructed strategies delivering the and consistently to strong place Thanks, Boone. market our building on our visions has a continued carefully team ups excellent and executing financial do an downs portfolio, Despite of the job results. and

allow strategies have nimble be investment solid and effective. We variety to continue which us innovative, of a to

Our buildings on to investments office centers in very proven housing, grocery shopping have multifamily anchored focus well. core and student our complement

these the that loan place the of and generated investment all created purchase potential a back real options, together believe we've estate investments embedded continue sustainable to value our continue by in position flow discount with to have. thank to deliver cash questions and us open our to morning. to you I'd our floor through call to We our like to consistent, earnings this for And like operator on the back may turn I'd any for that With you shareholders. our for results outsized that the joining you. Thank program call

Thank you. [Operator Instructions]

DuPree, I like session closing would and back to to any - Chief the Dan to over like conference concludes remarks. our Chairman Officer question-and-answer would for session. turn This the turn answer Executive Okay. I

Again, point had morning. thank what and with in $X really We reported we for a be million that don't morning. you one we participating loss that reiterate we're very - we clearly distort here the all believe to key to solid let the a with I our want had of a this balance Fusion quarter. project the taking this -

investment Our $XX metrics the a up recognized It's gain, of of hit. sheet. that GAAP This are gain. along were across good. frustrating know, It's We not on an our $X have with But basis you - hit the with absolute Numbers of to I really headline board. things in our one quite absolute seven probably it's won't comes years to remind loans the show of we one isn't wash. million But baby across we on balance can project estate the would sometimes sale XX assets kind million last. that on first is it. and the taken realize throw the the out real profit million be last through dollar the the that the you the reflected

who be answer any you call, what remarkably Joel, Ben, myself this we're this any have. like discuss of have gone to If might do to kept Lenny, you happy Thank call. John all on please morning, us - questions questions a you over quiet for any participating. you give other again we've Jeff Paul, Isakson

for today's you Thank presentation. attending has now conference concluded. The

disconnect. now may You