Preferred Apartment Communities (APTS) 30 Jul 192019 Q2 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to Preferred Apartment Communities Second Quarter 2019 Earnings Conference Call. Please note that today's conference is being recorded. After today's presentation, there'll be an opportunity to ask questions. [Operator Instructions].

I would now like to introduce today's conference call, Lenny Silverstein, President and Chief Operating Officer. ahead. go Please

review joining Apartment for hope morning, welcome after chance and each which earnings Thank released we second us quarter Preferred yesterday to a had Communities' you market We second XXXX to quarter of report closed. you the have this our earnings that call.

DuPree, Financial CEO, second be a detailed hear share I'll moment, over quarter a on of to results. the call the and to the of Officer, our our John his thoughts In company. turning Isakson, will operating Dan our Chairman Chief state description

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

with our Properties; President Sprain, of Also Vice of Multifamily Executive Business Cronin, Sherman, Preferred Office Unit; Boone DuPree, Properties; CEO is Chief Jeff this Market and us Mike Accounting Joel Officer; Jeff New our Director President and our Counsel. Managing Murphy, General morning of

know during not statements future uncertainties, we everyone forward-looking various risks materially. results may begin, and are statements that These and actual made to may be guarantees and call. involve differ like I'd performance Begin of the

about discussion a in and risks is There yesterday's press uncertainties release. these

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

I as multifamily anticipated originated, within future, Apartment take and assets can want an include good differentiates our assets that company was Before diversify cycle. designed harness the industry. lessen in the some inevitable wanted we the moment public reflect purely ways expertise on John, PAC multifamily to power estate of a the other it the Preferred Communities We to from I a developers. in was itself how into to stockholders manage to real common This to to REIT has call over turn When that risk and owning the in to to account held of stead. would third-party degree strategy business to managing us

company a to you harness as from No to later for year before, our to have ways. looking next we're In be take DuPree, bottom the we abundantly is depth positive ago, since and unique to launch it the our associates, that commencement of as years we due and part as eight of company. effort, IPO, also of top have end, to transformative us and we much our our as the how matter will with all to you creation little focus this in hear this over successes achieved a believe of large our of a continue Dan strength entrepreneurial the clear spirit clear heard to several is to level. As a in the we roots on is that abundantly the our want well company operations culture

capital $XXX over alone. raising Series broker/dealer our and preferred A securities, That successful raised we million program. entrepreneurial in stock preferred during this designed highly our to preferred effort also Through extends and second capital mShares sales strategically quarter stock

preferred strategy, and stock capital successful current next finish the We raising designing as are up these early offerings year end of a already this year.

John John? turn to like call I to the Isakson. would over now

Lenny. Thanks,

of the $X.XX of a a of share, and share. XXXX, quarter the For generated $X.XX $XXX AFFO FFO second almost revenues company million,

quarter of to second our that revenues all the our note verticals. growth in continued You will XXXX up of from owing the are XX% property over

common outstanding by preferred our For million $X our over and by the stock up quarter, XXXX. quarter increased almost was dividend the X.X second almost stock of second million shares

FFO, amortization intangibles the leasing costs. due reconciliation may million of note of period In was and of last the these approximately amortization terms, reviewing acquisitions. deferred assets in decrease lease assets so occurs the multifamily Multifamily intangible item down pace slower the from same you This the a to $X.X year quickly. line have of shortest

amortization the heavily have acquisition As which on goes weighted more other amortization lease the down periods. becomes longer in terms verticals volume our of thus items longer segment, these and

purchase decline these by fees of decline the expected accruals in in the loan. fees We of as more versus AFFO these the was of revenues and the adjustments due booked of million almost cash. termination as actual to of fees $X Our booked option accruals over term payments driven part being revenue related

calculation are and us the capital we where accruals will the Sometimes upon received When accruals, early this of sometimes receive calculating Footnote amount event. on be point. greater the net the Please cash our in it our the see be exceeds cases further than in deduction X the clarification developers the AFFO. related pay AFFO. in received, the added cash cash In the will a SFT payments a for

sheet uninvested of the had Our end we quarter. also cash on the the balance results at are affected by the

are deployment the affect our can in timing and mezzanine As realization sometimes loan pace our the program. transactions on loans and returns acquisitions both of and unpredictable of our we lumpy mezzanine have past, both said capital

the common company common XXXX, quarter almost of dividend stockholders quarter our dividend per $X.XXXX the a second share X% the For for to the to of greater than second stockholders paid XXXX. paid our

we increasing stock. common to the previously focus As we our on to continue flow have discussed,

exercise issued under stock quarter of of the our redemptions an million aggregate stock the connection warrants X this and stock our A of shares previously year, and with Series unit almost example, During second issued for our we common preferred preferred in offerings. from

the representing XX, XX.X% XX.X had to June an approximately stock outstanding of year. we XXXX, increase Overall, of compared of common last quarter million shares as second

seen in quarter have the four we perspective, in rates off sit have markets year. interesting peak Interest recent almost points sharply developments. two basis declined of capital some last XXX the last and currently quarters a From

will We continue and interest believe global with conditions. be to pressures volatile domestic in that presenting XXXX unpredictable rates

recent strategy. the portfolio rates and volatility, for acquisition XX% uncertainty interest and of interest our has we Approximately rates financing approach taken the property in capped. mortgage cautious have environment, fixed or the a variable Given debt that are permanent level

as allows This to up current us us today total the $XXX in the feature borrowings line million of foreseeable $XXX the zero under and we believe to future serve the the have we credit well Our accordion facility of the line expand capacity our will additional including of are feature million. current facility. for

when completed the million. the recently to program one price We favorite our of that at raise The by been preferred is ATM growth which the re-filing so. doing set both of common new to accretive and runs $XXX is is ways stock fueled program for stock. Remember has years our our the three capital and

common the we price in as grow. limited when not isn't to our favorable, are ability So stock

our The net of front, rate have to company of On advantage acquisition maturing same loans to off attractive XX a rate and with refinance on rate the terms. property drop loan all loan we floating risk a approximately with recent rate XX-year refinance multifamily fixed the some taken continue basis asset deal table, rates recently the a fixed converted our on to lowers interest the by in The utilize debts and maturity, extends lender. loan the points. types longer-term takes our for

addition, In the prepayment waived lender the penalties.

only So company. for the create the expenses transactional marginal cost

in XXXX maturing debt have $XXX approximately remaining of million We refinance. to

assets We in have the already and begun these debt locked most securing of cases have already the process rate. the the majority of for

For both portfolio, our agencies. preferred have status primary Mac with multifamily remain enjoy excellent borrower relationships Fannie lenders. and Freddie and our Mae We

lending worth scrutinized the signaled has in future. and will will XXXX for regulator GSEs and be in is caps that that It noting be not closely more the the raised that now the the agencies for uncapped

While do has difficult. GSE some prospects been environment, in have has market for considerably is the few restrictions, political remained of become more months. to uncapped volumes the business strong the this increased last and increasing losing to the agencies spreads the Due have has and transaction the share ability the widened marginally, of GSEs brinksmanship,

to between of transactions, pace company assets competitive. attractive for We and the this debt to more slowing by multifamily continue at spreads widen like and down. balance loan no expect show the somewhat dictated of and to which volume Ultimately become spreads point be will signs

our for grocery-anchored that product pool lender demand The debt the deep strong. and remain for retail remains

for on deals these We a competition the debt as contraction have has grocery-anchored increased. in recently spreads seen

transactions terms also office these transactions loans and and through lender These maturities lender continue Office are life serve smaller are in deals is retail although typically be which have grocery-anchored longer. the deep may comparable acquisitions that and financed manageable for pool companies relationships our Nonetheless larger to of strong the well. a than retail are for we community with seen lending multifamily size. our the to one generally are more demand us the

now to over I'd to turn like Dan the DuPree. call

John. Thanks,

as intend us and our decade, set year, a which I in will position shareholders continue consistent in next this predictable in believe, referred for In we to to over structure a to and our a deliver transformative call, quarter put course more first we year way. a that to value the a

total XX% the multifamily is the XX.X%. were same-store achieved second increased end down quarter, comprised revenue XX In has which strong this road of a Operating and occupancy the been approximately to of X.X%. on multifamily expenses of NOI by very revenues only first up quarter, step our At same-store focus and X.X%. growth X.X% properties The operational same-store results. our was of asset

year, half first up X.X%. the For NOI same-store of the is

to our disciplined have results, addition parameters investment. units operating we strategies to operate. on and focusing In in and Each defined in be patient which our new they of approach continued specifically have business to

more are of household at to growth growth. In job with looking leads multifamily, a people formations. solid or we generally million Job markets

and majority than less Our our in of types the two the portfolio geographically multifamily is located states our property is multifamily but Sunbelt other bound Texas. business

one portfolio. being foot totaling heels of X.X square aggregate, square dress new to three be claim million our and X% allowed of that of given focusing the Put bankruptcies, in represent and the beyond the that number live universe. less strategy bankruptcies, such loss of that average of closure, chain market store proud market. on feet X.X is years that and X,XXX has numerous X,XXX Joel carefully the and two traditional crafted multifamily Murphy, retail years by to old is The Sunbelt the has youngest grocer new only He far strategy portfolio markets, a portfolio in to Mid-Atlantic the at that five has experienced on in his grocery-anchored it retail RadioShacks him these bar. or in traded context, foot than only publicly on two the REIT market square share In one-fifth tenants one retail

The is office still. strategy simpler

are We Nashville, Charlotte, focused on Dallas. markets: Austin, and Atlanta, Raleigh, six

with Within restricted these is to we our mass critical select rates. markets, create submarkets growing where can fragmented ownership and major drive focus

multifamily This in Tampa, X.X users. million medical, construction community aggregate XXX square within to Our up $X.X feet XXX containing Corporate on group investment loan hotel, of is acre unit of Hidden million a office, plus Park for A and the Class residential the closed Florida. community located River of

Our mezzanine $XXX now units. and book be now XX This that just excellent own of to acquisition. for in source and $XXX book, multifamily XX,XXX of loan XXX,XXX to-date. projects under million revenue million, loan containing a We program meaningful is pipeline an continues commitments funded has

our assets. And speaking three In units, new attention let's second turn the closed to of grocery-anchored on we business quarter, markets.

DC Giant X. share for is market one U.S. the State State market Bowie banners Free This and located the for is the the a first Giant first significant leading entry largest in anchored foot Maryland. new The and in one number of our a square center XXX,XXX into center is of Corner Free of the world. Delhaize Shopping marks and new heart by is acquisition DC, Washington grocers Washington as MSA DC The of Center in Ahold Baltimore one relationship the is grocery our the

located centers in other acquisitions both are Florida. The anchored two Publix

foot entry center the of market Disston grocery-anchored West of grocery-anchored center Grounds Palm populated XXX,XXX in is submarket XXX,XXX is located Petersburg. located foot St. Polo to the Plaza square high Beach. barrier square densely in

now six the now the XX of country. fourth properties, in two these in the and Publix centers With Publix addition largest are we landlord anchored states own

fact redevelopment that portfolio renewing space, happy excluding and evidenced us of our is leased. XX leased. tenants and total At quarter, a XX% Leasing focus as the the for XX.X% was the of daily end second are our XXX% portfolio tenants, by keeping was XX the leased centers

with results lease great renewal our have also efforts. We had

As of operating today, independent shopping over states, we with XX own leases. XX centers in nine grocery XXX anchored markets

lease we with Raleigh executed office XXX office over in office a here subsidiary, feet feet over and totaling on of $XX Fayetteville we building. Attorney's common XXX,XXX any XXX, square architectural Atlanta. U.S. from of we preferred the Carolina, our million own took and total occupancy XXX new three leases continued lobby project the In properties in for North of when the the building office a a square acquired updating Fayetteville site design XX,XXX street we our areas. extensive proposed obtained Office work we we Across value continued

prime on XX this for office more market discovered already site we site was office storey than due new to we Downtown for at in being restrictive development XX% And In building. got despite free. is a diligence that highly up essence development a approved our occupied,

a XWest sold held a million fee. for to senior loan third-party development XX, we on On office construction by the us $X.XX June

a sold a We this development. hold IRR on we return the IRR a with short, $XX,XXX,XXX return mezzanine continue high-teens of and single-digit loan transaction. In to retained

At Class weighted the lease robust quarter-end, the average markets. of XXX% is foot built average building portfolio we square in however was of office quarter remaining Subsequent North XXXX for A years office end Carolina, a weighted with Hills building of term years. of acquired X.X was Tower target X.X submarket CAPTRUST mentioning to term XX% Raleigh, the leased North remaining. XXX,XXX the after lease in leased our This

million at well seven Our office more portfolio across very X.XXX feet properties. stands located than today square

units business office day, in their the focused to responsible with teams and on are strategies experienced for members results on businesses. intent driving the who business are segment. that with our particular development Each each They self-contained entirely are are of every have in team of come their respective populated

It things. culture and sustainable. moving of For That annual to the that an wisdom year It perpetuates Since of toward internalizing quarter, means that means means capital is unique the create advantage balanced taking multi-tiered is exploring the assuming what we we of believe create of our dividends. us manager. first plan given stack lot that succession different equity transformative listed reinvestment we a deep to bench day a our were the through returns. last have second a to of common XX.X% be means our more return a outsider day shareholder driven the shareholders

long to investing opportunity in of taking portfolio are make which a classes sure look We composition are believe we also at the we asset the our offer success. best for consistent

quarter, an entered July acquire disclosed money. on asset this June student on elected to from purchaser the the filed of a portfolio. X, eight second unsolicited forfeited due end the the portfolio operating serious we in a filed sell in to XX, prospective and the diligence entire received period as contract terminate earnest to agreement, on million disclosed an XX, At $X qualified X-K X-K in into as and housing an our After May we consideration, very During offer purchaser. a

a the on X-K a money July to closing at to purchase new request two of has time. As they we these assets enter risk there later elected withdraw date this more our in portfolio. with agreement for we now these properties consideration $X.XX further was into of After yesterday did eight value purchaser six and to to earnest fourth quarter. the believing over careful assets agreement signed new X, be This from properties million harvested even in student six on a sell disclosed of deal set housing that

business so for a student with a consistent us exit step step more approach. housing election to us also do by -- but segment prudent to measured an the and This is strategic

segment. second segment, supply the This relates this in view we be is outside be we scale, housing strategic what on more discussed decision this the and to significant into successful this in of balance Our the have to the our human our student unwilling to that at metrics call. were financial exit we believe segment, out of transformation that invest some need in capital to step to we to due or

of considering as proposal Apartment in structure. making process and company up directors committee the internalizing that work regarding board year, from external step transformative that continues on informed legal Advisors the Preferred a our appropriate internalized set long-term The could The a third manager. independent our an X-K of manager composed financial manager was April the X, file company and to of through and The the many with aware disclosed special this and process benefits this be result the ongoing. advisors to are it

will connection note these be will we in incurring process. that company to you As continue the benefits, explore this long-term with expenses

between stock channels broker/dealer and and $XX We into million RIA the monthly. preferred issuing $XX our million are of independent

have $XXX We raised over year-to-date. million

to gives capital capital allows clear us advantage Our steady predictable ability us and visibility in to competitive raise to this network through attractive and marketplace. the have inflows tremendous

this the within invest accretively. put strategies The steadfast capital At verticals. we availability uninvested same pressure discipline of have on focused balance on to us periodically to that sheet. this invest capital remain the can this time, capital We is result of our periodically our efficiently

The full $X.XX earnings our final and adjusting have to not of that in call in and on FFO positive on share. visibility and form, when some to of may believe impact strategic create potential per moves moves our on per $X.XX it our they company. FFO currently are have cumulative a Until we share. XXXX filings we these significant materialize as these guidance effect But short-term will articulated long-term volatility we large this

and energized into team of of evolution is phase as this the The company. next move we excited the

relationships external shareholders. for which real is outsized order and what companies have exploit to create great in over continue to our estate do historically our abilities returns time will We to done seek, entrepreneurial to

earnings any us may our this will over thoughts operator for to you morning. the I or for thank to now have. the turn like call back the for you I'd open And call questions to floor joining

you. We'll begin you. Instructions]. now Thank Thank the session. question-and-answer [Operator

first comes Research. Merrill Compass question ahead, Your from Go Ross, please. Point

exit year-to-date was aggressive balance is as a and housing I'm maybe being basic have sheet, Hi, into been at opportunity up smaller your you activity thank another looking was you. units you open do then into but having follow that feel have depressed. is I'm the student wondering you you developers I or your wondering there sufficient acquisition that vertical. may another type expecting you somewhat three Well property Do what if remaining? in

point, Dan. really with the this is Merrill that three And at this have. we we're think I property comfortable remaining types

have and -- categories in bumbling execute, this the We in three way a as great think talent the success shrink we is all exclaiming talent, sheet temporarily. key to have will the those having balance of to I

an do retail that think has Joel, And, we're his pipeline have those competing pipeline. course multifamily acquisition office in process extremely in we of a We the of on and larger. projects been active front very tend be been to deep has deals of for deal, in when I the

I got think in XX of last $XXX days. acquisitions million he's over the

utilize going to we're capital be from that think the I to the So the to sale able student. we're going get of

use I to think it quickly. able be we'll very very,

could if out we of with to do the and got fairly just disciplined that a take historical whatever just the people cash money deploying went does lumps, have are to stories raise not of buying short stay a issue they then time. point period There of possible capital. buying in the for comments for space not that on a assets to undeployed channel we quarter in we and to the the buy. an to alluded is number that. going We're of to going the bought amount We're our it sheet. broker/dealer and We'll balance assets But considerable in capital significant as ended sake the where and

But this answer. is very wordy

verticals think have we're the to everything wordy this We're we morning I've going now. with but I stay. been right done stay has to three very going

is think discipline key. I

and unrelated internalization? based External on manner, Manager are of there board follow-up the Just in terms any at that timetable on is looking the [indiscernible]

complete. a appropriate to on we to time look put No, We timeframe think are I want We diligent. have at being an deep it. think we thorough timeframe, is and we it but a a take don't this be don't

Silverstein concludes This question-and-answer conference would you. back to Lenny to I session. Thank turn our the for closing over like remarks. now

We and quarter We up this Thank morning. you your an look enjoy time spent third appreciate exciting you forward us Thank very quarter of much. the for all to much. the you've day. coming the rest very with