Preferred Apartment Communities (APTS) 5 Nov 192019 Q3 Earnings call transcript

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

I would now like to introduce your host Lenny Silverstein, President and Chief Operating Officer. Please go ahead sir.

us quarter and XXXX joining Apartment to for third Communities earnings you this welcome morning Preferred Thank call. we quarter We have hope report, third had you after which earnings a chance market that to review each closed. released yesterday of the our moment, our the call I'll results. third the quarter John over a share turning Officer Financial operating Chief to be detailed a to Isakson, In company's description of share his company. Dan thoughts the DuPree, CEO our the Chairman state will and of on

PAC; Executive we'll remarks, this be to Following President senior the and Paul Mike Unit; and Office prepared conclusion Sprain, Properties; of Multifamily President Boone Vice Cronin, have. Jeff Preferred us our questions Managing any Officer; Jeff Joel with Preferred executive company, our General might President CEO Business CEO-Elect morning pleased our you Executive DuPree, our our New of Murphy, answer of Campus the Vice Cullen, of Managing Sherman, Market and Director Counsel. team Director Also of Properties Accounting Communities; Chief of and is

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

quarter used for third pacapts.com. may release also financial that today's press the The includes in non-GAAP and with release press at reconciliations other financial on be terms discussion. can data supplemental website Our measures definitions be of report our found our and XXXX

and financial per-share morning basic A period. based that partnership outstanding of otherwise the your all we discuss our stock shares to the units Class refer to performance. We results encourage you during information on average common indicate review operating we and for of Unless weighted this are results this

our broker-dealer sales preferred has $XXX gross mShare of raised we stock-capital preferred component third Through almost our success from the A quarter and capital designed million been stock preferred our successful raising during highly strategically alone. Series securities program. key our in A and proceeds

come to next will offerings The of to solid us preferred launch designed enable continue these As our close months programs real preferred-capital over and objective. stock our few capital-raising of our $XXX to success estate third acquire growth we raising an in us a strategy assets next million enabled year. this million new quarter during approximately investments has almost to aggregate loan new $XX originate of in the the

A shopping almost areas and industry in with September goal in XX we XX real XX to pleased As operate. development have year, Class our our emphasize on continue center own the XXX in of housing, investment $XXX culture the commitments student look back now and Through focus preeminent communities XXX we associates, giving million. we've becoming operating outstanding office this training and of momentum. these REIT We're of to achieved our with properties this successes and grocery-anchored particular Texas; and of Mid-Atlantic aggregate and our publicly-traded philanthropy performance, markets the to multifamily, which extremely we loan of our in in Southeast associates of continuing the forward our the primarily an estate and states

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

Lenny. Thanks,

of FFO share. revenues $X.XX AFFO PAC generated quarter the third of $X.XX of over and a XXXX, a share; just For $XXX million;

last our in year revenues all that, the XX% of continued well. the are same our property owing growth will our as compared quarter You from note FFO is to the and over verticals XXXX of up over third XX% to up period

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

that In you item It is growth in and in to note XXXX. reviewing in top income sale of significant includes note the decrease the gain had we a sales QX estate despite important line revenue. our line financial sale real XXXX in this of QX no and statements, may of operating on

Excluding on XX% XXXX. was sale, period over the the same gain income our operating up

option can variable AFFO interest part our swings. in quarter-to-quarter Our items; accrued variability two of can can highly The be large income or and and year-to-year, amortization in to we from have line dramatic termination attributed purchase revenues. AFFO received be

received. for year, had quarter third this that million to accrued compared almost the we income year note will last You in interest $X.X less

comes actual or quarter, a cash While the interest accrued the property. has either investment refinance income a book capital borrower real estate Meaning sale this payment the when of loan of interest in a we every event. the under

Sometimes pay sometimes us cash events. we receive cash these payments early the one our developers and upon flow from capital of

total interest variance have This AFFO. more in accrued our item example, in any quarter, line for payments. did income accounts for we not The the this than variance

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

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

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

markets sessions. recent in a recent off narrowed almost peak points declined although From sit third perspective, and basis quarter QX capital seen the the in some in spread have of year, Interest market. trading the has XXX currently in again we developments last rates that interesting

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

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

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

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

was XXXX the to current regulator the uncertainty and will takes concern production million generating In end been last we QX to XXXX. considerable caps of agencies at the the pressure production sets This quarter, over each quarter, and the the produce bar new have agencies the FHFA, forward. a As generally $XXX GSEs allow from market. third considerable there out going of levels Fannie's the for noted structure and cap Freddie their and volumes the that announced

Due and significantly to have agencies concerns, the ability transaction the environment remained uncapped strong GSE above-mentioned do widened to business and the become for volume the as more had the spreads difficult. recently

a to signs debt spreads With pace way assets be which somewhat spreads the and a balance competitive. loan will over be volume Life this new company expect slowing in of we but of for and multifamily between transactions, Ultimately shows no of contract structure, measured the period months. cap down. dictated continues to attractive by

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

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

through also maturities the are companies may transactions although that financed terms office multifamily, comparable generally be are with to longer. and life Our retail

serve our retail to size. lender in is which more a we for larger lending pool deals community than us grocery-anchored smaller our one and strong typically the the the deals, are continue have our are lender Nonetheless, office relationships acquisitions These seen and demand for manageable deep well.

me Let turn DuPree. the now over to Dan call Dan?

Thanks John.

business has our As each a units creating we have strategy previously, for very specific of discussed value.

is growth. than million business on markets focused and good recently-developed multifamily suburban Class and A Our properties with typically people more greater X largely

a of square are Texas. multifamily month XX,XXX have rents Georgia, Florida of in Average quarters XX our almost communities three assets or $X.XX a Nearly states: units. Overall, foot. we with three and $XXXX

strategy XXX% Texas. nine grocery of two one Mid-Atlantic, and the anchored located is within or number the market retail owned the totaling in states, market Southeast feet. anchored, we XX At square typically grocer in shopping QX, centers Our and X,XXX,XXX the share end by

Publix and biggest GLA. with our one-third of major stores our two Kroger/Harris tenants occupying Teeter are XX

We country. fourth are in now landlord the largest the Publix

still of Charlotte, Nashville, to we and strategy six Raleigh, a Austin Dallas; which is Our focused Class seek A Atlanta, with portfolio properties. office property office target create markets: in more

and Our real both for the estate growth since loan profitability company of the very beginning. business has a been driver

X,XXX book student square at of covers housing loan and Our over units; XXX,XXX drawn million over current XXX,XXX The of that stands $XXX.X feet $XXX end. beds; million retail at space. multifamily square X,XXX office XX space; of feet loans; with book quarter's

new Our is loans loans relatively off as pay are loan and constant book initiated.

total our plan our their result business were book XX% assets focus assets with the continue Each At operate on a dedicated XX%. that loan was now to and time, for of results. solely a business to This the with once business of starts unit. the same concentration total with is operating teams units built respective our of grow

the office; estate real real At XX% and loans loan XX% of investment XX% asset composition our student the XX% housing; retail; end was and multifamily -- quarter, estate investments.

a X.X%, quarter, growth same-store unit up For our very set, multifamily strong in Expenses revenue held NOI X.X%. X.X%. the so of to same-store saw we

same-store Our occupancy XX.X%. was

growth from of in benefit portfolio peer is operating strong X.X group. youngest our reflects being years at A Class public portfolio results. old NOI All significant same-store our a this the Year-to-date, X.X%,

excluding we redevelopment continue on is focus unit, business retail portfolio properties our XX.X% leased. to our leasing, where In

Over rates. at had grocery which their eight renewed the have course their XXXX, of we now anchors with leases all rolling, of we leases contractual

rate results XXX,XXX renewal We leasing had strong have very renewing with also efforts, with shop spread. strong square year-to-date feet our

area feet feet again X% XXX,XXX Office XX,XXX signed which Preferred our results. year-to-date, office subsidiary, square new Additionally, bring leasable portfolio square strong totaling that to signed portfolio, Year-to-date, the about than together has of leases more XX% we've office operating of leased. of leases Properties or very

are by the Not or space square economics but Of to we year-to-date, XXX,XXX a vacancy office are we we feet properties. of our a property. XXX,XXX customer acquire compared that meaning driving previous inherit we materially we buildings that feet renew those either leases square full when second which the at generation, vacated customer relet first-generation only are keeping lease as

On roll-up number. an we more than those of leases, -- rent cash stunning roll achieved average XX%

Our results. portfolio-wide property-level again of on term properties strong our we eight have has maturity office nearly operating weighted properties years, The is our XX.X lease debt average an average years. -- remaining

the issues results and is our With long-term internal believe handle success. tackle will therefore major this operations, for consistent a ultimate long and company Our of are success the it to has for the company focus we the up been and set on operating growth that term. good foundation solid transform

and track contract qualified specialized a buyer housing to anticipate that significant fourth with portion of This had we experience deal continues portfolio product. First to to this student sell a a in considerable we June, very announced executed we in a closing. quarter our

made to as publicly-traded portfolio. no of are we decision a our occupancy this smaller creating that XX% notwithstanding over in student REITs entire across a PAC periodic have results this market disproportionately belief such vulnerable current out We housing uneven did cap housing of given which student control. oversupply product in We that

have of the a to of the success has believe value PAC determine size of a retaining without process both to been We is no that couple been manager into the focus There's we an our results internalizing markets. be way that Similarly in we year, order in this student to each. critical no announcing PAC company of doubt structure There properties we to entity. externally-advised structure. were We'll that and to-date. seen grow to the our start the the able X-K we could benefit beginning our in this have and more on of public them exists housing earlier two this filed in capture

external We be recognize would to however public time that the into need when the there outset company. integrated manager the would that a come

not help of XXXX. or that succession X, to assuming result ago, CEO We A correct time. plan is January the the we this currently of process a announced in role on a will couple are following weeks determine Murphy whether Joel

executive day-to-day involvement I Executive Chairman plan least title. year removing at the before one designation the Board of and Board as from ceasing the the Chairman to of for remain

we of I Joel and and on, together years. XXXX XX been both When compliment we identify to for & ago, we passed the in was knew we is have away the outside But my we needed involved months John companies a long-term attorney that at have together. private wouldn't to Initially public worked It Williams knew successor. to Joel over King have building. he look Spalding. from XX

hands. company for in great hesitation Joel with can worked so Having without I long say that any will be the

both in for well personnel talent the company is -- future. experienced Joel, bodes is rich the Beyond which rich and both young visionary our

for costs are night, numbers. be supplemental direct and minute. In extraordinary we talked like costs if the housed indirect of backed These guidance FFO provision anticipated did internalization past. last guidance when internalizing for a were as would and I'd related our external about we about originally are manager FFO, to in talk of costs our in we out the was included. these core Because was reporting not a provided, not was consideration that

the guidance now and If end capital costs back unique our ability at the we for costs is There positioned a that the will that has to expect sector push-in $X.XX in to lot to of extraordinarily are particularly, levels. multifamily record guidance diversified to to adjust product these of to resulted in Due $X.XX and that end capital needs strategy, adding these in our cap our rates, invested year to we get currently in investments. source we original through universe REIT FFO, system low share. of well and the our grow accretive timely a a raise we

that way portfolio. that and for available have attractive have taken opportunities not cash add our uninvested the a we We rather use cash to does balance would that value our in on sheet than to position

cash Over time the course $XX million million between $XX balance to of we on time, had in the year sheet. and from our have

after daily over of of we end the line had Through out cash QX million. of an our have average balance $XX credit zeroing

the $X.XXX capital share. has uninvested a the discipline Assuming cost. Having investment the ultimate high-class much is cost per this capital too to-date to dividend, does PAC is this cost but headache, cash come equal of at preferred

One a our final briefly. thought of and AFFO tricky this real investment loans. John Isakson touched because on is for number estate us

AFFO. On receive to current is The we and these interest both receive additionally FFO current and interest. booked loans, interest we accrued

This is AFFO FFO, mostly John covered the On in booked already -- not accrued loan interest but to the other booked the this. rather hand, Again lumpiness monthly our AFFO. off. until to pays creates

payout If may about you several you years it was than periods last less ratio AFFO our think the in recall XX%. when

This quarter the over was XXX%. ratio payout

but thing important we today, accrued that million have to in The remember interest. AFFO yet and $XX not booked over is earned,

for floor Operator? have. been operator you said, joining our having on turn like morning. this any that of call to questions all the With to will you us open over I earnings I'd now to thank the for the call may back

with our We'll now begin the from come Please first question-and-answer session [Operator SunTrust. question go ahead. will Instructions] Lewis Michael And

for wanted waive Or management I during much quarter? or end management made of how you at to Great. decision Is by ask how kind decide a is quarter. each asset and or target? G&A of formula the the you that there that a fees

case-by-case The the ensure a Michael. invest the Well, investing we're fees our way. -- by it's want it determined an order been that subordinate to on is we has to in basis manager we of And owners would that accretively. accretive in key

of the evaluate when exploring us. through longer the have we behind trying one of nice fees the it load internalization will be asset know, of nice an would we're is of we no have You side to to that those go process as viability this benefits

Right.

consistently is And at level on flow a are should look the Okay. of $XX here? -- investors lumpiness maintenance dividend lumpiness the given the When million, how to and improvements of the the about interest that estate. the CapEx. statement, you comfortable And coverage, guys you you're the of real of kind guess I understand have. looked accrued of of we I been then kind AFFO quarter $X the and about flow of dividend million buildup the I the at ask coverage with you've AFFO wanted dividend? of reporting the how the cash quarter I cash per mean, I to question just around

third that I'll in had mezz quarter. Already quarter. mezz control. classic the frankly there's we'll off pay and fourth Yes. quarter, had up What chance a we we've end you in having this we that good It's example. In couple quarter, something not I would of the a loans tell on more loans you the off two third a pay none give our

been on creates It is this they're a pay going it it's is the company. increase. loan has control mezz driver real -- when to is lumpiness business a it fact is important because What off. we the to our for I -- don't But that and -- think continuing

yet of over the of coverage accrued fashion year, providing years And adequate very in All a $XX dividend. to that loans probably lumpy of more our have not two years, $XX than we we X.X And million over mezz will have appear today spread the next probably is be get million us to that -- healthy. captured. that interest our next out

Thanks. quite Is to and or you just of It it company? -- out like overestimating this Or last that your risk an when million Okay. internalization of formula kind one that million -- $XXX could for here am the ultimately outcome. then kind high. $XXX ask there filings the over and internalization And decision in takes wanted kind like fee, that that? of am $X fee I be to a here of about and therefore, a over looks of the the thinking process or I have follow one that me, look looks I internalization and there's share I

first investment, little process announcement a Well, not It's any and the let different the me to of and Board we foremost. and manager don't first bit all, -- frame Board That's of making the we're -- mean we way. know protracted at The get internalization. that both I about it best a I right. point a want

indicate for our shareholder in to and I have done think that other relative a what respect regard. things fees real deferring we

I'm best whatever the company suggested. you, that investment will make. going the -- the regardless the not I'm the year it's any number or of the of wanted John, suggesting company investment long-term Regardless impact that best be the to is be to manager. have price will will it best year I that long-term at you've to that? But numbers and internalization did you will add what saying almost just be that you the make the something -- can this investment near-term of tell the

obviously the Hey. at the well. of isn't payment just the is think company's things Michael but one look to whenever preferred capitalization you stock, stock the common about as the

$X I mean start that's well So, from company is a misleading. the about equity billion a you $X when talking little over share, that an standpoint now.

Okay. Thank question. for answering my

question-and-answer I would for turn This ahead conference any closing sir. concludes our to the over session. go remarks. like Dan to Please back DuPree

Yeah.

Before can we can the we call. this Murphy that free questions assure by and answered, call. of astutely we the you allowed any I And this get that answered look leading just Joel get Joel forward Joel have on the more would a off phone, to ride you future to far been in

I of this on comments, to do think are on Joel the a reins my over Joel us, going January of as taking excited X. is all to in mentioned I call, our And have side terrific job.

that, have morning. the questions all Again, call. with answer available, you. So, that you thank following you this mostly participating Joel me We're say thank let for to

You good all have day. a

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

disconnect. may You