Preferred Apartment Communities (APTS) 12 May 202020 Q1 Earnings call transcript

Good morning, and welcome to Preferred Apartment Communities First Quarter 2020 Earnings Conference Call. This conference call is being recorded.

I would now like to introduce your host for today's call, Paul Cullen, Executive Vice President, Investor Relations.

Thank you for joining us this morning, and welcome to Preferred Apartment Communities first quarter 2020 earnings call. We hope each of you have had an opportunity to review our first quarter earnings report, which we released yesterday after the market closed. turn Officer, over thoughts. to I'll our Joel moment, Executive Chief share a the to call Murphy, In some initial then metrics Chief additional our John will And some share Financial details capital and Officer, financial markets. about Isakson, our Then remarks. prepared Joel to return will conclude

present we'll our Also our Chief Aide; and Sherman; us Joel's Accounting may remarks, any and you is retail, and anchored Michael the grocery of pleased Officer; multifamily, be Following this Business Boone answer morning to questions verticals. have. with Cronin, Leaders DuPree, Mike Jeff office

the risks be like during not about not second are note I'd arising and pandemic of in mitigate uncertainties, markets our differ in to and ability that and of light operations everyone COVID-XX, future we limited These from rental COVID-XX and actual the the of COVID-XX. business the call. forward-looking involve are to uncertainties statements statements economic include, operate, the may quarter information risks and our may XXXX and conditions made which but These collections various performance, in impacts our impact to, results and guarantees the materially.

earnings discussion as statements uncertainties, the and For disclosure these as our release, you review in should of our SEC risks filings. yesterday's press well forward-looking

and Our website report our financial information data for during press use in refer this be you at non-GAAP review encourage discussion, of measures can also release of measures. to our terms and financial and the be other our these operating and XXXX non-GAAP supplemental reasons performance. management may today's financial that the definitions other and used to results the found pacapts.com. with We release on reconciliations SEC filings quarter includes The press first

investor and morning Class discuss release, Along of period. the on we an A partnership are for updates, at Unless the presentation basic all per that earnings found stock with press shares we we this weighted regarding results units can share and outstanding pacapts.com indicate, be on COVID-XX under the website tab. average otherwise business also that our investor our furnished based common

I would Joel, over now go like to the Joel to Murphy. ahead. call turn

We Thank February, are last our and our dramatically everyone, world, staying business as for our safety country, on Since healthy, work in focused markets and call you, I from all to families continuity challenging At health spoke morning, residents, this thank due the we joining our safe the this environment. we associates, including have hope and of and together call. PAC, COVID-XX. Paul. full Good policies. and plans, everyone our we effectively continued on to their implemented our changed tenants. work our navigate you and are home

fully and during our this Our business functional has time, dedication. hard I'm proud extremely remained team's work of and

store proud closely our to access also for are and grocery We our associated to whose be communities, providing companies' with and partners, other employees were items. so there essential groceries are

have markets While obviously and and the the been the and general impacts pandemic have society uncertainty, and impacts on immune. significant, real not estate of depth, health remain been long-term breadth, in assets

specialized what However, our and value, XX creating strategy, the dedication is locations by has the diversified of to run our in states, owned changed our experienced mission not assets XXX long-term of and stockholder teams.

our than aggregate, all April XX% of of in we student our across just and COVID-XX to rents. the of April of less anchored the our through shy for Our housing XX% and our [indiscernible]. collections total we updated April April, diversified our our XX% received value thought impacted XX% rents, the across of initially of XX% were of verticals. all rents, our shopping revenues of collections disclosed we've operating some results somewhat of end of markets, platform. update, date and XX now recent operational grocery In business that rents, commitment, April demonstrate our our of our We center collected office strength month over multifamily operating

pace as April. approximately But May We this of on collections for the date are too tell each in will vertical up same of for same the it to June. in early end in May running and at how is

long-term results, scope than home, and on second and per office the kept customers which quarter lie million economy jobless place its the was prudent $X.XXX of we our our portfolio to commitment resiliency economic new stockholder Accordingly, and common and these elected size based markets. our More keenly aggregate our pandemic to and board share. our began impacts this are on focus our of in to retail this by to a value. posed believe composition. in that that That right We our the uncertainties ahead, macro and in our dividend since pandemic liquidity, encouraged sheet, action, XX and aware we at duration have claims this in uncertainties workers by shelter our and has orders collection said, to are balance highlight

and set that and construct portfolio strategies such well. composition specific focused independently, In as each in portfolios, teams with expertise serves out experience volatility, company's to our management we vertical. the that had each us of When out today, we of times deep built stress

long-term benefits just briefly the of diversified of some portfolio. this me for Let recap you

than of with our comprises constructed, multi-housing average revenues. less of XX% an We approximately own Class A six newly years. age First, apartments,

rent and to benefit quality markets, pool collections resilient, credit continued focus been from we our means Sunbelt Our has today. on migration far so to resident our high continue based our

with of refer release. update, XX multifamily our furnished Page connection on to our Page details additional in business press our X and please portfolio, For

pace last held Fall that generally where event solid this schools in risk steady. to pre-leasing remains in this and segment, not is same reopen for classes. fall housing have with student the were there markets Our of on year. we aware as also assets similarly our We're in inherent week choose

our six the have to classes of point, this eight plan in for they at fall. stated in-person universities Although, reopen

business with we high-quality sheet, to this focus the prudently the continue remains from attractive over intention assets. and to exit We any lease use overall balance our class in disposition they're operate believe proceeds term. long our these and to such asset to an portfolio further our While portfolio connection

For Page XX refer portfolio, XX and additional on update. please housing details our to Page our business of student

on all Next, Harris is XX% grocery and anchored retail play comprises XX% our approximately of top our our retail by portfolio a Page XX of for Page anchored tenant pure XX% XX essential, Publix, grocery and our of portfolio refer is to performers anchored revenues. centers XXX% pandemic. of by centers considered our type. of markets. Please strategy. anchored are This Kroger, have composition open and business and update specifics grocery the across of all Teeter, through remained our those

This of our revenues. stability. our of XX% approximately comprises business office segment affords Finally,

years We carry corporate million X.X seven are additional more business across office Page than term and users, refer of leased our details weighted predominantly square tenant and remaining. our feet, capitalized, and on portfolio XX large XX% are for XX to Please update and contractual average nearly leases well of our base. with Page composition

diverse above us These attainment, and independently, Sunbelt markets, incomes. with concentrations. in built submarkets, share household average demographics, employment while strategies, educational characteristics, economic including and generally markets employment to invest drivers, led broad many characteristics preferred high bases, These

to we accelerate, net in including XX of six. sustain, migration states From unifying this focus XXXX, the long Sunbelt, from the expect seven And Sunbelt the the for positive term. if means to net were located benefit we trend Our continue not top XXXX to top migration trends. over

shown of details our Additional update. business Page on on our markets X are

collected and theses in product specific investment well our We believe that early very held up downturn. have this

economic grocery and than we held harder suffered salaried been relatively have duration hit while up retail more has non-essential remains downturn As of uncertain. truly large retail, employees, vulnerable, workers well. small, unemployment has both small That larger, has essential and scope said, and times. in The than hourly unprecedented businesses are and particularly anchored the

vigilant and actions. as prudent be change, We will be in events our

We are course the we is best that access focused to future our at present this on liquidity and the action continued of and believe stockholders, for the both time.

growth was our our and quarter, activities, solid in for first Most current operating quarter all was second primary the platforms. climate interim and first focus of terms on quarter the first of quarter business. across pool is units, Despite same quarter-over-quarter which than This now X,XXX the the a store NOI of performance our notable in multifamily performance multifamily XX% units of us X.X% end our of core store quarter. and more comprises same as revenue

completed February, and NMP long-term and been company's we the Preferred on we where brought notable was of always disclosed, needed management inside were last and previously the focus benefits in January in unlock the of quarter PAC. Advisors As short with PAC's in that have of to collaborative, the the capital this Advisors on potential. our Significant set the internalization to and functions transaction alignment response team long-term our management XX, board, to internalization Apartment closing internalization a and of We complete, COVID-XX. call late broader This our happen strategy. transaction discussed to are our

with renewed has and We balance fresh long-term as they both with the shape, and the timing, in and future, the on our and near-term remain impacted Certainly, plans capital strategies sheet. focus, and and capital the and our strategy you of market our will pandemic on we share a take focused goals. perspective stack deployment any on near

and our focus important back to now performance, particular company-wide Finally, more on in governance, our our culture, giving on ESG associates, operate. attributes we training continue to communities with These of development our our we the ever. initiatives, will excellence of philanthropy achieving and than which our the are operating attention

John? over to let Now, John call Isakson. turn the me

Joel. Thank you,

First you families. on and of off, All this to and I the my health sentiments call. for your echo Joel's everyone safety best

of core For $X.XX quarter approximately of of a share, share. million, of internalization $X.XX generated XXXX, $XXX and share, FFO FFO revenues costs of AFFO net $X.XX the share, FFO PAC a a of $X.XX first a negative

of of You up continued the will compared XXXX, the our first note owing our growth over to all to verticals. quarter revenues in XX% property are

of in core You that January. between The FFO our adjustment of results difference will the over number. internalization FFO internalization skewed closed also to are and due expenses treatment XX% the encompasses dramatically alone our FFO for that note

have and We the due to AFFO, in FFO our of variability business. noted in the variety past factors in a

to results, metric provide measure measure core the move and effort for more to of have of adjust an those FOO decided will main variations performance. a that the a as operating produce In to the company's we company's stable

results, continue be on report implications and the future AFFO, and will While we results current for will its focus and of FFO and discuss FFO to those core our performance.

estate Our mentioned AFFO our previously. loan real which investment impacted be to program, of by the number results we continues have

and quarter. from to these AFFO number, making interest repaid, quarter are recognized lumpy in our paid accrued our As gets loans it

quarter this three loans had estate benefit we option accrued that receiving more investment in purchase $XX payoff, form of estate We a us booked approximately loans receivable quarter, of to the and payments. in XX real the million interest million are termination contributed as currently accrued For real financial investment interest statements. our have on which $XX than from AFFO

the and add at payoffs The The added. these are stands program loan whether $XXX the to every portfolio third sales in to on commitments, these to predict, loan in parties. or PAC of The end. difficult of both accrued quarter new over drawn to at continues million due assets, just loans $XXX balance quarter's that million from over with our investment timing are current interest loans loans

once mezzanine total our is Our which XX%. loan less XX% than was assets, of today to book,

due social guidance our XXXX in and XX pandemic. from we economic COVID-XX the discussed withdrew April As to full-year disruption releases, the our

of we uncertainty. drew of quarter, steps the line down $XXX to corporate a time approximately provide unprecedented to During liquidity million. in our We took credit

an additional is million company we an million. Beyond our $XXX that line, the outside million whose this, a company liquidity for assets facility. an of in for of currently The have $XXX should pool utilize capacity. a $XXX million an $XXX To raise is current $XXX of of pursuing capacity line million additional excess the to efforts can unencumbered accomplish this accordion value

pool, near-term refinancing sales. provide or opportunity for Beyond maturities the early an asset the company whose assets has unencumbered

low up debt These property dual risk early locking schedule near maturity historic XXXX have rates. with maturities. of of comfortable at the the We beyond debt feel very removing re-financings benefit level and our

and of Our XX% and is XXXX. before to undepreciated portfolio our no debt ratio XXXX, we book XX%, than in has maturities have of less debt maturities

refer reduce graph our maturities. update, to business Our previously near-term Please maturities. further will the delineates efforts these clearly X which Page refinancing mentioned of on these

the are continue a debt preferred we've And pace. In addition to the we decline to its volume measures, funds while in program. raise comfortable the of with to raise, stock seen we

of redemptions. seen the pace to In addition an raise, the increase we in have

they operations, anticipate have will to We to redemptions foreseeable in found date, with be comfort company's have when the for provide with the total, ample that, the APTS should manageable In liquidity circumstances combined these these continue and future. future. us

in plans In capital we have acquisitions. addition new debt to on curtailed markets, the investment raising capital and significantly equity both for our pre-COVID

look As and long-term most focused external the we create ahead, will we selective believe on opportunities be value. we that

We has opportunities from are our attractive of capital consistently kinds with already of which seeing renewed some estate most in investment of our multifamily these developers program, investment one options. loan real been interest

seen both acquisitions in were money, to have that two in weeks. level with squarely acquired accretive core in and to But may was acquisition property the marketplace in multifamily the for Florida communities rights firm assets investments debt long-term these You Both press the pursuant available of Both we not our X% committed documents, these past we inside the that assets today. multifamily also our our or estate earnest loan over strategy. sub with releases acquired either represent company. long-term real is note negotiated of five pre-COVID-XX were these investment

While likely less expect we for program, about impact be construction that we overall lower will such and the fallout up rates mezzanine more time. rental invested a lease will timing, pandemic in period could our economic performance. about through have longer We loan of longer and schedules, properties see the issues timeframes, of

be the current well up on to summary, portfolio However, be to crisis. the continue the to of opportunities operationally take want based selectively this In when loans underwriting be present current we view the term, results. over our hold nimble and themselves. advantage the believe time our and and positioned our to on well will market, enough accretive to navigate we financially of continues impact to they company Longer of

share. and the common believe quarter that and decision light market. board our second previously, to and it in believe referenced appropriate for to dividend size a the be an To to a this in volatility the has step measured end, as forward, We is made right ongoing our Joel prudent dividend $X.XXX of uncertainty moving

have verticals. all we Again, with the in Further, related in leasing we to other look through sheet. as grocery-anchored capital any can of forward evolve. We life emergency changes or and expenditures we believe put discussing they safety you improvement create than balance stockholder space our to a more on value non-recurring and these items our capital pause office

call thoughts, I'd Joel. said, being that With the to over Joel like further for to some turn back

Thank you, John.

sales addition to impressive Example first in trend NOI the this into increase to shopping were related same-store we XXXX, COVID-XX quarter multifamily, continue do In Certainly, is activity. expect by the the X.X% in growth our X% that driven significant of in we by an lockdown trends. XXXX grocery have well that given year-over-year other that sales increased pre-COVID. notable

retail be as already uncertainty While that tenant our lifted, there is country relaxed restrictions parts base of are located when reopening. of states XX% in to some will the is or

deferral apply been impacted, government dialogue tenants an shop Estates small our holistic, for as with basis, to case-by-case the beneficial tenants them we opportunity of to using create an arrangements We've mutually economies. as have as their are a this been keep and well many reopen open helping productive certainly on to our look While Sunbelt solutions. across assistance. working out

expect term be our environment. longer even more We attractive in post-COVID a that will markets

that scale Sunbelt has company we markets. significant assets operating are real operating of recap, in a high well growth, and estate To teams

growth. Now, regards with prudent look we an optimized sheet our to organizational structure place, our forward structure, capital steps liquidity, to in balance and taking with

they stockholders' even written our annual place words report, we were belief there. get got true and annual and us what in are stated As won't more now. pre-COVID our Those in letter here but our in us

over call now turn the will to I Paul. back

the I'd ask any to Joe. like operator go have. to Thanks, open may ahead. Operator, you our now up floor for questions

Michael [Operator Lewis Instructions] SunTrust. Our first question from today comes with

Thank part but common I you pretty you. you that dilutive The think NAV? this to high if on particularly up be question, your still creative Do the think maybe or first you understand issue to fix shares? My the allows is here, around isn't that would to you dividends. common were yield of that

for signaling math, this at a things and issuance, if you we're thank all have we be other the that remarks, really, first question. would in lower steps Michael, of did does difficult prepared going function today. we said we was a as thing opposed the decision yield the reflect attractive which somebody everything at clearly issuer but policy of dividend the took a that which sits change But something time. uncertainty obviously, of of us prudent But not did the to the number would board. higher Look, as company about just that anything liquidity, and is a pandemic to But our into and where is times. it that more was a as yield. really one directional an and the company just dividend as certainly, everything everything goes It took a account on the preserve the by to in into

Okay, question a of kind a that into about leads It's liquidity. me two-parter.

that about unencumbered kinds you you you're mentioned to was of you to that what look million some the sales. number on student taking. sell? comment at property may housing think steps to assets that might it Could sell of still all about, I John talked what You wanted include look I potential asset of $XXX the types? ask Does portfolio

of we $XXX pool against. that's Mike, I'll that the that. million, the finance I What was the answer I those that value would talking was about unencumbered quoting assets

term some that looking selling. We or refinancing have near additional we're at also maturities,

all housing. be student properties Some to assets mentioned. If completely was the student is assets, assets sale housing addition student were or not of I my that in we those factored The it housing into would sell comments. those to student of not of inclusive that but

Mike, add also. to let bit that on a me little

structure, For teed our recycling part of John with they the evolve, is strategy. earlier so We're retail, whether of as internalized here, the be is is The office whether it be their we always housing, that especially life this this up a be student really our would of that we asset assets generation it, this, be do multifamily, we in capital company. are maturities. in apart it about assets through the an term just be of we it vantage it might of natural young the would one up near run time. We've things it's and especially would those. into as our multifamily that love and many had say, with we looking be that like whether rolls it That's

it's world interesting as this So that doing something that that now be course, of that anyway. will while a really and beneficial have we plan strategy something environment to we matter in doing be and is we

We years in the pretty it reinvested that point the a and sold we number done significant we've four over and three of that and would creatively. past capital of bit good last or harvested out assets a

Great, thanks.

the this that in calc about broader a given When other went economy? talk the took Can of it color safety and that the quarter. accrued continuing you You that think and ultimately loan, the stress you about any [ph] there's into regarding how assumptions in those credit charge you do to new payments? the if receive charge on maybe interest all principal interest

QX Sure. now for the reserves CECL the we that point important environment. structure in I accounting is single Michael, have and thing think out changed the most to

monitor in if the So that and quarter, our CECL created to At the added those assets. model loans reserve will, reserve. that of you booked we the we on beginning end balance, and created based to a we a model

This core reason that You're to going CECL is we're FFO. see going another to balance. why

released, added are quarter see quarter. balance those new Reserves CECL and as structure reserves necessarily as It reserves just CECL increased did to think reserves every off pay loans get owing although that as get You're the on get fact in of and change decreased particularly going our increased. going the it I that not impact is the is and and to but loans to QX get in that got every important. implemented an the environment, have change

decided to just had about and or think resigned ask Okay, resign any thanks. may now. I know other Len there's the co-founder, if I make lastly Then, member don't I the for comments around board wanted company quarter. you have to leave Silverstein why can Len color one the you me, during

that on board. March Listen, out the our co-founder put everything far that On was a X, Lenny continue was think as of clearly to as member as related is Lenny, May-- that not elected all I in that, press and release. to

As This we one far ones, actually technically Wiens. not member that was that resigned John is other as mentioned the correct. the another

to that to a employer we longtime to had As another he conflict for disclosed reelection, board We company. did was connected director a situation. but to he did member This public him was lose the company. stand the where was not not we've on of Gresham, noted, Wiens sit John actually Johnny in agreed John filings, as of employment who SEC his our hated a that. board allow as respected an

really terrific that then of made in companies But probably of Michael markets has we all boards, is that the a multifamily debt reasons, now think our experience, three and go board through multifamily evolution piece particularly of a their for the with Cannon, of have stronger. John board different new director elected fact terrific I deep financing turnover members to that, the need and and biggest

my questions. taking for Thanks

Our question with Gaurav comes next from National Securities. Mehta

Thanks. morning. Good

prepared was capital that the provide First remarks. some activity would on question, reserve hoping your on you I color more

the a seen in you've and increase said You redemptions. decline in volume

So of rate maybe run see year? this what about to you can talk expecting kind you

still tell. some crosscurrents it's here. too Gaurav, to early There's

to have through out sold of started resigning offering the we had all new that agreements process you and and go when aware, a selling the in of new offering offering previous start you're January you a the As you previously.

back and up with group. the transfer just over can't you So same start

agreements due than have certainly we as last sign significantly end this through we works. today at several know and fewer how go times we're we continuing of selling before, have agreements had to diligence those the the to year and process, We continuing we're

being by So point, more is our hard to affected raise tell it's if sentiment. pace of selling or this the investor by agreements at

a we'll up. of little as up, stock the picked of our redemptions of little has a have for The but also redemptions. The of into year. get that picked further the think I has we same bit goes idea preferred outstanding better shares pace balance

XX been We more getting here of it's or I we days we pandemic that or we've more law and this too in say to XX have have been it's because going redemptions a large and because think redemptions people numbers. while sort getting to of people are cash are early are with us for just

You're have because shareholders. just more going redemptions to get you more

and I into you better pace give we'll the comfortable the get have an update we think redemptions we manage we're year. further into very with of raise Today, We'll visibility to and ability year. our of both that. as as pace the later the get the

that Okay, some you second be them and you market may money color question, your you're raising? can to provide maybe ability on seeing the transaction redeploy what in

for Thanks question. Gaurav. that, take I'll your

those this we're we Actually lender As well in the assets because assets. but that did moment. the described it. to committed were strategy, They know assets, core acquire to it. really John it we said, were our going one attached be pre-COVID. of terrific had was We measured really are to on we to two mezz

three last about everything it years. the we for So knew

today. we As addition, important available term pre-COVID the sub marketplace X% weren't assets, debt, long which knowing in had in clearly the

for there. is It's to assets external very look have opportunities. going be do. now us how now. are measured going to and then growth to is be at on the out that to are There we We're right that So thing

discovery to but there. think world is I apocryphally far, little so of it's little a generally related a bit not in the out us but price interesting, moment

been that virtually the been a of this in but pre-COVID, maybe giving private Some the it. sector rates as initial would as during to way guidance was cap what that grocery-anchored below out have seen deals even traded little broker that we've the same have they elevated, have The buyers. were

I referenced our balance in choices that about variety the We that, against in because John a it growth. sheet very capital there's of with involve to it we're is probably But That mezzanine deploy ways. different-- for our whether-- different said, would selective our capital. reason in going We see interesting that on can an be our is, one can say, in loan The and buying it's time program. it that what's is we'll a It spread over not full-on and out asset. business. amount ultimate of to is then multifamily of be across the next to significant It's a the going relative payoff core XX, capital moving like many development could which who over after complete, acquire can XX, for months loan our time. mezzanine at collect is the buyers, just interest done XX time or we've it external we

higher our the We two to probably far signs years, the to good that as of deals us. two movement that last years. to Maybe to first in have three over seen Were available that pre-COVID us as seen numbers. return return market probably favor. in total We haven't probably

the is of equity happening for that Because seeing and moved has we're developers that adjusted on what's us basis in So, addition it's getting more to us. returns, even perhaps willing also put market are ahead better. risk a higher

Okay.

on and follow to get up some on to so, maybe your the those want Are assets. assets sell for of would year I assets? what you you about talk expecting if valuation and selling Lastly, kind comments the this of timing

to Gaurav, going where a if that assets. position attracted we it's sell and the We're value decision, have to. only going smart to generate them to we're we're is market not if a sell in a

that is whether early the to be it's be or market there or when that going market not market. it's to think to going I there. to tell too We're monitor to continuing

early might little we've days to it's some market be going we I mentioned, a seen still a the but little is have before As ways ago, that than XX know. feared signs maybe Joel XX, really transaction people think healthier

had. I Okay, you. That's thank all

answer call any question over back the to Joel session. closing to our like hand Murphy for This concludes and would I remarks.

you you as questions appreciate thank review to effort materials. listen people in very we and time to to you've also look listen, very We our we're we're are that and Well, people, a look very conversation much. and know their interested call done is appreciate further with quarter. their company. the to value I this asked. our our that. We We time that that forward We forward focused to challenging know but workplaces. We for very interested you next families, the

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

You disconnect. may now