Preferred Apartment Communities, Inc.
Q3 2016 Earnings Call Transcript

Published: 1 Nov 2016

[Operator:]

Good morning, ladies and gentlemen, and welcome to Preferred Apartment Communities Third Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to introduce your host for today’s call Mr. Lenny Silverstein, President and Chief Operating Officer. Please go ahead, Mr. Silverstein.

[Leonard Silverstein:]

Thank you for joining us this morning, and welcome to Preferred Apartment Communities’ third quarter 2016 earnings call. We hope that each of you’ve had a chance to review our third quarter earnings report, which we released yesterday after the market closed. In a moment, I’ll be turning the call over to John Williams, our Chairman and Chief Executive Officer for his thoughts. Also with us today are Dan DuPree, our Vice Chairman and Chief Investment Officer; John Isakson, our Chief Capital Officer and CEO of Main Street Apartment Homes; Joel Murphy, the President and Chief Executive Officer of New Market Properties; and others from our executive management team. Following the conclusion of our prepared remarks, we’ll be pleased to answer any questions you might have. Before we begin, I’d like everyone to note that forward-looking statements may be made during our call. These statements are not guarantees of future performance, and involve various risks and uncertainties, and actual results may differ materially. There is a discussion about these risks and uncertainties in yesterday’s press release. Our press release can be found on our website at pacapts.com. The press release on our website also includes our supplemental financial data report for the third quarter with definitions and reconciliations of non-GAAP financial measures and other terms that may be used in today’s discussion. We encourage you to refer to this information during your review of our operating results and financial performance. Unless we otherwise indicate, all per share results that we discuss this morning are based on the basic weighted average shares of common stock and Class A partnership units outstanding for the period. I’d now like to turn the call over to John Williams. John?

[John Williams:]

Thanks, Lenny. Our third quarter financial results are frankly superb. And we continue to operate successfully on all fronts. And I want to again complement our management team and associates for their continued diligence and hard work. Lenny will give you more details on our various financial metrics in a moment. From a high level perspective, we have continued to perform well on a portfolio basis. We are confident, we are tracking towards our core FFO and dividend goals as previously set out. And you’ll notice from our press release last night, we made positive adjustments to both our core FFO and revenue guidance for 2016. In fact, based on our preliminary budgets for next year, we do not see any reason to change our longstanding goals to increase core FFO by 10% and dividends by 10% each and every year. Speaking of core FFO, we believe that it’s the most appropriate measuring tool against which to judge our success. First, core FFO is calculated after deductions for all preferred stock dividends. Our cumulative perpetual preferred stock program has turned out to be a great source of equity helping to fuel our growth. Second, as you know, we continue to actively acquire properties that fit our strategy. Core FFO therefore reflects what we earn from operations and excludes one-time charges such as legal, accounting and broker type fees associated with property acquisitions. In other words, we believe that core FFO reflects the key metric of the company. There has been a lot written recently about concerns regarding the overall growth in direction of the multifamily market. The reality is, the weakness in the market is not widespread, but rather concentrated mostly in gateway cities, like New York, Boston, Chicago, San Francisco, and to some degree, Houston. But as you may remember, as early as our IPO back in April of 2011, we’ve said that we are not focusing on gateway cities, rather we are focusing on MSAs was strong growth characteristics in household formation. As a result, our occupancy for the third quarter was approximately 95%, this includes Houston where we now own four multifamily communities and where our occupancy at quarter-end was 94.1%. As for interest rates, we don’t expect them to rise significantly for the balance of the year. We continue to follow our practice of buying properties and typically locking in the loan terms at the same time. This allows us to lock in the spread against NOI, which generally minimizes interest rate risk to our company. I also want to reemphasize that we continue to finance each property individually with no upstream guarantees or recourse the pack or our operating partnership and no cross-collateralization of any of our property-level mortgage loans. As you’ve heard me say before, I believe this strategy has enabled us to create a fortress like balance sheet, unique in our industry. We continue to position New Market Properties for a spin-off sale or distribution to occur once we believe this portfolio has reached sufficient scale and market conditions to warrant, while continuing to own and investment in New Market. Joel Murphy will give you more details about New Market’s performance in a moment. Last, we are in the final stages of completing a company-wide installation of our new technology platform. I firmly believe that this technology platform will allow us to have better information, create even greater efficiencies, especially in connection with our property-level revenue management in our entire consolidated accounting department. Let me now call on Lenny to walk you through our numbers. Lenny?

[Leonard Silverstein:]

Thanks, John. Overall, we once again produced a very solid operating result for the third quarter, in line with our internal budgets and tracking with our guidance. Revenues for the third quarter were $53.5 million or approximately 79% greater than the revenues for the third quarter last year. Our core FFO for the third quarter 2016 was $0.38 per share, representing a 19% increase in core FFO compared to the third quarter 2015. For the nine month period to date our core FFO was $0.99 per share, which represent an almost 21% increase on a per share basis compared to the first nine months last year. Based on these results, we are revising upward our core FFO guidance range for the year to $1.28 to a $1.30 per share from $1.25 to $1.29 per share last year - last time. The midpoint of the new range represents more than a 10% increase in our core FFO per share for 2016 compared to last year ahead of our previous guidance. Our adjusted FFO for the nine months ended September 30, 2016 was $0.90 per share, an increase of almost 22% from the same period last year. For the third quarter, we paid our stockholders and unitholders a dividend of $0.2025 per share, representing a 12.5% increase in the quarterly dividend paid for the third quarter 2015. This represents a growth rate of approximately of a net 11.9% on an annualized basis, since June 30, 2011 which was the first quarter-end following our initial public offering in April 2011, and a core FFO payout ratio of only 54.5%. Based on our financial performance, we are planning to recommend to our Board another dividend increase in line with our prior stated goals and guidance to the market. From an occupancy perspective, our average multifamily occupancy was 94.6%, and our retail portfolio was 94.9% leased as of September 30, 2016. Both of these represent very solid numbers. Switching to other financial statement metrics, we continue to add quality assets to our portfolio in a meaningful way. As of the end of the third quarter this year, our total undepreciated assets were $2.2 billion, representing a 92% increase in total undepreciated assets compared to the third quarter 2015. In addition to increasing total assets, our cash flow from operations this quarter was approximately $21 million or 112% greater than our cash flow from operations for the third quarter 2015. A key component of our strategic plan is our investment program. I now want to introduce Dan DuPree to provide some more color on our acquisition activity, our loan investment program and our pipeline. Dan?

[Daniel DuPree:]

Thank you, Lenny. Our investment pipeline remains robust. We continue to actively pursue multifamily and grocery anchored acquisitions that fit our business model, and have also acquired an office building that fits our longer-term strategy. We’ve also continued to originate real estate investment loans on selected developments on which we have purchase options. In particular, during the third quarter we acquired a 290-unit multifamily community located in Jacksonville, Florida, also a 272-unit multifamily community in Pittsburgh, Pennsylvania. In addition, we originated a $21.1 million real estate investment loan to partially finance the development of a 271-unit multifamily project in Birmingham, Alabama, as well as a land loan of up to $4 million to support proposed 224-unit multifamily development in Fort Myers, Florida. As of the end of the third quarter, we owned 24 multifamily communities, totaling 8409 units located in 16 cities across seven states. Now, I mentioned a moment ago that we acquired a nine-story 170,000 square foot Class A office building in Birmingham, Alabama. As we continue to grow our grocery-anchored shopping center portfolio, and move toward a possible New Market spin-off, we feel that it is time to begin planning to fill the void once the New Market assets have been spun off, sold or otherwise distributed. It is important to our overall strategy to have an alternate product in which to invest a nominal defined percentage of our capital to balance out our overall portfolio. We believe suburban office provides an excellent investment opportunity to marry significant existing in-house expertise with what we believe is an undervalued, underappreciated product class. Specifically, we will look at well-leased, high credit, low risk Class A suburban office. Our Brookwood acquisition in the exclusive Mountain Brook area of Birmingham is a classic example, so 100% leased to credit tenants with an average of nearly 10 years of lease-term remaining. We acquired the property at a seven-plus cap rate and we’re able to place a 15-year, 3.5% non-recourse project level loan on the project at 60% LTV. At the end of the third quarter, we had a total of 26 real estate investment loans outstanding, on which we have 22 purchase options. To put this into perspective, this represents a total commencement of $361 million. $307 million has already been funded with a total asset value of over $1 billion at stabilization of those projects. Of these 26 loans, 14 represent core Class A multifamily communities under development, totaling an additional 3,360 units. Eight of the loans represent student housing communities under development totaling 5,400 beds. And one represents a grocery-anchored 200,000 square foot shopping center. Although, we may not acquire all of these properties, we believe our pipeline provides us with a solid growth opportunity for the future. Two aspects of these mezz loans that are sometimes overlooked are the value of the purchase option discounts and the accrued interest. The purchase option discounts range from 20 to 60 bps, basis points, on prices determined by market cap rates at stabilization. Accrued interest which is recognized in core FFO, but not reflected in adjusted FFO until actually paid was $17.7 million as of the end of the third quarter. At the end of the day, our focus remains on driving returns for stockholders, without of course losing our focus as a multifamily company. Let me now call on Joel Murphy to update you on New Market. Joe?

[Joel Murphy:]

Thanks, Dan. We continue to execute our strategy to acquire and operate or invest in the development of grocery-anchored shopping centers that fit our investment criteria in suburban submarkets within the top 100 MSA in Sunbelt states. We target market dominant grocery anchors to maintain a number one and number two market share, and then have high and increasing sales per square foot stores in that particular sub-market. In addition, we target certain select specialty grocers such as the Sprouts, the Whole Foods or Fresh Market that either has a significant presence in a particular market or is located on superior real estate with high sales per square foot store. We are intensely focused on the operating results of our growing grocery-anchored portfolio. At quarter end, our retail portfolio was 94.9% leased a 50 basis points improvement over the second quarter. We are particularly pleased with momentum of our lease renewals with approximately 65% of our 2016 lease renewals completed and an attractive rents spread of approximately 4.3%. A critical component of the operating success and health of any retail property is sales performance at the property level. We have now received the sales reports from our grocery anchors for their most recent 12-month operating period. And we are seeing very solid comp store sales growth, at an average across the current portfolio of approximately 3.6% from our already highly productive sales per square foot grocery anchors. This results in a portfolio average of approximately $570 a square foot, but to give you a more full sense of scale for the 27 centers that do report sales, this means that approximately $725 million of grocery sales have transacted in our portfolio centers during this past 12-month operating period, which further translate approximately $28 million per center. This sales success contributes not only to success and profit of the anchor stores themselves, but also to the increase foot traffic in the center for the benefit of our small shop tenants and other users. During the third quarter, we acquired 8 grocery-anchored shopping centers in our Sunbelt states, seven of these acquired in a portfolio purchase from Hines that closed in August. Subsequent to quarter end, we closed on the eighth and final center in the Hines grocery portfolio. As a result of these 9 acquisitions, we’re now pleased to have added HEB, Harris Teeter and Sprouts to our roster of market-leading grocery anchors. 2016 is marked a transformative year in the growth of New Market. We’ve grown our portfolio by 17 centers and approximately 2 million square feet, all within our tight grocery-anchored Sunbelt strategy. We now own 31 grocery-anchored shopping centers in seven Sunbelt states totaling approximately 3.3 million square feet, 17 of these centers are anchored by our Publix. As a result of this growth in scale earning stream and operational performance, we are continuing our focus on the steps to be taken to affect the spin-off sale or distribution of these assets into an independent publicly-traded REIT with PAC continuing to own an investment in New Market Properties. An example of this is then in our 10-Q to be released shortly, we’ll be providing enhanced segment information and detail on New Market. Although, we’re looking to completing this transaction in early 2018, the timing in final structure is dependent on when New Market will have reached sufficient and sustainable scale when overall market conditions warrant. Now, let me turn the call back to John Williams. John?

[John Williams:]

Thanks Joel. Our core Class A multifamily portfolio continues to remain among the youngest and most modern in the industry. Assuming, we exercise the purchase options on all of our - or most of our real estate loan investments for these type assets, we expect that our already young portfolio will become even younger. As I mentioned earlier, we’re very pleased with our financial results for the third quarter, and our growth opportunities for the balance of this year and next year. In particular, we continue to add substantial management strength throughout our government. In closing, please remember the strength of our company. We have a unique fortress balance sheet. We have one of the newest and most diversified portfolios in the industry, and I believe our associates and management team are simply the best. Towards this end, we’re officially kicking-off a companywide initiative that will have all aspects of the company focus on the foundation of our future, our products, our associates and our customers. In other words, PAC or PAC, our goal is to make our organization the preeminent real estate investment trust in the industry. Before I turn the call over to the operator, there are several questions we’ve been asked in anticipation of today’s call. The first question is how is PAC strategy of not owning multi-family communities and gateway markets working. I’ll call on John Isakson to respond. John?

[John Isakson:]

Thanks, John. The strategy is working very well. Since our IPO in April 2011, we’ve avoided the gateway markets that are currently having the largest headwinds and generally have invested in markets that have much stronger supply and demand metrics, especially in the current environment. Even five years ago, we talked about the aggressive pricing in gateway markets that we were seeing, and the pressure on rental rate growth necessary to achieve reasonable returns on investments in those markets. Our fundamental strategy of avoiding these gateway markets and focusing on the submarket-by-submarket analysis and underwriting transactions was a thoughtful and forward thinking strategy that we believe differentiates our company in terms of expertise and experience from others who might simply follow the herd.

[John Williams:]

Thanks, John. Next question we were asked is are you concerned with companies like Amazon who have announced they are entering the grocery space. Joel, can you respond to that?

[Joel Murphy:]

Yes John, I can. And so I assume you’re referring to the early October announcement that Amazon is moving into the bricks and mortar grocery business by introducing convenient stores with curbside delivery. The strategy that they want to build these bricks and mortar stores close to their customers is actually really resonates quite directly with our strategy from necessity best retailing in close proximity to people’s homes, really kind of proves our point that on the convenience bricks and mortar strategy, particularly so in our suburban markets. I think, further it’s a little bit of a recognition by Amazon that’s a pure-play delivery of food, particularly so fresh food and produce to customers, I think Webband [ph], is the challenging economic model. Now, we believe that the ultimate winners in the online growth of grocery sales, which will grow significantly over the next decade, will be the market share grocery stores themselves, because they’ve already got the bricks and mortar distribution facilities in place within two to three miles of their customer homes just like the centers that we now own. Specific examples to bring the point home is that virtually all of our grocery store anchors, Publix, Kroger, HEB, Harris Teeter, all offer some sort of online program, whether its click and collect, where you order and pick up in the store or partnering with concierge delivery service such as Instacart. We’re modifying common areas in our centers to allow this pick up in designated places, close into the store or they come into store and make other purchases. But either way, it’s a sale in the store for that store. And actually we view it as an opportunity to give and extend our reach to the newer and younger customers.

[John Williams:]

Thanks, Joel. Another question we received, are you concerned with rising interest rates. I’ll take that question. Rising interest rates in the multifamily business are only one part of the overall equation. When rates are rising, typically the economy is strengthening, which indicate job growth, the household formation, and most likely higher inflation rates. Taken together, these factors are more likely to be good for our business than bad. While higher interest rates increase our own borrowing cost. They also make it more difficult for our renters to buy a home. High job growth and household formation increase demand for our product and higher inflation rates are generally positive for companies that own hard assets as we do. Another question we were asked is how much value creation really does arise from PAC’s loan investment program, and how is it reflected in PAC’s financial statements. Dan, will you take that question?

[Daniel DuPree:]

I will, I love this question. And to answer the question, we went back and looked at the last five mezz loans where we acquired the properties. We solicited three BOVs, Brokers Opinions of Value on each of the assets, and then selected the middle one to determine the current value. We then compare the current value to the price we paid using our discount to acquire the assets. For the five properties, the value of the discounts in total was $43.1 million, a pretty significant number. This value created through the purchase option discounts impact our financial reporting in a number of ways. First is to the P&L, it helps drive earnings, because it is essentially free money and that it carries no cost of capital. Second, it impacts a number of our other metrics like our NAV calculation and our debt to undepreciated book value. Ultimately, the value created will be recognized as gain on sale when the assets are sold. This is just five properties. As I mentioned earlier, we have 22 additional mezzanine loans outstanding, which have purchase options of varying discounted amounts.

[John Williams:]

Thanks, Dan. With that, I would like to thank you for joining us for our earnings call this morning. I like to turn the call back over to our operator and to open the floor for any other questions or thoughts you might have. Operator?

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Michael Kodesch of Canaccord. Please go ahead.

[Michael Kodesch:]

Hey guys, thanks for taking my question. Couple questions here. The first, I guess, just kind of trying to reconcile 3Q results with the full-year guidance here. So in 3Q, you guys put up a large result of $0.38. But 4Q guidance - or, excuse me, the full-year guidance implies that 4Q will be roughly $0.29 to $0.31 in FFO, core FFO that is. I guess just trying to get an idea of what’s going on. Is it timing related in 3Q, is it timing related in 4Q that’s causing that slowdown or is it maybe just concerned of guidance or just any idea of kind of what’s going on there would be really helpful. Thanks.

[John Williams:]

Thanks, Michael. I’ll take that one, this is John Williams. [Technical Difficulty] We also took in - had some additional true-ups in the third quarter, we went ahead and took in. The fourth quarter traditionally is our lowest revenue quarter, it is the lowest occupancy in our slowest performance quarter. So all-in-all, we think our guidance is very conservative and very careful. We have always tried to over perform and I suspect we will do it basically with the end of this upcoming quarter also.

[Michael Kodesch:]

I appreciate that, John. Hey, I actually got cut out, I mean, it sounds like maybe some other people did too. I got the true-ups in 3Q. Could you repeat, sorry, your answer, just the first half of it?

[John Williams:]

Well, there was a tax true-up number in the third quarter. We had essentially over escrowed for the first two quarter, you might recall in 2015 we under escrowed. So we were very conservative and the true-up in the third quarter resulted in a few cents, and there were some true-ups in the third quarter. The fourth quarter basically is generally our weakest performing quarter, and we’ve taken that into consideration in our guidance. But we’ve always been conservative in our guidance, and we generally exceed the guidance, and we would rather exceed the guidance than under achieve.

[Michael Kodesch:]

Awesome. That is really, really helpful color. And thanks for repeating that. I guess my next question is kind of looking at some of the purchase options. I noticed that two student housing properties, Haven 12 and Stadium Village, the purchase options on those two properties was extended by roughly a year, I guess for the next leasing cycle. I was wondering if you could provide a little color as to why they were extended in the first place. And then also did you have to give anything up in order to get that to happen or just maybe talk about a little bit what is going on there? Thanks.

[John Williams:]

The Haven West transaction we elected not to exercise our options. So the developer has gone out into the marketplace and put that up for sale, and we have been told that sale will occur in the end of November, the first of December. And so we are excited about that, because we have a fair amount of accrued interest that will bring to the table. All the other properties, which one was mentioned?

[John Isakson:]

Kennesaw.

[John Williams:]

Kennesaw. Well, Kennesaw, we are expecting to exercise our purchase option in the first quarter of next quarter, and that’s pretty standard in terms of student housing. You have to have a year of stabilization before we can go out and achieve a loan with one of the agencies or an insurance company.

[Michael Kodesch:]

Okay, yes, I think I was just referring to the two properties. It looks like they were extended out and maybe that was a typo in the previous supplemental. But - and then the first one I was talking about was Haven 12 and then also Stadium Village, is that still the case there?

[John Isakson:]

Those are ones he was referring to.

[John Williams:]

Yes.

[Michael Kodesch:]

Okay, okay. Well, that’s all for me. I really appreciate it, guys. Thanks.

[John Williams:]

Thank you.

[Operator:]

Our next question comes from Jim Lykins of D.A. Davidson. Please go ahead.

[James Lykins:]

Good morning, everyone. You mentioned a new technology platform. I’m just wondering if you could tell us a little bit more about that and how that could impact your margins going forward?

[John Williams:]

Well, one of the technology changes we have made is going to a Yieldstar. And we are in the process of implementation of Yieldstar, we’ll have all the properties on Yieldstar by year end, we won’t get the full advantage of that Yieldstar program until the end of the first quarter. But we think with the number of units that we have and them being so dispersed that it will help us with our revenue management throughout our system. We looked at a number of revenue management programs, but we felt like the one that essentially worked best with our overall accounting program was Yardi. And we have put in a total accounting platform for our entire company, which will not only allow us to merge up all our accounting in a very efficient way, but it also will allow us to deliver better onsite customer service. We will be able to essentially be able to deliver leases to our new residents that will be simple and easy to understand, and will be able to be signed with an e-signature, so with lot of efficiencies we’ll get out of the technology program.

[James Lykins:]

Okay. And the other thing I wanted to ask you about, you talked about occupancy in Houston. But could you give us a sense for how those assets are performing if you have been forced to make any concessions there? And also how and when you may envision a recovery happening in Houston?

[John Williams:]

Well, I was just out in Houston a few weeks ago. We have great staffs, great team, and I think we’re able to outperform in the Houston market. It’s hard to get a grip on exactly where Houston is, but we think probably the market overall was around 92% occupancy, we’re at 94%. There are concessions in the marketplace. But going to YieldStar essentially it eliminates concessions. YieldStar is a pricing mechanism that allows daily pricing of our assets and gets away from the typical concessions that are used in the industry. I’ve always said that concessions are a little bit like dope. And once our both our residents and our staffs get used to, it is hard to get them from being addicts. So we’re looking forward to getting YieldStar and taking the term concessions out of our vocabulary.

[James Lykins:]

Okay. Thanks, John.

[Operator:]

[Operator Instructions] Our next question comes from John Benda of National Securities. Please go ahead.

[John Benda:]

Hey, good morning, guys. How are you today?

[John Williams:]

Thank you, John.

[Daniel DuPree:]

Good.

[John Benda:]

So quickly, on the office investment, you guys had mentioned that it is going to be a nominal investor, is there - could you quantify that amount to some extent?

[John Williams:]

I’ll call on Dan to answer that. Dan?

[Daniel DuPree:]

Yes. John, I think that the main thing is that we want to emphasize that we are a multifamily company at heart. And indeed, and there is a limit to what we’re going to be comfortable investing in other product types. We mentioned several times today that we’re moving in the direction of spinning out New Market. Hopefully, that will occur sometime in the next 15 months, and we’re setting up for that. But we want to be in a position, where we have a secondary product type that we can invest in. We’re in a sort of a unique situation that we have capital coming in every two weeks through our Series A Preferred. And we want to be able to be smart in how we deploy that capital and having a second product type will allow us to do that. We initially indicated that we would have a limitation of about 20%, we moved it up to about 27% non-multifamily with the idea that it would revert back. I think our goal always is at the end of the day to keep our investments in non-multifamily assets around the 20% level or less. Sometimes it’s going to be a little bit higher based on where the opportunities are, sometimes it will be lower. But hope that answers.

[John Williams:]

Let me - and John, let me add a little bit to that, so that you understand the opportunities for us. With cap rates for Class A multifamily drifting down close to 5%, there is a challenge for us to be able to accretively invest that money in core Class A multifamily. So we still are doing it. We have several properties in the queue that we hope they’ll close by the end of the year, the first of next year. But frankly, as we mentioned in the call, one of the opportunities is we think where we have an undervalued asset class with substantially higher cap rates is Class A of office buildings that would have high occupancy levels and high levels of credit tenants. And we think that based on the expertise we have with this company. This is a good place for us to put some of our money. It will be de minimis when you look at our 2.5 billion on assets. But we still think that it helps our overall yield and we are comfortable doing it.

[John Benda:]

And office was evaluated over other investment classes, say, maybe industrial or storage and things like that, and that was [Multiple Speakers]?

[John Williams:]

Yes, the driver for us was we looked at other areas, but we have considerable expertise within the company that’s very experience in office management and acquisition. And so the bottom line the tiebreaker was - it was part of the business, we felt most comfortable with. But, yes, we did look at other areas.

[John Benda:]

Okay. And then lastly, so you guys had touched on accrued interest, I know that’s a significant balance sheet asset. Could you just talk about the conversion of that asset over the cycle of a loan? And when it is recognized is there a chance for it to be recognized earlier and how that can impact financials?

[John Williams:]

Yes, I’ll let Dan comment on that. Typically our mezz loans are around three years, but the opportunity to invest in those opportunities are stated in our option agreement. But if the property is built faster or leased up faster or reaches stabilization faster. We will grow to the developer and negotiate potential of an earlier purchase. I know that next year we have approximately five properties that we have lined up that we think we - I call it harvest, we will harvest those values and harvest those assets. So it’s a continuing process where we deduct from the 25 properties we have in the portfolio, we will be harvesting value and then we will be adding other products into that mix. So that overtime, the $360 million plus we have in that platform, we expect to grow, won’t be growing as fast as our overall asset base, but it should grow to over $400 million next year. Dan, do you want to add to that?

[Daniel DuPree:]

Yes, the only thing I want to say, the accrued interest is paid at sale whether it’s sale to us as a purchase option or to an unrelated third party. And it’s one of the reasons why we moved a year-ago or a year-and-a-half to recognize core FFO is our main metric, because the lumpiness of AFFO. If we were to acquire - exercise more purchase options next year, our AFFO number could be really huge and give a different picture of the company.

[John Benda:]

All right. Great. Thank you very much.

[Operator:]

This concludes our question-and-answer session. I’d like to turn the conference back to management for any closing remarks.

[John Williams:]

Thank you. I want to thank you for joining us on our call. I want you to remember, again, that we as a company goal think all the time about making sure we grow core FFO at least 10% and our dividend 10%. We are driven by that in terms of how we buy, how we manage, and how we operate. So thank you again for joining us, and we look forward to talking to you early next year.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.