Preferred Apartment Communities, Inc.
Q3 2013 Earnings Call Transcript

Published: 6 Nov 2013

[Operator:]

Good morning, ladies and gentlemen. And welcome to the Preferred Apartment Communities Third Quarter 2013 Earnings Conference Call. All participants will be in a 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 turn the conference over to Lenny Silverstein, President and Chief Operating Officer. Please go ahead, sir.

[Lenny Silverstein:]

Thank you for joining us this morning and welcome to Preferred Apartment Communities third quarter 2013 earnings call. We hope that each of you have 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 Mike Cronin, our Executive Vice President and Chief Accounting Officer; Dan DuPree, Vice Chairman of the Board and Lead Independent Director; Bill Leseman, our Executive Vice President for Property Management; John Isakson, our Chief Investment Officer; and Paul Cullen, our Chief Marketing Officer. 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 an attachment containing our supplemental financial data report for the third quarter with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's call. We encourage you to refer to this information during your review of our operating results and financial performance. At this time, I’d like to turn the call over to John Williams for his remarks. John?

[John Williams:]

Thank you, Lenny. And as you will hear, I believe we had a spectacular quarter and a spectacular year today. We’ll ask Lenny to run through our earnings numbers shortly. I wanted to comment on how well our teams are doing. Our properties have never look better and are performing with high occupancy and solid rent increases. We now have nine mezzanine loan investments aggregating approximately 93 million of (inaudible). While under development we continually inspect the quality of construction of each of the mezzanine loan properties and we believe the final product in every way will be outstanding. The City Park View property in Charlotte opened this past weekend to rate reviews, it is going to be a smashing success. Our Mezzanine loan for the public shopping center in Rome has turned out to be a wonderful investment with record crowds and sales since the shopping center opened several weeks ago. The other development to which we extended mezzanine loan financings generally are on schedule and on budget. I believe that if we were to exercise the purchase options that we received in connection with originating our mezzanine loans we should create tens of millions of dollars in value for the company which are not reflected in our balance sheet are unfortunately our stock price. As announced in our earnings release last night, by year end we intend to purchase a very solid asset in Columbus, Ohio, as well as to exercise our option to acquire Summit II, a mezzanine loan investment that will add an additional 140 units to our existing 345 multifamily units in Summit I. We call this internally a round thrift taking a mezzanine loan from the construction loan to the development of the property to the lease up and now to us excising our option and buying the property. These are two wonderful assets and collectively add over 400 units to our portfolio. We believe these transactions will be very accretive. Our Resident Service program, the Resident Reward program and the Concierge program are second to none in the multifamily industry. I met with our onsite management team last week, I am confident there is none better anywhere in the country and I know most the management companies. We just finished our preliminary budget process for next year and we are very, very excited about the continued growth and earnings expectations for the company. When you review our supplemental financial information, it outlines our growth in earnings over the last year. These numbers are among the best in the entire REIT universe. In fact, I haven't found any company yet that lead our numbers. I’ll ask Lenny to now go through the numbers as highlighted in our supplemental financial information and as Lenny mentioned, we will be delighted to answer any questions following our presentation. Lenny?

[Lenny Silverstein:]

Okay. First, let me reiterate how pleased we are with the company’s operating performance for the third quarter. We believe our cash flow from operations, our FFO and AFFO were exceptional. Our leasing activity for the quarter in terms of rent increases and occupancy exceeded our expectations and as John mentioned, we starting to harvest the values created by our mezzanine loan program as first thing with our acquisition of Trail II this past June. For the third quarter, we reported net cash provided by operating activities of approximately $2.8 million or almost 131% over net cash provided by operating activities for the same period last year. We reported FFO for the third quarter 2013 of approximately $2.7 million or $0.24 of weighted average share of common stock in Class A units. This represents an increase of almost 200% from our FFO of approximately $882,000 or $0.17 per weighted average share in Class A units for the same period in 2012. And remarkably this increase of almost 41% in FFO on a period-to-period basis is after we more than doubled the number of shares in units outstanding for the third quarter 2013 compared to the third quarter 2012. Our third quarter 2013, AFFO attributable to common stockholders and unitholders was approximately $2.1 million, representing an approximate 152% increase over the $818,000 AFFO for the third quarter 2012. Our same-store total rental revenues which reflect the rental revenue results for our two multifamily communities that we’ve owned for at least 15 months, increased approximately 3.8% for the third quarter of 2013, compared to the third quarter 2012. Same store net operating income for the third quarter 2013 compared to the same period in 2012 was basically flat, due primarily to an annual property tax increase for the Summit property that hit the books during the third quarter of 2013. Excluding the portion of this property tax increase at Summit that pertains to the six-month period ended June 30, our same store NOI for the three-month period ended September 30 would have increase 4.3% compared to the same-store NOI for the three-month period ended September 30, 2012. As of September 30, our total assets were approximately $280 million compared to approximately $117 million as of September 30 of last year. For the third quarter this year, we declared a dividend on our common stock of approximately $1.7 million or $0.15 per share which was paid on October 15, 2013 to all common stockholders of record as of September 16th. We’ll continue to see how our dividends be tax sufficient, which in large measure is aided by continued acquisition activity. As we've indicated before, we are pleased to confirm that other than our $30 million revolving line of credit facility, we incurred no debt at the company or operating partnership levels. None of our individual property mortgage financings are cross-collateralized with each other and none of our property mortgages have any recourse liability upstream for the company or to our operating partnerships. In other words, except for our revolver, our debt resides at the property level and is isolated in separate limited liability companies, we’ve established to own each of these properties. So in summary, industry experts continue to report strong demand for new apartments. As job growth picks up, which is historically the most important factor for apartments success, we believe we will see increased household formation which should drive our occupancy and therefore rents. As a result, we continue to believe the multifamily business as a strong sector. We ill continue to actively manage our communities and as usual, do our best to balance vacancies with rent growth while at the same time, providing superior service to our residents. In addition, we will continue to look at alternatives on how to fund packs, growth prospects in light of the current economic climate with the goal of being to always make prudent and accretive investments. And now, I’d like to turn the call back to John.

[John Williams:]

Thank you, Lenny and thank you for reporting those outstanding numbers. Before I turn the call over to the operator, there are several questions we've been asked in anticipation in today’s call. And the first question was in your press release last night, you indicated the same store NOI was basically flat for the third quarter 2013 compared to the third quarter 2012. Would you explain and tell us a little bit about your same-store NOI. Now, we call on John Isakson to respond. John?

[John Isakson:]

Thank you, John. I think it’s important to note that because we’re growing so rapidly, same store sales is not as relevant measure. There is only two assets in our portfolio that qualify for that metric which really skews the analysis. As a whole, our portfolio has performed very well this year. We’ve seen great revenue growth. We’ve seen great NOI growth and I would expect that to continue for the foreseeable future.

[John Williams:]

Thank you, John. We’ve also had a question about the Apartment market in general. How is it doing in the light of the choppiness and slow economic growth. And we’ll call on Bill Leseman, who runs our property management operation to comment on that. Bill?

[Bill Leseman:]

Thank you, John. Well in spite of the choppiness in the economy, we see not only our portfolio but to another extent the other apartment market continues to achieve very strong numbers compared to recent historical numbers. Our portfolio was above 95% for the quarter and for the year and its rent was above 5% and close to 6% for the year-to-date and for the quarter. We are very excited and actually we are hopeful that the economy will pickup steam as we think the apartment market will pickup even further steam with that.

[John Williams:]

In other words, I think, Bill what you are seeing is that today given the fact that we have relatively slower economy and slow job growth, but the apartment market in general throughout the country is doing extremely well and should we see a pickup in economic activity, this should add to increase household formation, which will be a significant driver to the success of the apartment industry. So many people will wonder, can the apartment industry maintain its current acceleration in current loop? I would indicate that the apartment industry should see better days ahead because we're actually doing very well in what typically is not the right environment for the apartment industry to do well. So, I’m sort of excited about the future but surely we will get some job growth and growth in the economy in the future. The next question is what do you think about Preferred Apartment Communities current common stock price? I’m going to take that call myself. Keenly disappointed because I just don’t understand to say that somebody would comeback and analyze our stock price, there is basically three ways of doing an analysis. One is own NAV. If you take our assets and properly mark them to cap rates, we are pleased we have several assets in the environment. We understand Post Properties just sold a 20-year old probably a b-quality asset in downtown, Atlanta for a 5.4% cap rate, which is outstanding. We internally use higher cap rates than that, but it gives us much encouragement over the price that we ought to be able to receive for our assets. But if you take a normalized capitalization of cap rates, you put a modest number in for the value creation of our mezzanine loan-to-own program and you subtract out our debt and then divide it by the number of shares, you will come out with a number $12 or north of $0.12 a share. Another metrics that is used is just a return on the investment. What kind of dividend are you receiving? And we keep a set that we actually analyze our own performance against MAA, EQR, PPS, CPT. And the current yield on MAA is $4.2, EQR is $3, Post Properties is $2.8 and Camden is 4.0. Our yield is $7.15, which is about double the average of the others. These other companies are much slower growth than ours. They have a much more cobbled-together balance sheet than we do, recognizing we have no debt at the corporate level. So again, that metric astounds me and makes me not understand why stocks shouldn’t be significantly higher. And then let’s go to an FFO multiple. If you take out underlying FFO, which is approximately $0.90 to a $1 on an annualized basis, you would see today that we are substantially below the average of the other multiples of the FFO. MAA is at $14, EQR is at $21, PPS is at $51.3 and Camden is at $15.4 and our multiple is $8.7. So we are again half of what we should be as compared to these other companies that have older assets that are going slower and have a more cobbled-together balance sheet. So by any metrics that I would use over my 45-years in the business and having started the second REIT in the apartment industry, Post Properties, I feel like I know the business pretty well. I’m astounded about our stock price. There is absolutely nothing we can do about it except continue to post solid, strong, growing numbers and by god we will. So with the next question, we will ask Mike Cronin and this is the question on our supplemental financial data, we report a net loss and this gives stockholders anything to worry about and are there certain tax benefits. So, Mike, explain net loss on our financial statement that came out on our supplemental.

[Mike Cronin:]

Sure, John. As an apartment REIT, there are obviously some large non-cash depreciation and amortization charges which reduce or eliminate our income and potentially taxable income. That can turn into a benefit in the sense that our dividend payments may be treated as a non-taxable return of capital. So once again it’s a significant amount of non-cash depreciation and amortization charge that are running through the P&L.

[John Williams:]

And let me comment on that because, as you know, the apartment industry is pretty unique and we are able to use accelerated depreciations, so we do create a lot of depreciations where we do not think our assets actually depreciate, they actually appreciate. And so we get the benefit of this accelerated depreciation and it is maybe more of a less tax shelter around in our country. So if you look at our statements and you see a net income loss, realize that has very little to do with the performance of the company. And as a matter of fact, you won’t see a loss because it would indicate you are growing and making acquisitions. Thank you, Mike. The next question that came in is about our mezzanine origination program. How do we see this program going forward? And before I call on Dan DuPree to respond, I would like to make a comment. Dan joined us initially as part of our IPO Board and joined us as Vice Chairman. He has been instrumental in helping us, as we’ve continued to grow and prosper over the last few years. We have had discussions with Dan and he has indicated to us that he is willing to come join us full time and we are working and will make that happen effective January 1, where he will be Vice Chairman and Chief Investment Officer. It will mean that we will bring in another Independent Directors. We are looking forward to doing that for the company’s standpoint to bring on an icon in the industry, somebody with Dan’s skills, it will add to our industry tremendously. And this is something that excites, Lenny and I for because it will be great for the company. So, Dan, with that introduction, will you tell us a little bit about the mezzanine program.

[Dan DuPree:]

Yeah. John, as you mentioned in your comments, we have nine existing mezzanine loans covering 2,047 units. We expect that we will roundtrip one of the projects and I mentioned also Summit in the fourth quarter of this year, which means we will excise our purchase option. We expect that in 2014, we should be able to roundtrip at least two more assets with the remaining six mezzanine loan round tripping in 2015. At the same time, we have a number of new projects on the drawing board that we should be adding to the mezzanine loan program over the coming months and into 2014. The point of all this is that the size of the mezz program should stay fairly constant as we continue to grow the size of the company through acquisitions. And remember the real benefit of the mezzanine program is that it allows us to acquire new Class A assets built essentially to our specification and significant discounts to market, which will create significant value in the company. And as John mentioned earlier, this value that is created to the mezzanine program is largely not reflected in any NAV calculation or otherwise on the balance sheet.

[John Williams:]

Thank you, Dan. And we look forward to having you be with us full time. With that operator, I would like to open the floor to questions that is coming from our audience. Operator?

[Operator:]

(Operator Instructions) We have a question from Ryan Gilbert from Compass Point Research. Please go ahead, sir.

[Ryan Gilbert:]

Hi, guys. Can you tell me a little bit about how you sourced the Columbus acquisition and what cap rate you bended up?

[John Williams:]

Yeah, we actually do national searches. We have a committee meeting once a week and we look at assets in our relevant markets continually. But let me ask, John Isakson to give us more details on the Columbus assets. We were excited about Columbus. It was not originally on our map but when we did a lot of research in the last six months, Columbus showed up. It’s larger than the Cincinnati or Cleveland and it’s creating dynamics. It’s a capital of a state. It has a huge university and these tend to drive success in a particular community. So, John, I want you to give a little bit about the cap rates et cetera.

[John Isakson:]

Sure, John. So as John mentioned, when we go through every quarter and evaluate the target markets that we look at for investments, we are constantly looking at both the markets that we have on our list as well as other markets that qualify that aren’t on the list to see what really looks good for medium and long-term. And Columbus is something that over the course of the last three or four quarters has really shown a lot of promise is a market we would like to invest in. And Marble Cliff came to us through one of the many sources we have in the market and it was a great asset. We feel like we are getting it at a great price and we are in the process of going through due diligence now.

[Ryan Gilbert:]

Okay. Can you give us any details then on the new mezzanine loan that you are planning on originating in Novo? Is it the same interest rate structure as your other mezzanine loan and then do you still plan on financing it through preferred issuances?

[John Williams:]

The question -- let me see if I could repeat the question. The question is can you give us some details on the mezzanine loan, terms of the upcoming transactions and I will call on Dan to do this. But I will tell you that we continued to tweak the formula. We continued to tweak the formula, so that we are able to come up with something that’s fair to both the company and to our development partners. But, Dan, do you want to tell us exactly where we are currently on mezzanine front?

[Dan DuPree:]

Yeah. Probably as much specificity as I can give you is that it’s in the ballpark with all the other loans that we have done. We continue to refine it, so if there is a current pay and an accrued pay with the purchase option that then allows us to acquire the asset at a discount to then market value of comparable asset. But in terms of the rate, it’s generally the same economics that we have used before.

[John Williams:]

Yeah. We think it’s probably if you analyze the discount and the interest we are getting, we might be getting [RO] in the high-teens because of the interest rates we are acquiring as well as the discounts. But each individual property has to be calculated individually and we do that.

[Ryan Gilbert:]

Okay. And you are looking at funding mezzanine draws through Series A?

[John Williams:]

Yes. We can do it, the cash draws is fungible but internally we look at the money that is coming in through our Series A is the money we generally would invest in mezzanine funds.

[Ryan Gilbert:]

Okay. Great. And I guess, just a broader question on how you guys planning growing the property portfolio, are we going to see growth in your property portfolio through the mezzanine loan program or deals like [Convest] that you have announced. What do you think the next will be going forward?

[John Williams:]

I think actually both. We were expecting to be more active in acquisitions next year. As Dan indicated earlier, we have several additional mezzanine loans teed up and those do round thrift and we will have the possibility next year for several rounds thrift, while we will be starting several mezzanine transactions. But we have got a -- we have made a commitment for next year in our budgeting process to substantially pick up on our acquisitions. Obviously it has to be relatively new product. It has to be Class A. It has to be in the market that we have already decided that we like and it has to be accretive, those are the conditions that tell us whether we want to go into the asset. And it has to be of high quality. We need to -- we think we have the youngest most high quality portfolio in apartment rate I think we want to keep it that way.

[Ryan Gilbert:]

Okay. Great. Thanks so much, guys. That’s all I had.

[John Williams:]

Thanks. Operator, next question?

[Operator:]

Our next question is from Steve Emerson from Emerson Investment Group. Please go ahead, sir.

[John Williams:]

Hi, Steve.

[Steve Emerson:]

Hi. First of all, congratulations on another great quarter and milestones. Perhaps you can flush out your NAV back at the envelope calculations, for instance what cap rate you are using and what interest rate assumption and how you look at the NAV of your loan portfolio?

[John Williams:]

Well, I will call Lenny for that, we -- I think I have to be so careful to put those numbers out. But if you’ll recall in my remarks, I indicated that the company down the street from us Post Properties just sold a 20-year old, I call it a B+ asset. I don’t know it because I have built it. But they sold it at a -- they announced a 5

[Lenny Silverstein:]

Yeah. Hi. This is -- yeah, this is Lenny. Steve, thanks very much for your question. We previously don’t go out into the public market and talk explicitly about our NAV. But generally speaking, if you look at the marketplace, there is pretty good consensus region by region as far as what cap rates are and in particular, when we are looking at asset and products we are looking at the submarkets within the metropolitan areas. And so, there is a lot of data out there from [Vuitton], from Axiometrics, from other analysts out there, Peter Linneman who you can look to get some general averages of cap rates in the markets that we are currently serving. As far as interest rates assumptions are concerned, generally we are looking at maybe the seven-year and the pricing on seven years today is somewhere around $220 to $250 over the 30-day LIBOR. And so you’ll factor that into any type of acquisition. And generally speaking one of the things that we are proud of is we try not have any guarantees upstream in connection with any of our acquisition loans and in order to do that, generally speaking our financing is somewhere in the 60% to 65% range and as a result of that you can drop some internal calculations with respect to roughly two-thirds or so being debt financing and we will provide the equity for the balance of it. So generally speaking if you kind of look at those metrics you can kind of come up with the general resemblance of NAV. But those are the general parameters and that’s information out there in the public space that you can use for that purpose.

[John Williams:]

I think, Lenny, misspoke on the seven-year financing, John, I want to correct that?

[John Isakson:]

Oh! Sure. So today when we look at our acquisitions we are pricing over seven-year treasuries and most of what we get from the agencies is in the $220 to $250 basis point range over the seven-year treasury mark. We also look at 10 year but right now because where the yield curve is seven years is more efficient pricing.

[John Williams:]

Seven years is around what right now.

[John Isakson:]

Between 2 and 210.

[John Williams:]

So you are looking at slightly over 4%?

[John Isakson:]

Right. 4.75 to 4.50.

[John Williams:]

All right. Thanks very much for that clarification.

[Lenny Silverstein:]

And so, Steve, if you are able to buy, say, at a six and you are able to put financing in it at four, you -- for us -- the driver for us is putting financing owned, the company does not have to guarantee, the property is self stand full of guarantee. That means about a 60% loan and if you learn that math, would give you probably an 8.5% return on your cash investment and that tends to be what we look at.

[Steve Emerson:]

Thank you.

[John Williams:]

Thank you, Steve. Operator, next question?

[Operator:]

Next question is from [Craig Christera] from Wonder Lake Securities. Please go ahead.

[Unidentified Analyst:]

Yes. Hi. Good morning. I have a question about the Madison Rome property which is the retail project? Now that the anchor has taken possession and I think it has a certificate of occupancy? Can you give a sense of the timing and sort of economics of that transaction?

[John Williams:]

Sure. I’m going to ask Dan to tell us what’s going on. I can tell you we have a very substantial amount of accrued interest that has been accrued but not paid. It will paid at the time of the property is either sold or refinanced out of our portfolio. The property I think is 98% leased incredible success so far from the lead tenant and we would expect some time probably in the second quarter perhaps that asset will be taken off of our books. But Dan, do you have any further?

[Daniel DuPree:]

I think you covered it. It’s -- it's one of the situation, the current interest and the accrued interest is substantial enough. We’re not in a big hurry for to come off of our books but I think John is exactly right probably sometime in the second quarter that will pay off.

[Unidentified Analyst:]

That was -- is the current pay on that like -- is it structured similar to other transactions…

[John Williams:]

Yes, it’s a current pay in a deferred pay of six. So we have I would guess -- this is just a pure gas 400, 500,000 oils worth of deferred interest that we owed, secured by 98% shopping center that is complete and came in under budget, ahead of schedule and is doing fantastic from initial sale. So we think that asset might have secured as anything can be.

[Unidentified Analyst:]

Great. I also wanted to ask you with the recent rise in real estate taxes, you have affiliated with your property at Atlanta. How much success do you think you can have in fighting out those appraisals?

[John Williams:]

Well, we, we fight them all the time. It’s a big issue for us and we tend to be very aggressive. As you know, all the carriers in cities surround the country, very anxious to bring in revenues and when they think that a real estate development of any type is available for reappraisals they do it. But we have a process we go through and maybe I can call on John to tell little bit about that process and frankly we win more bells then we lose. John?

[John Isakson:]

So as part of our asset management process, we evaluate every property individually every year. But before we get the tax bills and then after we get the tax bills and we employ third party consultants in every municipality where we have an operating asset to help us fight the appraisals, would help us fight the tax bills whenever that opportunity presents itself. Now you had some areas where the tax payments are fixed, the bills are fixed but in most areas there is an opportunity for an appeal and we maximize that opportunity every year.

[Unidentified Analyst:]

Great. And finally, you’re -- I touched a little bit back to Columbus, it sounds like you’ve done some work. It looks like a good market feeling to go into. Is this --is this likely to be one-off or do you think you might be more than one kind of asset in that market?

[John Williams:]

Our goal is let me just make sure everybody understand what our goal is. We try to have approximately 20 cities throughout the entire country that we’ve identified with follow-on criteria. They had to be over million in size. They have to be dynamic. We have to feel good about their growth characteristic. We had to feel as though there are subsets within that metal area that give us protection from competition. And it has to be an asset that we think is not only accretive that they revive but will be accretive over the long term. In other words that we can outpace inflation with -- and our expenses with rent growth. We actually did lot of research, John. I and his team, did, we used actually a metrics and [Ryan Wheaton] did help us to target which markets we want to be in. And Columbus showed up and we went up there and looked and we found this wonderful asset. Obviously, to be efficient from out management operation, we will add additional assets into that market and we have already begin that process, are looking to see if there are other asset we can buy. I know that one of our development partners is already looking up there for our construction opportunity. So we would expect out return that we would add to Columbus and realize these 20 cities is continually changing. It’s a dynamic map and that we look at it approximately every six month. We go to our board, we tell them what we’re thinking and we get locations blessed. I can tell you with some surety that we’ll have a development unveil in a fantastic site on Jamboree in the urban area of California by spring or summer. We have another asset, the one we mentioned up in Washington DC that we’re very excited about Northern Virginia actually. We have another opportunity in Owana. And so we want to come back in and sort of fill in so that we have several assets in these markets because it make our management -- management more efficient. But I think the key for us to protect the interest of our shareholders is to make sure, we have a very diversified portfolio, not diversified in quality. We only want to be in A quality, the best apartments that we won’t to see in diversified markets.

[Unidentified Analyst:]

Got it. And then kind of playing with that diversification theme, you got the bit interested in housing this quarter. Is that going to become a significant part of your portfolio or is that just a way to diversify your revenue stream?

[John Williams:]

I think it’s a further way of putting another arrow in our quiver for diversification. Student housing has many of the same identical characteristics in terms of construction and management that we do with the apartment business. We’ve long looked at it. Our sister company, RAM, has managed student housing. We’re very familiar with it. We think it’s another good way for us to take and protect that shareholders with what we think is very good diversity. So we will build and be involved and acquire more student housing but it will never be that significant part of our portfolio. We are primarily in the A quality apartment business.

[Unidentified Analyst:]

Okay, great. Thanks for the color.

[John Williams:]

Thank you.

[Operator:]

Our next question is from Richard Zablocki from Money Concepts. Please go ahead sir.

[Richard Zablocki:]

Hi, good morning. I’m particularly interested in how you are able to do accelerated depreciation which you mentioned, which is a good text shelter. On multi family properties, is there some specific that you do because your RS is pretty stripped on that, unless you are using something like cost segregation.

[Dan DuPree:]

It’s cost education. It’s component depreciation.

[Richard Zablocki:]

All right. But doesn’t that cause some trouble when you sell it in the end?

[Dan DuPree:]

Well, yes, what the government gave it, the government take it away. And so, in any case we use the depreciation currently. It gives us protection for the short term but when we turn around and sell, we do get capital gain. So we convert short term issues into long-term capital gain. So it’s about the only -- it's not much of a shelter not like before 1986, but it’s better than nothing, so we take advantage of it.

[Richard Zablocki:]

All right fine. Thanks very much.

[Dan DuPree:]

Thank you.

[Operator:]

(Operator Instructions) Our next question is from Larry Raiman from LDR Capital Management. Please go ahead sir.

[Larry Raiman:]

Hi. Congrats on how you are doing? And Dan taking more active role that’s really wonderful news.

[Dan DuPree:]

Thank you, Larry.

[Larry Raiman:]

We appreciate everything you're doing to work to build the company. On that front, can you just address because the stock is such limited float. You’ve got such good growth aspirations, yet the stock is really cheap and would concur how you can think about keeping a reasonable debt level growing but with the handicap of really discounted stock. We all get something good -- get to the end game if you will, with that is kind of constraint?

[Dan DuPree:]

Well, it’s like building blocks and we understand that one of our primary objectives is to continue to add to the common stock and add to look close. And we intend to do that. It’s somewhat disappointing sometimes. They have to sell the stock at prices that you think are far below what the stock will go far. But it is an issue that we know we have to recon with them and we plan on selling additional common stock and we will use common stock to aid in our growth other than our preferred program which is continually marketed. So we will be a common stock seller even though I want to build home and take pause after going to do it.

[Larry Raiman:]

Understood. Thanks. Keep up the good work. Thank so much and best of luck.

[Dan DuPree:]

Thank you Larry and thanks for all your support.

[Operator:]

This concludes our question-and-answer session. I will like to hand the conference back over to John Williams, Chief Executive Officer. Please go ahead sir.

[John Williams:]

Well, thank you. This has been a very exciting call for us. We’re delighted with a lot of questions, both before and after. I want to thank all our shareholders and potential shareholders for joining us. I will assure you that we have the absolute best management team in the apartment world and we’re going to continue to work very hard and make you proud of us. We know what we need to do. We need to continue to grow the company accretively and push up the share value and we’re going to work our butts off to make sure that happens. Thank you again.

[Operator:]

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