Bluerock Residential Growth REIT, Inc.
Q4 2019 Earnings Call Transcript

Published: 13 Feb 2020

[Operator:]

Good morning, ladies and gentlemen, and welcome to Bluerock Residential Growth REIT's Fourth Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. 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, Christopher Vohs, Chief Financial Officer of Bluerock Residential. Mr. Vohs, please go ahead.

[Christopher Vohs:]

Thank you and welcome to Bluerock Residential Growth REIT's Fourth Quarter 2019 Earnings Conference Call. This morning, prior to market open we issued our earnings press release and supplement. The press release can be found on our website at bluerockresidential.com under the Investor tab. In addition, we anticipate filing our 10-k later this month. Following the conclusions of our remarks, we'll be pleased to answer any questions you may have.Before we begin, please note that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. There are variety of risks and uncertainties associated with forward-looking statements and actual results may differ from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release we issued this morning as well as our SEC filings. With respect to non-GAAP measures we use in this call, please refer to our earnings supplement for a reconciliation to GAAP and the reason management uses these non-GAAP measures and the assumptions used with respect to our earnings guidance.And with that, I'll turn the call over to Ramin Kamfar, Chairman and CEO of Bluerock Residential Growth REIT for his remarks.

[Ramin Kamfar:]

Thank you, Chris and good morning, everyone. In addition to Chris, with me today are several key members of our executive team including Jordan Ruddy, our President and Chief Operating Officer; Ryan MacDonald, our Chief Acquisitions Officer; and Mike Difranco, our EVP of Operations. I'll focus my remarks on key strategic accomplishments and financial highlights for the quarter and close with some capital markets commentary and then Ryan will provide you with operational, transactional, balance sheet and guidance details.2019 was a noteworthy year in Bluerock Residential's evolution. We continue to successfully execute on our strategic objectives in terms of accretively growing our portfolio of highly amenitized, multifamily assets and knowledge economy growth markets, while growing our NOI and executing our value add renovation plans. During 2019, on a GAAP basis, net loss to common stockholders nearer to $0.91 per share compared to a net loss of $182 in 2018. We achieved $0.82 of core FFO in line with our guidance midpoint and strong full year same-store NOI growth of 5.8% reflecting our strategic market selection, our strong operational execution and the positive impact of our value add renovations. Our results were partially dampened by the need to retain a large amount of cash from the proceeds of our large mid-year portfolio sale versus paying down our line of credit in order to be able to execute a 1031 exchange with the post - with the proceeds.We are very active on the capital allocation front, completing seven dispositions at a very attractive 4.7% cap rate to generate about $370 million in proceeds, with a substantial $49 million gain. We've continued this execution into 2020 and have completed two additional dispositions at cap rates below 4% in this case to generate $112 million in proceeds. Our disposition activity was at the high end of our guidance range for the year. In 2019 allowed us to make investments totaling $629 million, this included seven accretive operating investments for $526 million in total asset value. All with substantially stronger and long-term growth - profiles. This - 2019 investments are performing ahead of budget and we should see their positive impact rolling into our same-store pool in the back half of 2020. We also invested $94 million in preferred equity and mezzanine loans including six new operating and development investments and spent another $10 million in buying out our partners in three assets to increase our wholly owned asset base, which has been our goal. On the value-add renovation front, we continue to achieve above market results, across the board finishing the year with approximately a 1,000 units completed with an average ROI of 23%. Our unique approach, where we fit our renovation plan to each specific property has allowed us to achieve higher than average value add returns on a consistent basis over the last few years. And we anticipate similar performance this year.Shifting to capital markets. We raised $241 million of our Series B Preferred during the year, which was a record annual amount. At the end of the year, we stop selling the Series B and transition to a new Series T preferred, which eliminates the warrant and have some additional beneficial structural tweaks while at the same time, retaining the attractive conversion features of the B.As we've noted before, the preferred provides a unique advantage for BRG because it allows us to raise capital to fund accretive external growth with the flexibility to convert into common equity at our option at a future date and at the future common stock price. In fact, in the fourth quarter, we redeem $7.3 million of the Series B at an average common equity price of $11.93 per share.Now turning to our fourth quarter results. On a GAAP basis, net loss to common stockholders was $0.62 a share for the quarter as compared to a net loss of $0.55 a share for the prior year quarter. The figures included non-cash expenses, including depreciation and amortization expense of $0.83 and $0.75 per share respectively for the current and prior year quarters.On the revenue front, we produced a healthy 5% growth in the fourth quarter to $52.5 million, driven by our significant investment activity during the year. In addition to the strong same-store sales performance. Moving to property level results, we grew property NOI 5% to $28.2 million in the quarter. Same-store revenue and NOI came in at 2.4% and minus 0.2% for the quarter compared to the prior year. These figures were impacted by a temporary occupancy hit at a very small subset of properties, which has been fixed, since that time, and to uncontrollable expense comps. All of which Ryan will detail shortly. But I want to put our same store performance on the context of the full year 2019, where we delivered same-store revenue and NOI of 4.8% and 5.8%, which is top quartile performance based on our peers which have reported to date.On the funds from operation front, we achieved core FFO, which is NAREIT FFO, with add-back of non-cash, non-operating items of $0.21 a share versus $0.20 a share for the prior year period. Our dividend coverage remains strong with payout ratios for the quarter and year-to-date of 77% and 79% respectively. We continue to grow our asset base. Gross assets were up 16% for the quarter from the prior year period to over $2.3 billion, which puts us at the larger end of our small cap multifamily peers.As we look ahead, we believe we're uniquely positioned with multiple growth levers to continue delivering shareholder value. First, we believe our market and asset selection in terms of assembling the right, well located, highly amenitized, live work play communities and the right knowledge economy growth markets will allow us to continue to deliver strong organic growth as seen in our 2019 same-store revenue and NOI figures of 4.8% and 5.8%.Second, we continue to maintain solid growth through our value add upgrade program, which is delivering very attractive returns. From inception to-date, we've renovated over 2600 units with an average ROI of 24%. With more than 4500 units, identified for future upgrades, we have a meaningful embedded growth opportunity, which based on our experience to date could grow both our NAV and CFFO per share significantly over the coming years.Third, we're able to fund accretive external growth through issuance of our unique preferred, whilst sourcing attractive acquisitions with upside potential through our Bluerock network. Fourth, we've demonstrated an ability to make prudent and accretive dispositions and reinvestment capital allocation decisions for the Company when appropriate. Balancing investments in high-quality operating properties in our target markets, with strong supply demand dynamics, assets with value, had opportunities in high yielding preferred equity and mezzanine loan investments.And last but not least, based on analysis that we've reviewed, we believe we're getting close to market float eligibility for REIT Index inclusion which is traditionally been a significant driver of equity returns for our small cap multifamily peers and the lead up to inclusion. As we look ahead, we look forward to delivering against our guidance, continuing to grow NAV and driving value for our shareholders, all of which management is the largest at approximately 27% of our fully diluted equity.With that I'd like to turn the call over to Ryan.

[Ryan MacDonald:]

Thank you, Ramin. And good morning, everyone. The operating portfolio continue to post strong gains and rental rate growth throughout the fourth quarter, with 19 of 14 MSAs posting rental rate growth exceeding 3%. This was highlighted by continued outperformance in our Atlanta, Florida and Austin communities and topline acceleration in our suburban Houston properties. Portfolio-wide average occupancy was 93.6% compared to the prior year quarter at 94.5%. Since the year end, we have seen occupancy accelerate and the stabilized portfolio now stands at 94.6%. Overall, same-store revenue increased 2.4% over the prior year period, driven by a strong 3.6% increase in average rental rates, but was moderated by a 120 basis point decline in occupancy to 93.6%. Rate growth was broad based with 24 of the 26 properties in the same-store pool, recognizing year-over-year increases in average rental rates in the quarter.On a sequential basis same-store rental rates increased 50 basis points and revenue was down 60 basis points over the prior year quarter - over the prior quarter, due to seasonally weaker occupancy and other income, which is typical on a quarter-over-quarter basis between the third and fourth quarters. To drilling down on the occupancy front, as Ramin pointed out, year-over-year fourth quarter average occupancy was impacted by two one-time items. The first being unexpected move-outs of 27 corporate units at our GulfShore property in Naples, Florida, from a company who has been with us since acquisition over three years ago. And the second being property management transition at three Florida assets driven by operating performance issues.I'm pleased to report that occupancy was quickly back filled at these assets and now stands at 96% at the end of January versus 91% in the fourth quarter. I will also note that our aggregate corporate unit exposure across our 11,700 unit operating portfolio is limited to 109 units, which represents less than 1% of our unit base.Moving on to rate growth. During the quarter, lease rate growth averaged 2.5%, renewals remain strong at 4.1% with new lease growth slowing in a seasonally weaker part of the calendar to 1.1%. Growth in the quarter was partially impacted by our property management firm transition, excluding the three properties, portfolio rate growth improved by 30 basis points to 2.8%. I would also like to point out that our stabilized 2019 investments are performing exceptionally well and realized average rate growth of 6.1% in the quarter, which should benefit our same-store results in the back half of 2020.On the expense front, year-over-year same-store expenses during the quarter grew by 6.5% with taxes and insurance accounting for 5.8% of the increase. Excluding a one-time tax refund in the fourth quarter of 2018, expenses would have increased 4.1%. For the full year, expenses are up and more favorable 3.4%. Same-store NOI for the quarter decreased by 20 basis points, again, it was impacted by our unfavorable tax comp, which contributed to a 140 basis point change to NOI and this was in line with our expectations.We continue to be pleased with our value add renovation program, which has delivered healthy results. During the year, we completed approximately 1,000 units and to-date, we have completed north of 2600 unit renovations at an average cost of roughly $5700 per unit. To date, our efforts have yielded monthly rental increases of $111 per unit, resulting in a weighted average ROI of 24%. This quarter we delivered a 19% ROI and that was partially impacted by leasing seasonality and test scopes from our recent acquisitions that aren't finalized. We look forward to improving on that number in coming quarters.Today, we estimate there are north of 4500 units remaining to be renovated in the current portfolio with comparable economics, which would be significantly accretive to both CFFO and NAV. In terms of capital allocation, the sale of seven assets allowed us - just strategically recycle capital to assets in new markets with immediate value add renovation opportunity. The dispositions were executed at an economic cap rate of 4.7% based on $300 per unit replacement reserves and the buyers' year one tax estimates. The proceeds were reinvested into assets with a year one economic cap rate of 4.9% and because of their stronger growth profile, they are projected to stabilize at cap rates exceeding 6%.In terms of additional dispositions, subsequent to year-end Helios in Atlanta, Georgia and Whetstone in Durham, North Carolina were sold at cap rates of 3.4% and 3.9% respectively with sale pricing totaling $112 million. In both cases, BRG was preferred equity and all principal and accrued unpaid preferred payments were satisfied as part of the transaction.Moving on to investments. During the quarter, we completed three acquisitions totaling approximately $76 million in BRG investment. And also made one preferred equity investment into three operating assets, totaling approximately $10 million in BRG equity. And an annual yield of 10% and 1.5%. The operating investments consisted of an acquisition of a newly built core apartment community in the live work play neighborhood of Scottsdale Quarter in Phoenix, Arizona. The 60% leased asset was purchased in an off-market transaction, due to a seller need for closing by year-end, which resulted in us realizing what - we believe to be a 50 basis point to 75 basis point cap rate discount on pricing.While this investment will impact our near term results during its lease-up phase, we are confident in its greater long term contribution. The Atlanta and Washington assets were also purchased through relationship and off-market transactions that allowed us to achieve attractive pricing for assets with value-add renovation upside. Subsequent to year-end, we made an investment into a 2013 built 254 unit apartment community in Phoenix, Arizona called Avenue 25 at a purchase price of $56 million. The asset offers significant operational upside through institutional property management and substantial value-add opportunity with end unit upgrades. And we are pleased to report that the asset has performed - already performing well ahead of underwriting.Collectively, these investments demonstrate one of BRG's key differentiators. Our ability to source attractive off-market deals that allow us to apply our operational improvement and value-add playbook which create outsized returns over time.Turning to the balance sheet. During the quarter, BRG acquired $222 million of operating assets representing $76 million in BRG equity and made investments totaling $48 million into new and existing preferred equity and mezzanine investments. BRG also converted its mezzanine investment in the Cade apartments in Boca Raton, Florida into a common equity for an 81% ownership in the property. In conjunction with the conversion, the property was refinanced and $4 million was returned to BRG.Post quarter end, we executed two dispositions yielding BRG $42 million in net proceeds. Following our fourth quarter investments, conversion of Cade mezzanine to common equity and post year-end dispositions. BRG's investment and preferred equity and mezzanine loans stands at $283 million, which represents approximately 12% of our total asset base. And it's important to note of the $283 million approximately 50% invested into operating assets which have a different risk profile than development assets under construction.Finally, on the balance sheet. As of the end of the year, BRG has approximately $89 million available for investment through a combination of cash and availability on our - revolving credit facilities. At the end of January, following a robust month of acquisition and disposition activity, BRG has $109 million available for investment. Plus, we continue to grow our capacity through our Series D Preferred offering. We continue to have a robust pipeline of attractive investment opportunities. And look forward to reporting on them in coming quarters.Looking ahead, in terms of some brief market commentary, we continue to like Class A affordable assets in first ring [ph]suburban locations that are more insulated from supply growth and [ph]favor Atlanta, Orlando, Raleigh, Nashville, Austin, Phoenix and Las Vegas, while remaining cautious on in-town Charlotte and the Dallas MSA, which will continue to be impacted by elevated supply in 2020. Within our own portfolio for 2020, we are projecting, Phoenix, Las Vegas, Suburban and Houston, Atlanta and Austin to see the largest year-over-year revenue growth.Moving to our 2020 earnings guidance. You can refer to page 32 of our fourth quarter supplemental package for details on the key assumptions driving our 2020 financial outlook. We project a core FFO per diluted share for 2020 of $0.83 to $0.86, driven by same-store net operating income growth of 2%, 2.5% to 4% across a 27 asset same store operating pool. This is being driven by top-line growth of 2.5% and 4% and expense growth of 4.3% to 5.3%. Revenue should accelerate throughout the year towards the high end of the range, as we accumulate the benefit of our 2019 acquisitions entering the same-store pool.On the expense front, growth in taxes and insurance account for the largest majority of the increase. And collectively contribute 3.1% of the projected midpoint expense growth of 4.8%. On the capital allocation front, we are forecasting, another active year with investment volume and dispositions totaling $500 million to $700 million and $275 million to $400 million respectively. We expect the dispositions and reinvestment to be neutral to core FFO this year, upon reinvestment with accretion ending in 2021 and beyond.To conclude, I want to reiterate that we are pleased with our 2019 operational outperformance of 230 basis points versus the midpoint of our same-store NOI guidance. And look to deliver strong results in 2020. We look forward to reporting our quarterly results, as we progress throughout 2020.And with that, we will now open it up to Q&A. Operator.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Gaurav Mehta with National Securities. Please go ahead.

[Gaurav Mehta:]

Yes, thanks. Good morning. First question on the one-time items that impacted results. I was hoping, if you could provide a more color, if that was sort of expected as you went into 4Q19. And maybe talk about what the issues were on the property management side.

[Ryan MacDonald:]

Sure. Hey, Gaurav. It's Ryan. On the tax comp side. So in 2019, we decided to move to a methodology that was more in line with our peers. Whereas in '18, we effectively accrued to a significantly higher numbers throughout the year. And then had a larger fourth quarter refund comp. Whereas in 2019, we decided to accrue to effectively a net number. And so that one time comp this year will be eliminated on a comp basis kind of going forward.

[Ramin Kamfar:]

And then on the property management side, it was a function of, - we didn't feel like we had the right on site team and we weren't getting the right partner. Our partners were not delivering us the level of service on these three assets that we thought were - worth what we desired. And so we moved on from that pretty quickly. And I will tell you that the new managers are performing exceptionally well. We brought in a manager that we have or affirm that we have a significant relationship with across the portfolio that. So we're excited about it.

[Gaurav Mehta:]

Okay. Second question on the value-add. I saw that for 2020 you forecasting 15% to 20% returns, which is lower than what you've done historically. So maybe you know provide some more color - why the returns are expected lower in 2020?

[Christopher Vohs:]

Yes. I think we just provided a base that's in line with the market. I think our expectations to be at [indiscernible] plus like we have historically. If you look at what we did in the fourth quarter at 19%. The idea is to improve off of that 19%. So it's nothing more than being conservative.

[Ramin Kamfar:]

And I think that's - Gaurav, it's Ramin. That's a thing that you'll find in our guidance in general for 2020. I think we're going into potentially, definitely - and politically choppy year. We don't know what the impact of that is going to be in terms of economic choppiness. And therefore, we've decided to be conservative going into the year.

[Gaurav Mehta:]

Okay. Lastly, on the balance sheet. It looks like you bought back from share, [Technical Difficulty] you should some shares as well and there is not much difference in the prices of where they were executed. So maybe you can talk about how you're thinking about share repurchases and share issuance in terms of the [indiscernible] prices are?

[Ramin Kamfar:]

Well, I think we were obviously looking to - there are number of things that happened on the balance sheet. So, we have converted a significant number of Series B. In the fourth quarter, we started those conversions, we wanted to start small and make sure that we're not impacting the stock and that it's the common stock. And that it's from an operational execution point of view, it's going smoothly and it has. And you can see that we have converted $7.3 million shares there. We also issued our - used our ATM. The numbers that you see are net numbers after the cause [ph] of the ATM.One of our key goals is obviously we're very close to being eligible for, I think the RMZ was at - cut off was at 290 in the last two cut offs in May and November of last year. Obviously, they reset it. They have the ability to reset it every six months and - we missed that by $20 million or $30 million. So, we're very close to that. We're looking to grow our equity base and that was what the ATM was. In terms of the repurchase, I think you have to look at it in the context of the full year. And you will see that that number averages. If you look at the full year, this year and last year, the number of average is lower, part of what happened on the ATM was that this quarter was we've got an inbound call from a large institution that wanted to establish a beachhead position. And so you'll see that, that was - that partially impacted the, - you know, that the pricing of that, but there should be a bigger- you will see a bigger distinction in terms of the price at which we're buying back stock and we're issuing stock going forward.

[Gaurav Mehta:]

Okay, thank you.

[Operator:]

The next question comes from Barry Oxford from DA Davidson. Please go ahead.

[Barry Oxford:]

Great. Thanks guys. When I look at your FFO per share numbers for 2020 and then, you talk about accretion in 2021. Can you walk me through just a little bit as far as the sources of money, coming from dispositions and preferred? I guess a lot of it's going to be coming from dispositions in 2020. But in '21, not as much and that's why we will see a little more growth in earnings per share. Or am I not thinking about that right?

[Ramin Kamfar:]

I think there are a number of things happening, Barry. This is Ramin. Yes, one of them is that, as we're buying assets, it takes and we roll them into our systems with respect to the property management systems. And then, the value add upgrades, it takes some time for those benefits to start growing. And in fact, we sell assets that have - where we've executed that partially or fully and we're rolling them off. So we - oftentimes you see us when we do a disposition. We take a step back, and then, from the base we take a small step back and then we build on that and go forward. I think you will see the benefits of the deal that we did, in terms of second half disposition - the big disposition we did mid-year and those assets got - those dollars got reinvested through Q3 and mostly - if you saw a lot of it got invested in the late part of Q4, which impacted our Q4 numbers and Q3 numbers obviously. So, you will see those benefits as we get them under our belt and start executing our plan. Mostly, you'll see that accelerate into the second half of the year. And then, there is other stuff that's happening, the Series A Preferred which is at a quarter is coming up for redemption sometime in mid-October. But our guidance currently does not assume that we take it all out in one go. It assumes that we have a rolling redemption based on the Series T coming in. So, most of that you will see a touch of a benefit in Q4, starting in Q4 of this year, but you will see, - and that's going to be a few pennies at least and throughout 2021. Those are two big items that are going to - and we have some initiatives going on, that are not in the budget or not in the guidance, just because we haven't quantified them yet. And as I said, we want to be conservative and that has to do with rolling in Smart Home technology, looking at property level expenses with various technology initiatives that some of the bigger guys are doing, to try to manage those expenses down, etcetera, etcetera. I think we've got a lot of stuff on the plate. That is not in our guidance this year. But hopefully, you will see the benefits as we get a couple of quarters under our belts.

[Barry Oxford:]

Great. - Thanks. Thanks for that color. And Ramin, just last question on the preferred and [indiscernible]. How do you see that growing throughout 2020? How should we think about that?

[Ramin Kamfar:]

You mean our debt and preferred equity book on the investment side?

[Barry Oxford:]

Yes.

[Ramin Kamfar:]

Yes. Well, I would say it's growing, but it's a smaller part of our asset base. If you would recall a couple of years ago, it was about a third of our asset base and we said that as we get into a bigger REIT type of - as we mature into a bigger REIT, we think that 30% is too high. And we're going to bring it down into the high-single digits, low double-digits. And I think you've seen us manage that. And one of the things that we haven't talked about is, obviously as that becomes a smaller part of our portfolio, the two things have happened. The impact - the benefit of that declines. So that's something that we've managed over the last couple of years, because you're talking about a much higher current return that you're getting a much smaller benefit.And, if you drill down into those investments, we had them on the books at 15 and we've managed to roll them off. And now we're doing them of TAM [ph] which is I think much more sustainable on a go-forward basis. And again, we've managed that transition while delivering, we haven't talked about it, but that has had a dampening effect on our ability to grow FFO and CFFO, and that's something that obviously is going away. Again, that's something that finishes, I think getting those higher yielding [ph] and preferred equities, all come off our book in 2020. There is still some dampening effect, but that effect goes away. So, looking at 2021, that's another item that's going to help us accelerate our CFFO growth, because you're no longer battling this minus 5% on a big chunk of your invested capital, if that makes sense.

[Barry Oxford:]

That makes absolute sense. Appreciate the color. Thanks, guys.

[Ramin Kamfar:]

Thanks, Barry.

[Operator:]

The next question comes from Drew Babin from Baird. Please go ahead.

[Drew Babin:]

Hey, good morning.

[Ramin Kamfar:]

Good morning.

[Drew Babin:]

Quick question on guidance for the year. It looks like there's a decent increase in share count off of the year-end numbers. And I guess my question is, is that all [indiscernible] or is there something as far as ATM issuance or something else in there phasing in throughout 2020?

[Ramin Kamfar:]

Yes, it is not all LTIPs. Our comp committee is not that- our comp committee wouldn't do that. So, no, you'll see is that we've converted- again that's not in our numbers, because we're talking about Q4. And we said we converted $7 million of the Series B, since the beginning of the year, we've converted another $13 million and that's $1.1 million shares, I believe. So out of the 2 million shares that's the majority of it. Again, I think there is a compensation piece, but that's about 300,000 shares, maybe. And then the rest of it is, we're making some assumptions about the REIT. As you recall there is this shared services agreement. Actually, we may be calling it something else these days. But support some sort of support agreement, I think we're calling it. But we provide, the Bluerock affiliate that provides services at cost to BRG - at BRG's request, when it's cheaper for BRG to do those. And at the end of each quarter, BRG can make a decision whether it's paying it in cash or shares. So there is a limited amount of shares that we've budgeted for that. So those are the elements that are driving it.

[Drew Babin:]

Okay that makes sense. And just one more from me. Beyond the acquisition disposition activity that's already closed this year. Can you talk at all about potential timing of things that might be back-end loaded or front-end loaded as far as acquisitions and dispositions and also from mezzanine preferred investment?

[Ramin Kamfar:]

Sure, Drew. I think on the mezzanine and preferred investments, it tends to be an equal cadence throughout the year. On the acquisitions and disposition front, I think we will probably be more heavily weighted to the second and third quarter of this year. We have a couple on the pipeline that should close in the second quarter, both on the acquisition and disposition side. And then that should carry through middle of the year.

[Drew Babin:]

Okay. Appreciate the color. That's all from me. Thanks.

[Operator:]

The next question comes from Craig Kucera from B. Riley, FBR. Please go ahead.

[Craig Kucera:]

Hey, good morning guys. A question about your investment volume in fourth quarter. I think in early November, you would maybe thought that investments might be higher than what was closed. Did you have any transactions fallout during due diligence or maybe slip into the first half of 2020?

[Ramin Kamfar:]

We did not, - where we did not have any fallout. We had one close in the first quarter, which I talked about in January the Avenue 25 deal. I think we outlined potentially six transactions in the last call. We closed five in the quarter and then close one post quarter end.

[Craig Kucera:]

Okay, got it. And I know you highlighted the three properties that had the property management issues in the loss of corporate. At least it's driving on occupancy but when I look at your revenue per unit on a sequential basis fourth quarter versus third quarter. There was a fairly broad base decline in the number of properties, particularly in Dallas, which I know you commented on, as far as being concerned about supply but also in Denver and to a lesser extent, Austin. Are you concerned about supply in either of those markets outside of Dallas, which already commented on?

[Ramin Kamfar:]

I'm sorry can you repeat what Denver and what was the other market?

[Craig Kucera:]

It looked like Austin also had a sequential decline in revenue per unit.

[Ramin Kamfar:]

Yes. I think part of the sequential decline on revenue per unit. I mean, I think generally speaking third to fourth quarter tends to be a little bit challenging on a sequential basis. But with respect to the specific declines, I think it also has to do with other income fees, a lot of it, generally speaking, just across the board, third to fourth quarter. But on a market perspective, I think, Austin, in particular the headline numbers tell you Austin has a lot of supply, I think closing in on 4% of MSA. But in our locations in particular on the south side, we actually don't have that much supply. And if you look at our lease rate growth numbers as well as our revenue projections for the year, it's actually at the top quartile of our portfolio.Denver on the other hand - I would call it, middle of the pack. Denver is certainly is experiencing supply especially downtown and some of the newer assets are experiencing very, very limited rent growth. Our assets in Denver tend to be on the older side relative to the overall portfolio age. I think we have a 1980 deal in Lakewood and then call it in early 2000s deal in Castle Rock. More specifically, I think if there is a deal that could potentially see some impact on supply. The Castle Rock deal is one that I think is susceptible to supply more than our Lakewood deal which, and that's just a function of not necessarily a ton of supply, but anytime you have a lease up property that is coming up across the street from you that could impact the numbers. So I think we're constructive long term on both markets in particular and Austin for our assets is probably a better performer than Denver, which is still again middle of the pack, relative to the portfolio.

[Craig Kucera:]

Okay. And one more from me. I guess just given the markets approval and acceptance of doing unit renovations and really kind of pushing rents in same-store. I know you have a few soft circle, and number of units, call it 4500. And they're doing 20% to 20-ish% a year. Is there any ability or thought to accelerating that particularly, when you're entering the year, where your same store expectations are kind of dropping from what they were last year?

[Ramin Kamfar:]

It's all a function of portfolio size, Craig. And actually the number of deals that we have in the, - call it the 4500 units. I think the number of deals we have today, lends itself to a cadence of 900 to 1200 units on average for the year, which is kind of where we've been. Obviously, if we add additional assets to the pipeline there is opportunity to potentially grow that number over time. But where we stand today, I think we're pretty comfortable with that cadence.

[Christopher Vohs:]

I'd say it's not Craig, it's not an issue of being able to execute operationally the upgrades. We have, as you know we have a network of operators and that allows us to execute across a large number of markets and properties. It's mostly a lot of hedge driven by supply and demand issues. So if you're in a market that's got supply coming on or you've got a lease-up going on and you're not going to be able to - you're going to have your rents or occupancy under pressure, which drives the same-store revenue for example; you're not going to be able to get around that by doing upgrades.We had this situation in Austin asset that we bought that had significant upgrade potential, but when we did some test upgrades, we had a couple of assets that opened up. And we're in lease-up and there were giving such discounts that there was no market for bumping rents. Now that they're fully leased up, that asset has tremendous potential and we're with respect to the upgrades. So, and then part of what you're seeing on the same store is us being conservative. Part of it is we haven't budgeted for any of the revenue side for any of the smart home initiatives.And on the expense side, we're also being conservative in terms of tax and insurance given the experience that we've had on the last couple of years, particularly on the insurance side. And also, we're not budgeting any savings from. As I mentioned again technology initiatives. So that's what - I wish it was as simple as saying okay, we're going to do an extra 600 upgrades to get another 60 basis points. But you got it match it to what the market is going to bear.

[Ramin Kamfar:]

But I think the fortunate part is that we have a viable platform that can continue to execute the upgrades at levels that we have been in the past, which is significantly ahead of where then the market is on a return on investment perspective.

[Craig Kucera:]

Okay, thank you.

[Operator:]

[Operator Instructions] There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Ramin Kamfar for any closing remarks.

[Ramin Kamfar:]

I want to thank everyone for joining us today and giving us the time and look forward to continuing to report to you on our progress in the coming quarters. Thank you.