Bluerock Residential Growth REIT, Inc.
Q2 2015 Earnings Call Transcript

Published: 11 Aug 2015

[Operator:]

Good morning, ladies and gentlemen, and welcome to Bluerock Residential Growth REIT's Second Quarter 2015 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to introduce your host for today's call, Christopher Vohs, Chief Accounting Officer of Bluerock Residential. Mr. Vohs, you may begin.

[Christopher Vohs:]

Thank you, and welcome to Bluerock Residential Growth REIT's second quarter 2015 earnings conference call. This morning prior to market open, we issued our earnings press release and our earnings supplement. The press release can be found on our website at BluerockResidential.com. In addition, we anticipate filing our 10-Q this week. Following the conclusion of our prepared remarks, we will 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 a 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 release we issued this morning, as well as our SEC filings. With respect to non-GAAP measures we use in this call, including pro forma measures, please refer to our earnings supplement for a reconciliation to GAAP, the reasons management uses these non-GAAP measures, and the assumptions used with respect to any pro forma measures and their inherent limitations. And with that, I will turn the call over to Ramin Kamfar, Chairman and CEO of Bluerock Residential Growth REIT, for his remarks.

[Ramin Kamfar:]

Thank you, Chris, and thank you, everyone, for joining us for Bluerock Residential Growth REIT second quarter earnings call. With me today I have several members of our management team, I’ve got Jordan Ruddy, our President; Jim Babb, our Chief Investment Officer; Ryan MacDonald, our Senior Vice President of Acquisitions; and Larry Kaufman, our Vice President of Asset Management and Michael Konig, our General Counsel. I will open my remarks with some key operational highlights from our quarter and close with some capital markets commentary. Following my remarks, I will ask Larry Kaufman and Ryan MacDonald to give you additional operational and transactional detail respectively. So let me jump in and start with the financial highlights. We had a very strong quarter, for the quarter our adjusted funds from operations, or AFFO grew 288% to $3.01 million from $0.8 million [Indiscernible] than the prior year quarter. On a per share basis, AFFO grew 46% to $0.19 a share from $0.13 a share in the prior year quarter which exceeds our guidance of $0.15 to $0.16 a share. Now I want to point out that when we put out that guidance of $0.15 to $0.16 a share we did not contemplate the May 2015 follow on that we did, so if you really want to compare or resolve on an apples-to-apples basis you need to exclude the cash rate and the shares issued in the May follow on and that would give you a AFFO for the second quarter of $0.23 per share, so excluding that follow on it would be $0.23 per share which beats the high end of our $0.15 to $0.16 guidance by $0.07. On a pro forma basis and we committed to report on a pro forma which adjusts for a cash drag in terms of between raising money in the follow on to follow ons that we’ve done this year and investing that money so it gives the investor a sense of what the actual run rate is on a pro forma basis which assumes the completion of the investment of the funds that we raised in the January follow on into the deals that we’ve identified as of the second – start of the second quarter our AFFO per share was $0.34 per share and that exceeds the high end of the guidance range for pro forma AFFO of $0.26 to $0.28 by $0.06. I want to point out that we have a dividend of $0.29 per share quarterly so we are continuing to achieve our goal of covering our dividend on a pro forma AFFO basis. Moving on our management fee was $706,000 for the second quarter of 0.3% of our equity base as compared to $218,000 in the prior year quarter which was also 0.3% of our equity base and that quarter for the quarter for this quarter BRGs board determined to pay the full amount of our management fee in output in lieu of paying us in cash. From the managers point of view we are pleased to accept the LTIP given our strong belief and the value of BRG stock at current levels and also to demonstrate our alignment with our ambassadors. Moving on to the revenue front. We achieved significant growth as a result of our investment activity over the last 12 months. Our topline revenue for the second quarter was $10.5 million which is a 35% increase from $7.8 million in the prior year quarter. In terms of NOI margins, we showed improvement increasing margins by 160 basis points to 58.3% from 56.7% in the prior year quarter. As a result, Property NOI dollars grew at a faster rate than revenues, they grew to $6.1 million in the quarter which is a 39% increase from $4.4 million in the prior year quarter. Same store NOI grew substantially by 10.3% for the quarter versus the prior year quarter. Net loss attributable to common stock holders for the quarter improved significantly to a net loss of $0.6 million versus a net loss of $4.5 million in the prior year quarter. This net loss obviously includes significant non-cash items which were $3.6 million in our most recent quarter versus $2.5 million in the prior year quarter. Our asset base continues to grow significantly on a quarterly basis. Growth, real estate assets were up 22% to 366 million at the end of our recent quarter from the year end 2014. And we look for this number to continue to grow significantly through the remainder of the year as we close on our pending transactions. On the transaction front, we closed some five investments here in the quarter for a total cost of 125 million. We have an additional seven properties under contract or LOI for a total cost of 285 million and representing just north of 1,900 units which we are working on closing, Ryan’s going to touch on the transactions and give you more details in a few minutes. As we previously indicated we’re going to continue to – we are continuing to review our portfolio and we actively [Indiscernible] of capital when it’s been official to our shareholders at this point we have two non-core assets that are under contract for sale at attractive returns and which we are looking forward to close in the third quarter. Shifting to capital markets, we completed an overnight follow on offering in May of 6.4 million shares of Class A common stock at an offering price of $0.13 per share for gross proceeds of 82.5 million. We had originally filed with as a $50 million offering but the deal was oversubscribed by almost 2.5 times in a matter of hours and that allowed us to upsize the deal. We have three goals for this offering. One was to raise capital to execute on a robust pipeline of accretive transactions that we are continuing to see and that we are working on closing now. The second was to continue to build our institutional shareholder base and here we had demand from approximately 16 institutions and I’m happy to report we placed over 70% of the shares institutionally and in general, our institutional share holdings if you look at it has grown to north of 30% from effectively zero over the last 12 months and the third 3000 index sales that I’m happy to report that BRG would select it for inclusion in June and this is an important milestone we believe in our growth. Finally, we are looking forward to a solid third quarter. We will continue to report AFFO on a pro forma basis, so investors can evaluate our earnings potential on a fully invested basis without their temporary cash drag associated with [Indiscernible] and investing the capital our pro forma AFFO guidance with third quarter is $0.26 to $0.28 a share which is about the same as it was which is the same as it was for the second quarter and that assumes that we fully invested our remaining cash in pending in pipeline transactions the details of which are outlined in our supplement which we filed this morning. And with that, I’m going to hand over the commentary to Larry Kaufman our Vice President of Asset Management. Larry.

[Larry Kaufman:]

Thank you, Ramin and good afternoon everybody. Our operating portfolio continues to perform exceptionally well. I would like to highlight some key metrics for the second quarter. Portfolio wide across all of BRGs assets average occupancy with second quarter of 2015 was 93.9% up 40 basis points versus the prior quarter, entire year quarter average of 93.5%. Occupancy was higher in July averaging 94.9% for the month and we are seeing strong demand for our properties continue into August. Same store NOI increased 10.3% compared to the second quarter last year of 2014. The improvement in NOI was the result of a 5.9% increase in property revenues which came from driving the 60 basis points gain in occupancy and 3.8% increase in average effective rent per occupied unit over the same period last year. Same store expenses remained flat compared to prior year quarter. Now, I would like to turn it over to Ryan who will give you some additional details about the quarters investment activity.

[Ryan MacDonald:]

Thank you, Larry. We had a productive quarter on the investment side of the business. On the acquisition front, we made five investments this quarter, made a commitment to three additional investments and entered into LOI for four additional investments for a total cost of $411 million and representing 3100 and 16 units in 8 markets. Our first investment was the Whetstone Apartments which is a new Class A 204 unit apartment community currently in lease-up in downtown Durham, North Carolina. Our operating apartment was able to source the opportunity at an attractive price by sourcing off market directly with the seller. We are projecting a stabilized cap rate for the asset of approximately 6% which we believe compares favorably to market cap rate of 4.75% to 5%. From a market perspective, we believe Durham, North Carolina, is a vibrant growth market with a tremendous intellectual capital base focused on attracting both healthcare and technology-based employment. Currently, the property is 66% leased and is averaging approximately 20 leases per month and based on the existing run rate we would expect the property to stabilize in the fourth quarter of this year at which point we would expect to convert our $12 million convertible preferred investment into majority common equity ownership. Our second investment is in Cheshire Bridge which is a to-be-built, 285-unit, Class A luxury apartment complex in infill Atlanta with direct access to the institutional submarkets of Buckhead and Midtown. BRG is projecting funding a convertible preferred-equity investment just under $16 million in the transaction. BRG's underwriting projects a return on cost for the project ranging from 7% to 7.5% at stabilization for value creation of 200 to 250 basis points versus sales of comparable multi-family communities in the greater Atlanta MSA at 4.5% to 5%. In addition, we made investments to increase our ownership stake in the Park & Kingston apartment from 47% to 96% and in the Fox Hill apartments from 85% to 95%. These investments help us achieve our goal of simplifying our ownership structure by earning 90% to 100% of each of our properties. The non-average we have taken at 94% ownership in our investments and our pending investments since our IPO. Lastly, we funded the second half of our investment in the Alexan Southside development deal. In terms of pending trans acquisition, we have seven properties under contract or LOI with a total cost of 285 million representing 1,900 and 17 units which we are working to close over the next several months. To give you details on some of the deals. The first pending investment is an off market purchase of 100% interest and a 2013 and 2015 build two-phase Class A 473-unit property in Suburban Charlotte, called the Ashton Apartments. This is an off market purchase directly from the seller which was complexed for a variety of reason including the fact that the Phase I is operating and is exist in connecting while Phase II is still under development. As a result of these complications, BRG’s cap rate on Phases I and II are 6% and 5.8% respectively, which in our estimation is approximately 50 to 75 basis points better than market which we estimate to be in a 5% to 5.5% range. We expect to close on Phase I in the next couple of weeks and Phase II 30, 60 days on stabilization estimated to be earlier in the fourth quarter. The second pipeline investment is the purchase of a 95% interest and a Class A 2006 built 252 unit apartment community in Orlando, Florida called the Century Palms at World Gateway Apartments. The asset is being purchased off market for 37 million has projected the yield of pro forma stabilized cap rate of approximately 6.8% which is 40 basis points higher than our original underwriting as a result of continued operational improvement of the property. This compares favorably to cap rates in the market for similar quality asset in the 5.25% to 5.5% range. The business plan calls for modern enhancements to the club house and amenities as well as modest in unit upgrades and installment of washer dryers in select units. Our third pipeline of investment is an off market purchase of a 95% in two newly built Class A assets totaling 674-units in the Dallas Fort Worth Metro Area. We have negotiated favorable pricing that is projected to yield a pro forma year one cap rate of approximately 6% versus market cap rate for similar quality product in the 5% to 5.25% range because of our close relationship with the seller and ability to execute quickly. We are currently in due diligence and have targeted closing in October. The last pipeline investment I’ll mention today is a healthcare oriented Class A development project in Raleigh, North Carolina. The project is 242-units and located directly adjacent to Rex hospital, a highly acclaimed Medical Center within University of North Carolina Health Care system that employs more than 5400 staff, including 2800 medical personnel. Our partner has been working on a [Indiscernible] for many years and as a result has created tremendous underlying land value. BRG is coming in at apartment’s basis through a convertible preferred equity investment and our underwriting projected return on cost for the project ranging from 7% to 7.5% at stabilization for value creation of 200 to 250 basis points versus sales of high quality institutional multifamily communities and the Greater Raleigh Metro at 4.5% to 5% cap rates. Shifting to the dispositions front. We are under contract to sell few other noncore assets that no longer fit with the BRGs current strategy because of the age and location. I am happy to report that both assets are projected to be sold at attractive returns yielding approximately $10 million in net proceeds to BRG and I look forward to reporting further on the sales next quarter. I’d also like to point out that our pipeline remains very robust. Currently we are evaluating north of $500 million worth of investments totaling in excess of 5000 units and 20 properties. The majority of these pipeline transactions are off market and in many cases we’ve been working on them for extended periods of time. And before I hand the call back to Ramin, I’d like to note that our 296-unit development project in Orlando, Florida called EOS recently began leasing. Rents are in line with projections which means we will be looking at 7.5% return on cost for this project versus market cap rate of 5% to 5.5% and we’ve been trending approximately 25 leases per month. We’ve 61 leases signed to date. We look forward to the continued strong lease of that property as we deliver additional borrowings and reporting on the progress next quarter. And with that, I will now return the call to Ramin to conclude.

[Ramin Kamfar:]

Thank you, Ryan. In closing, I just want to say that we continue to see significant upside to our strategy which is to build a high quality Class A portfolio and high growth primary markets throughout the United States and just targeting the high disposable income rent by [Indiscernible]. We have assembled one of the youngest portfolios in the market and we are achieving one of the highest average rents for portfolios in our markets and at the same time are generating significant value creation in our portfolio. I want to thank you all for your support, and I look forward to sharing news of our progress as we execute our business plan. And with that, operator, I am happy to answer any questions.

[Operator:]

And our first question will come from Rob Stevenson of Janney.

[Rob Stevenson:]

Good morning, guys. Ramin beyond the Dallas assets and the pending portfolio, what other new markets are you looking at in the remainder of the assets in the acquisitions that Ryan was alluding to?

[Ramin Kamfar:]

I’m going to move out Rob, I’m going to let Ryan answer that.

[Ryan MacDonald:]

Sorry Rob, is the question what additional markets above and beyond the assets that we…

[Rob Stevenson:]

The $500 million that we are looking at – which new markets.

[Ryan MacDonald:]

It’s primarily a built on and additional in our similar markets I’m looking at it North Carolina and Texas, Tennessee, Florida. There are a couple that will be part of portfolios in other markets that are probably non-core and mid-Atlantic but the primary markets are Florida, Tennessee, Texas, North Carolina, so our existing markets primarily.

[Rob Stevenson:]

Okay. And then are there additional opportunities to buy additional interest in the car portfolio assets like you did this quarter?

[Ramin Kamfar:]

I think when you look at the assets we’re I think 94% in terms of the assets that we’ve purchased since the [Indiscernible] we’ve got – we are selling there a couple of assets when I look at the list Rob that we are not at 90% and won it from the EOS development asset, I think that would be an interactive asset to own more of but we own a small percentage of it and so it may be an attractive disposition asset. I’m not sure if it’s the cap rate that we are going to be able to sell it at its where we want to be buying into it. And then we’ve got – you’ve got our MBA asset which we own a partial ownership and it’s again not a core market for us, it’s probably something that we’re going to look to dispose as we maximize the value. So I think what you’ll see from us is that going forward we are going to be 90%, 95%, 100% so that people can look at it and say okay, its 90% and so on average a 95% owned portfolio and the older assets where it’s just, it’s less than a handful where we own less than that, those assets overtime will probably get monetized.

[Rob Stevenson:]

Okay. And then just lastly from me. Between the 10 million of disposition proceeds that you guys are expecting as well as capital on hand and your borrowing capacity, is that enough to close the seven pipeline assets and how much additional capacity does that give you?

[Ramin Kamfar:]

I think it’s – yes it is sufficient to close the pipeline assets, we wouldn’t take any deals under contract or even LOI if we didn’t have the capital and in terms of additional capacity I think that said I think we’re fully committed which is what we had promised people when we went out with our last offering that within three to six months we’ll be fully committed, it’s not exactly six months yet from May but we’re fully committed at this point.

[Rob Stevenson:]

Okay. And then just one last one to sneak in. Have you guys noticed anything in terms of your conversations with Fannie and Freddie and other lenders in terms of willingness and/or pricing over the last 60 days?

[Ramin Kamfar:]

I’ll give you the big picture and then Ryan can add in because he will add in some detail. In general what we find is that for our – first of all we are preferred borrower with Fannie, Freddie, and secondly the quality assets that we are buying and the quality of the markets that we’re in those are assets that Fannie and Freddie like. Ryan’s had the most recent conversation, so I’ll let him add color to that.

[Ryan MacDonald:]

Yes Rob, I think spreads on average of probably up 50 basis points from the beginning of the year. That being said, I think we’ve been fortunate enough to be able to back fill it with LIFCOs [ph] I think you are probably looking at a good 50 basis point difference between our life company spread and our agency spreads and I think we’ll see probably towards the latter half of the year the allocations for 2016, the agency spreads will come in quite a bit. So I think right now our focus has been primarily on LIFCOs but I think the agencies will begin to open up and spreads will compress towards the latter half of the year.

[Ramin Kamfar:]

Jim, do you want to add..

[Jim Babb:]

Hey Rob, I think Ryan and I both think – of course I think that’s right. Particularly it’s the leverage level that we’re looking, the opportunity to landscape of lenders is very, very broad. And the LIFCO right now seem to have the best execution, but both Fannie and Freddie are back, they are quoting their little bit wires right in front and then perhaps they were end of last year, earlier in the year but more competitive than they were probably 60 or 90 days ago. So we feel very good about our debt capital availability.

[Rob Stevenson:]

Okay. Thanks guys. Appreciate it.

[Jim Babb:]

Thanks, Rob.

[Operator:]

And the next question will come from Wilkes Graham of Compass Point.

[Wilkes Graham:]

Hi, good afternoon. Just a couple of quick ones. In your $500 million or north of $500 million pipeline, are you seeing more opportunities out there for the 15% preferred investments where you can roll into ownership down the road or are you seeing more opportunities on the direct acquisition side?

[Ramin Kamfar:]

It’s more at the pipeline. Good afternoon, Wilkes. Let’s start with that. Thanks for joining us. The pipeline as we’re looking at it right now and have it in front of me, it’s more weighted towards existing assets, so we tend to – we trying to keep the preferred investments, the development deals to no more than 30% of our equity base. So, we’ll have right now what we’re saying in particular we’re working on a portfolio or to that we think would be very interesting if we could bring it in. So -- but we have -- we internally we put a limit in terms of what we want to put on the preferred and development side. We’ve got a couple of deals that are going to roll into underlying equity including the Whetstone transaction shortly.

[Wilkes Graham:]

Okay. On your decision to or can you maybe just talk a little bit about your decision to accept the management fee in LTIP as oppose to cash. And is that something you plan to do going forward or was that just this quarter?

[Ramin Kamfar:]

It’s a Board level decision, so I think with the discussion with the Board we thought that it would be – it would send the right signal to our investor base for us taking. Our whole management, I think last quarter we had an incentive fee we took all of that in LTIP. And I suppose just half of it and this quarter we started a discussion with the Board. It was actually initiating – it was a Board level decision. It was initiated by us because we felt that it was the right signal, and to everyone out there that we are strong believers of the stock. At recent pricing are we going to do it again? I think we’d like to. Again the Board has to make that determination. We’re open to it especially with the – I’m hoping the stock is not going to be where it is where it was yesterday, but I think that our stock is even I’ve discussed, I think that the stock has significant room for multiple expansion. Obviously, we’re putting very strong numbers in terms of operating performance of a portfolio out there. We’re seeing tremendous deal. So the message is where buyers up there were significant buyers of the stock at this point.

[Wilkes Graham:]

I appreciate that and I definitely agree with the move. Another Board level decision obviously is the decision to internalize management, you and I have that discuss that recently, but can just talk about – you add about $250 million market cap hurdle, but it probably wouldn’t neutral or accretive to do so now, can you just talk about how you think about when the right time to internalize it?

[Ramin Kamfar:]

Again, it’s a Board level discussion that we’ve engaged. It as a – in our point of view and I think our Board where we’re on the same page with the Board and awfully with our investors is that we want to internalize as quickly as possible, as quickly as it make sense for the investors and that’s a point where internalizing would be neutral to the AFFO, if not accretive. So we think that that number is around of – if you look at our peers, they already had a $7.5 million G&A, so that’s our management piece about 1.5 points somewhere just below under [ph] that of equity, so that translates into about half 500 million of equity. So, we’ve gone from $25 million in equity over the last, since our IPO last April to $250 and we’re hoping that we’re going hit that – hit a number that may set economic for us to internalize in 2016, so I would be disappointed if we’re not internalize by the end of 2016, so that we can take this issue off the table and so that we can do it in a way that’s accretive for the investor base. But we’re committed to internalizing as quickly as it make sense for the investors.

[Wilkes Graham:]

Appreciate the details. Thank you.

[Operator:]

And next we have a question from Craig Kucera of Wunderlich.

[Craig Kucera:]

Good afternoon, guys. Wanted to follow-up on the LTIP, first of all, kudos to you for doing that, I think that sends a very strong signals to your investor base to do that. But wanted to find out was that price based on where sort of ended the quarter price, where was your sort of stock price on that?

[Ramin Kamfar:]

The strike price hasn’t been determined yet, it is a same that stock price gets determine the same way that -- there’s a mechanism in our management agreement for determining stock price in terms of paying the fee on using LTIP which was used for the incentive fee last quarter and that same mechanism is going to be use this quarter. And going forward if and when those happens again, and that is once the Board just makes that determination than its going to be an average of. I believe the next five trading days, Chris you may know if I’m incorrect you can correct me. I know it’s a five-day average and I think the start date – start date is the date of once the Board makes the determination. We had our board meeting last Wednesday I believe and so it will end. I think the last data gets well then to the number as is tomorrow next Wednesday. Chris, am I correct on that?

[Christopher Vohs:]

Yes. That’s correct Ramin.

[Craig Kucera:]

Got it. Well, it’s a good – it’s definitely appreciated I’m sure particularly by those that have participated in the stock in the last several follow ones. I had few detail questions to go through just on timing of the acquisition pipeline as you’ve outlined, is that still expected to likely close by the end of year or is that maybe some of that maybe slipping in the first quarter?

[Ramin Kamfar:]

I think everything is going in our ship closed by and if you – we’ve got – Brian why don’t go through when the various deals should close. I see September – I see August – two August, one September and three Octobers, but we can put dates next specific deals if you’d like.

[Craig Kucera:]

That’s fine. I think I’m just looking for a round dollar amount, but yes certainly if you have a bulk of the close by early fourth quarters that’s helpful?

[Christopher Vohs:]

Craig the majorities by October.

[Craig Kucera:]

Okay. Got it. And just following upon Rob’s question on the debt piece, what kind of quotes that you currently seeing for the debt that you’ve sort of identified it on Ashton Reserve and maybe the Century Palms property, is it – maybe 350, 375 something like that?

[Ramin Kamfar:]

Well, Austin we’re assuming alone for the first phase which is 322 units, so that’s fixed and that’s 467 with the live company, that’s a legacy loans. On Century Palms we’re actually for business planning reasons, we’re actually going to utilize the floor [ph], we think this is an opportunity to get in fix and then potential recycle capital. So, we were 225 over from Freddie Mac. And we size our exposure as well, that’s correct. So -- but on a generalize basis we are seeing anywhere from 3.5 or 3.25 depending on where we term out our maturity to about 375 is kind of in and I’ll be -- right now.

[Christopher Vohs:]

We have the down portfolio now that in the marketplace. We’ve had very, very strong initial indications. We haven’t seen formalize –we haven’t formalized the quotes yet correct, but we expect them to be in the mid 3s. That’s correct.

[Craig Kucera:]

Got it. And the total cost on the Dallas portfolio, I know you guys noted your equity investment was expected to be about $30 million, is that -- you guys have a good ballpark, but do you think what the total investment would be there?

[Ramin Kamfar:]

Approximately $100 million.

[Craig Kucera:]

$100 million, okay.

[Christopher Vohs:]

And I guess finally you’re selling a couple of assets, you hovered some value here or some deals or assets, but again where your stock price is today are you visiting its maybe some of the other pieces of the portfolio that are maybe non-core potential with cycle capital or what are your thoughts there?

[Ramin Kamfar:]

We’re consistently looking and constantly looking at where we can recycle capital and we deployed accretively, so the answer to that is absolutely Craig, we actually just had recent conversation more going through the portfolio and how do recent conversation about one particular deal in terms of – that’s a significant investment for us whether we should – whether we can or whether we should recycle it. So we’re having those conversations. Those conservations have been continuously, Craig.

[Craig Kucera:]

Okay, great. Thanks a lot.

[Ramin Kamfar:]

Thank you.

[Operator:]

And the next question will come from David Keenan of Canon [ph] of Aegis Capital.

[Unidentified Analyst:]

Good afternoon, guys. First question, well, more of a comment, I’ve been a shareholder for about a year now and when I look at kind of all of your key metrics, you’re performing exceptionally well. But the bad news is from a year ago our stock hasn’t gone up at all, in fact it’s down about 15% since last September. And then if I compare you versus one of your peers preferred apartments, their stock is up about 20% during that same period. And while you’re doing so many things right, I would almost analogize to a football game where your star quarter back is getting 400 yards, your running back is rushing for 200 yards, but we’re actually loosing the game. And I think the reason is too much, a little bit of an overweighing in terms of source of capital towards equity. I think if that were treat, we would probably get much better performance, I would like to get your thoughts on that and commentary if that something that you will consider an employee going forward?

[Ramin Kamfar:]

David, I appreciate the comments, we’re always looking for inputs as to what we can do better. I think that from a capital structure point of view we’re open to whatever makes sense and it’s accretive for our investor base. So what is it that your when you’re saying overweigh towards equity, are you thinking debt or you thinking preferred, what is that you’re thinking about?

[Christopher Vohs:]

Well, I mean I think we’ve been too aggressive in terms of issuing equity. And I think it also put you – so far it hasn’t, but could potentially put you at disadvantage in terms of your pipeline because now you have gone to your head in terms of deploying that capital if you do raise equity, you’ve got to get a return on it quickly, so, there maybe the inclination to be less judicious in terms of the transaction that you do. So, you’re selling properties. You’re doing a great job. You’re recycling properties. I would say using those proceeds and using debt possibly prefers to source of closing transactions. I don’t think you have to ramp as quick as you’ve done. I would prefer to see digest and use debt and recycling of capital unless dilutive equity going forward. And I believe very strongly that this stock price will reflect that.

[Ramin Kamfar:]

David, I appreciated. I think that from – we’re always looking to these smarter from a capital markets point of view. On the dept side I think we’re putting 65%, generally where two-thirds were high in term of REIT leverage and also for maturity, but we’re not mature to our cost of capital or strategies where we put two-thirds debt on it and with the value creation we get below 50%. So, I’m not sure we have much capacity to add debt on. We’ve looked at a preferred issuers convertible versus perpetual, convertible preferred essentially puts pressure down on the stock, so we don’t want to – on the equity we don’t want to do that and perpetual is something that will be right for capital stock at the right time. I think, I agree with the lot of what you’re saying in terms of recycling capital we’re aggressive about that. I’m not sure that I agree with you in terms of our just comparing us with preferred apartments. If you look at us and did this for our Board last week so I have the numbers in front of me. If you look at us versus the total small cap and mid-cap universe which includes not just preferred apartments but in the IRT, Mid-America, post-trade street and Camden and its numbers are get on little skewed and against that because Trade Street is in bought. So that’s go into numbers a little bit. Since year-to-date this was as of last week, now it doesn’t reflect our recent kind of down legacy day to go. Since through last Wednesday we had – we had delivered 8.4% versus the peer group at 5.6%, and since our January 15 follow on we delivered 7.8% versus our peer group at 1.2%, and since October 14 follow on last year which was our first institutional we delivered 19% versus 15% for the peer group. Partially – I think our biggest issue and we hear that one, we do our institutional road shows, it’s our size. We're too small for to be dedicated guys. And I think we'd be trading at a significantly different multiples, our market capital is $0.5 billion and were internalized as opposed to $250 million and internalized. So we're trying to get on here today in a smart way. But I appreciate all your input.

[Unidentified Analyst:]

Okay. I mean, I was certainly, I would press you to do a little closer study on the potential dilutive effect. I think what you'll find is if you look at, if you compare yourself to your peers and everybody has been doing out of dilutive deals. Yes, you're performing just fine. But again, from a year ago shift or from your public offering shareholders haven’t made any money. So clearly it’s not good enough. The difference really between you and Preferred Apartments is John Williams like or dislike, is a stickler when it comes to equity. I've heard to that of his own leaps, he is very, very tight when it comes to issuing equity. And he really hasn’t done a better job than you in terms of operating his properties. I would say you've probably done a better job. But his stock has gotten a better value because of his being such as a stickler with dilutions. So that’s – I don’t want to go repeated back and forward, I just wanted to make the point, I would appreciate you and the board considering that? Thank you.

[Ramin Kamfar:]

Thank you, David. Duly noted.

[Operator:]

The next question will come from John Benda of National Securities Corporation.

[John Benda:]

Hey. Good afternoon, everyone. How are you doing today?

[Ramin Kamfar:]

Good. How are you John?

[John Benda:]

Good. So just quickly, I know it was asked before. Can you actually assign some dates to the pending investment acquisitions if possible?

[Ramin Kamfar:]

Happy to do that John. We've got – our first Ashton Phase I at the end of this month we expect the second Phase to close, call it 30 to 60 days thereafter, beginning of October. Century Palms, we expect again at the end of this month, our diverse portfolio in early October, followed by our Valley [ph] preferred investment, again, probably September, early October as well.

[John Benda:]

Okay. And then just with some of the properties that are currently in lease up now, what do you guys kind of look for when you evaluate the decision to keep the preferred equity investment or convert to an ownership position and buy it out?

[Ramin Kamfar:]

Well, the – yes, that’s an easy one John. I think we look at value creation if there is – if it’s worth. If the preferred is worth more than its book value, which it should be if you're doing the [indiscernible] front on your - and you've created all those value you convert it into the underlying equity and you take the upside on the equity. It’s only in the downside scenario where you're not – where you haven’t, where you've gone through the development process, you haven’t created any value, you can say, okay, so given in my preferred equity back and I am – and you cash your chips and leave the table. So we expect, at this point of the cycle with the deals that we have, we expect to cover all of them.

[John Benda:]

Okay. Great. And then with North Park Towers, it’s been held for sale for, I don’t about four quarters now. And if we look at the performance this quarter over last, rental rates are up, occupancy rates are up, and with the multi-family housing market being what it is? What's kind of the hold up on disposing of that asset and as you speak to increasing your growth to be the right size to reach a larger institutional investor audience, why not just keep that?

[Ramin Kamfar:]

Well, again, good questions. I'll give you one answer, and that’s Detroit. So…

[John Benda:]

Excuse me, that was what?

[Ramin Kamfar:]

That’s the answer to the multiple – a number of the questions that you asked. What's the hold-up markets for multi-family in Michigan, it’s not as robust as it is in Nashville let say. We have – we had originally when we put that out for sale and was an unsolicited third party bid, that had profit that. That purchase here after going through a long and involved process to sell out of that. So at that point we decided to take it to start the marketing process from scratch and that takes time and it’s because, its again, because it’s in Michigan market it takes time if you're looking to, I can sell it tomorrow, but I am leaving millions, I am leaving millions if I won't leave million on the table, I can sell it off market. But we buy off-market in a direct to with seller transaction because we create millions of dollars of value. We don’t sell off market. We sell through a marketed process. I wanted to be as broad as possible. I want as many people at the table and that’s what we did here and as a result its back. We're getting what I think is a very attractive price and I think you'll be impressed in terms of the returns we got on an asset that we held for years, effectively if Michigan wants it, once it closes. And the reason – not to own it, it’s because if you look at the average rents, it’s not a - if you look at the vintage of the property, if you look at the average rent, if you look at the growth prospects of the Southfield sub market, it is not - it doesn’t have long-term secular growth drivers that we have in our other markets. We want to be in long-term growth markets outside of the top six coastal city, so number seven, it’s already seven, where you've got long-term drivers that are generating jobs over the next couple of decades with high disposable income. I think Michigan today is an cynical upspring because of the recovery of the auto industry and that might will turn the annum we won't - we don’t want to own that asset at that point.

[John Benda:]

Okay. All right. That was pretty clear. Thank you. And then, what were the expected proceeds, I know that you mentioned it’s early in the call to expect the proceeds that you are talking about $10 million that you stated?

[Ramin Kamfar:]

$10 million between that deal and between our – those without class [ph] which is our Chattanooga preferred investment deal. So that’s the other reason to sell them. They are small investment and they have really moved the needle.

[John Benda:]

And that’s $10 million net proceeds you have the debt repayments, et cetera?

[Ramin Kamfar:]

I am sorry, yes, $10 million between the two of them on net basis.

[John Benda:]

Were there are be any kind of – will there be any kind of charge for exiting the JV in P&L in the coming quarter when that sells?

[Ramin Kamfar:]

No. In fact you'll see, I think you'll see gains on both.

[John Benda:]

Okay. And then, just my last question, I know that one of the largest public home [indiscernible] has started to enter the multi-family market pretty aggressively. And some of the footprint more of a Southeast or in United States concentration with portfolio, are you running into a lot of new entrance as you're looking to acquire profits or portfolios or is your off market stores any kind of helping alleviate some of the capital compression when you're looking to buy these things?

[Ramin Kamfar:]

Are you talking about Lenovo [ph] in terms of…

[John Benda:]

Yes, very much I am?

[Ramin Kamfar:]

Yes. It’s a very good question, John. We're not running into – our strategy kind of sets us apart in terms of development. If you noticed, if you go back and listen to our talk about our development deal, we were not going and buying land that set up for multi-family development and develop at what we're doing. Because Ryan just talked about the Lagoon [ph] deal and in that deal our partners have been working on it for three years to put that deal together. We're creating or Nashville is a prime example, we just sold our - a very healthy deal. That was market that had - that was a couple miles as they are been poor and it was on a path of growth surrounded by $1 million houses. No one was building multi-family, but because we have this local operator that I had deep intellectual capital on transaction experience in that market. For two decades, we identified the stock market, we went and got a car dealership, we repositioned it as a multifamily piece. We build multifamily on it. We pioneers and as a result we got an 86 return on cost on something we sold for sub 5 gap and now that we validated it you’ve got other guys coming into the market and bidding up the land prices, including we know by the way that’s couple of blocks, more…

[Ryan MacDonald:]

Next door.

[Ramin Kamfar:]

Right next door, right next door. That’s where our strategy gives us the advantage which is we’ve got this network of eyes and ears and depth of intellectual capital that we tap to find these nuggets as oppose to going and buying development land and building multifamily on it.

[John Benda:]

All right. Great. Thank you very much.

[Ramin Kamfar:]

Thank you, John.

[Operator:]

And next we have a question from Amit Nihalani of Oppenhiemer.

[Amit Nihalani:]

Hi, good afternoon. Are you able to comment on your expected cap rates on dispositions?

[Ramin Kamfar:]

Well, the pattern of the deal is a preferred equity investment. So it is – we’re getting paid back. This is a 15% plus we – for this asset when we went into it we weren’t comfortable going 100% of the cash back in terms of equity, but we were comfortable getting a 15% return on it, I think. So we have a partner in that, that put up a 100% of the common equity control to sales. They are selling that asset of the 5.5 cap on trailing.

[Larry Kaufman:]

Tax adjusted.

[Ramin Kamfar:]

Tax adjusted on trailing NOI and we’re getting an attractive return plus a gain on [Indiscernible] and then North Park Towers which is our Michigan asset is a 7.5 on trailing.

[Amit Nihalani:]

Got it. And are you able to…

[Ramin Kamfar:]

But it has – but that’s partially impacted because it’s got a high coupon assumable debt on it which is at 565, so they are taking that debt that debt on so that impacts the cap rate obviously, we’re not delivering it frankly.

[Amit Nihalani:]

And finally would you expect the total dispositions to be for 2015?

[Ramin Kamfar:]

I think that said in terms of disposition for us. We have Berry Hill and with these two assets, I think we’re as I said we’re continuously evaluating our portfolio for additional capital recycling, but given the timeframe it takes to take a deal to market and close, I think, that’s it for 2015 and at this point we’re looking at 2016 dispositions.

[Amit Nihalani:]

Got it. Thank you.

[Ramin Kamfar:]

Thank you.

[Operator:]

And next we have a follow-up question from John Benda.

[John Benda:]

Hi, guys. Just quickly on the debt front. Looking at where rates are today and to your comments on North Park Towers at 565, when you look at the rest of your portfolios average interest rate, springhouse 566 and there is 43 MDA 535, what’s the opportunity to refi out of some of those loans and get maybe sub 4% financing place and to save whole bunch of interest in the portfolio? Are you locked into all those loans or is the payment penalty outsize relative to the savings over the interest?

[Ramin Kamfar:]

It yes, I think that from an economic point of view it’s not going to make sense and by the two of the three assets that you mentioned are assets that are we’re going to be that are going to be on the disposition one way at some point.

[John Benda:]

But especially in that situation, right, so in the North Park Towers for example, the reason that they are selling at a high – the cap rate is what it is because the debt is so expensive, so wouldn’t refi into the lower, even though there might be a penalty fee allow you to gain more on the sale when you sell it because the data is so much more attractive?

[Ramin Kamfar:]

Well, that debt is more attractive, but you’ve paid – you’re looking at it on a net-net basis. When we take it to market on North Park, John we offered up both way which is on assumption basis and free and clear. So if someone wants to pay – we’re getting x now on sale. If someone on it with an assumption, if someone was going to pay us X plus Y, if someone is going to pay us Y and the difference between Y and X was large enough to pay our prepayment penalty than we’d absolutely take that, so you always have the option to do that. But I hear your underlying point and that’s a good one, which is and it’s a good one and we’re continuously looking at that, we try to be smart real estate guys and smart capital markets guys, the capital markets means both on the equity side on the debt side and everything else on the cap market and one of the big piece is obviously is debt and how do we maximize the value in terms of the debt piece.

[John Benda:]

All right. Great. Thank you very much.

[Ramin Kamfar:]

Thanks John.

[Operator:]

And this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

[Ramin Kamfar:]

Thank you, operator. I don’t have any closing remarks other than I want to thank everyone for giving us the time and look forward to reporting to you next quarter with hopefully results that are just as strong. Thank you all.

[Operator:]

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