Q1 2021 Bluerock Residential Growth REIT Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Blue rock residential gross suites first quarter 2021 and earnings conference call.
All participants will be in a listen only mode.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May press Star then one on the Touchtone phone to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to introduce your host for today's call Christopher votes, Chief Financial Officer of Blue Rock residential Mr votes. Please go ahead.
Thank you and welcomed the blue rack residential growth rates first quarter 2021 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 <unk> residential dot com under the investors tab and addition, we anticipate filing of <unk>.
And Q later today.
Following my 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 1095.
Our variety of risks and uncertainties associated with forward looking statements and actual results may differ from those set forth and such statements.
For a discussion of these risks and uncertainties.
Should review of the forward looking statement disclosure and the earnings press release, we issued this morning as well as our SEC filings with respect the non-GAAP measures, we use and this call. Please refer to our earnings supplement for a reconciliation of GAAP and the reasons 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 remain campfire, chairman and CEO of Blue rack residential growth rate for his remarks.
Thank you Chris and.
Good morning, everyone and it is.
And 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 investment Officer, and Jim Babb, Our Chief strategy Officer I'm also pleased to introduce to you to additional blue rock team members, who will be participating on these calls going forward.
Mike The Franco R E V E.
E V P of operations, who will discuss our operational performance and Stephen Sept routes of our managing director and head of transactions will provide transactional commentary.
We're encouraged by the underlying fundamentals and our portfolio as we see the positive impact of the continued rollout of the vaccine declining COVID-19 rates and and accelerated economic recovery over the coming quarters.
And the operating front are of course strategy, which is fundamentally about having the right.
And I say affordable for spring suburban assets and the right markets allowed us to demonstrate the resilience throughout the challenges of the COVID-19 pandemic and is generating top quartile range gross add performance as we progress through the recovery.
We grew occupancies throughout the pandemic, which set the table for robust the acceleration of rent growth since the beginning of the year and we are optimistic these positive trends will continue throughout the busy leasing season.
And so excited about upside for them to operating initiatives to enhance our above trend organic rent growth. One is our new smart home technology platform, which is and the early stages of being rolled out and the other is our existing unit renovation program, which we slowed down during the pandemic last year, but will be re accelerating this year and we expect we will.
Continued to achieve peer leading results.
Moving on to capital markets during the quarter, we began to execute on our stated strategy of expanding our common equity base through redemptions of our preferred stock into our common equity.
And our continuous offering of non traded preferred stock continued to be very robust with our highest quarterly capital raised since inception, and and accelerating trends throughout the quarter.
We continue to believe this axis and non traded preferred equity capital is the competitive advantage for Blu ray.
Allowing us to find the accretive external growth during periods when our stock price is lower volatile with the flexibility to convert into common equity over time at our option at a future day when our common stock price is more favorably value as we look ahead, we're confident and being well positioned to capitalize on what we expect to be and.
The economic re acceleration in the back half of 2020, one and beyond our platform displayed resilience during the depths of the pandemic and our strategy of focusing on our suburban sunbelt knowledge economy footprint continues to position us well to deliver shareholder value throughout the full cycle of environment.
I'd like to again note that management continues to be significantly in line with shareholders through its substantial ownership of brg's fully diluted equity.
And finally before handing the call to Ryan I want to thank all of our employees and partners for their hard work over the last year.
Results and our strong operational and balance sheet position, which we expect will allow us to capitalize on continuing positive trends and 'twenty, one and beyond with that.
I'll turn the call over to Ryan right.
Yeah.
Thank you Rami and.
Let me Echo your last comments I want to thank our <unk> team and property staff for their tremendous efforts over the last 12 months.
And have delivered our solid operating results without them.
Moving onto our results during the first quarter of 2021 on a GAAP basis net income to common stockholders was $1 per share compared to a net loss of 70 cents per share and the first quarter of 2020.
We achieved 16 cents of of course S O, which is NAREIT S. S. Though with the add back of certain noncash nonoperating items on.
The year over year basis. This was down from 22 cents and the prior year quarter and was negatively impacted by five cents from the strategic increase and our cash balance through nine opportunistic and accretive dispositions over the last 12 months and the tactical decision to slow our investment cadence during the pandemic.
Operationally year over year same store NOI was 60 basis points for the quarter, including revenue growth of 2%, which was ahead of internal budgeting and was offset by expense increases of $4 four per cent.
Mike will provide additional detail on the same store numbers, but it is important to note that our strong lease trade outs and the beginning of the year have positioned us well against our 2020 one annual same store guidance as.
As we mentioned last quarter, we expect the same store revenue to build throughout the year as we continued to benefit from sequential rental rate growth and anticipated burn off of modest COVID-19 related bad debt allowances.
Shifting to our quarterly capital markets activity.
We raised $98 million of our series G preferred during the quarter, which is our highest quarter ever and provides unique access to attractive cost of capital even during the depths of the pandemic when all multifamily REIT stocks were under significant pressure.
Also at the beginning of the year, we restarted calling redemptions of our series B redeemable preferred equity and to our common equity and total during the quarter, we redeemed $71 million of series B preferred for common equity at a per share price of 11 12.
This was offset with buybacks of our common stock totaling 41 million expanding common equity by $2 8 million shares which represents more than 10% increase and float since the beginning of the year.
Subsequent to quarter, and we've continued to expand our flow with $43 million and conversions against 13 million and buybacks.
Turning to the balance sheet.
During the quarter BRG made one new preferred equity investment and so and operating asset totaling $7 million and equity.
And additional 21 million was funded during the quarter into existing preferred equity mezzanine loans and a ground lease.
Subsequent to quarter, and we invested $21 million and BRG equity into two transactions the <unk>.
First being a preferred equity investment into an operating asset single family residential platform, yielding 10.5% annually.
And the second being and opportunistic off market acquisition and the Olympia Washington.
On the disposition front, we continue to be active and the early part of the year selling five assets with gross sales prices totaling $303 million.
The sales net of BRG of 102 million and equity proceeds and following quarter and we completed one additional sale with the gross sale price of $32 million, which netted DRG 3 million and proceeds.
The six dispositions are being sold at an average and place economic cap rate of 4%, which compares very favorably to third party and a V estimates approaching the five per cent range.
As of the end of April.
BRG had approximately $229 million available for investment through a combination of cash and availability on our revolving credit facilities.
And we expect to reduce this balance throughout the year as we invest capital into our committed pipeline investments totaling north of 120 million and BRG equity.
And redeem our series C and D totaling a $127 million over time following the expiration of the non call periods for both series this year.
And with that I'd like to turn the call over to Mike Mike.
Thank you Ryan and good morning, everyone. The operating portfolio continued to build strong momentum as the month progressed throughout the quarter led by continued strength and renewals and a resurgence of new lease rates.
Came into the quarter with the strong occupancy base of $95 four per cent and maintain that strength, while building rates sequentially throughout the quarter.
During the quarter, we saw our average rate growth for the consolidated portfolio improved 300 basis points on a sequential quarter over quarter basis, the positive three five per cent.
Rates accelerated aggressively on a sequential month over month basis throughout the quarter, finishing March at positive five 8% and continued throughout April finishing the month at 7.7%.
Renewals were consistently strong throughout the first quarter, but it was new lease rates, earning positive in February that really drove the significant acceleration and average growth on a sequential month over month basis from a market perspective. The outperformance was broad based with 11 of our 17 Msas at all.
The above three 5% rate growth for the quarter and six msas posting growth exceeding 6% on average.
Additionally, with strong occupancy and availability close to 96% and 7% respectively. At the end of the quarter, we are well positioned going into the summer leasing season.
Moving onto our quarterly results, our 2% year over year increase and same store revenue was driven by the one 2% expansion and occupancy and a 1% improvement and rental rates. However, this was partially offset by approximately $300000 and collection loss due to the impact of COVID-19.
The team.
For the quarter 13 of our 15 same store Msas posted positive revenue growth with almost 50% of our msas exceeding 3%.
Collectively our sunbelt knowledge economy markets suburban footprint continues to outperform our urban and coastal focused peers as we continue to benefit from positive migration trends affordable rent levels and outsized employment growth.
On the expense front year over year same store expenses increased four 4% for the quarter with taxes and insurance together accounting for approximately 70% of the increase and.
<unk> expenses were up 2.3% and included additional expense for the adoption of our smart home technology package rollout.
Do project of corresponding revenue increase over the next 12 months as we expect to capture additional fee income with each lease rollover as.
As we've communicated and prior quarters utilizing technology to drive both top line revenue growth and controllable expense savings as a strategic area of focus and we expect to see the continuum of benefit of that investment and our results.
Finally on the value add front during the quarter, we took a more conservative posture and view of kind of COVID-19, and a seasonally weak of part of the calendar.
However, we continued to deliver significantly above trend returns with 72 units completed at an average ROI of 24%.
We anticipate that the number of renovations will accelerate as we move throughout the year and feel comfortable increasing the range of our previously established guidance range.
And with that I will now turn it over to Stephen Sip trunk Steven.
Thank you Mike in terms of capital allocation, we continue to be active on the disposition and reinvestment Frank as we seek of strategically recycle capital into assets and markets with the higher growth profile and a go forward basis, while our new investment activity and the quarter was light we have a robust pipeline of accretive opportunity.
And due diligence totaling north of the $120 million of BRG equity debt, we expect to close and fund and the back half of the year.
In terms of dispositions of six accretive dispositions were executed at an economic cap rate of 4% based on $300 per unit replacement of reserves and the buyer's year, one tax estimates.
The recent dispositions of odd for us to exit non core markets, including Tyler, Texas and Lake Jackson, Texas, while reinvesting the capital into markets, such as Raleigh, Phoenix and Austin.
Post disposition and reinvestment Atlanta, and Phoenix now represent our two largest operating portfolio of markets by concentration with approximately 30% share by unit count.
Given the robust bid for our assets and markets, we expect to execute opportunistic dispositions throughout the remainder of the year debt will be accretive both on and NAV and earnings basis.
With respect to new investment pipeline, we continue to generate relationship and off market opportunities and cap rates that are more attractive and fully marketed deals.
From a portfolio allocation standpoint, we will continue to invest and both operating assets with the <unk>.
With the substantial NOI upside potential and preferred equity investments that offer stable and attractive risk adjusted returns.
To conclude we continue to focus on core markets, such as Raleigh, Phoenix, Austin, and Atlanta to name a few all of which display of tremendous demand side tailwind that we believe will drive relative rental rate growth outperformance and with that I'll hand, it back to remain remain.
Thank you Steven.
I want to reiterate that we're very encouraged by our early year rental rate gross numbers and we expect them to continue right through the busy part of the leasing season at least.
And that with run rate earnings upside potential from the.
And the favorable underlying secular market trends.
Given our positioning and.
Our attractive footprint, along with capital and reinvestment opportunities from the opportunistic dispositions that we're doing.
We're quite optimistic about our growth profile and the coming years and.
And with that we'll open it up to Q&A operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
And if youre using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Gaurav Mehta with National Securities. Please go ahead.
Thanks for the morning.
Last question on the.
Investment activity and that you're expecting and you talked about one point of million dollars and commitment and the <unk> equity.
And I was wondering if you could provide for more color on what kind of price and then conference you're expecting on that capital that you're planning to deploy.
Sure and good afternoon gross it's Ryan here. So that 120 is really bifurcated between of about 75 of it is preferred equity and investable capital and.
And with a.
Costs are right around 12.5% on that piece and then on the operating investments, which represents call. It another $45 million the average cap rates actually north of almost for and a half on those two deals one of the loan assumption.
From a seller that we bought from last year off market deal and then one is actually a buyout of an existing preferred equity investment that we made.
A couple of years ago, So <unk> got a good attractive cap rates on the operating deals and then a very healthy.
The interest rates on the preferred equity.
Okay second question on your breath of equity investment that you made in April and single family housing and can you really talk about why you guys decided to invest in the single family housing platform two for an equity investment and do you expect more of that going forward.
Sure again grab it's Brian here. So couple of things one is we certainly believe that scattered home.
The single family residential is a natural extension of the multifamily business and so we've had success with some of our.
Three bedroom townhome investments and and we found an opportunity here with an operator and a portfolio that we thought made sense to recap of at least from of preferred equity perspective. So.
And it's no different.
The underwriting then than some of the other preferred equity.
Deals we've done the assets here are primarily in Texas, we know the markets well.
And then the cost of capital and the detachment point of around 80% LTV again, good good credit underwriting. So we thought we thought it made sense.
And <unk> to the dip our toes and the water obviously the single family residential space is having.
Pretty attractive.
The pretty attractive growth profile and.
And I wouldn't be surprised to see us do a few more investments like this.
And our preferred equity platform going forward.
Okay and last for me on Youll see us be redemption.
And as you guys and $70 million of series B, the gumption and one Q.
Do you expect that kind of run rate going forward and.
And then secondly.
Common shares for medium Dod and $11.12 and.
And then the common share price is much lower than bad are you still using common shares to redeem the what you didn't call. All of you guys using cash to redeem for now.
I think well I graphics and <unk>.
And as you know where.
Where we've got a number of the strategic plan with the preferred has been too.
And has been to use it to grow when we have periods like last year, where our stock price was significantly below $9 of $11 for for most of the year and then to redeem it has the stock price.
It becomes more attractive because and that and the reason for that is.
Over time, we need to get yeah, and one of the feedback that we've gotten from and our analysts such as yourself and from institutional and Investor as what do you plan to do with the outstanding preferred while you saw and redeem the series a you'll see us redeem the series C and D overtime and the.
Those are all cash redemptions the series B will be a combination of stock and cash redemptions depending on.
And where the stock price is.
Such attractive or it's not.
And we have the flexibility and way of the planned to use both of those.
And so and.
We can't time, it we can't price of exactly because you gave a redemption notice out.
And you know several weeks and advance said, especially my eyes, and you're going through the quiet period, and so on and so on and so forth, but we're very we're very fully aware of potential pressure on the stock as we do the redemption, but we also have half of our goal on and I on the goal which is to get.
Until RMC inclusion where.
Short by a very small.
The dollar amount on a percentage basis in terms of of our market cap.
I think we're closer to the inclusion before we'd before COVID-19 hit.
And so the goal is the goal is to expand our.
Expand our equity base to be able to get on the Orange Z that expands our institutional ownership provides additional demand for the stock and it provides additional support for the stock and allows us to provide.
And you know and and and makes the redemption of its much more much more efficient. So it's a it's a balancing act we are aware that.
We're not looking to just.
And so we're not looking to step on the sock by on the comment by.
By just moving.
For redeeming.
And large amounts of the B and it's a balance between the stock price.
And reducing and getting on the RMC sort of expanding our flow.
And and and and so we want to be very thoughtful and measured with that you. Also know you also I'm sure have seen that we have a way of a buyback and the market.
The that provide support for the songs so I wouldn't be surprised if you saw us redeem part of to be and cash I wouldn't be surprised if we take the break from redeeming the beat the allow the stock to the as the common to absorb and recover.
We have and as you know we own north of 30% of the equity common equity here as management. So we're very sensitive to the stock price, making sure that we deliver value for the shareholders, but we think over time getting on the arms and reducing our leverage.
Perceived leverage including the preferred will.
We significantly accretive for us in terms of expanding our mouth.
Okay. Thank you that's all the head.
As a reminder, if you have a question. Please press star then one to be joining us for the Q.
The next question comes from Craig Kucera with B Riley <unk> Securities. Please go ahead.
Hey, good morning, guys I just wanted to follow up on the single family preferred investment.
Are the returns comparable to you for that relative to multifamily.
Craig it's for.
And again, yes. They are I think of as of 10, 5% rate, but in part because the little bit lower than maybe some of our development deals, which are and the 12 to 14 range, but the.
The detachment point, a it was and operating portfolio.
And then B the detachment point was a little bit lower so from a credit underwriting standpoint, yes. The returns are generally similar for the messaging press book on single family.
Got it and and I may have missed this but is it structured such that you have an option to buy the portfolio at some point are you really looking to primarily keep that investment is the source of interest income.
We don't have an option to buy this portfolio.
Really lucked out of a credit investment.
But but I think you know it does a couple of things for us It helps us get us educated on the space and.
And you know the more data we have obviously the better we can be as we look at other opportunities.
Got it no that makes sense.
And of a housekeeping item what is the game plan for the mortgage at district at Scottsdale, I think it matures.
And about a month and I know, you've got cash and you've got line of credit capacity, but just some color there on what you're thinking of doing there.
Sure.
What I will say without saying it is that we have Phoenix has an extremely attractive debt. If you recall, we bought that deal as.
As the lease up as of.
Our lease up deal, we thought way below market and.
We believe that there will be ultimately and attractive opportunity to potentially recycle that capital at significantly higher returns and the near future. So.
And that's plan a and if for some odd reason that that doesn't it.
It doesn't go through as planned we have and ability and actually have an extension from our for.
Our lender.
And basically no cost to take us through next year.
Got it and just one more for me I'm, just with the increase and and lease rate growth throughout this quarter and.
The curious are you seeing any trends and demand broadly speaking maybe between your suburban and infill properties and similar markets or is it pretty much just broad demand across individual markets driving that lease rate growth.
Sure Hey, let's try it again.
Well I would say its generally broad based I think and and Mike's prepared remarks, he talked about the the depth across MSA of growth. What I will say is there are certainly certain markets that are outperforming if you and then on the urban versus suburban I mean, 90% ish of our portfolio of suburban first for.
And suburban so.
The majority are the theres really not much urban to compare it against but from a market perspective, I think if you looked at the Phoenix is of the world The Atlanta, the the Raleigh Durham.
And the actually the the the Las Vegas the of the World are really really showing outperformance on a relative basis, but but generally speaking we've got a lot of a lot of markets that.
Our trending above you know.
What I would call average growth of that 3% and kind of threshold. We've got a lot of markets that are that are trending above that low even orlando the interesting thing on Orlando.
That actually turn the PA.
Positive from a new lease.
Perspective, so it's been positive for on a blended basis because of renewals.
Since February but in March you actually had new leases turn positive and then accelerate into April so the markets that we're probably thought of as a.
Less growth the.
Now certainly with the pandemic are actually coming out and and and have really good trends.
Yeah.
Okay. Thanks.
Yeah.
Thank you Greg.
That's correct.
This concludes our question and answer session I would like to turn the conference back over to <unk> for any closing remarks.
Thank you operator, and thank you everyone for joining us today look forward to continuing to report on our progress to you and coming quarters.
Take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.