Q2 2021 Bluerock Residential Growth REIT Inc Earnings Call
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Good morning, ladies and gentlemen on.
Thank you and welcome to Blue <unk> residential growth REIT second 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 blue rack residential dot com under the investors tab.
In addition, we anticipate filing our 10-Q this week.
Following the conclusion 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.
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 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 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 Lew rack residential growth 3 or his remarks.
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 Investment Officer, Jim Babb, Our Chief Strategy Officer, Mike Day Franco.
E P up operations on Stephen's have dropped.
Managing director and head of transactions.
Our second quarter results reflect the benefits of our strategic positioning and owning highly monetized live work play communities in knowledge economy growth markets.
We're very encouraged by our very strong rent growth re acceleration of our renovation program and our ongoing accretive investment activity.
The main headline for US is period of sequential top quartile rent growth there.
Throughout the quarter as we finished the quarter at plus 10% with June increasing to 12%.
On the capital allocation front, we're continuing to increase our value add interior renovation cadence back to pre COVID-19 levels and I have additional upside through our new smart home technology platform, which is in the early stages of being rolled out and should deliver a positive impact to run rate NOI throughout 2022.
On the capital markets front during the quarter, we continued to execute on our stated strategy of expanding or common equity base through redemptions of our preferred stock into our common equity.
On a continuous offering of non traded preferred stock was also very robust with our highest quarterly capital raised since inception, and then accelerating trend throughout the quarter.
As we look ahead, we're confident our strategy of focusing on our suburban knowledge economy footprints will continue to deliver peer leading top line growth as we progress throughout the remainder of the year and position us well to deliver shareholder value throughout the full cycle environment.
I'd like to again note that management has significantly aligned with shareholders towards substantial ownership of BRG exactly.
And finally before I hand, handing the call over to Ryan I want to thank all of our employees and partners for their hard work over the last year, resulting in our strong operational on balance sheet position, which we expect will allow us to capitalize on continuing positive trends in 'twenty, 1 and beyond.
That.
I'm going to turn the call over to Ray.
Thank you Amy.
Let me Echo your last comments I want to thank our BRG came on property staff for their hard work over the last 18 months.
We certainly couldn't have delivered these top quartile operating results without your efforts.
Starting with our results during the second quarter of 2021, our GAAP net loss to common stockholders was <unk> 21 per share compared to a net income of 61 cents per share in the prior year quarter.
We achieved 16 of course that flow.
Which was up 7% year over year from 15 on the prior year quarter.
We expect this number to continue to expand as we progressed throughout the year and get positive earnings contributions from our significant first half rental revenue growth and benefit from substantial capital investment so on.
Our large pipeline of opportunities in house.
Operationally year over year same store NOI increased 7% for the quarter, including revenue growth of 6%.
Which was offset by expense increases of 6%.
Mike will provide additional detail on the same store numbers, but it's important to note that our strong lease.
<unk> trade outs in the beginning of the year have positioned us well against our 2021 annual same store guidance.
As we mentioned last quarter, we expect same store revenue to build throughout the year as we see strong sequential rental rate growth.
Shifting to our quarterly capital markets activity, we raised $119 million of our series T preferred during the quarter.
Which is our highest quarter ever and provides unique access to attractive cost of capital.
Also we continued redemptions of our 6% series B redeemable preferred equity and to our common equity.
In total during the quarter, we redeemed 80 million of series B preferred for common equity at a per share price of $9.72.
This was offset with buybacks of our common stock totaling $45 million, which.
Which in turn expanded our common equity by 3.6 million shares which represents a 14% increase in float since the beginning of the quarter.
Turning to the balance sheet during the quarter.
We made 3 new operating investments and 3 preferred equity investments into operating assets totaling $40 million on $26 million in equity respectively.
An additional $8 million was funded during the quarter and so existing preferred equity and mezzanine loans.
And subsequent to quarter end, we invested $26 million in BRG equity interest for transactions.
On the disposition front we.
We sold 4 assets during the quarter with gross sales prices totaling $174 million and another 2 post quarter end for $195 million.
The second quarter sales net BRG $39 million in equity proceeds.
And following quarter end, our sales net of BRG $94 million.
The 6 dispositions were sold at an average in place economic cap rate of 3.7% and would have been lower if not for the above market in place debt needing to be assumed.
As of the end of July.
<unk> had approximately $278 million available for investment through a combination of cash and availability on our revolving credit facilities.
And we expect to reduce this balance as we invest the capital into our committed pipeline of investments totaling north of $100 million in BRG equity.
And with that.
Let me turn the call over to Mike.
Mike.
Thank you Ryan and good morning, everyone.
The operating portfolio continued to build significant momentum as the months progressed throughout the quarter led by continued strength in occupancy renewals and acceleration of new lease rate growth.
We came into the quarter with a strong occupancy base of 95, 8% and maintain that strength, while building rates sequentially throughout the quarter.
During the quarter for the consolidated portfolio. We grew average lease rate by 10, 3% to improve by almost 700 basis points on a sequential quarter over quarter basis.
Average rates accelerated on a sequential month over month basis throughout the quarter, finishing June positive, 12% and continued throughout July finishing the month at 15, 3%.
Renewals were consistently strong throughout the second quarter, but it was aggressive new lease rate expansion that really drove the significant acceleration in average rate growth with.
With April at 9.5% May 13, 8% in June at 17, 9% and continuing into July.
22, 6%.
From a market perspective, the outperformance was broad based with all 16 of our msas at or above 6% average rate growth for the quarter.
And 9 of 16, msas posting growth exceeding 10% on average. Additionally.
Additionally, with strong occupancy and availability in the quarter north of 96% and below 7%, respectively. We are well positioned for the remainder of the summer leasing season.
Moving on to our quarterly results, our 6.4% year over year increase in same store revenue was driven by an 80 basis point increase in occupancy and a 300 basis point improvement in rental rates for.
For the quarter 13 of our 15 same store Msas in 18 of our 25 same store communities posted revenue growth exceeding 5%.
Collectively our suburban sunbelt knowledge economy market footprint continues to outperform urban and coastal focused peers as we benefit from positive migration trends.
Affordable rent levels and outside employment growth.
On the expense front year over year same store expenses increased 6.3% for the quarter with taxes and insurance together accounting for approximately 50% of the increase.
Controllable expenses were up 5% from prior year with most of that increase coming from turn and discretionary maintenance projects that were delayed last year due to the onset of the pandemic.
We project the corresponding revenue increase over the next 12 months as we expect to capture additional fee income with each lease rollover.
As we've communicated in prior quarters utilizing technology to drive both top line revenue growth and controllable expense savings is a strategic area of focus and we expect to see the continuing benefit of that investment in our results.
Finally on the value add front during the quarter, we accelerated our cadence on a quarter over quarter basis tracking back to pre COVID-19 levels, completing 248 units at an average ROI of 24%.
And with that I will now hand, it over to Stephen Sip trunk Steven.
Thank you Mike in terms of capital allocation, we have been active on the disposition and reinvestment front as we seek to strategically recycle capital into assets in markets with a higher growth profile on a go forward basis.
Consistent with our full year guidance expectations, our investment activity began to accelerate in the second quarter closing 9 new investments totaling $108 million in BRG equity commitment.
The 3 operating acquisitions consisted of 2 stabilized built for rent properties and 1 value add multifamily acquisition in Raleigh, North Carolina.
All 3 investments possess strong market rent growth characteristics management upside and operational efficiencies, creating better than market stabilized investment yield opportunities.
6 preferred equity investments include 2 built for rent development projects once stabilized single family operating portfolio to multifamily operating assets and 1 multifamily development project in all cases, each deal provides for solid double digit risk adjusted returns at lower leverage attachment points.
Significant common equity investments from the respective sponsors.
Also subsequent to the second quarter, we closed on 5 additional investments representing a total of 57 million in BRG equity commitments.
In addition, we have a robust pipeline of accretive opportunities in due diligence and both the traditional multifamily and single family rental space totaling north of a $100 million in BRG equity debt, we expect to close and fund in the back half of the year.
In terms of dispositions since the end of the first quarter are for accretive dispositions were executed at an economic cap rate of 3.7% based on $300 per unit replacement reserves and the buyer's year, 1 real estate tax estimates.
The recent dispositions a lot for the exit of non core markets, such as Lake Jackson, Texas, as well as assets, where our value add business plan is complete such as Palmer Ranch in Sarasota, Florida.
Following the execution of the 2 post quarter gets physicians, we expect a pause dispositions for the remainder of the year.
With respect to new investment pipeline, we continue to generate relationship and off market opportunities at cap rates that are more attractive than fully marketed deals.
From a portfolio allocation standpoint, we will continue to invest in both operating assets with substantial NOI upside potential and preferred equity investments that offer stable and attractive risk adjusted returns.
As mentioned on our previous call. We will also continue to seek attractive single family rental opportunities with our expanding partner network that offers solid risk adjusted returns.
To conclude we continue to focus on core markets, such as Raleigh, Phoenix, Austin, Atlanta, namely steel all of which display tremendous demand side tailwind that we believe will drive relative rental rate growth outperformance.
And with that we will open it up for Q&A operator.
Thank you.
We will now begin the question and answer session.
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The first question comes from.
Gangway from Bluefin. Please go ahead.
Alright. Thank you guys wondering if you could tell me a little bit about.
You're thinking or logic behind.
On the redemption of the 2.
Aries.
I guess it was.
Bruce.
So on a series B, there was redeemed and issue a new series C preferreds.
It seems like their cost.
Similar kind of understand what youre thinking there is.
Yeah.
I'll tell you I'll take this 1.
<unk> been a question that the preferred is.
It is has been our most accretive way to access the capital markets given our given our small size.
And given that we're not on the RMC yet.
So we don't have any REIT dedicated investors that are in the in the stock and how we use the preferred is that we are.
And we issue it when we feel that there's a significant disconnect.
And when we issue it throughout the year on that and that allows us to and Thats. The series T. Currently and that allows us to access the capital markets notwithstanding the volatility in the <unk>.
Price for our common stock. So for example last year was that it was a good example of our common stock went down to in March late March early April when Covid had our stock went from 17 I think at the beginning of year to something with a 3 handle in front of it and normally as a small cap we would've been knocked out of the market.
But with that with the series T. At the time, we were able to issue I think close to $250 million in equity on the preferred side without dilution to the common holders.
I use that to invest accretively in attractive assets over the course of the year and now that the stock is up too.
Up to now 12.
12, 13 range, we're converting it to grow the common base, because we need to grow our float and the common ways to get on the RMC traditionally companies our size in the multifamily sector. The last 3 that got on the Rins Z because of the fact that the index ones then have to own you have seen any.
On the 20% to 50% increase in their stock price, which would bring us much closer to our NAV. So what kind of debt. So you'll see that issuance over the course of the preferred over the course of a on a on an ongoing.
<unk> basis, it's very efficient coming in because we can estimate how much is coming in and and invested ahead of time on committed ahead of time.
Rather than doing a large chunky offering and then having to having to spend 6 months investment yet.
And.
The conversion is at our option at a price that we feel attractive so while today the issuance price on conversion price on or around the same you'll find yourself in situations like last year. When we were issuing its suite, but we're converting at 13 and that's all done too low.
So with the most.
Most accretively for that.
Or the common investor.
Thank you operator.
Thank you.
Again to ask a question. Please press Star then 1.
Participants to ask a question. Please press Star then 1.
On.
This concludes our question and answer session.
I'd like to turn the conference back over to Raymond Campo for any closing remarks.
Yes.
Thank you operator, and thank you everyone for giving US your time today, we look forward to continuing to report to you.
On our progress in upcoming quarters.
Thank you and goodbye.
Thank you.
The conference has now concluded.
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