Preferred Apartment Communities, Inc.

pardon me ladies and gentlemen this is an operator the preferred apartment communities call will begin shortly so please continue to hold again the preferred apartment communities call will begin shortly so please continue to hold THE END THE END Thank you. good morning and welcome to the preferred apartment community's first quarter 2021 earnings conference call all participants will be in listen only mode should you need assistance please signal a conference specialist by pressing the star key followed by zero after today's presentation there will be an opportunity to ask questions To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Paul Cullen, Executive Vice President, Investor Relations. Please go ahead.

Thank you for joining us this morning, and welcome to Preferred Apartment Community's first quarter 2021 earnings call. We hope each of you have had an opportunity to review our first quarter earnings report, which was released yesterday after the market closed. In a moment, I'll turn the call over to Joel Murphy, our Chief Executive Officer, to share some initial thoughts, and then to John Isakson, our Chief Financial Officer, who will share some additional details about our financial metrics and capital markets. Then Joel will return to conclude our prepared remarks. Following Joel's remarks, we'll be pleased to answer any questions you may have. I'd like everyone to note that forward-looking statements may be made during our call. These statements are not guarantees of future performance and involve various risks and uncertainties. As you know, actual events and results may differ materially from those forward-looking statements, and the company does not undertake a duty to update any forward-looking statements. These risks and uncertainties include... but are not limited to the impact of COVID-19 pandemic on our business operations, our customers, economic conditions and the markets in which we operate, the global economy and the financial markets, and our ability to mitigate the impacts arising from COVID-19 and those included in our SEC filings. For discussion of these and other risks and uncertainties, you should review the forelooking statements disclosure in yesterday's earnings press release. as well as our SEC filings. Our press release and other SEC filings can be found on our website at pacapts.com. The press release also includes supplemental financial data reports for the first quarter 2021 with definitions and reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures and other terms that may be used in today's discussion and the reasons management uses these non-GAAP measures. We encourage you to refer to this information during your review of our operating results and financial performance. Unless we otherwise indicate, all per share results that we discussed this morning are based on the basic weighted average shares of common stock and Class A partnership units outstanding for the period. I would now like to turn the call over to Joel. Go ahead, Joel.

Thank you, Paul. Good morning, everyone, and thank you for joining our call today. Though we spoke most recently on our call in early March just eight weeks ago, much has happened at PAC since then. As part of our strategy to simplify our business and realign our balance sheet, we announced on April 19th the sale of the majority of our office portfolio to Highwoods Properties. In addition, our first quarter results, which we reported yesterday, demonstrate the continued strength we are seeing in the Sun Belt, as well as our portfolio's positive trajectory on several fronts. First, let me take a moment to discuss the rationale behind our office portfolio sale and what it means for PAC going forward. As a part of our broader strategy, we internalized our management and divested our student housing portfolio in 2020. In a continuation of that strategy in 2021, we decided to execute on another strategic transaction to reallocate our capital. We made the decision to sell our office portfolio and realign our business towards lower capex, higher growth multifamily assets complemented by our grocery anchored retail investments. On April 19th, we announced that we had reached an agreement to sell to Highwoods Properties the substantial majority of our office portfolio plus one office real estate investment loan for $717.5 million. As described in that April 19th release, we intend to monetize the remaining office assets we own, consisting of three operating assets and a development site, and fully exit office, but we plan to do so thoughtfully and over time. Through the monetization of these remaining assets and prudent redeployment of the capital returned to us, we believe we have opportunities to create meaningful incremental value for our stockholders. This transaction, which is slated to close in the third quarter, has several key benefits for PAC. First, this transaction will result in a more simplified business model for PAC. This simplification should result in an enhanced long-term growth profile given the organic growth we see in our Class A suburban Sunbelt multifamily portfolio. This will result in a capital rotation for us from a higher CapEx, lower growth business into a comparatively lower CapEx business with significantly greater near-term ability to grow rent. This capital rotation towards our core competencies allows us to take advantage of operating efficiencies as we grow. This simplification also allows for better leverage on our G&A as we focus our team on these two asset classes down from four previously. Highwoods is a very well-respected owner-operator in the office sector. We truly enjoyed sitting across the table with them on this transaction, which we feel very strongly represents strategic win-wins for both companies. I'd also like to thank our office team for their significant contributions to PACC. This high-quality portfolio was thoughtfully assembled and well-run in typical PAC fashion, and we appreciate the hard work of our office team over the last five years. Second, and no less important, this transaction allows us to continue to realign and rebalance our balance sheet and common and preferred equity ratios. Depending on the exact timing of the office sale, we expect to use a significant portion of the net proceeds to call or redeem our Series A preferred stock. Third, this sale allows us to continue to grow our already significant and strong Sunbelt multifamily business. We grew our multifamily portfolio by acquiring approximately $277 million of multifamily communities in 2020, and added 1,293 units to our already significant portfolio, such that we now own 11,143 units. We also originated 44 million in multifamily real estate investment loans in 2020, supporting an additional 853 units. continue to successfully leverage our deep market knowledge and relationships to uncover attractive opportunities in our Sunbelt markets, and we plan to do so again in 2021 as we grow our portfolio. Aside from this transaction activity, our operations remain steady and consistent. Cash rent collections, including deferrals for the first quarter, were 99% for multifamily and 98% for grocery-anchored retail. More detail can be found on pages 5 and 6 of our supplemental. We attribute this continued solid performance to our first-class team of asset management and leasing professionals, the resilient defensive characteristics of our portfolio of assets, as well as the continued strength of the Sunbelt. We shared with you last quarter a couple of third-party pieces on the strength of the Sunbelt, and we are seeing this strength play through into our business. Sunbelt markets continue to attract companies, investors, and new residents. The key word here is continue. As life-altering and disruptive as the pandemic has been, it does not appear to have shifted the intrinsic forces driving the success of the region. In other words, the reasons why people in business were moving to the Sunbelt before the pandemic are the same reasons why these markets are growing and will continue to grow after the pandemic. This is good news, and that while the pandemic is hopefully temporary and relatively short term, the low cost of living, educational attainment, favorable climate and population growth evidenced in the Sunbelt are here to stay. According to North American Van Lines 2020 Migration Report, the top MSAs for moving destinations were all in the Sunbelt, while the top five MSAs being departed were all in the Northeast, Midwest and West Coast. While the Sunbelt migration trends continued in the last 12 months, the pandemic accelerated the migration to the suburbs. This trend took place across the country, with consumers vacating higher-density urban cores, seeking more living space at a lower cost in the suburbs. In fact, urban centers across the U.S. saw 15% more move-outs in 2020 than in 2019, according to CBRE's analysis of U.S. postal data. Further, address changes to counties within 100 miles of major MSAs increased by 6.5% versus total address change volume increasing for the country by 2.8% in 2020. These are just additional examples of industry narrative trends that we believe bode well for multifamily and grocery-anchored retail assets located in Sunbelt markets. Our solid performance has allowed us to focus our energy on the strategic and portfolio transformation you've seen us execute over the past year. These changes have set us up for accelerated long-term growth. Let me now turn to our multifamily results this quarter. Our occupancy level remains very high at 95.8%, up 20 basis points over the first quarter of 2020. Our year-over-year same-story NOI was modestly negative at 1.1% as the first quarter of 2020 was a very strong pre-COVID quarter for us. These results exceeded our internal budgets for the quarter, and hence we have raised our full-year guidance for same-story NOI growth as we've shown in our supplemental and will be described in more detail by John in a moment. You will remember we previously stated that most of our projected increase was in the back half of the year, but we are off to an excellent start already. From an investment activity standpoint, we closed on a $16.8 million real estate investment loan with Crossland Southeast, a well-respected and experienced sponsor that we know well and have partnered with on one of our retail investments. and this will support the development of a 320-unit Class A multifamily community in Orlando, Florida. This community will be a part of the 1,800-acre Metro West mixed-use development, and with this investment, we received an option to purchase the community following stabilization. We continue to work to uncover attractive real estate loan investments that also allow us to add to our pipeline of future acquisitions. We are encouraged by our leasing momentum in our Grocery Anchored portfolio, and the trend line is promising. In the quarter, we executed over 40,000 square feet of new leases and 171,000 square feet of renewals. We are proud of our consistent performance in our Grocery Anchored portfolio through COVID, and there are more details on our results contained in our supplemental. Let me note that while we have taken steps to streamline our portfolio by product type, we recognize the value of grocery-anchored retail alongside our multifamily assets. We believe grocery-anchored retail complements our multifamily strategy, and the demand drivers, such as Sunbelt Migration and the resurgence of the suburbs, are shared by both. We believe our deep knowledge and market presence should allow us to take advantage of multi-use opportunities as those present themselves, several of which we are working on now. As we emerge from the pandemic, an important part of our story is to look at our operational performance across the pandemic for the last four quarters and how this solid performance, combined with our strategic efforts over this past year, set us up well to take advantage of the current and future opportunity being presented in our markets. By collecting 99% of our multifamily rents and increasing our occupancy, we have demonstrated the defensive characteristics of the portfolio, while now having the ability to grow rents off this solid base. The story is similar in our grocery-ranked retail portfolio, with average rent collections of 95% across the pandemic, a percentage that compares very favorably to many other retail peers. This... Combined with the very positive sales and foot traffic increases by our grocery partners, we are similarly positioned to work to push rents on renewals and new leases in the year ahead. Now, before I turn it over to John, I want to take a moment to recognize an important milestone here at PAC. We celebrated the 10-year anniversary of our IPO in the month of April. I'm extremely proud of the talented women and men who have been instrumental in building our company over the past 10 years. And with our recent accomplishments, we are even more excited for the next 10 years and beyond as the strategic initiatives we have taken over the past 16 months fully take root and create value for our stockholders over time. So now I'll turn the call over to John. John? Thanks, Joel.