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Edited Transcript of BRG earnings conference call or presentation 5-Nov-19 4:00pm GMT

Q3 2019 Bluerock Residential Growth REIT Inc Earnings Call

NEW YORK Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Bluerock Residential Growth REIT Inc earnings conference call or presentation Tuesday, November 5, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher J. Vohs

Bluerock Residential Growth REIT, Inc. - CFO & Treasurer

* R. Ramin Kamfar

Bluerock Residential Growth REIT, Inc. - Chairman & CEO

* Ryan S. MacDonald

Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer

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Conference Call Participants

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* Andrew T. Babin

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Barry Paul Oxford

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Craig Gerald Kucera

B. Riley FBR, Inc., Research Division - Analyst

* Gaurav Mehta

National Securities Corporation, Research Division - MD & Equity Research Analyst

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to Bluerock Residential Growth REIT's Third Quarter 2019 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 Financial Officer of Bluerock Residential. Mr. Vohs, please go ahead.

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Christopher J. Vohs, Bluerock Residential Growth REIT, Inc. - CFO & Treasurer [2]

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Thank you, and welcome to Bluerock Residential Growth REIT's Third Quarter 2019 Earnings Conference Call. This morning, prior to market open, we issued our press release and earnings supplement. The press release can be found on our website at bluerockresidential.com under the Investor Relations tab. In addition, we anticipate filing our 10-Q later this week.

Following the conclusion of our prepared remarks, we'll be pleased to answer any questions you may have.

Before we begin, please note that this call may contain forward-looking statements as they are defined under the Private Securities Litigation Reform Act of 1995. There are 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 Ramin Kamfar, Chairman and CEO of Bluerock Residential Growth REIT, for his remarks.

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [3]

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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; Jim Babb, our Chief Investment Officer; Ryan MacDonald, our Chief Acquisitions Officer; and Mike DiFranco, our EVP of Operations.

I'm going to focus my remarks on key strategic accomplishments and financial highlights for the quarter and close with some capital markets commentary. Afterwards, Ryan will provide you operational, transactional, balance sheet and guidance details.

I'm pleased to report we delivered another strong quarter at the operational level with sustained organic rent growth and value creation from our renovation platform while executing strategic asset recycling plan. Year-over-year, same-store revenue and NOI growth was 4.3%, further reinforcing our thesis of investing in highly amenitized multifamily assets and knowledge economy growth markets.

In terms of capital allocation during the quarter, we closed 2 portfolio dispositions consisting of 7 assets for $369 million, delivering a substantial gain of $49 million. The sale of the 7 assets were executed at an estimated in place economic cap rate of 4.7%, which is a reflection of the high quality of our portfolio.

During the quarter, we utilized proceeds to acquire 2 wholly-owned assets with substantially stronger longer-term growth profiles to invest in 2 preferred equity investments and operating communities with solid risk-adjusted returns and to fund our high-return renovation program. Ryan will provide additional detail in his section.

Moving on to numbers. GAAP net income was $0.75 per common share for the quarter as compared to a net loss of $0.44 per share for the prior year quarter. The figures included noncash expenses, including depreciation and amortization of $0.77 and $0.60 per share for the current and prior year quarters, respectively.

On the revenue front, we produced a healthy 12% growth in the third quarter to $53.5 million, up from $47.9 million in the prior year period, which was driven by our significant investment activity year-to-date, in addition to our strong same-store performance.

Moving on to property-level results. We grew property NOI 16% to $28 million in the quarter, up from $24.2 million in the prior year period. Same-store revenue and NOI continued to remain solid, delivering 4.3% growth in both categories for the quarter compared to the prior year, which compares favorably to REITs with similar quality portfolios.

On the funds from operations front, we believe core CFFO, which is our NAREIT FFO with the add back of noncash, nonoperating items, is the most representative measure of our operating performance. During the quarter, we achieved core FFO of $0.19 per share.

This quarter's number was impacted by 2 items. First was our asset dispositions and the time frame needed to subsequently reinvest the funds in the third and fourth quarters, in particular, since the funds were not available to pay down our line of credit in the interim because they had to be segregated for 1031 purposes. Second, we should note that our second quarter FFO benefited from the cadence of some controllable expenses, which got pushed by 1 quarter and we are seeing the impact of the reversal of that expense timing this quarter. Year-to-date, CFFO is in line with our expectations at $0.61 per share. Our dividend coverage remains strong with payout ratios for the quarter and year-to-date of 86% and 80%, respectively.

We continue to grow our asset base. Gross assets are up 11% for the quarter from the prior year period to over $2.1 billion, and we expect this figure to continue to grow as we complete the reinvestment of the disposition proceeds.

Moving to capital markets. During the third quarter, we raised $61.5 million through sales of our Series B preferred stock. This is a record quarterly figure for us exceeding our prior high watermark by 20%, and we expect a similar run rate for the fourth quarter.

At the end of the year, we expect to stop selling the Series B and transition to a new series of preferred called the Series T, for Tom, which retains the beneficial convertible features of the B with some minor alterations to its other terms. As we've noted before, the preferred provides a unique advantage for BRG because it allows us to raise capital to fund accretive external growth with the flexibility to convert into common equity at our option at a future date and at the future common stock price.

Finally, as we look ahead, we believe we're uniquely positioned with multiple growth levers to continue delivering shareholder value. First, we believe our market and asset selection in terms of assembling the right well-located, highly amenitized live/work/play communities and the right knowledge economy growth markets will allow us to deliver strong organic growth as seen in our top quartile same-store revenue and NOI growth year-to-date. Second, we continue to enhance solid organic growth through our value-add upgrade program, which is delivering very attractive returns. From inception to date, we've renovated approximately 2,400 units, with an average ROI of 25%. This provides us with a meaningful embedded growth opportunity. We have approximately 4,300 units identified for future upgrades, which, based on our experience to date, could grow our NAV per share by $3.25 to $4.60 per share. Third, we were able to fund accretive external growth through issuance of our unique preferred while sourcing attractive acquisitions with upside potential through our Bluerock network. Fourth, we believe we've demonstrated an ability to make prudent and accretive disposition and reinvestment capital allocation decisions for the company when appropriate. And last but not least, based on analysis that we've seen, we believe we're getting close to market float number that would make us eligible for additional index inclusion, which was a significant driver of equity pricing for 3 of our small-cap multifamily peers during the period leading up to their index inclusion, which happened over the last couple of years.

So as we look ahead, we are pleased to be delivering against our guidance, continuing to grow NAV and driving value for our shareholders of which management is the largest at approximately 28% ownership alongside investors in the underlying equity of BRG on a fully diluted basis.

With that, I'd like to turn the call over to Ryan.

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [4]

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Thank you, and good morning, everyone. The operating portfolio continued the positive momentum through the third quarter posting strong gains across the majority of our assets. 8 of our 16 MSAs posted growth exceeding 4%, highlighted by multi-quarter outperformance in Orlando and continued top line acceleration in our Austin assets. Portfolio-wide across BRG's assets, average occupancy was down slightly to 94.1% compared to the third quarter of last year at 94.5%.

Overall, same-store revenue increased 4.3% over the prior year period, driven by a strong 5.1% increase in average rental rate and a 60 basis point decline in occupancy of a higher-than-normal comp of approximately 95% in the third quarter of 2018.

Of note, 24 of the 25 properties in the pool recognized year-over-year increases in average rental rates in the quarter, and 16 of 25 properties yielded increases exceeding 4%. We continue to aggressively push rates this quarter. Lease rate growth averaged 4.3%, which was 40 basis points higher than the third quarter of last year. Renewals averaged 4.5% for the quarter, with new leases achieving growth of 4.1%.

On the expense front, year-over-year same-store expenses grew by 4.4%, with insurance, seasonal turnover and repairs and maintenance accounting for the majority of the increase. On a year-to-date basis, expenses are up and more favorable at 1.8%. Same-store NOI for the quarter increased 4.3% on a year-over-year basis, which is in line with our expectations and as revenue comps become tougher in the back half of the year.

On a sequential basis, same-store revenue was up 90 basis points over the prior quarter. Average rental rates contributed a positive 100 basis points, occupancy was up 10 basis points, and other income growth was driven by a variety of fee income categories.

We continue to be pleased with our value-add renovation program, which has delivered healthy results. To date, through the third quarter of 2019, across the existing portfolio, we have completed approximately 2,400 unit renovations at an average cost of roughly $5,100 per unit. Our efforts have yielded monthly rental increases of $108 per unit, resulting in a weighted average ROI of 25%. Accounting for the disposition and reinvestment, we estimate there are approximately 4,300 units remaining to be renovated in the current portfolio with comparable economics, which would be accretive to both CFFO and NAV.

In terms of capital allocation, the sale of the 7 assets allowed us to strategically recycle capital to assets in new markets with immediate value-add renovation opportunity. The dispositions were executed at an economic cap rate of 4.7% based on $300 per unit replacement reserves and the buyer's year 1 tax estimates. And the proceeds were reinvested into assets with a year 1 economic cap rate of approximately 4.9%, a stronger growth profile and projected stabilized cap rates exceeding 6%.

By way of update, the 4 reinvestments completed in the second and third quarters are all ahead of budget and achieved lease rate growth between 5% and 9% in the third quarter. Lease rate growth accelerated throughout the quarter at each asset, with September ranging from 6.4% to 12.5%.

Moving on to markets. We continue to like first ranked suburban locations that are more insulated from supply growth and favor Orlando, Atlanta, Nashville, Phoenix and Las Vegas, while remaining cautious on in-town Charlotte and the Dallas MSA, which continue to be impacted by new supply.

Turning to the balance sheet. We completed the sale of 7 assets in the quarter and 2 separate transactions yielding approximately $115 million in BRG equity. The 5 asset portfolio yielded BRG $92 million in net proceeds, while the 2 assets, San Antonio disposition yielded BRG approximately $22 million. We completed 2 acquisitions during the quarter, totaling $70 million in BRG investment and also made 2 preferred equity investments into operating assets, totaling approximately $10 million in BRG equity. The preferred equity investments are projected to yield a current pay approaching 8% and total annual returns of approximately 10%. With significant common equity behind our capital and solid cash flow profiles, we view these investments as additional opportunities to deliver strong cash flow with solid risk-adjusted returns for our investors.

And lastly, on the investment front. During the quarter, BRG invested approximately $13 million into existing development investments in our preferred equity and mezzanine program. As of September 30, the total BRG investment and development preferred equity and mezzanine loans stood at $286 million across 17 projects.

Finally, on the balance sheet. As of the end of October, BRG has approximately $107 million available for investment through a combination of cash and availability on our revolving credit facilities, plus we continue to grow our capacity through our Series B and Series T preferred offerings. We have a robust pipeline of attractive investment opportunities that we are actively working to close prior to year-end.

To conclude, I will note that our portfolio is performing well, and as a result, we are reaffirming our full year CFFO per share guidance of $0.81 to $0.84. Please refer to our earnings supplement for the assumptions used with respect to our revised CFFO guidance.

And with that, we will open it up to Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Gaurav Mehta with National Securities. Pardon me, actually, our first question comes from Craig Kucera with B. Riley FBR.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [2]

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Just given that dispositions were a little elevated in the third quarter and sort of you got $107 million of availability right now, how should we think about fourth quarter acquisition volume?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [3]

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Sure. Craig, this is Ryan. I think at the beginning of the year, we said we would be about $500 million to $700 million of acquisition volume for the year. I think we've done about $340 million to date. We have a pretty robust pipeline, and I think you'll see us be towards the top end of that range by the end of the year.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [4]

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Got it. And as far as -- Ramin, you made a comment about sort of the cadence of expenses affiliated with the dispositions impacting third quarter results and maybe reversing here in fourth quarter. Can you elaborate a bit on what you mean by that?

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [5]

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There were some controllable expenses that for timing issues got pushed from Q2 to Q3. I think we mentioned that we didn't think that the Q2 run rate was necessarily indicative of go forward run rate, which is -- which was obviously apparent if you looked at our whole year guidance. And I think you see -- it just have to do with R&M expenditures primarily and items that run through the income statement and at the property level. So we saw some of that get pushed from Q2 to Q3, and we saw the impact. So it pushed up FFO -- core FFO in Q2 and it brought -- and then it reversed itself in Q3.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [6]

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I got it. Okay. And with the series -- with the preferred, basically, you stopped selling here in the fourth quarter after maybe another $60 million or so, are you anticipating somewhat of a slower rollout or pace of the Series T next year? Or how should we think about the kind of uptake of that new product?

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [7]

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It's always when you take -- the answer is yes. I don't have an exact number for you, but we will hope -- we will, obviously, give guidance to it as we get closer to the end of the year and get more clarity in terms of uptake. As you know, when we take a registration down and we up it and we've done it 3 times already, you have to go back and get selling agreements with all the firms that we sell through. And that's about 70, 75 firms right now. And that's a process and it just takes time. So I think we're heading -- we're going to exceed our number -- our projected number for this year in terms of the preferred. It's getting very good reception. We're simplifying the structure a little bit by eliminating the warrant, which has complications all over. But we think that this is going to have similar acceptance in the market, and I think we're going to see the -- we're going to see the uptake being relatively quick. But I would expect that there will be a slowdown in Q1 and Q2.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [8]

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Got it. That makes sense. One more for me. I know you mentioned that you were cautious on sort of in-town Charlotte and the Dallas MSA. Does that steer you towards maybe selling some assets out of those markets? Or are you just less likely to put more money into those markets?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [9]

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Well, on Dallas, we did sell 2 deals as part of the portfolio. So I think -- I don't think you'll see us invest significant sums of capital in Dallas, certainly, in the near future. I think Charlotte's a case-by-case basis. We like certain, I'll call it, pockets of in-town Charlotte, but as a whole, you need to be cognizant of the supply that's going on in the South. And we think overall, on a long-term basis, Charlotte has a lot of legs to it, but in the near term, I think there's some challenges, but it may present some -- actually some opportunities for potential deals that may have concessions that we're able to pick off from developers. So I can't say that we won't look at in-town Charlotte, but we're just a little bit more cautious than, I'll call it, a market play.

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Operator [10]

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Our next question comes from Gaurav Mehta with National Securities.

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Gaurav Mehta, National Securities Corporation, Research Division - MD & Equity Research Analyst [11]

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I wanted to follow up on your comment on the acquisition volume for the fourth quarter. I think you mentioned that you expect to be on the upper end of $500 million to $700 million range. And you've done $320 million as of 3Q. So I was hoping if you could provide some color on; first, where are you seeing the opportunities; and then, second, should we expect the funding of the additional $350 million to $400 million by like preferred stock and debt?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [12]

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Sure, Gaurav, this is Ryan. Right now, we're tracking about 6 opportunities by year-end, hoping to close about 6 opportunities. I think the markets are favoring, call it, more West Coast-driven markets that we've been executing on at the beginning of this year. I think Phoenix and Vegas were large investment markets for us this year. You may see us add to one of those markets in particular that we really like in scale.

But I think on a funding side, we have a $107 million of capital available today through our Series B preferred and lines of credit. So if you lever them up about 50% to 65%, it should get us the -- all the way there to the $350 million, plus or minus, that's in the pipeline towards the end of the year.

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Gaurav Mehta, National Securities Corporation, Research Division - MD & Equity Research Analyst [13]

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Okay. And second question, could you tell us how much did renovations contributed to your same-store revenue number for the third quarter?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [14]

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Sure. This quarter, it was about 90 basis points. It's been about 80 to 100 on average. This quarter was 90.

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Operator [15]

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Our next question comes from Barry Oxford with D.A. Davidson. And again, I apologize. Barry, it looks like the line dropped. So if you could rejoin the queue. We'll take a question from Drew Babin with Baird.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [16]

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A couple of the acquisitions you made are a little older and vintage than the most of the properties that you've bought throughout the years. And I was just curious might the CapEx kind of going into this maybe exceed just doing kitchen, baths kind of minor unit refreshes. Is there anything that needs to happen with the lobby or exteriors that's maybe a little more impactful and just larger in scope?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [17]

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Sure. Good morning, Drew. So on -- I'll segregate it on (inaudible), which is one of the larger acquisitions that we've done. It's effectively a Main & Main location in Old Town Scottsdale, so older vintage but tremendous location. The -- many of these were actually redone by the prior owner, so there is not going to be significant CapEx opportunity there. It's going to be primarily interior unit renovations, and we actually just started our first renovation there and saw significant bumps ahead of what we were underwriting.

On the Las Vegas opportunity, again, the prior owners had executed on an amenity refresh as well. So it's just primarily in unit renovations. I think one of the reasons we quoted economic cap rate, which is inclusive of replacement reserves to make sure that you're getting an apples-to-apples comparison versus a newer-built deal. So still closing in on a 5 cap year 1 with these assets, but higher replacement reserves built into that number. So should feel comfortable that they're adequately capitalized. But they're really a function of location. I mean you can't replicate these locations. So we thought it was an interesting opportunity for us in both the cases to go out and invest capital into 100% locations in older assets with upside opportunity.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18]

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Great. Appreciate the color there. And then I know Atlanta and Orlando are 2 markets that you're more excited about for next year, and I guess, it will be helpful if you could talk about kind of on the demand side or the supply side, kind of what excites you about those markets? And maybe just a little more color on the dynamics of those market would help.

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [19]

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Sure. Orlando continues to be an exceptional job generator, I think, again 3.7% year-over-year job, but then if we look at our portfolio and we still see pretty positive trends across the board on new lease rate growth, so we're continuing to be excited about that market.

On Atlanta, it's a submarket to submarket decision for us. I think, historically, we've seen a substantial supply coming in Midtown and Buckhead, and we've been -- we stayed away from those submarkets, which have been institutional-heavy and have focused on, I'll call it, on the first ranked suburbs on the northern side. And they've performed very well for us. It's where the jobs are. You have a lot of technology, health care-driven jobs up in the Northern Corridor or Georgia 400, et cetera, that drive a lot of demand that way. So I think if you see us continue to execute in Atlanta, it's going to be up in the northern suburbs, where there is tremendous [nimbyism], and a lack of supply that has insulated us from any potential rent pressure.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]

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Great. Appreciate the color on that. And then one more just on the capital allocation front. Obviously, your stock price could be anywhere next year, but I guess of the Series B preferred that are outstanding, can you quantify kind of the opportunity of what might be converted next year, just based on kind of the timing lag from investment to when it's potentially convertible, kind of, what does that look like?

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [21]

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In terms of what it is convertible or is that a question as to what is convertible? If that's the question, I think the number is $185 million-ish. That's how we reported...

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [22]

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Okay, yes. That's was the question.

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [23]

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At the end of Q4 for conversion. That number, obviously, goes up on a quarterly basis because it's a 2-year lock out. So it'll be significantly higher than that by the end of the year. We should also -- we also -- that's just a Series B, and then you've got the Series A, which is -- which was our first kind of institutional preferred and it was expensive at 8.25% and that comes up for redemption on -- in October of next year. And given that is expensive, I think, you should -- it's a good bet that you'll see us redeem that, which would be accretive for us.

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Operator [24]

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Our next question will be Barry Oxford with the D.A. Davidson.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [25]

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Getting back to the Series T. Ramin, will it run around the same rate as the B, but you won't have the warrants, so therefore it's a better piece of paper? Or do you think you can do substantially better than what the Series B is running at?

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [26]

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No, I think from an all-in cost, it's going to be around -- it's the same price as the Series B. There's -- the individual investor market where this stuff is sold, that has kind of a floor, if you want to access it and that's around 6-ish. So if you look at our Series B and you model what the warrant should be worth, we look at the warrant as about 40 basis points. If you run a Black-Scholes or if you run Monte Carlo, et cetera, et cetera, believe me, we've done all that. So we are -- but it creates a tremendous level of complexity at every level, at due diligence in terms of at the BD level, at the rep level, at the investor level and try to explain it all throughout the sales process and then the platforms that have to hold this, for example, Schwab and Fidelity and American Trade, they don't want to deal with the complexity because each issuance we close every 2 years, it's a separate secure -- I'm sorry, every 2 weeks, is a separate -- is 2 separate CUSIPs , 1 for the preferred, 1 for the warrant. So we have people who want to participate in it, but won't because they can't handle all the complexity. So we did away with the warrant. We've bumped up the yield slightly from 6 to 6 15, and we've added a 20 basis point per year stock dividend. So that takes you up to 6 35 all-in assuming that it's held for -- held out there for 5 years. And so that's the structure. We're still keeping the beneficial conversion and all the other reasons why it's a good security in terms of being able to grow accretively for BRG.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [27]

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Right. No, that sounds great. And then on the redemption in October, will you just replace that piece of paper with another preferred? Or do you plan to handle it differently? Or we'll have to see were capital markets are at that particular time?

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [28]

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Well, Barry, that's a good question. You tell me where capital markets are -- you tell me where -- listen, our stock price has done well, I think, over the last 12 months and year-to-date. I think we've got some additional levers to continue to -- for that outperformance versus our multifamily peers and RMC in general to continue index inclusion (inaudible) that I put on the table, we think we're close to it. So assuming that it -- the conversion -- the issuance of common for us has always been at what levels at is it accretive given where we are with respect to NAV. And I think we are much closer to today than we were a year ago at this time. So -- and we're hoping that the outperformance continues, and we can -- our goal is to grow the common equity base and which would have multitude of benefits.

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Operator [29]

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(Operator Instructions) Our next question comes from Rob Stevenson with Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [30]

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The additional color on the Series T was helpful. Couple for me. The preferred equity investments in Austin, you guys said there is income-producing assets and I think one of those is like circa late ['70s] and the other one is a more recent one. What is the owner expected to use your capital to do? And do these come with any type of purchase options or anything?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [31]

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They don't come with purchase options, Rob. It's a little bit different allocation of capital here. We're looking at it as more of a, call it, income generator than a total return generator. They are looking to improve the asset and generate a significant return. So they view our cost of capital with their value-added strategy on the older assets as a good cost of capital for them to generate significant total return, whereas we like the different profile return opportunity at a different part of the capital structure. So nothing more than that.

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [32]

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We like the asset -- we like the -- hey, Rob, it's Ramin. We like the asset, we like the market, we may not like the vintage or we may not like the last dollar in, so this is a way for us to participate.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [33]

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Okay. And then is there anything abnormal going on with the Gulfshore asset in Naples? If I look at Page 8 of your supplemental, the September 30 occupancy is 86.4%, but on the Page 23 of the supplemental, the average occupancy during the quarter was like 91.1%. There was -- and there was also at Plantation Park a gap, but it wasn't quite as big. Is there anything going on to why the average and, I assume, ending is the 86.4% were so different in the quarter?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [34]

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Good question, Rob. So on Gulfshore, we had an unexpected move out of corporate units, about 20 corporate units was gapped our occupancy down. I will say that we're back approaching 90%. So that asset, in particular, has a different seasonal profile than, I'd say, the traditional seasonal profile of multifamily assets across our portfolio, which you see a better leasing profile in the summer months heading into early fall, whereas actually the better leasing profile here is in the winter months, just given the location of the asset in Southwest Florida. So we had an unexpected move out of corporate units of about, I think, 20-plus corporate units in August-September that brought that number down. Again, we've rectified it, we've backfilled it, and we're approaching 90% again today, and we expect that to stabilize kind of sometime towards the end of the fourth quarter into the first quarter.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [35]

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Okay. And it wasn't quite as big, but anything similar going on a Plantation Park because the ending occupancy being close to 200 basis points difference than the average?

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Ryan S. MacDonald, Bluerock Residential Growth REIT, Inc. - Chief Acquisitions Officer [36]

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Yes. I think that one was more staff turnover-driven, and we've got that rectified. I think we're approaching low 90s today with the 60 days run rate in the low 90s, I'll call it. So that asset is going to run in the low 90s versus the mid-90s, just given where the rent profile is relative to the comps. And so I think we're pretty comfortable where it is today. Good question.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [37]

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Okay. And then last one for me. Ramin-- to Barry's question, I guess, it remains to be seen with the capital markets look like in October, but is your -- sitting here today, is your expectation that you would take out the 8-plus percent preferred with additional preferred? Or is there any reason to use disposition proceeds or even common to take that out as long as the issuance of Series T or some other series of preferred would be equally sort of priced in that sort of 6%, 6.15% range?

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [38]

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Yes. And listen, I think if the series -- I think we're going to issue -- again, we don't have final numbers, so my guess when we pencil it out is we're going to issue a similar amount of Series T next year comparable to what we're doing in terms of Series B this year. So I think we'll have plenty of opportunity to take that -- take the 8.25% out with our 6.15% Series T. Now we would look at -- we would obviously look and see where our common is. We would like to grow the common. So it will have to be what's most accretive from balancing FFO and NAV for the investors and make the call at that time. I don't want -- if I had my druthers and the common was priced appropriately, we'd absolutely use common and grow our common base and put that -- put it away. But I don't want to lock ourselves. I don't want to lock the firm in by saying we're going to issue a common to take that out because that impact -- that ties our hands and impacts our pricing, et cetera, et cetera. So we're going to do the best. We've got multiple levers. We could always sell an asset to pay down. That's always an option. I think the dispositions at 4 7 show that we've got plenty of attractive assets, okay? And by the way these were assets that we were trading out of because we were seeing assets with better investment profiles. So they weren't -- we weren't selling our crown jewels rather than it was the reverse. So we've got plenty of options, we're going to look at it. As I think you've seen us in the last few years, we're going to be thoughtful and pick the -- in terms of picking the best answer for investors, of which we're obviously a big chunk of it.

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Operator [39]

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This concludes our question-and-answer session. I would like to turn the conference back over to Ramin Kamfar for any closing remarks.

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R. Ramin Kamfar, Bluerock Residential Growth REIT, Inc. - Chairman & CEO [40]

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Thank you, operator, and thank you, everyone, for joining us today. We look forward to continuing to reporting on our progress to you in the coming quarters. Goodbye.

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Operator [41]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.