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Preferred Apartment Communities (NYSEMKT:APTS)

Q4 2013 Earnings Conference Call

March 4, 2014 11:00 a.m. ET

Executives

Lenny Silverstein - President and COO

John Williams - Chairman and CEO

Mike Cronin - Executive Vice President and CAO

Dan DuPree - Vice Chairman and Chief Investment Officer

Bill Leseman - Executive Vice President, Property Management

John Isakson - Chief Investment Officer

Paul Cullen - Chief Marketing Officer

Analysts

Ryan Gilbert - Compass Point Research

Craig Kucera - Wunderlich Securities

Steve Manaker - Oppenheimer

Rick Murray - Midwest Advisors

Operator

Good morning and welcome to the Preferred Apartment Communities Fourth Quarter 2013 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Lenny Silverstein, President and Chief Operating Officer. Please go ahead.

Lenny Silverstein

Thank you, operator. Thank you very much for joining us this morning and welcome to Preferred Apartment Communities fourth quarter 2013 earnings call. We hope that each of you have had a chance to review our fourth quarter earnings report, which we released yesterday after the market closed.

In a moment, I’ll be turning the call over to John Williams, our Chairman and Chief Executive Officer for a review of our performance and his thoughts for fiscal 2014. Also with us today are Dan DuPree, our Vice Chairman and Chief Investment Officer; Mike Cronin, our Executive Vice President and Chief Accounting Officer, Bill Leseman, our Executive Vice President of Property Management; John Isakson, our Chief Capital Officer; and Paul Cullen, our Chief Marketing Officer. Following the conclusion of our prepared remarks, we'll be pleased to answer any questions you might have.

Before we begin, 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 and actual results may differ materially. There is a discussion about these risks and uncertainties in yesterday's press release. Our press release can be found on our website at pacapts.com.

The press release on our website also includes an attachment containing our supplemental financial data for the fourth quarter with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's call. We encourage you to refer to this information during your review of our operating results and financial performance. Unless otherwise indicated, all per share results that we discuss this morning are based on the basic weighted average shares of Common Stock and Class A Partnership Units outstanding for the period.

Speaking of our operating results and financial performance, we believe that the fourth quarter produced excellent results. Our FFO was almost $3 million or $0.23 per share. For the fourth quarter 2013 compared to the fourth quarter 2012, our FFO increased approximately 202%, or approximately 21% per share. Normalized FFO which is basically FFO excluding the effects of acquisition costs, was approximately 3.3 million or $0.25 per share for the fourth quarter of 2013.

Compared to the fourth quarter of 2012, our normalized FFO increased approximately 230%, or almost 32% per share on a period over period basis. Adjusted FFO for the fourth quarter 2013 was 2.95 million, or $0.22 per share. This represents an increase of approximately 195% compared to the fourth quarter of 2012 or approximately 16% per share. In particular, I want to remind you that adjusted FFO is calculated after paying all dividends on our preferred stock.

Total revenues for the fourth quarter 2013 increased approximately $6 million or almost 159% compared to the same period in 2012. Cash flow from operations for the fourth quarter of 2013 was approximately 2.93 million representing an increase of approximately $1.8 million or 153% compared to cash flow from operations for the fourth quarter of 2012.

The 2013 fourth quarter increases in FFO, normalized FFO and adjusted FFO as well as revenues and cash flow from operations primarily reflect a full quarter of operations from 4 properties we acquired in the first half of 2013. Income from 8 loans originated during the first 3 quarters of 2013 and income originated from three loans originated during the fourth quarter of 2013.

And now I’d like to turn the call over to John Williams for his remarks.

John Williams

Thank you, Lenny. Good morning everyone and thank you for joining us for the fourth quarter 2013 earnings call. I first want to take a moment to explain that we believe some folks have mistakenly focused on net income or net loss based metrics in measuring the financial success of our company. Please remember we are in a cash flow business, not a net income business. In reality, all REITs are cash flow companies. This is why our FFO and AFFO metrics are so important for all of us.

As we discussed before on many occasions, we as a company are acquiring and expect to continue to acquire multifamily communities that are paced that will allow us to continue the company's current growth path and have issued and expect to continue to issue additional securities of the company to help finance these acquisitions. As a result, you will see on our consolidated statement of operations, [indiscernible] a significant amount of depreciation and amortization expense and other non-cash charges all consistent with our growth strategy as a REIT and in accordance with GAAP.

If you add back our non-cash items like depreciation and amortization and other non-cash charges you will gain a better picture of our financial performance which we believe has been outstanding to date. As a matter of fact, I think I've read up to 50-odd year end results so far this quarter and I think our report is one of the best if not the best. If you know of a company with better results, please let me know because I love to review their financial performance.

Primarily as a result of our acquisition in mezzanine loan investment strategy we finished the year with approximately 342 million in total assets. As you may remember, we commenced operations at the time of our IPO in April of 2011. Since then we’ve continued to acquire and focus on managing our multifamily communities, building our brand and securing additional capital to support future acquisitions. For example, during 2013 we raised approximately 142 million through sales of our equity securities, including approximately 33 million from the sale of common stock in a public offering during the first quarter – fourth quarter of 2013.

As of December 31, 2013 we had entered into commitments for an aggregate amount of 130 million in mezzanine loans and other secured investment transactions of which we funded approximately 112 million. Generally we received our current interest payment of 8 to 8.5% per annum payable monthly and we will accrue an additional 4% to 6% payable at maturity. At the time we exercised our put option, or at the time the property is refinanced, or sold to a third party. In effect, we believe the option to purchase allowed us to buy brand new well located, well built community at a wholesale price rather than a retail price.

We declared a quarterly dividend on our common stock of $0.16 per share which was paid on January 15 2014 to all common stockholders as of record of December 16, 2013. By way of reference, we have increased our common stock dividend 28% since our April 2011 IPO. This represents approximately 11.4% increase on an annualized basis. As we’ve indicated before, we will continue to seek to have our dividends with tax efficient but with a key driver is the acquisition of additional multifamily communities.

Without taking into effect, our capital raising activities we currently believe that our normalized FFO for the first quarter of 2014 will be in the range of $0.21 to $0.25 per share and that adjusted FFO for the first quarter will be in the range of $0.16 to $0.22 per share.

On the liability side of the company, I would like to confirm that other than our 40 million revolving credit facility we incurred no debt at the company or operating partnership levels. None of our individual property mortgage financings are profitable cross-collateralized with each other and none have any recourse liability upstream to our company or to our operating partnerships.

In other words, although our consolidated financial statements said that for our company except for our credit facility, our debt resides at the property level and is isolated in separate limited liability companies, we’ve established to own each of these properties. In any case, as of December 31, 2013, our outstanding debt was approximately 41.8% of the value of our tangible assets on a portfolio basis, on our estimates of fair value at December 31 2013 and 48.2% of undepreciated book value.

On a non-financial basis, we continue to advance operating efforts both through name recognition, website strategies and property level enhancements, we continue to believe our branding strategy resonates well with our resident and investor feedback. We are pleased with the robustness of our website, its transparency and its ease of use, based on the resident feedback and our innovative PAC country, PAC rewards and PAC programs, these efforts continue to churn [ph].

Our primary strategy continues to be to grow our company through acquisitions for which we will need capital at least for the foreseeable future. We routinely assess various capital raising markets to identify what we believe is the mostly reasonable way to raise additional capital based on our needs and plans. Another key component of our growth strategy is our mezzanine loan investment program.

I want to now introduce c, our Vice Chairman and Chief Investment Officer to provide some more color on this topic. Dan?

Dan DuPree

Thanks, John. As you noted earlier, we are actively pursuing acquisitions of multifamily communities that fit our business model. We are focusing on MSAs that have over 1 million in population, strong demographics and strong job growth. We're not focusing on Gateway type cities like New York, Boston, Chicago and San Francisco where acquisition cap rates have fallen to a level that we believe would not result in accretive transactions for our shareholders.

In addition to one-off acquisitions, we are also exploring portfolio transactions. Separately our innovative mezzanine loan program enhances our acquisition pipeline by giving us the opportunity to acquire brand-new modern stabilized multifamily communities at super prices. This program enables us to work with a select few highly qualified third-party developers to design communities that meet our specifications for high-quality. It is a collaborative effort that complements our organic growth and our standard acquisition growth strategies.

Two of our mezzanine loan projects have now begun leasing and both are well ahead of schedule as to both pace and rate. We expect to have 2 additional projects in leasing over the next of 60 to 90 days. John spoke earlier about the attractive current and accrued returns we received from our mezzanine loans. I think the real value realizing the value of our options the completed stabilized properties, while our earlier closing set of fixed price for our repurchase options, our most recent deals provide for options at 50 to 60 basis points cap rate discounts at the time of acquisition, thus materially and immediately enhancing NAV calculations for the company's assets. We have current portfolio of 12 mezzanine and other loan investments on which we have options to acquire 7 multifamily communities upon completion and stabilization.

We expect to convert the remaining five loan investments in the mezzanine loans with similar purchase options. We have 3 additional loan investments that we hope to close within the next 60 days.

John Williams

Thanks, Dan. Some folks have commented recently about the apartment market in general and whether it has peaked, or still in the downturn. I believe that the fundamentals in the multifamily sector for 2014 and beyond will continue to be strong and positive. The economy and the labor market are expected to improve although slowly, may continue to projected underproduction in overall housing. We are still bullish on demographic growth in the 20 to 35-year-old echo-boomer A segment, which we believe to have a greater likelihood to rent versus owned. In fact, there are over 80 million persons in this echo boomer segment, representing probably the largest demographic level ever for the United States, as the economy and job market rebound we expect increased household formation with a large portion of echo boomers returning to the rural market.

The most interesting is the success we’ve had since our 2011 IPO despite the lackluster turnaround in our economy and slow job growth today. As you may know we believe that job creation is probably the number one criteria for both rental demand and rental growth. Job creation generates household formation which is the driver for all housing success.

Lastly, we believe that the multi-family sector is great hedge against inflations. Since our resident leases are about 12 months in duration, and on average one 12th of our leases either returned or renewed every month. As a result, we still believe that wind is at our backs. We continue to actively manage our communities as usual to drive best balance vacancies for rent growth while at the same time provide super service to our residents. In addition, we will continue to look at alternatives on how to fund our growth prospects in light of the current economic climate with the goal being to make any transaction accretive to our earnings.

Before I turn the call over to the operator, there are several questions that’s already been sent to us. So let me run through those. First, how does the company look at NAV? And I will call on John Isakson to answer that for us?

John Isakson

Thanks, John. When we look at NAV internally, we value the operating portfolio by capping the NOI in place. We have cash and cash equivalents in other ancillary assets, balance sheet, like note receivable, note receivable right of parties and our accrued interest – within the debt outstanding, the mortgage notes payable, accounts payable, revolving credit facility as well as other ancillary liabilities. And once we get to that number, we then deduct the preferred outstanding the company has sold to date to come up with a net capital for the common stockholders. We divide that by the common stock outstanding and the number of units outstanding.

John Williams

And do we put a calculation in that for the mezzanine loans by the way?

John Isakson

No, even Dan pointed out earlier, I think it’s important to keep in mind that we value the mezzanine loans, but mezzanine loans themselves are looked at from a book value basis, and don’t have the value after – so we don’t place a value on that.

John Williams

Thank you, John. And the next question that was submitted, how does your pipeline look? Dan DuPree will answer that for us.

Dan DuPree

John, we prepare a weekly pipeline report detailing acquisition opportunities we're looking at or considering in our target market. The last week's report included 68 properties far and away our most robust report yet, so the pipeline is deep and growing deeper.

John Williams

The next question – can you talk about some of the property that was acquired at the beginning of the year and also the Columbus property, the company previous, so they indicated it was thinking to acquire, and now I ask Dan to respond to that.

Dan DuPree

Yeah, some of the acquisition was a result of our mezzanine loan program and an example of being able to acquire an asset at a significant discount to market, as to Columbus that was a deal we were basically enthusiastic about until our due diligence and covered environmental issues that we deemed to be too great a risk relative to the reward afforded by that acquisition. So at the end of the day we elected not to go forward with it, which kind of underscored the significance of our due diligence process.

John Williams

And the question that was submitted, is about common stock offerings in the future, will there be? And I will ask Lenny to respond to that.

Lenny Silverstein

Yeah, thanks, John. As we’ve indicated before we have a variety of avenues to raise capital. Obviously we can continue to raise capital in the pure public market space. We do have a self-registration statement that’s been on file for a while that allows us to do that fairly quickly and fairly efficiently. We also, for those of you who may have noticed we filed last Friday an ATM [ph] registration statement again giving us another arrow in the quiver to allow us to sell equity securities at the market in those types of transactions. And then last we raised capital through our sales of series A redeemable preferred stock on an ongoing basis.

John Williams

Thanks, Lenny and then we had a question about leasing trends. Can you talk about leasing trends in the industry and in particular for PAC? And I will ask Bill Leseman to respond to that, Bill?

Bill Leseman

Most specifically, John, we continue to feel very good regarding our leasing efforts. First on the sale of our portfolio, as a result of not only our farm leasing in 2013 with a strong start to 2014 our occupancy for the portfolio overall is above 95% as compared to 94% Q1 of 2013. In the area of our two lease-ups, one in Charlotte and one in Tampa, both started very strong and we believe that, that will continue.

John Williams

And the last question that has been submitted, I will take myself. Well, the stock price – when you look at our stock price, we have a significantly I think one of the best balance sheets in the industry, very little secured debt. We have great earnings performance and tremendous organic growth and there is no question in my mind that we have the best management team in the multifamily REIT industry, maybe the entire REIT industry. Very professional folks. So I don’t like the stock price, not much we can do about it, continue to post weight numbers, but recognizing that we pay an 8% of sincerely tax effective dividend, it’s a great bargain for those of you smart enough to buy our stock.

And with that, I will now ask the operator to open it up for general questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Wilkes Graham, Compass Point.

Ryan Gilbert - Compass Point Research

Hi guys, this is Ryan Gilbert along with Wilkes. First question on – can you talk about the rationale behind selling your tropic asset?

John Williams

Yes, I will actually call on Lenny and John to answer that question.

John Isakson

Sure, I think it’s important as John has said before not to fall in love with real estate and evaluated and marketed that property in the second half of 2013, it just became apparent to us that, that market did not have a upside potential and the momentum that we’re looking for our assets. And so while there’s still good value in it, the transaction market is still strong, we felt like it was a great time to dispose.

John Williams

And as a matter of fact, we will hopefully in the next few days announce a contract and it will still provide significant value to the company. So we believe in harvesting value, probably not generally as rapidly as we are doing. But there is nothing wrong with the kind of company harvesting value when we particularly see an asset that the we don't think will improve at the same rate as the rest of the portfolio.

Ryan Gilbert - Compass Point Research

And does – is the 39 un-depreciated value of Trail that you are holding up as held for sale reflect in your opinion a fair value of the asset?

John Williams

No, when you see the announcements in the closing, you will see that it’s significantly above depreciated value.

Ryan Gilbert - Compass Point Research

So is it fair to say that the proceeds from Trail will be used to fund your remaining unfunded loan commitments and the new mezzanine that you have in your pipeline?

Lenny Silverstein

That’s a good question. We have also our acquisition opportunities, so we will use the proceeds from that transaction and the best way we believe are most accretive for all of our investors.

Ryan Gilbert - Compass Point Research

So just on the mezz programs, you’re still scheduled, do you intend to exercise the purchase option similar to –

John Williams

I will call on Dan DuPree to answer that. But generally probably not, but Dan –

Dan DuPree

It’s too early to tell. The good news about our purchase option is that we have a period of time to evaluate the performance of the asset over a period of time. That having been said we are certainly encouraged by the rate and pace of the leasing on those two projects. One of the two projects could very well be the best-performing asset we had in quite some time. So we’re very bullish on them but we don't have to make that specific decision right this minute.

John Williams

Right, as Dan has said, we have an asset in Tampa, and I think – how many hundreds of properties I have been involved and it could be fastest winning, the most successful and the best yield of many property, I will have ever [indiscernible] thing to do it. So we are quite excited about it and hopefully those comments on asset so far has done phenomenally well, more attractive than I can ever remember in a property.

Ryan Gilbert - Compass Point Research

And in terms of new investments for 2014, can you talk about the mix between new mezzanine loans versus property acquisitions?

John Williams

Well, I will ask Dan to make some more comments. Generally mezzanine loans portfolio we have and the amount of money we've invested in those portfolios will stay relatively flat, grow over time but very slowly. I think what we want to do this year is to acquire lot of very acquisitive properties and we have a wonderful pipeline that should allow us to do it. Dan, you want to have some comments for that?

Dan DuPree

No, I think that’s exactly right. The long-term relationship between the mezzanine loans and our acquisition projects is going to be reduced. So the mezz loan properties and investments will be an increasingly lower percentage of our total investments. And yet they will stay fairly constant, because there is a limit to how much quality development the people that we have such confidence and develop.

Ryan Gilbert - Compass Point Research

And can you talk about like total dollar size, the mezz and new property pipeline that you are looking at in 2014?

John Williams

I think that we have another three or four, or five properties we are evaluating. Some in Atlanta, but some in other markets actually throughout the country. We have several bridge loans currently in place if you look at our supplemental and we would expect those to convert to mezzanine loans in the next several months. But we are being very – we are watching very close the amount, location and the quality of these developments, these mezzanine loans. So it’s a wonderful way for the company to make substantial amounts of money, but we don’t want to be greedy, we want to make sure we are doing it properly.

Operator

Our next question is Craig Kucera, Wunderlich Securities.

Craig Kucera - Wunderlich Securities

I had a question about your guidance range for this first quarter. Is the sort of downside relative to your fourth quarter numbers, is that related to sort of an expectation of the timing of the sale of Trail Creek?

John Williams

Well, typically if you go back and if you will look at other REITs, one of the things that happens in the first quarter is a reset of all of our reserves for insurance, taxes, etc. So when we go into the fourth quarter we look at substantial additional costs that are projected, even though we haven't seen those bills. And again typically in the first quarter we see higher expenses, snow removal etc. So those would have some effect on our performance but the sale of Trail really hadn’t had any effect uptil now.

Craig Kucera - Wunderlich Securities

When you look at the quarter, the way you have been reporting AFFO, I think this quarter you started reporting some deferred mezzanine income. And I didn’t know – was that, is that asset specific or can you give us some color on what's driving that? I think this quarter it was north of $0.5 million.

John Williams

I will let Mike Cronin speak to that but essentially we don’t record the accrued mezzanine loan amounts until such time as they are paid, so there is a difference – on AFFO basis. But Mike, do you want to go through those –

Mike Cronin

Yeah, and to clarify – from the standpoint of GAAP financials, we do accrue for the deferred interest on the loans. However we back those out – when we are doing AFFO calculation till we actually get paid, that actually occurred in the fourth quarter with Summit and that was a large number that you are referring to. Summit, when we bought the property, paid off its interest owed to us on the mezzanine loans.

John Williams

So the bottom line is – you could find out AFFO number somewhat lumpy compared to our normalized AFFO number. But we still seek to always cover our dividend with our AFFO, that’s our – our internal goal is to make sure that our AFFO covers our dividend and make sure that our AFFO payout would be somewhere in the neighbourhood of 75 to 80%.

Craig Kucera - Wunderlich Securities

This quarter you acquired a retail asset I think and not a very large one but I just wanted to get a sense -- are we looking at Preferred becoming a little bit more of a diversified REIT or was this sort of an opportunistic acquisition?

John Williams

It was opportunistic, it was an ability to buy something very, very cheap and produce a substantial cash flow is investment, a nice co-leased owned property that we feel very good about. So no, we are not changing in our structure, we do have the ability within our business plan to take 10% of our assets into other than – we will do it from time to time, probably at the retail area if we see a outstanding bargain.

Operator

Our next question is Steve Manaker, Oppenheimer.

Steve Manaker - Oppenheimer

Quick question regarding the pricing of portfolios versus the pricing of one-offs, what are you guys seeing as there being differential?

John Williams

Steve, thank you. For us to grow the way we need to grow, we will be looking at portfolios rather than just one-off but we don't necessarily see much price differentiation – Dan, or John want to comment on that?

Dan DuPree

I think going forward one of the opportunities that portfolios offer us is that we have a little bit of flexibility in our structure as to how we can go about acquiring them. But I think to date it has been more attractive for us to buy assets on a one-off basis. I mean I can tell you that going forward we’re going to be looking harder and harder at portfolio acquisitions. But the key to take any of these deals is they have to be accretive and I think right now for us to date one-off acquisitions have been easier to see our way toward an accretive investment.

John Isakson

And I think there have been more of those opportunities available, there just haven’t been as many portfolios coming to market that would be attractive to us instead our investment profile. So when they do come along I think it’s one of the things we look really hard on.

John Williams

Invariably when we look at the portfolios, there will be three or four assets we definitely want, and would like to have and then there is three or four assets that you couldn’t give to us. So it’s – we love the new portfolios but it’s been tough to do just like OP units. We always talk about the possibility of doing an OP unit transaction and – but we never end up doing one because it’s so difficult to do. But we continue to work at it.

Steve Manaker - Oppenheimer

Are you guys seeing more portfolio – any sense of why you are seeing more portfolios coming to market right now?

John Williams

No, the truth is I think we are probably seeing less but John, I will let –

John Isakson

I think we have seen – I think there is a lot more one-off transactions on the market right now and the portfolios that we have seen, there have been a few that were really significant, and that were huge. But there really haven’t been as many of the 3, 4, 5, 8 assets type portfolios and as John said, we have seen those – the mix of asset quality is such that it hasn’t been as attractive to us.

John Williams

We have a very specific focus in terms of location as Dan mentioned. We want to be in MSAs above 1 million, we want to be in growth markets, markets where we feel as though our value of our assets will continue to enhance and we have very strict requirements for the quality of our assets and there are lot of apartments that would appear to be a, quality apartments but aren’t a quality apartment. But also inherent problems with parking vicinity and other issues that make it very difficult for us to go in and actually acquire those apartments. The transaction in Columbus was a good example. We would have loved to own that asset but we couldn't just beyond the environmental issues.

Operator

Our next question is Rick Murray, Midwest Advisors.

Rick Murray - Midwest Advisors

I had a question that relates to capital allocation and given that your pipeline of opportunities that you’re evaluating right now seems probably as big as it’s been in a bit. Just wanted to get a better understanding and feel for how you think about capital allocation because I agree strongly with your comments about the value of the stock in the portfolio but to issue equity at such a large discounts sort of flies in the face of that and just want to get a better understanding of how you think about your cost of capital relative to the opportunities you’re evaluating?

John Williams

Well, I will call on Lenny to give some color to that comment. But I will tell you – it’s very uncomfortable for me to want to issue equity at the price as we are issuing today to – but if we can take that common stock equity and we can still have an accretive transaction, we will look at it. I just have to hold my nose and before we sign the transaction, the guys [indiscernible] on the floor, it’s also very uncomfortable for me. But if it’s accretive, even then we will probably be willing to sell the common stock. Lenny?

Lenny Silverstein

Yes, the other thing I would mention is – we had an ongoing sales effort going on with our series A preferred. And series A preferred carries a 6% dividend on that particular sale of stock, it is not listed for trading, although it is transferrable through BTC. So that enhances our ability to raise capital and overall helps to balance out the cost of capital.

John Williams

Yeah, as Lenny has said, one of the things that I don’t think we get it all accretive for is the way we raise capital is different than anybody else in the REIT industry. We have an ongoing effort to sell our series A preferred stock which carries a 6% dividend and we can still go out and do a common share offering, we can do a ATM, there are lot of ways we can raise capital. The driver for us is that it has to be an accretive transaction.

Rick Murray - Midwest Advisors

Right, I understand that, but I mean, so you have an active program right now with the series A – why not utilize that much more heavily 6% perpetual money versus selling your stock at a 30% discount to NAV?

John Williams

You’re speaking to the quire [ph] and that’s exactly our theory. We would only sell common stock if we didn't have the funds available through our monthly flow of – from the preferred. But our strong preference is to use our preferred for funding our acquisition portfolio.

Operator

Our next question is a follow up, Wilkes Graham, Compass Point.

Ryan Gilbert - Compass Point Research

Hey guys, this is Ryan again. Just a couple of quick follow-ups, do you plan on encumbering Summit II?

John Williams

As we plan on – I couldn’t understand the first part –

Ryan Gilbert - Compass Point Research

I am sorry, do you plan taking out a mortgage on Summit II?

John Williams

Yes and I will ask John – in the next few weeks, John?

John Isakson

When we closed the acquisition in December, we assumed a modified construction loan of $13 million and we intend to refinance that relatively shortly with debt that matches our production program.

John Williams

That, I think that might happen before the end of the first quarter. No, we don’t know for sure. We are working on it, and it will be done shortly.

Ryan Gilbert - Compass Point Research

And then on the series A issuance, it looks like volume is slowing down a little bit in the first quarter. Is that just – is that seasonal or do you think that you can hit your 2013 series A issuance volume in 2014?

John Isakson

We are very confident in our series A offering process and what you are seeing is we actually completed the first initial offering of our series A preferred stock in 12/31 and what you saw the first part of 2014 was the transition to a follow-on offering of the exact thing, security of the series A preferred. So a little down shift that you saw was just the transition from one offering to the next one. But we are very bullish on how we will do for 2014.

John Williams

Yeah, we should see steadily increased volumes over the year.

Operator

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to John Williams for any closing remarks.

John Williams

Thanks operator and thanks for all of you joining us. Please reach out to us if you have any further questions or if you like to come and visit us here in Atlanta. We had a great quarter, we are looking forward to a great year. We have as I said the best management team in the business and we are all working hard for you. Thank you again.

Operator

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

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