Associated Estates Realty's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.30.14 | About: Associated Estates (AEC)

Associated Estates Realty Corporation (NYSE:AEC)

Q1 2014 Results Earnings Conference Call

April 30, 2014 02:00 PM ET

Executives

Jeremy Goldberg - VP of Corporate Finance and Investor Relations

Jeff Friedman - President and CEO

Lou Fatica - Chief Financial Officer

John Shannon - SVP of Operations

Jason Friedman - SVP Acquisitions and Development

Analysts

Jana Galan - Bank of America/Merrill Lynch

David Toti - Cantor Fitzgerald

Nick Joseph - Citigroup

Andrew Shapiro - Sandler O'Neill & Partners

Ryan Meliker - MLV & Co

Dave Bragg - Green Street Advisors

Michael Bilerman - Citigroup

Operator

Good afternoon. And welcome to the Associated Estates First Quarter 2014 Earnings Conference Call. My name is Victoria, and I will be the operator for your call today. At this time, all participants are in listen-only mode. Following prepared remarks by the company, we will conduct a question-and-answer session. (Operator Instructions). Please note this event is being recorded. If we experience any difficulties with the connection of the conference call, please visit associatedestates.com for additional instruction.

Now, I would like to turn the call over to Jeremy Goldberg, Vice President of Corporate Finance and Investor Relations for opening remarks and introductions. Please go ahead.

Jeremy Goldberg

Thank you, Victoria. Good afternoon, everyone. And thank you for joining the Associated Estates first quarter 2014 conference call. I’d like to remind everyone that our call today is being webcast and will be archived on the Associated Estates website for 90 days.

Prepared remarks will be presented by Jeff Friedman, our President and Chief Executive Officer, Lou Fatica, our Chief Financial Officer and John Shannon, our Senior Vice President of Operations. Additionally, other members of our management team are available for the Q&A.

Before we begin, we would like to note that certain statements made during this call, including answers we give in response to your questions, will be forward-looking statements that are based on the current expectations and beliefs of management.

These forward-looking statements are subject to certain risks and trends that could cause actual results to differ materially from projections. Further information about these risks and trends can be found in our filings with the SEC, and we encourage everyone to review them.

As a reminder, Associated Estates’ first quarter earnings release and supplemental financial information are available in the Investor section of our website, and they include reconciliations to FFO and other non-GAAP financial measures, which will be discussed on this call.

At this time, I will turn the call over to Jeff.

Jeff Friedman

Thank you, Jeremy. And thanks to everyone for calling in. 2014 continues to be a year of execution for Associated Estates. Our portfolio is full and going into the peak leasing season, we are extremely well positioned to take advantage of current market conditions. Bids for the properties we are selling are at historical highs, allowing us to recycle capital to best in class assets in faster growing markets.

Our developments are progressing well. We continue to maintain an investment grade balance sheet, while internally funding our portfolio transformation. Today, our balance sheet metrics are better than they have ever been and they will continue to improve. With fundamentals driving demand for our apartments at generational highs, combined with the anticipated growth in our cash flow. There is no other way to describe how we have positioned the company to benefit than to say we are in the very beginning of what we think will be a many year bull run for high quality rental apartments.

The execution of our capital recycling plan and delivery of our development projects will generate significant earnings power, and create substantial long term value for our shareholders. Our portfolio will truly be best in class in every respect. As I said on the last call, our focus this year will be on core operations, completing our previously announced acquisitions and progressing on our current development projects. We’ve had a strong start to the year on all fronts. And we realize there is still much to be done. Our team is laser focused on executing our business plan and creating considerable value for years to come.

Let me turn the call over to Lou.

Lou Fatica

Thank you, Jeff. For the first quarter, FFO was $0.30 per share or one penny per share lower than internal expectations. The variance for the quarter was a function of extremely harsh winter weather, which resulted in unbudgeted incremental property operating expenses of approximately $600,000, of which $450,000 impacted the same community portfolio. These costs were split equally between insurance claims and snow removal costs.

Same community quarter-over-quarter revenue was up 3.1% and operating expenses were up 5.2%, resulting in same community NOI growth of 1.8%. Ex-weather related costs, operating expenses increased 2.4% and NOI increased 3.6%, both inline with expectations.

Our disposition plans remain on track with the sale of one property in Q1 and two properties so far in Q2. Year-to-date sale proceeds are nearly $152 million, which is $6 million or 4% more than originally projected. The three dispositions including two properties in Maryland and our national development project were sold at a blended 5.4% market cap rate and generated an unlevered IRR of 17.7% over the whole period.

Our remaining dispositions for the year include one additional property being sold in Q2 with the balance of sales expected to occur late this year. Leverage is measured by net debt to undepreciated book value was 43% at quarter-end, with secured debt at 16%. Unencumbered assets accounted for 75% of Q1 NOI and our Q1 fixed charge coverage ratio was 3.1 times. Improving our credit ratings remains our number one priority. Near-term maturities are only $25 million this year and $20 million in 2015. Our total debt has a weighted average interest rate of 3.8% and a weighted average maturity of 5.5 years.

Turning to our full year guidance, we are reaffirming our FFO in same community guidance although we recognized we are trending to the bottom-end of our 2014 FFO and NOI ranges as property operating expenses are projected to come in towards the high-end of the current range.

We plan on revisiting our full year guidance as part of our Q2 call. With two full quarters of actual results, as well as completing our mid-year property by property reforecast, we will have more visibility on full year projections. Additional details regarding our full year guidance can -- for 2014 can be found on page 19 of the supplemental.

At this time I’ll turn the call over to John.

John Shannon

Thank you, Lou. We are pleased with our first quarter performance in operationally with the exception of the weather-related items; our portfolio has performed inline with internal expectations for Q1 2014. For the quarter, average physical occupancy was 96.2%. We’re focused on staying full in Q1 given that the extreme weather conditions impacted the majority of our portfolio. We are strategically positioned to increase pricing as we enter the summer.

Same community new lease rents were down 1.2% for the quarter and renewal lease rents were up 3.5% for the quarter. Today we are currently 96.5% occupied with rents trending upwards. April to-date for the same community, renewal rents are up 3.8% and we’re starting to see an acceleration in new lease pricing with rents up 1.3%.

Renewal letters for May and June were sent out with increases of 3% to 5% and available units are priced with increases of 2% to 4%. As we move into the peak leasing season, we expect that we will see overall revenue growth within our guidance range of 2.75% to 3.75%.

Regarding our five stabilized recent acquisitions that are not part of our same community results Doral West in Miami; the Blakeney in Charlotte; Rienzi in Dallas; the Lofts at Weston; and St. Mary Square in Raleigh, all performed well and collectively finished the quarter at 94.4% physical occupancy with NOI better than 5% higher than our acquisition underwrites.

Our portfolio acquisition of 1,600 units included 795 units that are being constructed by the current owner that we will acquire upon completion. These properties included a 100 unit Phase II in Charlotte, a 345 unit deal in the Perimeter submarket of Atlanta and a 350 unit development in the West Shore submarket of Tampa. We took over management of the Charlotte properties out from Mill Phase I and II on January 6 and we expect to close on both phases this quarter.

With regard to the property in Atlanta, 1160 Hammond, we assumed management and lease up responsibilities this month as planned with first units expected to be available for occupancy in July and an anticipated closing in Q4. Regarding the property in Tampa, Varela, we will assume management and lease up in May with first unit expected in late summer and an anticipated closing in early 2015.

Turning to our development projects. We anticipate the delivery of our first units at Cantabria and Dallas in September. This property is an exciting architecture addition to the high end Turtle Creek neighborhood of the Uptown submarket. At 7001 Bethesda, in Bethesda, Maryland, we anticipate the delivery of first unit in late Q4. We are pleased to announce we have leased all of the first floor retail space for a prototype urban Volkswagen dealership showroom. The rent per square foot is significantly more than our pro forma and improves our return on costs by 30 basis points.

We anticipate stabilized deals on both Cantabria and 7001 Bethesda to be better than 7%. With regard to depositions, so far this year, we sold three communities, Hampton Point, a 352 unit property in Silver Spring, Maryland at sale price of 60 million, which equates to a market cap rate of 6%. We define a market cap rate as trailing 12 months performance assuming a 3% management fee and adjusted for marking to market real estate taxes.

We sold Reflections a 184 unit community in Columbia Maryland for 38.4 million for a 5.7% market cap rate and we sold our 242 unit Vista Germantown property in Nashville, Tennessee. The sale price of $53.25 million represents a 4.5% market cap rate.

It is important to note that we did full unit renovations at Reflections in 2008 and Hampton Point in 2010 and we developed the Visa Germantown community which was completed in 2012. The blended 17.7% unlevered IRR on these three sales is a testament to our ability to create significant value for our construction, development and redevelopment platforms.

To sum things up, our markets remain healthy; very little pressure from new supply; and the momentum coming out of a long cold winter is picking up; comparable rents at our new developments continue to increase above our pro forma; and apartment fundamentals are solid.

I will now turn the call back over to Jeff.

Jeff Friedman

Thanks, John. Victoria, why don’t we open up the call for questions?

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) Your first question comes from the line of Jana Galan.

Jana Galan - Bank of America/Merrill Lynch

Thank you. John, I was hoping if you could provide some of the Mid Atlantic trends that you were seeing in April?

John Shannon

Sure. Mid Atlantic for April, the whole region, the new leases are down 2.4%; the renewals are up 2.6%, so all in April leases are up about 1%. Maryland and the DC markets continue to be the two that are driving that down. We continue to be strong in Raleigh-Durham and in Northern Virginia.

Jana Galan - Bank of America/Merrill Lynch

And how is occupancy trending?

John Shannon

Occupancy in the Mid Atlantic is 96.6%. We are very full at our entire portfolio with being 96.5% occupied as of today.

Jana Galan - Bank of America/Merrill Lynch

Thank you.

Operator

Your next question comes from the line of David Toti.

David Toti - Cantor Fitzgerald

Hey, guys. Very quickly, I think I might have missed this. Did you mention yields on some of California developments, stabilized yields?

John Shannon

David, this is John. I just mentioned the stabilized yields for Cantabria and 7001 Bethesda. Reason we're quoting stabilized yields on those two properties is that we’re delivering units this year. As we move further into the lease up, we’ll update based on the then current rent. The current rents that we’re using at Cantabria, in Dallas are $2.16 per foot, which is up 6% from our original pro forma and at 7001 Bethesda, current rents are $3.18 per foot and those rents are up about 5% from the original pro forma.

David Toti - Cantor Fitzgerald

And then, simply moving forward with 358th and I’m just sort of wondering what your -- what are some rough expectations there in terms of those yield cost on cost?

Jason Friedman

Hi David, this is Jason. On the 358th in San Francisco, our anticipated return on cost untrended is 5.5% to 6%.

David Toti - Cantor Fitzgerald

Okay, untrended. Alright, that’s great. And then just a couple of small ones. The portfolio to go little bit about tick up in occupancy which is a little unusual relative to what we have seen in some other peer portfolios. What’s your thoughts around that relative occupancy strength even at elevated levels?

John Shannon

David, this is John again. We anticipate that we will stay approximately 96% occupied for the full year, which is a little bit better than budget. We also believe that given -- based on Q1 and April’s new lease and renewal lease growth and what we’re seeing going forward that we will trend in line with budget and with rental rate growth of about 3% for the balance of the year.

David Toti - Cantor Fitzgerald

Okay. And then my final question just has to do with expenses and there has obviously been a lot of conversation about weather and the impact on your results, but it look like some of the expenses on a same store basis moved up in some more tempered climate like Dallas and Florida, is that primarily tax driven or are there other components to some of those growth rates?

Jeff Friedman

Yes, that’s exactly right, Southeast Florida was taxes and Dallas was taxes, not inclement weather.

David Toti - Cantor Fitzgerald

Right. Thanks for the information, [guys].

Jeff Friedman

Thanks, Dave.

Operator

Your next question comes from the line of Nick Joseph.

Nick Joseph - Citigroup

Great thanks. Appreciate the color on the cap rates at the dispositions, but I’m trying to get an idea of what the difference is between the buyers and sellers cap rate, so what would the cap rate have been on assets, if you must the current NOI and didn’t adjust for the taxes?

Lou Fatica

Nick this is Lou, give me one sec, I will point that number up.

Nick Joseph - Citigroup

Okay. May be while you dip in that. So I think you made the comment that the sales gross proceeds were above what you had expected. So I guess just bigger picture, given the strong pricing on the dispositions and your current discount valuation to consensus NAV, what are your thoughts around either selling additional assets or selling the entire company?

Jeff Friedman

Well we’d rather answer the first question, but let me, just ask you Nick, I’ll come back to that in a second, on the cap rate you want us to use up through management fee or you just want to take the NOI in terms of the purchase price?

Nick Joseph - Citigroup

What the management fee, but on current NOI and not adjusting for the tax, basically you can take the NOI that’s in your financials in the first quarter and you were to analyze this what is being stripped out of your financial statements, what is effectively that cap rate?

Lou Fatica

[Michael] this is Lou. It’s about 50 basis points higher than the quarter cap rates that we gave. So the spread on a nominal basis is 50 basis points.

Jeff Friedman

So that would take the 5.4 to a 5.9. Correct.

Nick Joseph - Citigroup

And that’s just adjusting for taxes or that’s also adjusting for the management fee?

Jeff Friedman

No that’s just NOI and the management fee that’s not adjusting for taxes.

Nick Joseph - Citigroup

Not adjusting for, that’s for your current taxes or adjusting to market taxes, what’s it?

Lou Fatica

Our trailing 12 taxes.

Nick Joseph - Citigroup

Your actual?

Lou Fatica

Correct.

Nick Joseph - Citigroup

In trailing 12, is that trailing 12 NOI or is that last quarter annualized?

Lou Fatica

Trailing 12.

Nick Joseph - Citigroup

So arguably on a current basis the 5.9 is probably closer just given the growth at NOI, probably closer to 6.3, 6.4? And then on a forward basis given the same store growth profile you’re probably talking closer mid to high 6s?

Lou Fatica

I am not following your math there….

Nick Joseph - Citigroup

You’re saying trailing 12 is closer to a 5.9, right 50 basis points higher than the 5.4. You have obviously had…

Lou Fatica

No, I am coming for that…. Go ahead.

Nick Joseph - Citigroup

You’ve obviously had growth over the trailing 12 months so on a current NOI basis the cap rate would be then even higher and then on a forward basis given the growth in forward NOI the cap rate would rise even more?

Lou Fatica

Well two of the deals are in Maryland where we’re not expecting any significant NOI growth, your logic [Technical Difficulty] but I would argue that NOIs are not going to be that significantly different in Maryland or the Metro DC arcades.

Jeff Friedman

Well, and also you would have to factor in that if we were selling on forward NOI then most likely the price will be different as well.

Nick Joseph - Citigroup

Well, why would the price be different…

Lou Fatica

When we buy a property, we’re not buying a property on forward NOI. We factor that into our returns, but that’s not how we look at the purchase price.

Nick Joseph - Citigroup

Well, buyers buying forward not buying history, right?

Lou Fatica

Well, when you ask for a cap rate, we're talking about the income that’s in place not the income that we as a new owner would be able to generate.

Nick Joseph - Citigroup

The cap rate you’re including is not (inaudible) because you’re adjusting for taxes. So, it’s not, we’re mixing (inaudible) that’s why we tried to say what is the current NOI a current cash NOI stream?

Jeff Friedman

And so as a buyer, we would look at the trailing 12 after management fee, adjusted for taxes. That’s how we would look at it as a buyer and that’s why we quoted the market cap rate on that basis.

Nick Joseph - Citigroup

I know how you would look at it, but from our vantage point in understanding of what NOI to strip out for these assets. We have to understand what the current NOI stream is so that we can understand that cap rate, we don’t want to talk in fiction; we want to talk in actual.

Jeff Friedman

So have we answered your question?

Nick Joseph - Citigroup

I don't know, I still I’m figuring out that what’s the current cash NOI for the three assets that you sold on a current quarter basis. What would that cap rate be? It’s not 54, something much higher. And I was trying to figure what that number is?

Lou Fatica

It’s the 50 basis points higher cap rate. And that's the cash both dilution between the two numbers.

Nick Joseph - Citigroup

Okay. But that wasn’t a trailing 12. Not correct, but we’ll I guess we can follow-up after. Did you just said, it was trailing 12 months in terms of 50 basis points not current and there has been growth in NOI over the 12 months, so?

Lou Fatica

We’ll take a look at that and we’ll follow-up with you Michael on that.

Nick Joseph - Citigroup

Okay. Thank you.

Operator

Your next question comes from the line of Andrew Shapiro.

Andrew Shapiro - Sandler O'Neill & Partners

Thanks. Just kind of following up on last question, given the strong pricing you’ve seen in your assets, would you expect continue to sell above your guidance range and maybe payout a special dividend like one of your peers have done recently?

John Shannon

Sure. Given the, first our objective was to fund our acquisitions that we had did and our cost, our spend on our development projects and to do that with proceeds from the sale of properties. We will accomplish that with the properties that we’ve sold and couple of properties that we plan to sell balance of the year. We will analyze our investment opportunities and obviously funding any additional investments including a share buybacks or anything else could be with the sale proceeds from additional properties.

Andrew Shapiro - Sandler O'Neill & Partners

So you’d consider share buybacks to manage your special dividend?

Jeff Friedman

Well now, the special dividend discussion comes in depending on what we sell and the gains associated with that property and then whether or not the sale of the property is in conjunction with the acquisition of another property which would defer those taxes to a later time. But absent an acquisition, if we were to sell obviously the potential tax consequences come into play and then we have to deal with how to address that and one of the ways is a special dividend.

Andrew Shapiro - Sandler O'Neill & Partners

Okay. And then lastly, why don’t you had some pretty severe weather expenses for you guys there is around 10% and given that you have -- your Northwest and Midwest exposure and the revolvers with winter weather. If you knew you’re tracking far ahead new winter expenses, why not disclose that in a lead quarter update?

Lou Fatica

Andrew, this is Lou. I mean, I think we look at it in a number of ways. We look at our internal forecast for Q1. We missed Q1 by a penny a share. And then we also look at it from the standpoint of full year guidance. And our guidance, our expectations are still within the guidance range, which we did not change. So I mean, you can’t really just do it in the vacuum and I mean all those things need to be considered. And at the end of day, it wasn’t material.

Andrew Shapiro - Sandler O'Neill & Partners

Okay. That's it from me. Thanks.

Operator

Our next question comes from the line of Ryan Meliker.

Ryan Meliker - MLV & Co

Hey guys, just one more question, most of my have been answered. But as we look through development pipeline you’ve got obviously 358 that we’ve talked about today in the unconsolidated future development pipeline, but also 953rd in Monrovia. I’m wondering if you can give us any timeline on when you would expect construction to begin, when you think it will open, what do you think total value is going to be, I think you had in the past indicated that 358 will be around $220 million in total development cost. But just help us understand what we should be modeling out going forward on those assets? Thanks.

Jason Friedman

Hi Ryan Jason here. On 953rd we’re still working through the final drawings on that deal, which will ultimately tell us the total cost. We are in the final design stages working through the city permitting process, which is all going well. We do plan to expect, we do plan to start the site work later in the quarter. When we get further along, we’ll update more on our timing.

The Monrovia project is also in the early stages, we’re working through the drawings right now and with our partner Lincoln Properties and when we get further along we’ll update more on the timing.

Ryan Meliker - MLV & Co

And how about 358, do you have the details on that?

Jason Freidman

358, the timing on 358 we had a tenant that was on the property in February that tenant moved out as scheduled at the end of February. We are, we’ve been working on offsite utilities and expect to start the site work in the next month or so.

Ryan Meliker - MLV & Co

Okay. And then any color on what the early -- some ballpark of what the scale of the 953rd in Monrovia will be? Are we talking $100 million or are we talking substantially more than that?

Jason Freidman

953rd will be somewhere around $140 million.

Ryan Meliker - MLV & Co

Okay.

Jason Freidman

And Monrovia is a little bit early to tell, but should be -- we’re not really sure what those numbers are looking like, but as we get further along we’ll update you.

Ryan Meliker - MLV & Co

140 units, so can you ballpark…

Jeff Friedman

Approximately. It’s about $50 million.

John Shannon

That’s about $50 million, just ballpark.

Ryan Meliker - MLV & Co

And that’s the total development cost, it’s not your portion, correct?

Jeff Friedman

Correct.

Ryan Meliker - MLV & Co

Great. That’s helpful. Thanks guys.

Jeff Friedman

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Tayo.

Unidentified Analyst

Hi this is [George Hoglund] on for Tayo. Just one clarification. You mentioned, VW dealership, which property was that at?

John Shannon

7001 Bethesda in Maryland.

Unidentified Analyst

Okay. And is there any update and sorry if I missed this on the office tenant on the LA property?

Jeff Friedman

Well, this is Jeff. The update is that tenant is paying rent; we continue to wrestle around with them on whether they can stay or not. The court ruled that they don’t have a lease and that they would have to go. The tenant says they’re going to appeal. So for now they’re still there and they’re paying rent current. There is a lot of value to the company of having them out. And we believe that the investment that we’re making today in terms of legal fees because it’s not really taking any of our time is well worth it.

Unidentified Analyst

Okay, thanks. That’s all I had.

Jeff Friedman

Sure.

Operator

The next question comes from the line of Dave Bragg.

Dave Bragg - Green Street Advisors

Hi, good afternoon. Just following up on topic that’s already come up but a conclusion from your asset sales could be that your portfolio is worth more in private than you thought it was. That seems to be the case. But public market continues to not give you appropriate credit for that. So does this series of transactions make you incrementally more motivated to sell more assets and repurchase shares now?

Jeff Friedman

Well, Dave, it certainly is something that we take into consideration. And if I had to write things in order of priority, the first is whatever we do ensuring that we don't do anything to hurt the balance sheet and that everything that we do gives us the ability to improve our ratings from the rating agencies which we think in the long run is of critical importance. And then the second part of that is, is that making sure as we committed to do that we would self fund our commitments on the acquisitions we've already contracted for and developments that we are committed to proceed with.

After that then clearly, if we just look at it by itself selling properties, selling more properties and using those proceeds to buy back stock is an attractive investment opportunity and something that we will weigh along with the other investment opportunities we may have from time to time. We think that at this point, we’re probably a couple of quarters away from completing the sales to fund the acquisitions and the development that’s underway. But clearly that’s something that comes a little bit further up on the list of priorities given our success today.

Dave Bragg - Green Street Advisors

Got it, thank you. And before we got caught up in the cap rate conversation, Nick had asked just about M&A and you seem reluctant to address that. Would you mind doing so, give us your updated thoughts on that?

Jeff Friedman

Sure. Well I wasn’t reluctant, I was trying to have a little humor and give Lou a minute or two to try to get the information that they asked for.

Dave Bragg - Green Street Advisors

Okay.

Jeff Friedman

We are a real estate investment company, business and we’ve demonstrated over multiple cycles our ability to deliver. So, a large preponderance of our long term shareholders, they recognize and appreciate those capabilities and they are focused on our continuing ability to cover and pay and grow our dividend. So, we are going to continue to build the company and to make good investments and so that we can provide those returns principally in the form of a well covered dividend. And that’s what our business is about, that’s what we are about doing.

Selling the company is not what we are about doing, we are about building the business that will be to generate solid, predictable, long term of returns. And we have demonstrated that we have the capability of doing that over a long period of time.

Dave Bragg - Green Street Advisors

All right. That’s helpful. Thank you, Jeff.

Operator

We do have a follow-up question from the line of Nick Joseph.

Michael Bilerman - Citigroup

Yes, it’s actually Michael Bilerman, I’m glad Dave re-asked the question. Jeff, you mentioned in your comment was long-term shareholders. Can you talk a little bit about your more short-term shareholders like KKR who is coming to the stock. Do they share the same view with you in terms of the value disconnect between your stock price and consensus NAVs?

Jeff Friedman

We’re -- thanks for being on the call. We are glad to have them, KKR as a shareholder. We notice they’ve required some additional shares and we appreciate the confidence they have in what we're doing. We have a very active outreach program with all of our shareholders. I recently met with the folks at KKR, I think it was the early part of March at a conference. And I think if we can judge the fact that they bought additional shares, that's indicative of how they feel about the company. But to really know how they feel other than that, you should probably ask them.

Michael Bilerman - Citigroup

Right. I'm just curious, and you specifically talked about long-term shareholders in your answer, I thought that was still [ahead] deliberate or not, but it would appear that sometimes private equity, if they are taking a stake in the company may have different opinions about potential different timeframes about achieving value. And while I would agree selling assets are good, ultimately, if there continues to be a large disconnect, there is got to be some rubber has to meet the road at some point, right? The market is going to recognize it or you as a management team has to do something about it and just some of your comment that you are -- what you want to do about it is just execute on the current plan, as a company and not take more aggressive action?

Jeff Friedman

Well, don’t read anything into the comment about long term shareholders in terms of differentiating from the short term shareholders. We just have a longer term relationship they understand what we’ve done through multiple cycles. A number of names come in and out of our stock and most of them have made good money and we talk to them when they come in, we talk to them when they come out, we talk to them when they don’t own stock and many of them are back in, or back in and out of our name for different reasons. And so we never really question that, the reasons why, but we do in terms of our outreach make sure that each of our shareholders understand what our plan is what our strategic objectives are, so that they are making that investment with that knowledge.

And I think in some respect as tough as some of the these questions are, these calls are very helpful for people to hear, exactly what our plans are and that is to continue to develop a business that will be able to produce consistent and predictable returns through the real estate investments that we are making, that’s our business.

Michael Bilerman - Citigroup

And then just in terms of the sales $152 million what was the tax basis, so what type of gain will you have and will you be able to shelter that through some of the transactions you have on the acquisition or the pre-sale acquisitions?

Lou Fatica

Michael this is Lou. We will have significant tax gains associated with those three property sales, all three of sales have been done or we will be finalize in 1031 transactions. So we expect them not have any taxable impact to meeting our dividend distribution requirements. I am just pulling together I mean could give you the exact numbers on the gains and give you that offline.

Michael Bilerman - Citigroup

Yes. I just want to make sure that there is no whether you’re going to have the need to have a special dividend or more of your dividend classified as capital gain, but it sounds like all of that gain will be rolled into the 1031. And then I guess from a just an income perspective given just our conversation before it would appear though on a current NOI in place that you’re probably little bit north of a 6, so as we think about the NOI stream that gets stripped out of the financials come in the second quarter. Do you have sort of an estimate on the balance the $60 million to $120 million that’s left to sell where that cap rate would be?

Lou Fatica

About the same.

Michael Bilerman - Citigroup

And is there a timing or those already in the market could you exceed those levels?

Lou Fatica

It would be by year-end later part of the year. There is one deal that we’re in the market with that’s under contract that expected to close I think this quarter a small deal, but the others are scheduled to be later in the year to tie into the timing associated with the other acquisitions.

Michael Bilerman - Citigroup

And do you have anything in the pipeline from a new acquisition perspective or are you going to hold off on that until your cost of capital improves from a stock price perspective?

Lou Fatica

We’re looking our boots on the ground in various markets or keeping the finger on the pulse of things, we’re looking for anomalies but we have no plans to acquire any other asset other than those we have already contracted for at this time.

Michael Bilerman - Citigroup

Okay. And then just lastly on the three assets that were sold, how would you rank them relatively to the rest of your portfolio in terms of rents, rent per unit age, I think you talked about one of the most recently developed, two others were redeveloped, just trying to get a sense of the quality differential the three assets represents almost 7% of your asset base. So just trying to stratify a little bit?

Jeff Friedman

Sure. The two Maryland properties, are properties that were build in the late-80s and the average rent was probably in the $1,100 range and then the third sale was this Germantown, which we completed construction on in 2012 and that would have been, that was one of the better properties in the portfolio.

Michael Bilerman - Citigroup

With what average rent?

Unidentified Company Representative

Mike for the average rent at our natural property that we sold.

Michael Bilerman - Citigroup

And do you have the breakdown between the three assets in terms of sales prices?

Jeff Friedman

Are we providing that Lou?

Lou Fatica

John again those in his prepared remarks, but we could go through those…

Michael Bilerman - Citigroup

We will pick by the transcript if they were in there, I apologize.

Lou Fatica

No problem. The average rent in national is 1,600.

Michael Bilerman - Citigroup

Okay, great. Thank you.

Jeff Friedman

Thanks, Michael.

Operator

And now I would like to turn the call back over to Jeff Friedman for any closing remarks.

Jeff Friedman

Thanks everyone for participating on our call. We look forward to see many of you at Nayarit in June. This will conclude the call. Thank you.

Operator

Again, thank you for your participation. These conclude today’s conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!