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Preferred Apartment Communities Inc  (NYSE:APTS)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Preferred Apartment Communities Fourth Quarter and Year Ended 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Jared Seff, Assistant General Counsel. Please go ahead.

Jared Seff -- Assistant General Counsel

Thank you for joining us this morning and welcome to Preferred Apartment Communities' fourth quarter and year ended 2018 earnings call. We hope that each of you have had a chance to review our fourth quarter and year ended earnings report, which we released yesterday after the market closed. In a moment, I'll be turning the call over to Dan DuPree, our Chairman and Chief Executive Officer for his thoughts.

Also with us today are Lenny Silverstein, our Vice Chairman, President and Chief Operating Officer; John Isakson, our Chief Financial Officer, Mike Cronin, our Chief Accounting Officer and the leaders of our business subsidiaries, Jeff Sherman, Paul Cullen, Joel Murphy and Boone DuPree.

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 also includes our supplemental financial data report for the fourth quarter and year ended 2018, with definitions and reconciliations of non-GAAP financial measures and other terms that maybe used in today's discussion. We encourage you to refer this -- to this information during the review of our operating results and financial performance. Unless we otherwise indicate, 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.

I now would like to turn the call over to Dan DuPree. Dan?

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Thanks, Jared. We had a really strong fourth quarter in terms of FFO growth and for the year, again produced solid dividend and same-store results for our stockholders. We also continued our asset acquisition strategy during 2018. For the year, we acquired a total of five multifamily communities, three student housing communities, six grocery-anchored shopping centers and three Class A office buildings. To keep our portfolio fresh, we sold four of our older multifamily communities aggregating almost $70 million of gain on a GAAP basis. And we deploy those net proceeds into newer properties. Our combined IRR on those four transactions was over 20%.

These sales clearly impacted our balance sheet and cash flow positively, but had a limited near-term impact on our FFO per share. Our real estate loan investment program continues to be a mainstay of our growth strategy. During 2018, we acquired three multifamily communities through this program, representing an aggregate of $151 million of investment. As of the end of 2018, our loan book contained over $501 million of real estate loan commitments, of which approximately $336 million has been funded. This represents a pipeline of over $800 million of prospective assets. All in all, we are able to generate IRRs of approximately 14% to 15% through this program, while getting off-market access to new quality assets through the purchase options which are embedded in these loans.

We have a distinct competitive advantage in pursuing investments due to the consistency of capital availability provided through our Series A and Series M preferred stock that is sold through preferred capital securities, which is our affiliated broker-dealer. During 2018, we sold an aggregate of almost $453 million of preferred stock through this innovated capital raising program. This past February, I guess, we're still in February, alone, we have raised over $52 million and we expect to continue a strong pace of sales throughout the balance of 2019.

As you've heard us say before, the measure of a company's success is not simply reflected in its financial performance for just one year or just one quarter, for that matter, but the company's performance over time. With this in mind, if you had invested $1,000 in our IPO in April of 2011 and automatically reinvested all dividends received on your common stock, your average annualized return on investment with us would have been 16.7% as of December 31, 2018. As for dividends, we have increased our common stock dividend 14 times since the first dividend following our IPO, producing an annualized dividend growth rate of 14.4%. We function as a team and you're going to hear from a number of our key people this morning, who have responsibility over important parts of our strategy.

We'll start with our President and Chief Operating Officer, Lenny Silverstein who will talk about fourth quarter and 2018 results. Lenny?

Leonard A. Silverstein -- Vice Chairman of the Board, President and Chief Operating Officer

Thanks, Dan. We once again produced outstanding operating results for the fourth quarter. Revenues for the fourth quarter were $106.3 million or over 30% greater than the revenues earned for the fourth quarter last year. Our FFO for the fourth quarter 2018 was approximately $16.1 million or $0.38 per share, which represents a 22.6% increase in FFO per share, compared to the fourth quarter of last year. These outstanding operating results for the fourth quarter 2018 allowed us to again increase our common stock dividend payable for the quarter to $0.26 per share or 4% greater than the dividend paid to our stockholders for the fourth quarter of 2017.

For the full year, our revenues were $397 million or 35.1% greater than our revenues for 2017. Our 2018 FFO was $1.41 per share, representing a 6.8% increase over 2017. And our total common stock dividends paid for 2018 were $1.02 per share, representing an 8.5% increase over the dividends paid in 2017. In all, we are pleased to report these very strong growth metrics across the board. During the fourth quarter of this year, we also issued an aggregate of approximately 1.2 million shares of our common stock for approximately $16.1 million in connection with the exercise of warrants, previously issued under our Series A preferred stock and unit offering.

Overall, we had approximately 41.8 million shares of common stock outstanding, as of December 31, 2018, representing an increase of approximately 3.2 million shares or 8.3% compared to the end of 2017. As we have previously disclosed, we will continue to focus on increasing the outstanding number of shares of our common stock.

And switching to other financial statement metrics, we continue to add quality assets to our portfolio in a meaningful way. For 2018, our total assets, net of depreciation, were approximately $4.4 billion or an increase of approximately $1.1 billion or 35.6% compared to 2017. This growth in 2018 was driven primarily by the acquisition of 17 properties, partially offset by the sale of four properties. In addition to increasing total assets, our cash flow from operations for 2018 was approximately $145.4 million, which represents a 68.4% increase in cash flow compared to 2017.

John Isakson, our Chief Financial Officer, will now discuss our capital market strategy. John?

John Isakson -- Chief Financial Officer

Thanks, Lenny. For 2019, we expect the cap rates on multifamily acquisitions will remain low with grocery-anchored shopping center and Class A office acquisition cap rates higher. Interest rates, which have been volatile in the last 12 months, have the potential to stabilize, but the current environment remains uncertain. While interest rates in 2018 saw an anticipated rise, what was unexpected however was the sudden and dramatic retreat at the end of the year. With the Fed potentially tempering its rate hikes and the equity markets cooling, we can see a more stable rate environment in 2019.

Given the recent volatility and the uncertainty in the environment, we have taken a cautious approach to our acquisition and portfolio financing strategy. Approximately 96% of our permanent property level mortgage debt has fixed interest rates or variable interest rates that are capped. You may note that this represents a decline in the percentage of floating rate debt in our portfolio, as we refinanced a good portion of our floating rate debt to fixed rate debt in 2018 and we'll look to do more floating to fixed conversions in 2019.

We recently closed on the expansion of our $200 million corporate line of credit, extending the maturity for 3 years and giving us flexibility for an additional year at the end of the term. Our borrowings under the line of credit as of today are zero and we believe the current capacity of the line will serve us well for the foreseeable future. In any event we would need to increase the capacity of the line, we have an accordion feature that allows us to expand up to a total of $300 million.

On the acquisition front, we have been utilizing longer term fixed rate debt for all of our property types and have taken advantage of the recent drop in rates to refinance maturing loans with attractive terms. We have approximately $88 million of maturing debt in 2019 remaining to refinance. We have already begun the process of securing new debt for these assets and given the current rate environment, we will look to lock in our interest rates as soon as practicable. For our multifamily portfolio, Freddie Mac and Fannie Mae remain our primary lenders.

We enjoy preferred borrower status and have excellent relationships with both agencies. Retail assets are financial life companies and typically for terms equal to our multifamily assets. Our office transactions are also financed primarily through life insurance companies with terms that are generally comparable to retail and multifamily, although the maturities maybe longer.

Jeff Sherman, who is responsible for all aspects of our multifamily business, will now discuss our fourth quarter and 2018 results. Jeff?

Jeffery D. Sherman -- Executive Vice President, Director of Multifamily Investments

Thanks, John. As we look back at 2018, our multifamily portfolio performed very well. For the year ended December 31, 2018, our same-store set achieved year-over-year rental revenue and total revenue growth of 2.9% and 3.2% respectively. Same-store net operating income for the year ended December 31, 2018 achieved 3.4% year-over-year growth, reflecting our intensified focus on operational results. Property management was successful in holding variable expense growth under 3% year-over-year, while our asset management team was able to limit property tax growth to 2.9% year-over-year. This all in an environment in which operational expenses and property taxes were experiencing significant inflation. We believe our 2018 revenue and net operating income results place us in a top group of performance among our multifamily REIT peers. It is also worth noting that in 2019, our same-store set were more than doubled from 10 properties to 21 properties. This new composition covers eight states and 13 MSAs versus the 2018 same-store set, which included four states and 7 MSAs.

Moving to investments, we remained active in the fourth quarter with two acquisitions, two dispositions and one real estate loan investment. Our first acquisition, CityPark View South is a 200 unit Class A community located in Charlotte, North Carolina and built in 2017. Our second acquisition, the Vestavia Reserve is a 272 unit Class A community, completed in 2017 and located in the Birmingham, Alabama suburb of Vestavia Hills. This acquisition checked so many boxes for us. Vestavia Hills is a high barrier to entry market with excellent schools and affluent demographic.

As previously mentioned, we also sold two assets in the fourth quarter. McNeil Ranch was located in Austin, Texas and built in 1999, making it the oldest property in our portfolio. It's sold for close to a 4.4% cap rate on trailing financials, which resulted in approximate 19% annualized return and generated a gain on sale of approximately 13.9 million. Additionally, we sold Stoneridge Farms, a 2005 vintage property located in Nashville, Tennessee. This sale resulted in an approximate 21% annualized return and generated a gain on sale of approximately $16.8 million.

The sale of these properties continues to demonstrate our ability to acquire, operate and dispose of assets to maximize returns to our stockholders. Further, these sales decreased the average age of our multifamily portfolio at 4.3 years old at the time of sale. As we've outlined previously, our strategy to maintain the youngest portfolio in the industry limits our exposure to capital expenditures over time and shows that our product maintains a competitive advantage in design, function and technology over older product.

Finally, turning to our real estate loan investment program, we close on an aggregate loan investment of up to $16.7 million for the construction of a 332 unit, Class A multifamily community located in Jacksonville, Florida. With the addition of this investment, PAC's multifamily investment portfolio now consists of 13 multifamily projects, totaling over 4100 units.

Let me now call Paul Cullen, the head of Preferred Campus Communities, our student housing division. Paul?

Paul Cullen -- Chief Marketing Officer

Thanks, Jeff. Our student housing strategy remains focused on acquiring best in class properties at Tier 1 universities that are located within walking distance to the center of the respective campus. Our portfolio as of the end of 2018 now consists of 7 properties in 4 states across 7 different universities, totaling 5,208 beds. Starting with the successful move-in season this past fall, the fourth quarter's activities reflect the strong start to the 2018-2019 academic year. Our stabilized student portfolio has an average physical occupancy of 97.8% as of December 31 with the entire portfolio having an average physical occupancy of 94.8%.

In addition, we continue to see strong operating results with our stabilized properties performing in line with expectations. Not surprisingly, with rental rate set for 2019, 2020 academic year, we now also focus on renewing leasing on our existing residents and signing new resident leases. We're working hard to produce another strong lease-up.

We continue to actively seek new acquisition and originate real estate loan investments, which we sometimes call mezzanine loans for our student housing developments. Preferred campus management are affiliated student housing property management company currently is leasing up a new third-party 816-bed student housing development near Kennesaw State University in Atlanta and the master planned time districts where Preferred Campus Communities currently has Stadium Village student housing community.

This new community as of today is now approximately 94% pre-leased for the 2019-2020 academic year. KSU has currently an enrollment of approximately 33,000 students. During the fourth quarter last year, PAC also originated another mezzanine loan with the same developer to build the second phase with KSU student housing community currently in lease-up. This 543-bed community will be a 5-storey mid-rise property. The mezzanine loan community for this second phase is 13.6 million. In all, we look at our student housing division to produce consistent rent growth, steady occupancy metrics for the foreseeable future.

Let me now call on Joel Murphy, the head of new market grocery-anchored shopping centers division. Joel?

Joel Murphy -- President and Chief Executive Officer of New Market Properties

Thank you, Paul. We are pleased to report another strong quarter and year of overall operating performance. We continue to execute our strategy to acquire, invest in and operate grocery anchored centers that fit our investment criteria in quality suburban submarkets within the top 100 metros from the Mid-Atlantic southeast and Austin, Texas. We target centers that are market dominant grocery store anchors that maintain a number one or number two market share in that submarket and have high and growing sales volume stores in that particular center. As a result of this focused product type strategy, we had zero exposure to the 2018 and early 2019 highly publicized bankruptcy filings at Sears, which includes Kmart, Mattress Firm, Toys "R" Us and Payless Shoes. Leasing space for new tenants and keeping tenants happy are our daily focus.

At the end of 2018, our total portfolio consisting of 45 grocery anchored centers aggregating approximately 4.7 million square feet was 94.3% leased. The portfolio, excluding two centers in redevelopment, was 95.9% leased. We are also particularly pleased with the momentum of our lease renewals this past quarter and year, both on anchors and in-line tenants. Every grocery store anchor on our portfolio that had a lease rolling in 2018, four of them, renewed their leases at their contractual rates. As of 2019, we have seven grocery store anchors that have leases rolling and four of them have already renewed their leases, again at their contractual rates.

In December of 2018, we closed on Hollymead Town Center in the affluent high barrier to entry market in Charlottesville, Virginia, center is anchored by a 60,000 square foot Harris Teeter (inaudible) anchored by 142,000 square foot Target store. The acquisition of Hollymead is our first asset in Virginia and is also our first center occupied by Target. After the close of the quarter in early January, we acquired Gayton Crossing, a Kroger shadow-anchored shopping center in Richmond. This is our second asset in Virginia and our first in Richmond. It is located in highly desirable West End submarket and Kroger has a very high volume store in this center. Both of these centers are excellent examples of our focused strategy, anchored by a market-leading grocer that has a high sales per square foot store and located in quality Sunbelt, the mid Atlantic suburban submarket with solid demographics.

In addition to excellent operating performance, we achieved several strategic goals with our portfolio during 2018. First, we made a market into -- market entry into Virginia with these two acquisitions. Second, we expanded our presence in North Carolina, with one Publix anchored center. And third, we further penetrated Central and South Florida with two Publix anchored centers. All of these initiatives enhance our portfolio three mile demographic metrics of density, average household income and educational attainment.

We executed on all cylinders in the fourth quarter and throughout the year, released vacant space, we kept our centers leased, we renewed at higher rates, we managed our expenses, had very little bad debt expense and we grew our portfolio. The combination of these positive trends allowed our new market subsidiary to upstream outstanding results to PAC. As of today, we now own 46 grocery-anchored centers in 8 states in 19 markets, totaling approximately 4.8 million square feet with more than 700 independent operating leases. 23 of these centers are anchored by Publix and 13 are anchored by the Kroger, Harris Teeter banners. Both Publix and Kroger are market share leaders, although they have not yet announced 2018 results, each generated approximately $2 billion in earnings in 2017.

Now, let me turn the call over to Boone DuPree, the Head of our Office Division. Boone?

Boone DuPree -- Chief Executive Officer of Preferred Office Properties

Thanks, Joel. In the fourth quarter last year, the office division closed two new investments, buying Capitol Towers in South Park Charlotte and originating a development loan for a project called 8 West next to Georgia Tech in Atlanta. 7 days after closing Capitol Towers, we signed a new 33,000 square foot customer to bring that property to 95% leased. The economic terms and the timing of the deal were substantially ahead of our underwriting. So, it's nice win for the company and a reflection of our strategic local relationships and ability to be nimble.

8 West was an equally positive result for the quarter, marking our first office development loan closing. This is a category of investment that's been highly profitable for PAC, the one we've been selective in entering on the office side. Besides the order qualifiers of high quality location, product and sponsor, we like the risk reward of 8 West for a couple of reasons. First, it benefits from a cost basis, 20% below other projects coming to market, which means the developer team can offer space for lease at more competitive terms.

And second, our investment sits behind $17 million of cash equity, insulating the first loan dollar. As of this call, the developer team is under construction, completing site work and targeting a middle of 2020 delivery for the 7-storey building. We have over 1 million square feet of leased prospects in the pipeline and expect to have good news to report on that front soon.

Like our other PAC loan investments, we have an option to purchase the property once it achieves stabilized occupancy. Excluding 8 West, which is under construction, PAC ended Q4 with 2.6 million square feet of Class A office across the Southeast and Texas. That portfolio was 93% leased, with more than 8 years of weighted average lease term remaining. Our top 5 tenants IHG, Albemarle, State Farm, USAA and Harley & Clarke represent 43% of the portfolio total base rent and together carry more than 10 years of remaining lease term.

The portfolio is financed mostly long-term fixed rate life company debt and excluding our Galleria 75 property, which is planned for redevelopment, the earliest maturity comes in 2028. We're currently in the pick of several key asset management initiatives, most notably, a repositioning of 150 Fayetteville in Raleigh, North Carolina. We acquired this 560,000 square foot property last July and immediately kicked off design for a full renovation of the building's lobby, plaza, elevators and amenities. Construction will begin in the first quarter of 2019 and is expected to be substantially delivered this summer.

For some context, 150 Fayetteville is one of the tallest and most recognizable buildings in Downtown Raleigh. These enhancements will reaffirm its iconic stature in Raleigh, which we believe will drive absorption, retention and accelerating lease economics in building. Within the portfolio and with each new investment, our goal is to find accretive real estate opportunities, budget to beat underwriting and execute to beat our budget. Our results today reflect that commitment. The weighted average cap rate or initial NOI yield on purchase price for the portfolio is 7.4% on a GAAP basis.

And total GAAP NOI earned through Q4 is approximately $4 million ahead of our internal underwriting on less than a two-year average life of investment. We will continue to bring this level of focus to identifying and executing profitable investments, managing risk within our portfolio and outperforming expectations while implementing our strategy to build scale in high growth Southeastern Texas major markets, where we have relationships and operating expertise. I look forward to providing you updates in coming quarters.

And with that, we'll turn the call back to Dan.

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Thanks, Boone. Our team has continued to do an excellent job building a carefully constructed portfolio, executing on our strategies and vision and delivering consistently strong financial results. Each operating vertical subsidiary has a distinct investment strategy, which continues to allow us to be targeted within this strategy. Our investments in student housing grocery-anchored shopping centers and office buildings have proven to complement our core focus on multifamily very well.

We continue to believe that all of these investments together with the cash flow generated from our real estate loan investment program and the line of sight these loans afford us to future acquisitions place PAC in a sustainable position to continue to deliver outsized results for our stockholders.

That having been said, we're running an IRR business and attempting to fit it into a quarter to quarter structure. Particularly, due to the often unpredictable nature of our mezzanine loan payoffs, our quarterly results can have outsized swings. With this in mind, we are providing FFO per share guidance in a range for 2019 of $1.44 per share to $1.50 per share with the caveat that our better quarterly results will come later in 2019. As to the swings referenced above, let me give you an example. Our urban mezzanine loans that paid off at the end of Q3 last year was extremely lucrative for us. The $68 million loan, one of our largest, actually our second largest, allowed us to book our highest annual interest rate at 16%. Net of our weighted average cost of equity, we estimate this one loan represented a quarterly contribution in FFO in Q1 and Q2 last year of approximately $2.5 million or $0.06 a share.

The loan paid off at the end of Q3 and it will take us through the first half of '19 to replace the lost FFO. The good news is that we have new mezzanine loans that we'll be funding over the course of the year and we expect that by the second half of the year, these new loans will largely have backfilled the urban loans.

With that, I'd like to thank you for joining us on our earnings call this morning. I'd like to turn the call back to our operator, so that she might open the floor for any questions or thoughts you may have. Operator?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question today will come from Michael Lewis of SunTrust. Please go ahead.

Michael Lewis -- SunTrust -- Analyst

Great. Thank you. Dan, I wanted to ask a little bit more about the guidance. Are you able to get -- provide any details on some of the underlying assumptions such as purchase option income and maybe acquisitions, dispositions, new loan and volume, kind of what underlies that FFO range?

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Well, I think, I mean the big thing is the lumpiness of the pay-off of the mezz loans and the example I gave that was, it's kind of ironic, we -- at the end of the third quarter, we had the issue with the over accrual and it kind of confuses the issue, that was probably, no, that's not probably. It has been our most successful mezz loan to-date, in part because of the size, but more so because of the interest rate on it at 16%, which is 3% to 4% greater than our typical deals. But when these things pay off and I can't tell you we didn't see this thing paying off, we knew it was going to pay off. Candidly, a mezz loan that we initiated last year in San Jose, California, we expected that that would go further to offset the loss of revenue from the Irvine deal and it kind of morphed into a deal that did not offer us quite the return we thought, but it's the lumpiness of the mezz loan deal.

I think when we get through Irvine and candidly get through San Jose ultimately, most of our mezz loans are fairly generic in size and they are fairly generic in structure. We've been talking about $500 million book for probably the last 18 months. That's where we've been. We're funded at about 60% of the book but we -- some deals are going to deliver quick, some are going to take a little longer to lease up. They're going to deliver later. And what really is happening in 2019 is we're really feeling the impact, first of the Irvine loan and then of others.

So when we get to the second half of the year, I think our FFO per share will be much more consistent with what it's been in the past and, but I will tell you this, also the days of us telling you on a regular basis that we're going to grow earnings per share in excess of 10%, that was a fairly easy goal for us to achieve when we were $1 billion company or a $2 billion company, but it's the law of big numbers, and we're not going to be increasing the size of the book by much overtime, may run in a range of $400 million to $600 million, but I think a more reasonable run rate is going to be somewhere between 7% and 8% or 9%.

Michael Lewis -- SunTrust -- Analyst

Okay. Does your 2019 guidance include any material purchase option termination income? And then I also wanted to ask about the equity compensation. what the assumption is for that. It was obviously a negative that helped you in 4Q? What's kind of built into the guidance for that as well?

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

In terms of -- one of the things we're trying to do with our purchase options, in order, in part to smooth out the lumpiness and become somewhat more predictable is convert the discount into additional accrued interest, it's paid similarly in the waterfall. And so we're in the process of doing that and I didn't understand the second half of the question. Could you repeat that?

Michael Lewis -- SunTrust -- Analyst

Yeah, I guess it's sort of a G&A run rate question, right, the equity kind of realized your stock is -- has been volatile, but you had a negative equity compensation cost in 4Q and so depending how you include that in your guidance for next year, that could be impactful as well, I was just curious.

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Go ahead John, why don't you answer that?

John Isakson -- Chief Financial Officer

Mike, the stock awards that were given up by the executive management team, whether -- we don't have that particularly budgeted for 2019 one way or the other, and how that works and what we do is going to largely depend on performance. So I think it's really hard to estimate.

Michael Lewis -- SunTrust -- Analyst

Okay. What I'm trying to get at here is, when I strip out the loan loss reserve in 2018, it looks like your FFO isn't growing at all next year. And I guess I'm just kind of wondering what -- first of all, if that's correct. And then second of all, what are the factors that are causing that, so I understand the loss on the loan and that's going to hurt you in the first half of this year, especially the rest of these numbers, I don't know -- anyway, I don't know, maybe this is something to follow up with offline?

John Isakson -- Chief Financial Officer

Yes, Mike, I think it's -- why don't you give me a call and let's follow up offline, because I do think there are some factors in there that are more complicated and maybe are worth going through in the call.

Michael Lewis -- SunTrust -- Analyst

Sure. Could I just ask -- do you expect your AFFO to grow in 2019? And can I assume you expect the dividends will be covered by AFFO?

John Isakson -- Chief Financial Officer

Well, first of all, yes, you can expect AFFO to grow in 2019. And over the course of the year, our dividend will be covered by AFFO as it has every year and not just marginally, so but comfortably -- so, but as we've had in the past, there may be quarters within the year where we don't cover and it goes back to the mezz loans and the accrued piece, which is booked as FFO, but is not cash received. So it's not AFFO, but I don't have the number in front of me, but I think our AFFO coverage for '18 was around 73%.

Michael Lewis -- SunTrust -- Analyst

Okay. I may follow-up with that too. The reason I asked that is because it looks like in 3Q, it wasn't covered. And then in 4Q, you had this big accrued interest benefit. And if you back that out, I'm not sure it's recovered?

John Isakson -- Chief Financial Officer

Yeah. We are going to -- well, you can't back it out, I mean we get the accrued, that's cash coming in, it's earned, but that's always been sort of a deal with us because of the mezz loans and the amount of accrued interest that we have when they pay-off, numbers are pretty significant. And then particularly and probably in Q3 when Irvine settled, there was, there was a, even though we had over accrued, there was a big accrued payment.

So we're going to, as long as we have the mezz loans, we're going to be lumpy on AFFO coverage, but the expectation is, as it has been in the past that we comfortably cover our dividends with AFFO, sort of, I mean, it's a big deal that we make out in the marketplace that in the unlisted REIT field where we are active raising money and so few of the sponsors cover their dividend with cash FFO that we do so significantly.

Michael Lewis -- SunTrust -- Analyst

Okay, thank you.

Operator

Our next question will come from Jim Lykins of DA Davidson. Please go ahead.

James Lykins -- D.A. Davidson & Co. -- Analyst

Good morning, guys. First, a question about the Series A and preferreds, you mentioned $50 million or $52 million in February. Can you give us a sense for how to be thinking about that throughout '19. Is 52 million a good monthly run rate now?

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Well, it's a good monthly run rate. I don't know that it's a sustainable run rate. Our budget for the year is to raise 0.5 billion in that space, obviously 52 million with 75 something would signal something greater than that. Yeah, the real challenge for us and this is not an insignificant point is that this is very, very cheap capital. It gives us a huge competitive edge. You may not, we may not feel it so much right now, but the thing about the public market that I've seen over and over again during my career is that when the public market spigot is on, there is no limit to how much money you can raise, as a general rule, but when the spigot is cut off, there is nothing there and during the period of 2009, '10 and '11, they were -- the run rate of capital raise in the broker dealer channel was in the neighborhood of $20 billion to $25 billion a year. I mean, a huge amount of money. So, we really like what we've been able to do. I think beyond Blackstone and then maybe an interval fund or two, we're raising more money in that space than anybody. And I think that's testament to an incredible team that we have both here and out of the field selling our preferred stock.

But as we raise this money, we are paying out dividends on it. We're paying out a 6% dividend. The overall cost to us is about 7%. So really puts pressure on us to find accretive ways within our areas of expertise to invest the dollars in an accretive way. I don't have any hesitation thinking that any multifamily property for example is going to be a big -- that we could buy at cap rates that are available today. I have no hesitation saying that those will be very, very strong, 10-year performers for us, the IRRs and multifamily are as good as any product type that we're involved with.

But it does put pressure early on because of the compressed cap rates, so the fact that we're raising all that money increases the pressure on us to, I mean and frankly, it drives the fact that we're a diversified company because we need to be a diversified to deal with both quarterly returns as well as what real estate really should function on, which is longer term IRRs.

James Lykins -- D.A. Davidson & Co. -- Analyst

Okay. That is all. I'm sorry go ahead, Dan.

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

I was just going to say I've probably answered two or three questions there, I got going on that one.

James Lykins -- D.A. Davidson & Co. -- Analyst

And yeah, that's extremely helpful. And also a retail question, so I guess this one is for Joel, but any color on how store leasing trends or housing start leasing is trending, how we should be thinking about 2019. And if you could tell us what assumptions might be in your guidance?

Joel Murphy -- President and Chief Executive Officer of New Market Properties

So Jim, that is an initiative that we are working on and we'll be delivering more of that during the one quarter call for '19. It sounds we've had, is the portfolio is growing and the pool was so small that you even really talk about same-store was interesting, but maybe, really not even relevant to the trajectory of the business. And like on the multifamily side, what there is now is that our pools are going to growth from 10 assets to 21 assets, we'll have now going into '19, I think I'll try think we would have 39 assets in our same-store pool. So we're now to the point that next quarter, you can look forward to us delivering you some metrics as it relates to same-store.

James Lykins -- D.A. Davidson & Co. -- Analyst

Okay. And how are you thinking about capital recycling for the retail portfolio. You've been on a pretty robust acquisition pace the past few years. Are there any properties that could be candidates to sell?

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Yes, there is. I think you always need to think about that and obviously the time of his, the way we finance these with mid or long range debt, this property-related that does give you a win when that debt matures that you then have to run an analysis and say, do we want to sell this or do we want to roll it over and refinance it. And as John mentioned in his remarks, there are a number of deals, I believe 8 that a lot of which are the ones we acquired in 2014 that are coming up in the third quarter for renewal and right now, our sense is based on the financing market and based on how we've been able to grow the NOI and what we think the future of the NOI is, we're going to roll those over and refine. Now if something came up on looking at an asset and thought, well, it's not core to us or we think we've really gotten the NOI, we can (inaudible), we could easily make a decision to sell that asset and so forth now.

James Lykins -- D.A. Davidson & Co. -- Analyst

Okay. Thanks, guys.

Operator

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Dan DuPree for any closing remarks.

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Just wanted to tell you that we appreciate your interest in our company. We have a group of people sitting around the table here in Atlanta. I would put these folks up against anybody I've ever had the pleasure dealing with in my 40-plus year career. We are laser focused on creating value for our shareholder and we look forward to seeing each of you again and we are available to answer any question you all might have going forward. Thank you for participating.

Operator

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

Duration: 45 minutes

Call participants:

Jared Seff -- Assistant General Counsel

Daniel M. DuPree -- Chairman of the Board and Chief Executive Officer

Leonard A. Silverstein -- Vice Chairman of the Board, President and Chief Operating Officer

John Isakson -- Chief Financial Officer

Jeffery D. Sherman -- Executive Vice President, Director of Multifamily Investments

Paul Cullen -- Chief Marketing Officer

Joel Murphy -- President and Chief Executive Officer of New Market Properties

Boone DuPree -- Chief Executive Officer of Preferred Office Properties

Michael Lewis -- SunTrust -- Analyst

James Lykins -- D.A. Davidson & Co. -- Analyst

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