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Preferred Apartment Communities Inc (NYSE:APTS)
Q2 2020 Earnings Call
Aug 11, 2020, 11:15 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Preferred Apartment Communities Second Quarter 2020 Earnings Conference Call. This conference call is being recorded.

I would now like to introduce your host for today's call, Paul Cullen, Executive Vice President, Investor Relations. Please go ahead.

Paul Cullen -- Executive Vice President, Investor Relations

Thank you for joining us this morning, and welcome to Preferred Apartment Communities second quarter 2020 earnings call. We hope each of you have had an opportunity to review our second quarter earnings report, which was released yesterday after the market closed.

In a moment, I'll turn the call over to Joel Murphy, our Chief Executive Officer, to share some initial thoughts and then John Isakson, our Chief Financial Officer, will share some additional details about financial metrics and capital markets. Then Joel will return to conclude our prepared remarks. Following Joel's remarks, we'll be pleased to answer any questions you might have. Also present with us this morning is Mike Cronin, our Chief Accounting Officer and Jeff Sherman, Michael Aide, and Boone DuPree, the business leaders of our multifamily, grocery anchored retail, and office verticals.

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 the actual results may differ materially. These risks and uncertainties include, but are not limited to, the impact of COVID-19 pandemic on our business operations and economic conditions in the markets in which we operate, our ability to mitigate the impacts arising from COVID-19, and the information about third quarter 2020 rent collections in light of COVID-19. For our discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in yesterday's earnings press release, as well as our SEC filings. Our press release and other SEC filings can be found on our website at pacapts.com. The press release also includes our supplemental financial data report for the first quarter 2020 with definitions and reconciliations of non-GAAP financial measures and other terms that may be used in today's discussion, and the reasons management use these non-GAAP measures. We encourage you to refer to this information during the review of our operating results and financial performance.

Along with our earnings press release, we also furnished a business update that can be found on our Investor section of our website. 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 would now like to turn the call over to Joel Murphy. Go ahead Joel.

Joel T. Murphy -- President and Chief Executive Officer

Thank you, Paul. Good morning, everyone, and thank you for joining our call. I hope that everyone on this call and their families continue to stay safe and healthy, as we all work together to navigate this challenging and continually evolving environment. At PAC, we remain focused on the continued health and safety of our associates, our residents, our tenants, and our communities. We continue to operate effectively in a hybrid office and remote work environment, which we have tailored to meet the needs of our associates and the needs of our business. We are also proud to continue to be so closely associated with our grocery store partners, whose companies and employees were and still are on the frontlines for our communities, even as this pandemic environment evolves.

A quick look ahead to our comments this morning. Our focus this quarter with the onset of the realities of COVID-19 in early March has been operations and managing our liquidity. I will first discuss our operational results, our markets and where our revenues come from with our multifamily focus. John Isakson will then discuss measures about our liquidity and financial results and then we will also take a look ahead.

While the length and long-term impacts of the pandemic still remain uncertain. The impacts on society and health in general have been significant and real estate assets in markets have not been immune. However, what has not changed is our dedication to the mission of creating long-term stockholder value, the locations of our 107 owned assets in 13 states and our diversified strategy run by experienced and specialized teams. The operation results we released last night after the close demonstrate the positioning of our assets, the strength of our market and tenants, the value of our diversified operating platform, and our team's solid execution of a well conceived COVID-19 game plan launched in mid-March.

We disclosed previously our April and May rent collections on April 24 and June 4, and most recently on July 14, we disclosed June collections and updated the previous months collections as well. In last night's release, we updated our collection results for the second quarter as a whole and also included July. I want to pause here and reflect on these results.

We believe these numbers are very good in this environment, especially so on a relative basis for competitive sets in each property type, but there is more to it than that. The numbers reflect a well conceived, real estate and market strategy focused on Sunbelt suburban markets. These strategies while built independently share many characteristics, including broad economic drivers, diverse employment basis, high educational attainment, strong growth in solid growing household incomes. Our unifying suburban Sunbelt focus means we have benefited and expect to continue to benefit from positive net migration trends. From 2015 to 2018, seven of the Top 10 states for net migration were located in the Sunbelt, including the Top 6. We expect this trend to sustain and likely accelerate in the mid and longer-term post-COVID environment as do many industry commentators. Additional details on our markets are shown on Page 9 of our business update.

For the second quarter, we received 99% of our multi-housing rents, 92% of our grocery anchored shopping center rents, and 99% of our office rents each adjusted for rent deferrals. We are running at approximately the same pace of collections or slightly ahead in July and August for each vertical as of the same date for the previous months. More detail on these collection results for April through July are included on Page 4 of the business update. We are encouraged by these collection results, which highlight the resiliency of our portfolio and its composition. That said, we are keenly aware of the uncertainties posed by this pandemic and the macro economic impacts in scope and in duration to the economy and to our markets. In times of stress and volatility like these, the experience of highly focused management teams with deep expertise in their specific product types and our strategic portfolio composition serve us well.

Now I will turn to where we receive our revenues and point you toward the pages of our business update that will give you more details. First multi-housing comprises approximately 57% of our revenues. We are pleased on a relative basis with our same-store year-over-year second quarter NOI growth of 0.1% in our multifamily business. This same-store pool represents 79.6% of our multifamily units. So this is a very broad indicator. For additional details on our multifamily portfolio, please refer to Pages 11 and 12 of our business update furnished in connection with yesterday's press release.

Our recent multifamily acquisitions in Florida, which we completed in March and April are performing quite well. Horizon Wiregrass is currently 94.6% occupied and Parkside at the Beach is 97.6% occupied as of yesterday. These acquisitions are closely aligned with our investment strategy. Having confidence in that strategy and following through with the closing on these deals in uncertain times has now resulted in owning well performing, attractively financed, best-in-class assets. As always, we intend to be measured and disciplined in our approach, but we will continue to grow the multifamily portfolio. As mentioned earlier, our business leader for our core multifamily business, Jeff Sherman is with us today and available to address any questions you may have.

We have continued to operate and lease our student housing portfolio well. And as of this week kicked off the first move-ins across the eight properties in our portfolio. Importantly, all of the universities our property serve are currently planning to open in some fashion for on-campus attendance for the fall 2020 academic semester. Our pre-leasing initiatives even during COVID have gone extremely well. As we recently passed the 96.5% mark, which is ahead of where we were as of the same date last year with rental rates trending above the 2019-20 school year. The operational and leasing teams in our multi-housing groups have been creative and resourceful in leasing units and beds, maintaining renewals and keeping us at high occupancy and collection levels.

Next, while our grocery anchored retail business only comprises approximately 21% of our revenues. We didn't want to focus on this more than we typically would since there has been so much industry focus on retail generally and we thought it was important for us to discuss more specifics about our portfolio composition. This is a 100% pure play grocery anchored strategy and 41 of our 54 centers are anchored by Publix, Kroger, and Harris Teeter, top performers across our markets. We are actually proud to be the fourth largest Publix landlord in the country. 53% of our grocery anchored retail portfolio tenancies are considered essential and all of our centers have remained open through the pandemic.

Our strategy of investing in high performing grocery anchored retail centers, highlighted by their convenience based merchandising mix has positioned our Sunbelt grocery anchored retail portfolio well to navigate the continually evolving impacts of COVID-19 and the collection results over these past four months demonstrate that. Many of our centers have seen traffic returning to close to pre-COVID levels and traffic is actually increased at several locations this year, according to Placer.ai, a foot traffic analytics firm we use that interprets locational data from mobile devices. Our primary market leading grocers such as Publix, Kroger, and Harris Teeter, are continuing to generate record sales while driving consistent, strong traffic to our small shop tenants of whom nearly all are now open for business.

Taking into account negotiated deferral arrangements, we collected 92% of our base rent and reimbursements in the second quarter as I mentioned earlier, and it's 89% if you didn't even take into account those deferments. We are encouraged by our momentum with cash collections and in fact have collected 92% of July rent to date. This strong performance is a testament to our well-positioned assets in our experienced asset management team. We have been very deliberate, with our deferment discussions and are taking each on a tenant by tenant basis. Many of our rent deferrals came with an increase in term or other lease modifications that enhance the long-term value of the asset. Our goal is to stabilize our existing tenant base and partner with each of our tenants to find an outcome that helps all parties prosper in the long term. To that point, we were able to maintain solid portfolio leased, excluding redevelopments of 94.6% as of the end of the second quarter.

While there have been retail bankruptcy filings, many of them during COVID-19, our grocery anchored portfolio has very limited exposure to these filings. Of our over 900 tenants in the portfolio, we only have 10 leases with six companies that have entered bankruptcy proceedings during COVID. The annual build charges only represent roughly 1% of the retail groups annualized second quarter revenue or only approximately 0.3% of PACs annual second quarter revenue. For the majority of this exposure we are either in lease amendment discussions for these retailers to remain at our centers or we have already strategically backfilled them in a new lease with a new operator.

The team is also actively leasing new space and completing renewals. Despite the headwinds, we have continued to sign new leases, executing approximately 127,000 square feet of new leases to date in 2020 with 113,000 square feet of those executed during the second quarter and to date in the third quarter. We have been pleased that our leasing pipeline is gradually building back up with new tenant interest and some pre-COVID deals that have been revived. As we continue to be cautiously optimistic during these challenging times. We are believers in our grocery anchored portfolios long term resiliency. Please refer to Pages 14 to 16 of our business update for more specifics on our grocery anchored retail portfolio and composition by tenant type. As mentioned earlier, our business leader for our grocery anchored business, Michael Aide is with us today and available to answer any questions you may have.

Finally, office comprises approximately 22% of our revenues. This segment of our business provides stability. We are 96% leased across nearly 3.2 million square feet and our contractual leases are with predominantly well capitalized, large corporate users, and carry more than seven years of weighted average term remaining. Since March 1, we've signed 14 leases totaling more than 96,000 square feet in our office portfolio. Average leased [Indecipherable] for these signed leases were well ahead of budget, carry more than eight years of average new lease term, and results in an average cash rent roll-up of more than 14%. These leases point to continuing demand for our high-quality office properties and markets.

The credit part quality of our portfolio customers has been highlighted year-to-date by collection success against the backdrop of major market disruption. In the second quarter, we averaged 97% collections of those rents bill. And in a handful of situations with viable businesses in need of short-term lease, we have creatively structured arrangements to the benefit of both parties. We have seen high retention with approximately two-thirds of the 96,000 square feet of leasing being attributable to renewals. Please refer to Pages 17 through 19 of our business update for additional details in our Class A office portfolio composition and tenant base. As mentioned earlier, our business leader for office business, Boone DuPree is with us today and available to answer any questions you may have.

All of this said, we are truly in the most unusual times. The scope and duration of the economic downturn remains uncertain. We will be vigilant as events change and be prudent in our actions. We are focused on both the present and the future for our stockholders. As we discussed in our last quarter call in May, we continue to focus on PACs broader capital strategy. We will share our plans and strategies with you and with the market as they continue to take shape with a renewed and fresh perspective on our capital stack and on our balance sheet. Certainly, the pandemic has impacted the timing, focus, and deployment of any capital strategy in the near future, but we remain focused on both near term and long-term goals.

Finally, we will continue to focus on achieving excellence with particular attention on our companywide operating performance, our governance, the training and developing of our associates, our culture, and our ESG initiatives. These attributes are now more important than ever.

So now, let me turn the call over to John Isakson. John?

John Isakson -- Chief Financial Officer

Thanks, Joel. First off, I echo Joel sentiments for the safety and health of everyone on this call, all my best to you and your families. I would like to turn first to our quarterly financial results. For the second quarter 2020, PAC generated revenues of approximately $123 million, FFO of negative $0.01 a share, FFO net of internalization costs of $0.00 a share, core FFO of $0.21 a share, and AFFO of $0.05 a share. Our revenues are up over 8.3% compared to the second quarter of 2019, owing to the continued growth in all of our problem free verticals.

You should know that FFO results are skewed due to the treatment of internalization expenses that closed in January. In addition to the internalization issue, there were several factors in the second quarter that materially affected our results. First, we refinanced seven multifamily assets with near-term maturities that incurred prepayment and the seasons cost. Second, the real estate investment loan payoffs in the first quarter were not offset by new originations, which resulted in a lower outstanding balance and interest income. Third, the real estate investment loan payoffs in the first quarter also had associated accrued interest and purchase option termination fees. PAC had no real estate investment loan payoffs in the second quarter and did not realize any of these accelerated fees or interest income. Finally, the company experienced a variety of related operational costs at the property and corporate level.

And digging a little deeper into our operations and financials. I would like to point out that our collections performance has provided us a much smaller bad debt and delinquency issue to deal with than many others in the market, specifically in our grocery anchored retail portfolio we have less than 5% in reserves this quarter. Owing to the high level of collections and our asset management teams impressive results on an ongoing basis, by continuing to collect rent from previous months in the pandemic. Our multifamily and office portfolios, while experiencing higher delinquencies and reserves than normal are still very manageable. Further, in addition to other expense management strategies, we are continuing to pause all non-recurring capital expenditures other than any emergency life safety items or capital related to the leasing of space in our grocery anchored and office verticals. We have noted in the past, the variability in FFO and AFFO due to a variety of factors in our business.

As discussed in the last quarter call we moved to core FFO this year as the main measure of the company's performance. In an effort to produce the metric that we will adjust for those variations and provide a more stable measure of the company's operating results. While we continue to report FFO and AFFO and discuss these results, our focus will be on core FFO and the implications for its results for current and future performance.

Our AFFO number continues to be impacted by the results of our real estate investment loan program, which we have mentioned previously. As these loans are repaid, our interest -- our accrued interest gets paid and recognized in our AFFO number, making it lumpy from quarter-to-quarter. In the first quarter, we have three real estate investment loans payoff, which contributed to us receiving more than $13 million in AFFO benefit in the form of accrued interest and purchase option termination payments.

In the second quarter, as we mentioned, we had no real estate investment loans payoff and as a result received none of the associated income or fees generated by these transactions, which materially affected our AFFO. In addition to reduce accrued interest from a lower mezzanine book balance. At the end of the second quarter, we had approximately $23 million of accrued interest from 25 real estate investment loans that are booked as a receivable on our financial statements.

As the real estate investment loan book balance declined to $295 million at the beginning of the second quarter from the first quarter's activity, we had a decrease in interest income of $5 million from a combination of purchase options and interest. While we expect to have additional payoffs and new originations going forward, this quarter was understandably quiet given the current environment. The payoffs on these loans are difficult to forecast in the best of markets due to the number of factors that influence the sales of these assets, whether the PAC or third-parties and that is certainly exacerbated by the COVID-19 environment. The balance in our investment loan program stands at just over $383 million in commitments, with over $308 million drawn at quarter's end. Our real estate loan investment book, which was once 25% of our total assets is now less than 7%.

I'd like to now turn to our capital markets activity in the second quarter, which was significant. The company took significant steps to take advantage of near historical low interest rates and available accretive capital. As previously mentioned, the company refinanced seven multifamily assets in the second quarter and an additional asset in early July, totaling almost $290 million. These refinancings had the dual benefit of removing over 50% of our multi-housing debt maturities between now and January of 2024, and lowering the average interest rate on those assets by over 70 basis points to less than 2.92%.

In addition to addressing maturities and cost of capital, these refinancings raised over $72 million in liquidity for the company. Due to the performance of the portfolio and liquidity provided by the above mentioned refinancings, the company reduced its outstanding line of credit balance to less than $93 million at the end of the second quarter. With the closing of the eighth multifamily refinancing in July and other transactions, the company has now lowered its line of credit balance to a current level of $51 million.

In addition to the performance of our portfolio and our financing efforts improving our liquidity, the trends in our Series A preferred stock continue be positive, while we saw decided uptick and redemptions early in the pandemic, our continued message of stability combined with our portfolio performance and market conditions have led to a significant drop in redemption requests. In April, we had $12.5 million in total redemptions, $24.9 million in May and $13.6 million in June. The downward trend is encouraging and continued into July. We expect to reach the point of equilibrium for redemptions in the third quarter barring a dramatic turn in the economy.

To-date, we have met all redemption requests and foresee no issues doing the same in the future. While we have the ability to satisfy redemptions in either cash or stock at our option, the vast majority of redemptions made recently have been in cash. We will continue to monitor the trends and while we certainly can't see into the future based on current information, we believe the Series A redemptions will be absorbed into our business plans. The combination of better than expected operational performance, ability to access low cost financing and the moderation of Series A redemptions combined with the steady inflow from our Series A sales has resulted in the company being in a better liquidity position than expected in the early days of the pandemic. Our initial estimates have approved conservative to-date and as indicated by the reduced balance on our line of credit, we have considerable liquidity, which provides us with optionality and flexibility to both take advantage of opportunities as they arise and affords us protection against the further decline in the market or operations. While there remains significant uncertainty in the market, we believe we continue to be well-positioned to meet any challenges.

Finally, I would like to try and look ahead generally, as we survey the market today. Going forward as COVID-19 continues to evolve, we will be selective and focused in our capital deployment on opportunities that we believe create the most long-term value. We continue to see attractive opportunities in our real estate investment loan program, which has consistently been one of the most accretive investment options for the company. The results of our portfolio performance and our capital raising efforts should allow us to continue to selectively take advantage of opportunities in the market in terms of both real estate investment loans and select acquisitions. While the economic follow-up of the pandemic will likely impact properties in which we have invested with our real estate investment loan program, we continue to expect that such issues will be more about timing and less about overall performance. We could see longer construction schedules, longer lease-up timeframes and lower rental rates for a period of time. However, based on the underwriting of our loans and our current view on the market, we believe this portfolio will hold up well over time and continue to be accretive to our results.

In summary, the company continues to be well-positioned financially and operationally to navigate the impact of the current crisis. Longer term, we want to be nimble enough to selectively take advantage of opportunities when they present themselves.

I would like to now the call back over to Joel for some further thoughts. Joel?

Joel T. Murphy -- President and Chief Executive Officer

Thank you, John, appreciate that. I think the best way to end on this is to recap, we are a real estate company of significant scale that has operating teams and assets that are performing well in high growth Sunbelt markets. We look forward to continuing to take prudent steps with regards to our liquidity, our capital structure, our balance sheet and our growth. As we stated in our annual stockholders' letter and our annual report, what got us here, won't get us there. Those words and our belief were written and in place pre-COVID and they were even more true now. And we are already focused on the opportunities that will be presented in a post-COVID environment.

I will now turn the call back over to Paul Cullen. Paul?

Paul Cullen -- Executive Vice President, Investor Relations

Thank you, Joel. Now I'd like to ask the operator to open the floor for any questions you may have. Operator?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Gaurav Mehta with National Securities. Please go ahead.

Gaurav Mehta -- National Securities -- Analyst

Thanks. Good morning. First question that I have is on transaction market. I was wondering if you provide any color that you may have on what kind of trends you're seeing in the acquisition market today as it relates to deal flow and pricing of assets?

Joel T. Murphy -- President and Chief Executive Officer

Yeah, I'll take that, Gaurav. How are you doing? Either John or I or any of our business leaders can take it, but let me just -- let me try to just kind of hit that globally for you. It's interesting, kind of when everything started happening with rapid pace in March, the market kind of just -- everybody's kind of clenched up. Everybody didn't really know what was going on. We had a couple of deals that we were looking at that we went slower. Sellers pull things from the market. As I mentioned in my comments, we had two deals that we had committed to pre-COVID. And we looked at them and said, you know what, these are just really consistent with our strategy. They're right in the right markets, and we believed it, and they were inside multifamily. So we went ahead and executed on it. What we did see is a quick and maybe unfortunately too quick a moment where a lot of our partners that we have dealt with on the real estate investment loans had equity deals and in fact, went away. Deals that we had maybe wanted to be very involved in and were trying to be involved in, but they had gone another direction for maybe a pure equity play. And then they came back to us, and we stepped in really quickly on some transactions, one of which I know we've announced, and others in the pipeline and on very good terms for us on the real estate investment loan in markets that we want and assets that we would like to ultimately own.

The other markets have kind of just really slowed just based on valuation and lack of uncertainty, but I will tell you on the multifamily and also a little to our [Indecipherable] I referenced, we want to grow the multifamily portfolio. But I tell you what, based on what we've seen on some assets that we really like, that pricing has come back fast and at pre-COVID levels, much -- I wouldn't say to our surprise. I think people have underwritten a little bit differently, so you might miss it if you're looking at it on a cap rate basis. Because what they've said is, well, what's going to happen if there's another downturn of this and what happens if stimulus wears out? So they might be a little bit more conservative in their first-year NOIs. But that market's back because we're in it and trying to participate, but we're going to actually be prudent and smart and make sure pricing is where we feel like we need it to be.

Gaurav Mehta -- National Securities -- Analyst

Okay. And I guess within your real estate loan portfolio, do you guys have any purchase option windows that's expiring this year?

Joel T. Murphy -- President and Chief Executive Officer

We do. I'm probably -- I might want to turn John, he is the best, I want to make sure we give the best -- either you or maybe perhaps to Jeff Sherman, who could respond to that.

John Isakson -- Chief Financial Officer

Hey, this is John Isakson. Jeff, do you want to take that?

Joel T. Murphy -- President and Chief Executive Officer

We're in a -- we may be in a socially distanced mode here because we are socially distanced and in different rooms.

Jeffrey D. Sherman -- President-Multifamily

I think I got it now. The question, again, was related to options on the mezzanine loan portfolio?

Gaurav Mehta -- National Securities -- Analyst

Yes, that's expiring this year. Yeah.

Jeffrey D. Sherman -- President-Multifamily

That are expiring this year. I'd have to look over my list more carefully. I think we've got a couple that are likely expiring this year, but most of those are going to bleed into future years. As it stands right now, I believe there's 11 properties remaining that have options associated with them of the 17 multifamily properties that we've got.

Gaurav Mehta -- National Securities -- Analyst

Okay. And I guess, finally, for your apartment portfolio, do you guys flag what percentage of your tenants have been taking advantage of the unemployment benefits? And I guess what is your view in the event there's no fiscal stimulus going forward, impact of that on ability of tenants to make their rent payments for your apartment portfolio?

Jeffrey D. Sherman -- President-Multifamily

I think our -- as we've said before, I think our portfolio, the composition of our portfolio, being newly constructed Class A in suburban locations, is more resilient than other strategies. And I think we're witnessing that and seeing that anecdotally through collections up until today. And I don't think, barring some massive change in the economy, I don't see that changing. I think our portfolio will remain resilient as we continue through the recession and then, of course, into an expanding economy.

Gaurav Mehta -- National Securities -- Analyst

Okay. Thank you. That's all I have.

Joel T. Murphy -- President and Chief Executive Officer

Thanks, Gaurav.

Operator

Our next question will come from Michael Lewis with Truist. Please go ahead.

Michael Lewis -- Truist -- Analyst

Great. Thank you. John already gave some good detail on this, but I wanted to ask a little more about the issuance on the redemption of the preferred shares. The issuance was a little lower. You did spend some cash. You also did issue some common shares to meet the redemption requests. Is this something to be concerned about, especially as more preferred shares hit the five-year mark and become free for the holders to redeem? It sounds like you're projecting it out and it's totally manageable. But is it a risk or a concern, is it not much of a risk or concern? How should we kind of think about that?

John Isakson -- Chief Financial Officer

Great question, Michael. And something that I certainly spent a good bit of time on. Early on in the pandemic, we certainly felt like it was a much bigger pressure point than it has become. We had a peak in May, it appears. Dipped down in June, dipped down again in July. And our -- although not exactly, our issuance and our redemptions have basically netted out. I mean a little positive, a little negative one way or the other. And the feedback we're getting from the sales force and from the wholesalers is that we're basically about at a steady state today, which is for the moment, that's fine with us. I don't see it as a particular risk. I'm sure we'll have a jump up in redemptions here or there. I'm sure we'll have a jump up in sales of the preferred stock here or there. But I don't, today, see it as a big risk. The trend over the last 60 days, 90 days has been pretty encouraging.

Michael Lewis -- Truist -- Analyst

Okay. Great. I wanted to ask one about the portfolio. You guys had -- you were able to maintain high occupancy, you had good rent collection. And the other area was you were able to control the opex. The multifamily same-store portfolio, the opex was down. Maybe talk a little bit more about the ability to continue to keep those costs down even as the uncontrollable costs, the taxes and insurance, I imagine, will probably continue to go up. What's coming or forecast on the expense side?

Joel T. Murphy -- President and Chief Executive Officer

Go ahead, Jeff.

Jeffrey D. Sherman -- President-Multifamily

This is Jeff Sherman. I'm happy to take that. We did have good success in the second quarter managing our operating expenses and think that will, to some degree, continue going forward. Where we really saw benefit was in three places. First was in advertising. We brought some of those functions in-house. Where we were spending money previously on posting for social media accounts, we found a way to do that internally. Second, we benefited from reduced turnover and we expect that trend to continue. That obviously will keep our turnover expense down. And finally, there has been savings from internalization as we anticipated and expected and said in previous quarters. And that trend will continue as well. So we're going to focus our efforts on managing as best we can the remainder of the operating expenses and keep them controlled as we continue to push on the revenue side.

Michael Lewis -- Truist -- Analyst

Great. Thanks. And then just -- sorry go ahead.

Joel T. Murphy -- President and Chief Executive Officer

I was just going to say, Michael, thank you, Jeff, for that description. And I can just say, overall, in the multifamily group and in all of our groups, Jeff gave you some great specifics there. I also just kind of want to say, and I referenced it in my notes, this didn't happen by accident. This was the formation of an operational team that got together in early March and planned for this and said, how do we do this? How do we take care of our residents? How do we take care of our tenants, what if this happens, what if that happens, how do we do that? How do we reduce operating expenses? How do we take care of capex? So the strategy and the teams were in place and running those, but the teams themselves were the ones that executed it to good effect.

Michael Lewis -- Truist -- Analyst

Thanks. And the last question from me. I saw the 8-K last week with a change to the management compensation plan, you added some restricted stock units. Maybe you can talk about that. I liked it, of course. I think it's important to have alignment of interest. I was wondering too if there were any other changes to the compensation. Or is this essentially just additive, for a lack of a better word, kind of a raise that will eventually show up in the G&A line?

Joel T. Murphy -- President and Chief Executive Officer

Yeah, so good question, Michael, and thanks for bringing that up. Look, if you think about what this was all about, and I'm glad that because I think it is a good thing. I know it's a good thing. This is really just the natural evolution of us being a fully integrated, internally managed company and trying to create compensation structures for the team that line up and they do a couple of things that keep this good team together for longevity basis on retention, but also to tie things to performance in favor of the common shareholder. So yeah, there is some more detail to that, that we'll be rolling out over time, particularly as we get -- right after the turn of the year. That will all be described out more fully in our proxy, but I think it was also listed in the materials, it was great to get an outside compensation consultant, independent members of our Board on our compensation committee who deliberated and went through all the different places and really compared us to peer groups and tried to find a structure and a plan that was in a fair way. And I think we've done that.

Michael Lewis -- Truist -- Analyst

Okay. So there's no offset here, though. This is just additive to the compensation for the C-suite?

Joel T. Murphy -- President and Chief Executive Officer

Well, yes, but I mean, what's going to be determined over time is, look what we're trying to do is get more of the compensation, over time, into equity versus cash. And that's the goal we're going to achieve.

Michael Lewis -- Truist -- Analyst

Okay, understood. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Joel Murphy for any closing remarks. Please go ahead.

Joel T. Murphy -- President and Chief Executive Officer

That's really it. Thank you for your interest in our company. Thank you for taking the time. Thank you for listening to our story and asking questions, and that's all we have for today. Thank you.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Paul Cullen -- Executive Vice President, Investor Relations

Joel T. Murphy -- President and Chief Executive Officer

John Isakson -- Chief Financial Officer

Jeffrey D. Sherman -- President-Multifamily

Gaurav Mehta -- National Securities -- Analyst

Michael Lewis -- Truist -- Analyst

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