NexPoint Residential Trust Inc (NXRT) 2017 Q2 法說會逐字稿

Good day, everyone, welcome to the NexPoint Residential Trust, Inc. Second Quarter 2017 Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Marilynn Meek. Please go ahead.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust conference call to review the company's results for the second quarter ended June 30. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer; and Matt McGraner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at www.nexpointliving.com. Additionally, a copy of the company's second quarter 2017 supplemental information is available for your review on the Investor Relations section of the company's website.

Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs. Forward-looking statements can often be identified by words such as expect, anticipate, intend and similar expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding expected property acquisitions and dispositions and the use of proceeds therefrom, expected results from the buyout of BH Equities' minority interest, and NXRT's strategy and guidance for financial results for full year 2017. They are not guarantees of future results and are subject to risks, uncertainties, assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement.

Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent annual report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward-looking statement. Except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statement.

The conference call also includes analysis of funds from operations or FFO, core funds from operations or core FFO, adjusted funds from operations or AFFO and net operating income or NOI, all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to, and not a substitute for, net income/loss computed in accordance with GAAP. For a more complete discussion of FFO, core FFO, AFFO and NOI, see the company's earnings release that we filed earlier today.

I would now like to turn the call over to Brian Mitts. Please go ahead, Brian.

Thank you, Marilynn. I'd like to welcome everyone to the NXRT 2017 second quarter conference call. I'm Brian Mitts and joined here with Matt McGraner. Let me kick off our prepared remarks by reviewing some of the significant transactions we completed in the second quarter. I'll review the Q2 results and then I'll discuss our revised guidance for full year 2017 and discuss the reasons behind these -- this revision. Then turn it over to Matt for a detailed discussion of the portfolio with more in-depth discussion around Q2 activity.

So let me start with the major transactions we completed in the second quarter. Keep in mind that 3 of the 4 that I'm going to talk about we closed on the last day of the quarter. That's an important point because there is some onetime costs involved in these transactions which hit in the second quarter, but there is no positive impact in the second quarter from these transactions, although we think that they are -- there's some significant upside in the future.

Let's start with -- or let me just say, kind of in late May, we embarked on some of these transactions in an effort to increase our NAV longer term and our FFO and core FFO over the coming quarters. Doing this, we create a little bit of short-term noise which we'll talk about here to effect these transactions, but we think that the long-term benefits far outweigh any onetime costs. I'm going to discuss these at a high level and then Matt will discuss these in more detail in his prepared remarks.

First, we completed the acquisition of the Rockledge property, it's a 708-unit property in Atlanta for $113.5 million. This is part of a 1031 transaction, reverse 1031, which we've done in the past as part of our tax efficient recycling of capital program. We intend to essentially swap this out with another portfolio or core property portfolio in Atlanta, but we anticipate selling in the fourth quarter of this year. And we anticipate a cap rate arb on this. Matt will talk about this in a little more detail. It's in our supplement as well. We sold at a lower cap rate and then bought the Rockledge property at a higher cap rate.

The second transaction was the buyout of BH's minority stake for $51.7 million. BH is, of course, our property manager, has been our joint venture partner from the beginning. We felt that their interests, which was essentially equity, represented some of the most expensive capital in our balance sheet. So buying it out was accretive, particularly at the price which we did it. Simplifies our financial presentation as well as our forecasting, which is a positive. We were able to accretively buy a large portfolio essentially that we obviously knew. Well, we've been managing it. And we transacted at a price that was mutually beneficial, both for us and for BH. We estimate that this transaction in future quarter -- or sorry, in future years will bring $0.18 to $0.20 per share for -- to FFO and core FFO.

The third transaction is we embarked on a refinancing of 22 mortgages totaling $468 million. In the process, we lowered our spread by 57 basis points on the effected debt. We took advantage of tighter spreads that Freddie was offering on floating-rate debt. We did incur some onetime costs in the form of prepayment penalties and modification costs, but we also will be reducing our annual go-forward interest expense by $1.7 million. As part of this transaction, we took an additional $34 million of proceeds to help fund the BH buyout, which I mentioned above. And we estimate that this will add $0.08 per year to FFO and core FFO.

The fourth transaction, we added 3 swaps for $250 million this quarter. We actually entered into one of the swaps in Q1, but it didn't become effective until April 1. This also simplifies our forecasting by fixing the vast majority of our floating-rate debt. So we don't have to have that variable within our forecasts that we're trying to qualify for. We've essentially now fixed 98% of our long term mortgage debt. So that does not include the mortgages on the properties that we list as held for sale, nor does it include our revolver or bridge facilities as those are shorter term. So essentially, our long-term debt is now 98% fixed. The all-in fixed rate is 3.34%, and that's locked in until June of 2021 when about 2/3 of these swaps mature. So this gives us certainty over the next 4 to 5 years for our interest costs on our long term existing debt, which I think is a huge positive.

So kind of recapping, we think these transactions are in keeping with our long-term plan of maximizing shareholder value, accretively recycling capital in a tax efficient manner, prudently managing our balance sheet and continue with upgrading the quality of our portfolio. As I mentioned, Matt will discuss these in a little more detail and a little different perspective in his prepared remarks.

Let me move on to the second quarter results, which we think was another solid quarter, particularly from a same store perspective. Total revenues were $35.2 million for the second quarter of '17 as compared to $33.7 million for the second quarter of '16. Net income was $9.9 million versus $16.6 million same quarter last year. FFO is $1.7 million or $0.08 per share versus $7.2 million or $0.34 per share in Q2 of '16. Core FFO is $6 million or $0.28 per share versus 7.9% (sic) [$7.9 million] or $0.37 per share in the prior quarter last year. AFFO was $7.4 million or $0.34 per share versus Q2 of '16, $8.3 million or $0.39 per share. NOI for the second quarter of '17 was $18.1 million versus $17.4 million in the second quarter of '16.

Same store rent increased 5.2%. Same store occupancy was down slightly by 40 basis points from second quarter of '16 to 93.3%. Same store revenue increased to $29 million from $27.2 million in the same quarter last year, a 6.6% increase. Same store expenses increased to $13.7 million from $12.8 million in the same quarter last year. That's a 7.1% increase driven primarily by higher real estate taxes. We'll talk about that in a minute. Same store NOI increased to $15.3 million versus $14.4 million in the same quarter last year, which is a 6.2% increase.

On the rehab front, we completed 401 units in the second quarter, bringing our total to 4,524 units that we've rehabbed with an average cost per unit of $5,116, which is just inclusive of the interiors. That produced a 21.8% historically -- return on investment of the -- our portfolio. Core FFO coverage, 1.51x for the 6 months ended June 30.

Before I turn this over to Matt for his remarks, let me walk through our revised guidance. We're going to revise full year 2017 guidance for the following reasons. And these all impact FFO, core FFO and adjusted FFO, unless I mention it otherwise. Onetime costs surrounding the transactions that I had mentioned above, essentially it's $0.22 of this revision. That's added back to core FFO so it does not impact core FFO or AFFO. These included prepayment penalties for doing the refinance, flushing out of deferred financing costs on the planned disposition of the Atlanta portfolio to close the Rockledge 1031 and then modification costs from the refinance.

The second item is higher interest cost, which is about $0.12, this is related to increased debt. We essentially funded the Rockledge acquisition as well as the buyout -- BH buyout with 100% debt, which we do intend to pay down with the portfolio sales we're making in the fourth quarter. With the new swaps that we added that had reference rates of 1.78% to 1.96% compared to 1-month LIBOR which is about 1.23% today, that added some cost to interest. But again, we feel that the cost is worth it given the certainty and the lower rates at which we've locked in our floating-rate debt. Additionally, within the interest cost, we had higher deferred financing cost write-offs with the expected sale on the Atlanta portfolio, which is partially included above in the first one.

The third item is real estate taxes. As we mentioned before, we've seen some of the municipalities aggressively push values higher. We've protested these and if necessary, we'll litigate them. We do expect a decrease to these through either protests or litigation. So if we are successful in that, then in the future quarter those will come back around and be an increase. But for now, we're including them under GAAP and lowering guidance as a result.

The fourth item, a little bit of an arcane piece, but hedge accounting. Under GAAP, as we refinance debt on -- that are covered by longer-term swaps, we have to redesignate those. It creates some accounting entries and some noise. That accounted for $0.03 of the difference. So that's the major bulk of the difference in our guidance.

So revised guidance for fiscal year 2017 is as follows: revenue on the low end $143 million, high end $145 million, with a midpoint of $144 million; net income, $52 million on the low end, $57 million on the high end, with a midpoint of approximately $54 million; NOI, $75.25 million, high end $77.25 million, midpoint $76.25 million; FFO per share on a diluted basis, $1.12 in the low end, $1.20 in the high end, with a midpoint of $1.16; core FFO per share on a diluted basis, $1.35 on the low end, $1.45 in the high end, with a midpoint of $1.40; AFFO per share on a diluted basis, $1.60 on the low end, $1.70 on the high end, with a midpoint of $1.65.

We updated our acquisitions from a low end of $140 million, which includes some of the acquisitions to date, to the high end of $200 million to account for potential acquisitions, with a midpoint of $170 million. And dispositions, $225 million on the low end, $230 million on the high end, with a midpoint of $227.5 million. So this guidance represents a decrease to FFO per share of $0.44, $0.22 for core FFO and $0.20 for AFFO per share due to the reasons just mentioned.

So with that, let me turn it over to Matt for his comments.

Thanks, Brian. I'm going to begin by reviewing portfolio performance and then flesh out some of the significant transactions that took place during the quarter. As Brian mentioned, starting off with the value-add results, we completed full and partial renovations on 401 units at an average cost of $5,459 per renovated unit. DFW was the largest MSA that we rehabbed units in at 122 upgrades. We achieved a 22.1% ROI on those upgrades. Second was Atlanta. We rehabbed 94 units and achieved 18.4% ROI on those units. Nashville was the third-largest MSA with 37 units upgraded during the quarter with 20.2% ROI achievement. And Orlando was the fourth with 35 units upgraded and achieving a 19.4% increase on those units.

On the same store basis, the pool for Q2 encompassed 10,211 units or about 80% of our portfolio. The average rent increased to $884 per unit from $840 a year prior. That's a 5.2% increase. Total revenues increased 6.6%. Expenses were up 7.1%, largely driven by what Brian mentioned, 17.5% increase in real estate tax assessments that we have the chance to appeal later on this year and intend upon doing. We also have higher turn costs and R&M given we turned 400 more units during the quarter in 2017 than in second quarter of 2016. All this resulted in same store NOI being 6.2% for the quarter. Same store by market, Dallas did 6.3%; the D.C. Metro area, which is one property, was 30%; Atlanta was 5.3%, Nashville was 5.8%; Charlotte was 7.6%; Phoenix was 8.3%; West Palm Beach was 5.9%; Orlando was 4.5%; and Tampa was 10.5%.

On the leasing front, we achieved incredibly strong effective rent growth during the second quarter, year-over-year coming in at 5.8% overall for the portfolio. They're a small sample size, D.C. and West Palm Beach led all our markets with new lease growth of 18.9% and 13.6%, mostly attributable to newly rehabbed units. Dallas saw new lease growth of 11% during the quarter, again, largely attributable to rehab activity. Each of Atlanta, Nashville and Charlotte and Orlando had new lease growth of at least 6.4% or better. Atlanta did 7.2%; Nashville, 9.6%; Charlotte at 6.4% and Orlando at 9.6%. On the renewal growth front, it was also very strong during the quarter with 4.9% overall for the portfolio. We achieved the highest renewal growth in Nashville and Atlanta at 5.8% and 5.7%, respectively. Dallas/Fort Worth is third with 5.5% growth on renewals. West Palm Beach, Orlando and Charlotte were all 4.7% or better.

Subsequent to the quarter, we closed on the sale of Regatta on June 14 for $28.2 million. We generated a 36.1% levered IRR and a 1.9x equity multiple on our invested capital. We sold Regatta at a nominal 5.5% cap on T3 over T12 NOI, which allowed us to fully repay the KeyBank bridge taken out to acquire the previously announced H2 Portfolio and Hollister Place that we closed in February. With this transaction, we closed out the capital recycling activity that we announced in December of 2016, executing as we said we would. As a result of this transaction activity and BOVs listed on the remaining portfolio, we have updated our nominal cap rate range to 5.5% to 6% for our remaining Houston assets.

On the refinancing front, Brian mentioned most of it, but in connection with derisking the balance sheet, fixing the rate for 4.5 years and pushing out the maturity while maintaining the prepayment flexibility that we strive for, we did lever up slightly, to partially fund the cash portion of the buyout for BH, BH's noncontrolling interest of 8.4%. As a management team, we thought -- we felt this acquisition of our NCI made sense for a number of reasons and then ran numerous scenarios on how to fund it. Given the value of our stock and the cost of our capital, we felt this was the best way to do it. The purchase price of BH's minority interest closed on June 30, the last day of the month. It was funded $49.65 million in cash with $2 million of OP units, which can be converted into NXRT's common stock at the midpoint of our NAV for the second quarter. The transaction, we think, is mutually beneficial for both parties for several reasons. Some of them are obvious. BH was able to monetize attractive gains within their own portfolio of assets instead of continuing to hold an illiquid minority stake in a public company while also maintaining the multimillion-dollar investment in our portfolio in a tax efficient manner. We, of course, can now report 100% of the entire portfolio's NOI, earnings and NAV and thus materially simplifying our financials for our investors. We also acquired approximately $6 million of 2017 estimated NOI on a go-forward basis and a portfolio that, as Brian mentioned, we know very well.

A couple of words on BH. We're extremely grateful for their partnership and the great work the team does every day executing on the property management side. I look forward to continuing that relationship and welcoming them as a shareholder.

On the Rockledge acquisition. As previously mentioned, on June 30, we bought Rockledge, a 708-unit apartment community in Marietta, Georgia. Our purchase price for the dirt was $33 per square foot. And that's less than a mile from the new Atlanta Braves stadium, adjacent to the second-largest office market in the Atlanta MSA, which we believe creates an enviable covered land term -- covered land play long term. Over the shorter term, we expect our pro forma year 1 economic cap rate to be 5.6%, which we believe we can move 30 to 40 basis points a year through 2019 using our value-add strategy that you're familiar with.

As previously announced, we funded acquisition using a $68 million Freddie Mac first mortgage -- floating rate first mortgage and a $53 million short term bridge loan through KeyBank, which we expect to retire using proceeds from the sale of our North Atlanta portfolio, which is in the final stages of the marketing process.

To date, we received 15 offers on the portfolio and are currently in the best and final process with a select group of prospective buyers. We expect that portfolio to be under contract in the next couple of weeks and in the range previously announced of $110 million to $120 million. We expect to close this in the fourth quarter of this year. As a result of these transactions and the BOVs listed on the remaining Atlanta portfolio, we have updated our nominal cap rate range to 5.5% to 6% in our supplement. So bottom line, what all these means is that we're still very bullish on our value-add workforce housing thesis, especially relative to the broader REIT market and given our continued above average same store NOI growth, 20%-plus ROI achievement and new lease and renewal growth of 5.8% and 4.9%, respectively. In addition, we took proactive steps to reduce our interest expense while fixing the rate without incurring harmful defeasance or prepayment penalties. We acquired our partner's interest at a mutually beneficial price, thus allowing us to realize the full earnings potential of our portfolio. And perhaps most importantly, we continue to monetize attractive gains in our portfolio at 5.5% to 6% nominal cap rates while recycling capital into assets that exhibit value-add potential in extremely strong locations. To remind everyone, year-to-date, we sold over 120 -- excuse me, sold over $112 million worth of assets for an average IRR of 39.7% and a 2.25x multiple on invested capital.

In closing, I'd also like to point out several changes we made to our quarterly supplement. As a result of the acquisition of BH's interest, we're dropping the joint venture detail slide. We're also adding 2 slides: the first slide detailing the dispositions, and the second slide detailing the relevant transaction activity during the quarter and what we believe to be the effects of those transactions. For example, for this quarter, we believe our capital allocation moves translate to a $27.31 per share NAV at the midpoint and an additional $0.27 of core FFO on an annualized basis.

As always, I'd like to thank our teams here at NexPoint and at BH for their continued hard work and execution. And that's all I have for prepared remarks.

Thanks, Matt. So to wrap up and to kind of piggyback off what Matt said. Again, this quarter, we think we've shown that the same store NOI growth story is still intact. Our rehab return on investment story is still intact. We're continually -- continuing to prudently manage the balance sheet and interest rate exposure, create a clear line of sight into our debt cost with the swaps while maintaining flexibility. We continue to prove the value-creation story through our disposition program where IRRs are averaging 40% or above and equity multiples are 2x or above. We continue to focus on long-term results and increasing shareholder value. And finally, just to reiterate Matt's comments on BH. They've been a huge part of our past success. We think they'll be -- continue to be a huge part of our future success. This buyout, I think, does all the things that we said it does and draws BH even closer into our organization. So we think given our structure and the way we're organized that having them involved and incentivized is critical. So again, I want to thank them and to point out the integral part of our success that they are.

So with that, we will turn it over for questions.

(Operator Instructions) We'll have our first question from Michael Kodesch, Canaccord Genuity.

Just a couple from me. I guess, starting with guidance, can you talk a little bit about kind of what you're seeing seasonality-wise? It seems like the $0.12, I guess, of lowered core FFO from the interest cost is largely going to come in the third quarter and then maybe the $0.07 or so from real estate taxes maybe throughout the year. Is that a good way to think about that?

I'd say the interest cost is more a historical kind of where we've seen the rates go. I mean, LIBOR, it's up 45 basis points this year. When we issued guidance, which we did in kind of early March or mid-March, I think 1-month LIBOR was at around 90 basis points, 95 basis points. So yes, we're kind of taking SWAG there and making some guesses as to what's going to happen. But part of it is also, as you flush out some of these deferred financing costs on dispositions that maybe you didn't anticipate when you originally issued guidance at this interest cost. And then also the way that this refinancing was accounted for created not only the prepayment penalties that you saw flush through there, which we add back to get the core FFO, but also had some fairly significant modification costs that were associated with it. So those are onetime costs that have already been incurred. So we think, going forward, with the swaps essentially fixing a lot of our rates, there's not the seasonality or variability that we'll see from movements in LIBOR and then a lot of these onetime costs were put into the guidance, they've already been incurred.

Specifically, on the real estate taxes, Michael, we got notified ARV values during the quarter from Dallas and Tarrant counties that even when we underwrote and provided budget and guidance all around the year, we didn't anticipate an additional 12% to 13% move up. We'll be, obviously, appealing those throughout the course of the year and expect to have some revisions to those lower in the coming quarters, probably in the fourth quarter. So we do expect to recapture some of that. And then the other piece that was sort of seasonality that you mentioned was the turn. We had an unusually amount of large expirations occurring in the second quarter. We don't expect that to continue into the third and the fourth quarter, but they did impact the same store pool in the second quarter.

And Michael, also to point out that with the last 3 swaps we put on, the swap rates have moved and so we were paying a higher rate. Some of the older swaps we've put on are now in the money, so to speak. So their strike rates are below where LIBOR currently is. We're getting inflows from those. But the new ones, we're getting outflows. So that increased interest cost beyond what we had anticipated when we originally issued guidance.

That's helpful. Just a quick follow-up on that. Did you -- in terms of guidance, you guys are not building in any of those real estate recaptures into guidance?

Correct. Correct.

And then, I guess, looking at the Atlanta portfolio sale, it sounds like you guys are kind of expecting that to be sold in the fourth quarter. Is there any chance that, that moves up into the third quarter a little bit here? Is that nearing a potential deal or is that pretty firmly built into the fourth quarter?

Yes, the fourth quarter is the estimate. We feel really good about the marketing process. So we got 12 -- 15 offers: 12 on the portfolio itself, 3 kind of went off on individual assets. The highest synthetic offer is 118. That, of course, if we took 2 different buyers, could push the time line back and you're dealing with a couple of different folks and different contracts. So there are portfolio purchasers, real portfolio purchasers, 5 or 6 or so that have really quick fuses, so 15-, 21-day looks, 30-day closes. So that could push the time to close it end of September, but I think the most likely outcome is it closes in October.

Great. That's helpful. And then, I guess, looking at some of your NOI trends, revenue trends, I know over the past 2 quarters it's decelerated a tiny bit. Can you talk a little bit about what you're seeing from a leasing perspective in the third quarter and kind of your expectations for the balance of the year?

I don't think that the leasing activity per se has impacted our same store pool to the extent at the expense side. I mean, it's -- if you look over Q1 and Q2, Q1, expenses were 6 point -- were up 6.1% and then 7.1%, a large portion of that is labor, R&M, turn and then the noncontrollables with the taxes and insurance. For the most part, the market, the top line growth has been great. When we canvass and look across what other folks are doing, we still feel really good about 6% new lease growth being achieved and then double-digit ROIs or 20% ROIs on the CapEx and then 10-plus percent rental increases. We don't see that dissipating anytime soon. So I think it's just incumbent upon us in the go forward in order to get back to the 8% to 10% same store NOI growth that everyone's used to, to make sure we drive occupancy, put heads in the beds and then hold expenses tighter, which we're completely focused on. And I think we'll get back to. I mean, we think that Q3 and Q4 will be very strong.

That's good color. And then just one last one, if I can. Can you remind us, I guess, what G&A you guys are capable of generating, but what you're expecting to see, I guess, for 2017, are you capping it?

Yes. I mean, we're, I think, contractually able to take $8.6 million or so on an annualized basis in fees and we've capped it at $7.4 million. So we don't intend upon taking any more than $7.4 million.

Yes. Our actuals in G&A are right on top of our guidance. We didn't talk about those in our revised guidance, but if you look in the supplement, we include them and they're the same. And we're on budget with that.

And then just moving past 2017, do you kind of expect to continue coming in a little under what you're contractually able to take?

Yes.

What our goal is, Michael, is to manage G&A to the point where we're trying to bring it in line with some of our larger competitors or peers so that we're not viewed as a typical external manager. We have the ability to do that. We can certainly obviously manage our cost, like any good business should, but then we can also toggle the fees as needed to make sure that we're in line. So we're trying to drive down our overall G&A percentage and keep it in line below some of our externally managed peers and moving more towards our internally managed peers.

(Operator Instructions) We'll go next to Dan Donlan, Ladenburg Thalmann.

Just wanted to inquire about in terms of the guidance. What is embedded in guidance in terms of you selling the Atlanta assets, what's the timing on that?

In the fourth quarter.

Any middle?

Yes, the 15th or beyond, October 15 to 30, 31.

Okay. All right. And then what's the thought process on replacing that capital or that kind of that -- that sale is essentially going to -- is going to fund your former -- your Atlanta transaction that you've already completed. Is that how we should be thinking about it?

Yes. That's how I would think about it, the sale of this capital. And keep in mind, it's not going away. It's not like we're making a special dividend or something. So the compounded annual growth of the capital is still generating outsized returns. But we think about it as -- if we sell it at $115 million, for example, there's 60 -- or yes, $65 million worth of capital coming out of that sale that goes to repay the bridge we took out to acquire Rockledge, which is in all respects a superior, I think, location and then partially fund the acquisition of the BH minority interest. So 2 very accretive uses of capital. When that settles, we think we'll be pretty happy with the run rate on a NOI basis and earnings basis.

Okay. And just moving to the AFFO. Are there some type of onetime items in AFFO that you're including? Just trying to think about the delta between kind of the reduction in FFO and the reduction in AFFO.

Yes. So a lot of the costs flow through to both core FFO and AFFO, real estate taxes, some of the interest cost. And then the only real difference between AFFO and core FFO is we add back our deferred financing cost on the longer-term debt as well as the equity compensation that's hitting income. And that's the difference between core FFO and AFFO. So you do have that add back of deferred financing cost which changes with this Atlanta portfolio sale.

Okay. And then as far as the interest expense savings that you're anticipating, is that being kind of offset by the increase in LIBOR versus what you had expected when you provided guidance at the onset of the year? Or just trying to understand that a little bit better as well.

Yes. It gets a little confusing because when we originally set guidance, we only had 50% of whatever, 60% of our long-term debt fixed. Today, it's almost 100%. In the interim, we did see a pretty dramatic move in LIBOR. Additionally, to get to that -- bridge that gap between what was fixed when we originally issued guidance versus today, we incurred some additional costs, but we fixed our debt. We think that, that's worth the trade-off. So yes, it kind of circles back around and it's a tough calculation to kind of grasp just thinking about it directly. But over time, you're seeing a little bit of both that we've increased the amount of debt as mentioned to fund Rockledge and BH. We've had a movement in LIBOR up. And then we've increased our cost by putting 3 more swaps in place.

For 3 months, we were paying 1.80% to the swap counterparty on $250 million notional when LIBOR was 1.20%. So that spread, obviously, does tick up our interest expense quite a bit. That being said, we feel comfortable -- like go to our supplement and pull the outstanding debt details tab and you won't see a maturity for the next 5 years, and that's completely fixed. So yes, it hurt, a little pain right now, but I mean, the longer term earnings profile of the company has vastly improved as a result.

Yes, and I think where we locked in at essentially 3.34%, and that's going to drop as we pay off some of the more expensive debt, like the bridge and the revolver. But we locked in at a pretty low rate, but we still maintain the flexibility from the floating rate, which we see in these asset sales, if you compare that to what would happen if we had fixed debt on it and had to put on or had to incur a lot of defeasance and yield maintenance costs, we wouldn't be putting up IRRs and equity multiples that we are.

Sure. And then just kind of moving to the G&A. Is there -- any thought process behind having kind of a formalized kind of structure to that? What are your thoughts on internalization? Just kind of curious how you're looking at that because the original portfolio has a set fee. Obviously, that's changed over time. So just kind of curious if there's any intention to set some type of formalized numbers around it?

Yes, I mean, other than guidance, which one of those numbers we don't really move is that G&A. We feel very comfortable with it. We should point out that we haven't taken any additional fees on either the H2 Portfolio that we closed at the end of '16, the Hollister Place deal that we closed in February, and there's no intention of taking anything on this Rockledge portfolio for the time being as we flush through some of these dispositions. We can kind of reassess, but the idea is to drive G&A lower on a percentage basis each year. But we haven't talked about any sort of defined, formalized process or metrics. And then maybe we should, maybe we can put that out next quarter. But as far as internalization, obviously, it's a conversation that comes up all the time. We think that as long as we are still where we are, which we still haven't raised any equity, we've grown the market cap of the company, but still a small company. We think that there's still a lot of value that's being derived from the association with NexPoint as an external adviser. And we're generating returns for shareholders and keeping our G&A cost at a reasonable level. So it's not something that we've talked a lot about as far as executing a plan or putting out the time frame, but certainly something that's always brought up and discussed.

Okay. And then just kind of lastly on the acquisition front. Just curious what you're seeing now. Has it become -- it seems to be that most -- in every call, it gets a little bit more competitive from the acquisition front. So just kind of curious how competitive it's becoming. Has your success as a public company kind of caused some copycats to kind of come along and look at some of the assets you're buying? Just any clarity there would be helpful.

Yes. I mean, I think that it's certainly more competitive. But I wouldn't trade that because I wouldn't -- we couldn't recycle the capital as well as we have been. I mean, when we put $220 million into the company starting in 2013 and notwithstanding today, it's worth $525 million. So I think we've done that pretty well. And we do have a competitive cost of capital. We do have liquidity and financing available to us, such that we can move quickly and do some of the deals in a way that we like to do them. So for example, Rockledge is a $113.5 million acquisition. There wasn't a ton of buyers for a value add $113.5 million deal given the (inaudible). That in maintaining that $20 million to $50 million type of equity check where there's just not the buyer pool that there are for a $30 million individual transaction. So you'll continue to see us focus in that respect. We're also bidding on a fair amount of deals and we're active in South Florida, for example, Nashville, Charlotte, areas that we want to recycle some capital out of Dallas and Atlanta into those -- to get bigger into those markets. And so if we find one of those deals, we'll buy them, but we're not going to overpay and we haven't been the highest bidder on any of them. And so if we miss one because we're a couple of million dollars short, so be it. But yes, it's competitive, but we think that the market being as liquid as it is, is only helpful to us as long as we can maintain the ability to do things that other market participants can't, like a syndicator buying a $30 million deal in 21 days because they have no cash. We have cash on hand to do it. We can do that. They can't do that. So that's what we'll try to do. And we've used the tools available to us to create value for shareholders. I think -- yes, I think we've done a fairly decent job at it and we'll continue to try.

(Operator Instructions) We'll have a follow-up from Michael Kodesch, Canaccord Genuity.

Just a quick one. Just want to know how you guys thought maybe about potentially issuing equity rather than kind of have this mismatch in timing of acquisitions and dispositions. How do you guys just kind of think about that?

Yes, we spent, I want to say, 4 days in a conference room modeling out the various ways we could do all these things. And the ingredients to the ultimate recipe that produced the $27 NAV that we think is real and very defensible. So we thought about issuing equity. We thought about issuing partial equity. We thought about an ATM. We thought about dispositions. And at the end of the day, in each of these scenarios, given the fact that we fixed our long-term debt and derisked the balance sheet, we thought that we could execute on a sale that would replace the debt that we took out. And obviously, owning 20% of our stock, we view as extremely valuable. And we'll continue to believe that it's extremely valuable and it should be treated as such. And so if we can generate for our current shareholder base $1, $2 of NAV growth, being smart with capital allocation and executing on that, we'll lever up to do it. Because we can -- we've shown, I think now 3 times, that we can pay it off in an efficient manner. And yes, we might tick up the FFO a little bit, burn some of that. But at the end of the day, our job is to create NAV growth. And so yes, we thought about it. Believe me, we have people asking about it all the time. But under each of the scenarios that we took down, and again we spent a lot of time on this, we thought this was the best way to do it.

Yes, Michael, one of the things that we also discovered in that process was, if we focus on the long term and we do things based on that and not the short term, we can accomplish a lot of things without raising equity. Not opposed to it, but you're well familiar with the process and some of the things that happens and you have the cost of it and the discount to current price that you have to issue at and things like that, that to us just makes it a more expensive endeavor than what we've done in lieu of that.

And with no further questions, I'll turn the conference back over to management for any additional or closing remarks.

Yes, nothing further from us. We think it was a good quarter. Obviously, a lot of kind of noise out there that hopefully we got through in this call and our supplement. We look forward to Q3 and the rest of the year. As Matt mentioned, a lot of positive things happening in the market and with the portfolio. So we'll continue to try to achieve good results. Thanks for everyone's participation.

That does conclude today's conference. Thank you for your participation. You may now disconnect.