Q2 2021 NexPoint Residential Trust Inc Earnings Call
[music].
Good day and welcome to the next point.
Residential trust second quarter conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Jackie Graham Director of Investor Relations and capital markets. Please go ahead.
Thank you good day, everyone and welcome to <unk> residential Trust conference call to review the company.
Company of results for the second quarter ended June 32021 on the call today are Brian Mitts, Executive Vice President and Chief Financial Officer, Matt and the Greener Executive Vice President and Chief Investment Officer, and Fonar Mcdermott's, Vice President of asset management. As a reminder of this call is being webcast through the company's website and ex therapy.
When the dot com before we begin I would like to remind everyone.
And that this conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 that are based on management's current expectations assumptions and beliefs.
Listeners should not place undue reliance on any forward.
Looking statements and are encouraged to review the company's most recent annual 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 any forward looking statements. The statements made during this conference call speak only as of today's date and the except as required.
Got you and <unk> does not undertake any obligation to publicly update or revise any forward looking statements at the conference call also include and analysis of non-GAAP financial measures for a more complete discussion of these non-GAAP financial measure and see the company's earnings report that was filed earlier today.
I would now like to.
And by all over to Brian Mitts. Please go ahead Brian.
Thank you Jackie and welcome to everyone. Joining us this morning appreciate your time.
And that's and I'm joined by and not the greener and I will kick off the call some highlights from the quarter.
And then cover our numbers for the quarter and year and wrap up with guidance.
I turn the call revising upward and all.
For the Matt <unk>, who will discuss our portfolio and some of the metrics driving our performance and leading us to revise the.
Our guidance upward.
Art will discuss in his prepared remarks, the acquisition environment is challenging and I think this is.
And everyone knows.
Although we have been able to find.
We have opportunities we closed on the acquisition of 2 properties during the quarter.
And not what provides the details on that during his remarks, but regardless of the acquisitions or the environment. As we have said many times, our growth and value creation strategies about price.
And the cadence on new acquisitions, we have the ability to significantly increase.
And some of our organic rehab program.
Continued in earnest during the second quarter and core Oh, the 'twenty 'twenty 1.
So let me go to the just a couple of the highlights here real quick for the second quarter and year to date.
Net loss of the second quarter was negative $3.4 million or negative <unk> 14 cents per.
Valued share as compared to a loss of $9.3 million or a loss of 38 cents per diluted share in 2020 same store NOI increased by 100, and sort of 9000 or <unk>, 6% as compared to the second quarter 2020 Rip.
We reported second quarter core of <unk> 14.
And $2.2 million or <unk> 50, 656 cents per diluted share, which compares to 40.59 per diluted share in the second quarter 2020.
We continue to execute our value add business plan this quarter by completing 336 full and partial renovations during the quarter and was 408 renovated unit.
Per diluted achieving an average monthly rent premium of $170 and the 25% return on investment during the quarter.
<unk> to date and the current portfolio as of June 30, we completed the 5000 and southern and 84 of full and partial upgrades 4000, and 459 and kitchen upgrades and washer dryer and installments.
And it's and 9000 and 782 technology package installs, achieving an average monthly rent premium of <unk>.
$132.48 and $43 respectively.
And the ROI of 21, 4%, 74% and 33, 8% respectively.
For the 6.
6 months ended June 30th net loss was $10.3 million.
Or a 41 cent loss per diluted shares compared to an $18.7 million gain or 74 cent gain per diluted share in 2020.
Same store NOI for the year through June increased by.
6000, or increase a 0.2 per cent compared to 2020 over the same period.
And we reported year to date core <unk> of $28.3 million, which is a dollar of 13 cents per diluted share, which compares to the dollar and 11 cents per diluted share from the same period of 'twenty.
On the 80.20.
For our NAV.
Just on the current cap rates and NOI, we are reporting now per share range as follows 50.
And $55.66 and the low and $66.62 and the high and with the midpoint of $61.14.
These are based on cap rates, ranging from 4 per cent and the low and 243% on the high end.
For the second quarter, we paid the dividend of 34.125 cents per share on June 30 to shareholders of record of June as of June 15th.
The board has declared a dividend per share of 34.1 and 2.5.
2012 since payable on September 30th 2.
Shareholders of record on September 15th.
Year to date of our dividend is cut.
Covered 1.65 times by core of F O.
Which is the payout ratio of approximately 61 per cent of core of.
Just couple of.
Big picture items before we get to the numbers and the guidance with net migration, continuing and into our core sunbelt markets and with the affordable high quality product.
We believe and XR T is still well positioned to continue delivering high returns to investors.
The net huge markets continues unabated the sustained.
<unk> reached historic lows and our markets as reflected in our revised and EV calculation.
With the increase of the population and jobs and these markets competition for desirable product has increased since the only public rebuilt the cost of capital advantage over many of our competitors and these markets allows us the bid aggressively for the best assets.
Net cash from the you'll see that as Matt talked about the 2 properties we closed in Q2.
And we believe we could find more good quality assets and our core markets as.
As mentioned our growth prospects are not dependent on acquisitions, we continue to achieve sniff current returns from our value added strategy.
Or we can move the cap rate.
550 basis points over 3 years to 5 years from acquisition.
It makes us less sensitive the absolute cap rate levels, the ongoing and widening shortage of affordable housing and U S, which is more acute and our sunbelt markets and getting worse as new household formation.
Cases, new houses and Liberty's gives us plenty of runway to continue.
Suddenly our value add strategy across our existing portfolio and new acquisitions.
The increase net migration, coupled with the shortages of housing what our portfolio of achieved all time high occupancy.
And sets us up to aggressively push rates for the remainder of the year as we did in Q2 of which Matt will cover in some detail.
And the current environment also allows us to sell assets and we fully renovated of premium and recycle that capital and the new value add products, where we can achieve higher rates of return.
Let me quickly go through just the the high level numbers for the second quarter and the first half of 'twenty 'twenty 1.
Total revenues were $52.6 million compared.
The $250.7 million from 2022nd quarter to $3.7 per cent increase net income was or sorry, net loss was $3.4 million for the second quarter versus $9.3 million loss and second quarter of 2020.
<unk> was $14.2 million from the second quarter.
It's 56 cents per diluted share.
Per to $14.5 million of second quarter of 2020.
Which was a <unk> <unk> decrease of our same store pool consists of 35 properties with 13544 units.
Our same store rent increased 3.6.
Which sent on average same store occupancy was 96% of second quarter, 2021 versus 95, 3% and <unk>.
<unk> thousand 20, or 70 basis point increase.
Same store NOI of $28.7 versus $28.5 million versus Q2 last year, which is the 0.6% increase.
<unk> for.
For the year ended June 30th revenues were $104.4 million in 2020, 1 versus 1 of them and $3.3 million of 2020.
4 of 1.1 per cent increase net of net loss and 'twenty 'twenty 1 of them for the first 6 months of $10.3 million versus a net gain.
And 2020.
1 of the $18.7 million core of F. O for a second quarter 2021 of $28.3 million or $1.13 per share.
And as compared to $28.1 million for 'twenty, and 'twenty, which is up 2 cents per share.
Our same store pool for the years also 30.
Properties, consisting of 13000 and 544 units.
Same store rent increased 3.6% our occupancy is up 70 basis points to 96%.
And our same store NOI was up 2% to $56.9 million for the first 6 months.
For the remainder of 2000.
5 of the 1 we are revising guidance as follows core F F O and the diluted share basis $2.30 on the LOE and.
The $2.41 sits on the high end and $2.35 at the midpoint.
And as compared to $2 and 29 previously are of 2.6 per cent increase.
The 20 same store revenue.
For 2% increase and the low end and 5% on the high and for a midpoint of 4.6% increase and revenue.
Our same store expenses $6.4 per cent of the LOE and 4.8% on the high and with increased.
The 5.6% and the midpoint.
Same store NOI, we are projecting to be 2.7 per cent of the low and 5.2 per cent of the high end of.
The percent at the midpoint.
Which is an increase of 40.
And 40 basis points over our prior guidance.
Increase of <unk>, 6% same store NOI growth.
So with that let me turn it over to him out.
Yeah. Thanks, Brian Let me start by reviewing our Q2 operational results our cash collections remain favorable to NMFC comps with 99, 2% of Q2 rents collected and of all federal stimulus and local rentals.
And so for instance programs of helps overall demand for upgraded of affordable housing and the Sunbelt continues to register at historical highs.
The population inflows into our Sunbelt communities also continue to make new highs.
And we're witnessing increase trends and our markets as we exit the pandemic with the 35% increase and out of state applications quarter over.
Rentals and of 29% increase year to date.
Net migration from California, and New York continue to dominate our leasing applications year to date, increasing 52% and 19% year over year, respectively.
Low migration outflows from our markets and consistent resident retention and also explain the strong operational performance during the quarter and the first.
Quarter of the year.
Our communities are still experiencing all time highs and occupancy our Q2 same store occupancy ended up at 96, 1%, that's up 80 basis points quarter over quarter and as of July 26 of the portfolio is 95, 8% occupied 98, 3% leased with a 94.2.
Per cent trend.
The east historically strong occupancies and trends are allowing us to materially increase rents and most of our markets same store revenue revenue growth for example exceeded 2.2% and 7 out of our 10 markets and Q2 and every market experienced positive positive rental growth.
On the leasing front, we really started to see a pickup in June.
June but every month exceeded our expectations new leases ended the quarter at a robust 14% renewals finished at a positive 6% for Q2 blended rental growth rate of 9.9%.
Here of the numbers by month, which demonstrate and acceleration through the quarter and into the interdigital into July.
April new leases were up 10, 8%.
Percent with renewals being 551 per cent.
For a blended increase of 785%.
<unk> leases were up 13, 4% renewals 5.8% for a blended increase of 9.3%.
June new leases were up 18, 4% with renewals being 6 points.
And for a blended increase of almost 12%.
Q2, new lease growth continues to be strongest in Atlanta, and Tampa, South, Florida, Phoenix, and Vegas with each market clearing at least 15% growth.
So far on July new leases are up a robust 24, 4% with renewals being 8.2%.
7 per square of blended increase of 15, 8% on over 1000 leases signed so far in July.
These results are particularly meaningful the when taking into account that our total revenues didn't go negative in 2020 and trust that of positive 2.6% and Q4 of last year.
We expect the this leasing performance to translate into meaningful.
<unk> revenue growth and the second half of the year.
On the transaction front of broad public marketing campaign of Beechwood and Cedar point launched on July 7th and to date. The offering has received significant and tissue with more than 125 of interested parties.
Signing see A's and over 20, plus property tours of being conducted we expect the call for.
Per offers the first week of August with strong Q2, and early Q3 financing results and and the early indication is that pricing will trend toward if not surpass the 4% nominal cap rate threshold. These.
These dispositions will fund and complete our reversed and 31 into our 2 new Charlotte acquisitions, The Creek side of Matthew.
To use and the verandas at Lake Norman Wells.
While reducing the drawn balance on our revolver by 30% to $35 million.
And we spend a few minutes on creek's item Matthews and verandas as Brian mentioned, we purchased creek side for $58 million for a year, 1 economic cap rate of 4 and 5%. We plan to upgrade 193 units here at an average cost of 12.
<unk> thousand of unit generating premiums of $151 and unit and the Rois of Approx of approximately 15%.
We also plan to install washer and dryers and smart Tech packages and every unit and expect to generate monthly premiums of $45 per unit on both the amenities as a result of our underwritten and 3 year average same store NOI growth for this asset of 7.
Even 7% today Creek site is 97, 1% occupied 100% leased and is a trend and 95%.
We purchased the verandas at Lake Norm and for $63.5 million for year, 1 economic cap rate of 4%. The upgraded programs here are particularly exciting given the interiors.
<unk> are 100% classic units and a strong demographic area.
We plan to upgrade 212 units at an average cost of 10000 and $600 of unit generate generating premiums of 177 of unit and Rois of approximately 20%.
We also plan to install washer and dryers and smart packaging Smart tech packages here.
And expect to generate monthly premiums of $45 per unit on both of amenities as a result, our underwritten 3 year average same store NOI growth for this asset is a robust 9.6%.
Today Verandas at 98, 5% occupied and 99, 6% leased and has the trend of 98%.
As Brian mentioned on July 12, 2021, as we disclosed in the Sup, we entered into a PSA to acquire 6 forks and we're in the and the research triangle area for roughly $75 million and for a year, 1 economic cap rate of 4 and a quarter.
Research triangle as assets of have and will continue to be on our radar.
And it is strong and growing tech based and life science presence.
And 6 force we plan of fully upgrade of 111 units and an average cost of $13200 of unit generating premiums of $198 per unit and Rois of approximately 18% and partially upgrade of 148 units at an average cost of 5000.
Given the $500 of unit generating premiums of $82 of unit and.
And our eyes of approximately 18%.
We also plan to install 113, Washington, dryers and generate monthly premiums of $45 per unit.
As a result, our underwritten 3 year average same store NOI growth for this asset is 5.1%.
More broadly the heavier heavy investor appetite as Brian mentioned, the chief financing and capital inflows into our sector has continued to push asset values higher and we see this continuing as robust positive net migration and job growth into the sunbelt accelerating 1 interesting data point that informs our NAV table is that a large $1.2 billion portfolio.
Sent to the trade and Q3.
And so over 4000 units is comparable property types and has an average vintage of $19.93.
The reports are that this portfolio will trade at a 3.5% cap rate on in place numbers and the roughly 2 to $275000 per unit.
Turning to our full year 2020 guidance increase.
The increase and give a little bit more commentary on on this as Brian mentioned, we are pleased to announce another meaningful increase in core of <unk> to the midpoint of $2.35 a share the guidance improvement is largely driven by the acquisitions and expense savings, leaving room for additional upside as these new leases.
As <unk> make their way through the income statements on the expense side, we see modest decrease and decreases in both controllable and non controllable expenses, while still carrying of healthy property tax budget.
Regarding property taxes, we still not received values on 12 of <unk> 39 assets, which are all 8.4 assets and for North Carolina assets.
Assets, including the 2 new acquisitions.
We are presently appealing or filing suit on 'twenty 1 of the 27 property values that we have and we are optimistic that we will see some favorable downward movement, but we have not made any revisions to our conservative initial tax.
The projections for these assets.
Thus with these adjustments acquisitions and most important.
Really the strong portfolio operational performance trends, we are raising the low end and midpoint of our same store NOI guidance to 8% 4% respectively.
And so all I have for prepared remarks.
Remarks, thanks to the teams here at next point BH for continuing to execute on it.
Hi, Brian.
Alright, thank you.
Turn it over for questions.
Thank you if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned on to allow your signal to reach our equipment.
Again press Star 1 to ask a question, we'll pause for just a moment to allow.
And an opportunity to signal for questions.
We'll take our first question from Amanda Sweitzer with Baird.
Thanks, Good morning all.
Good morning, and wanted to start on net.
Same store.
Everyone income guidance, it's kind.
And down marginally and it certainly doesn't seem to have been driven by lease rates and that being predominantly caused by some of the casualty events that you mentioned or any changes on your assumptions on bad debt.
And the rest of the year.
Yeah, I'll start and it's Matt.
Tom we have booked as the as the moratorium has ended here in the.
Coming month, we've decided to take a.
The write off of bad debts, that's backward looking so to speak so the change isn't really forward looking it's just revisions to the to the.
The.
The annual number which we could expect to recapture some of the.
Some of the income later on and the second half of the year. So it's not not really forward looking issues just the revision and then.
I think that's primarily it but if you have anything else.
Yes, so I think we've been and.
Matt.
And part here because typically what we do is move to evicted tenant that would either kind of force of payment or they would leave which case, we just basically ride the balance off and maybe.
We could recover a little bit down the road here, we've been carrying balances for tenants.
The weird and of that and instead of had been in place.
But instead of writing a lot of it off because people and making payments over time.
Or the.
I don't like paying of whatever we've been trying to.
The conservative and prudent with what we're writing off now and as Matt mentioned, we get to.
She can't moratorium and start to formulate a plan around evictions and and trying to collect some of that we think it makes sense to start writing off those balances as the.
It looks like the the tenant may be a candidate for eviction. So we think that's a pretty conservative number I don't think.
At the end of the losses.
Well they they do impact these were any business interruption and we're getting insurance proceeds are going to other income some of it.
Obviously, it doesn't hit that rental revenue line.
But we're starting to bring those units back online now and and that should.
Clear.
And things up and part of what's driving our and additional increases throughout the year.
That's helpful and makes sense and then and you think about the blended lease rates.
<unk> do you think theres still round here to increase renewal rates and further narrow that gap to new lease.
The cash.
Are you getting to the point, where you think turnover will increase and you push renewal rates per there.
Yeah, I think there's definitely room to.
To see them kind of converge right, so and obviously the.
We can.
And 25% and new leases every.
Every quarter, probably go and going forward, but we do expect.
We do expect to see those 2 numbers converge I mean, if you look back in 2016 and 2017 on the.
Portfolio regularly had.
Double digit renewal increases during the during peak leasing leasing season, and so so far we're optimistic.
Mystic as I said in July were.
<unk> 24, 4% new leases, 818% renewals on almost 1100 leases.
Every single markets and double digits on the new lease front and then.
High single digits on the on the renewals so.
I think.
I mean as the markets of our as healthy as they've ever been on the leasing front. So we expect this to continue through the second half of the year.
That's helpful. I appreciate the time guys.
Thanks Man.
Thank you as a reminder to ask the question. Please press star 1.
We'll take our next question from John Masako with Ladenburg Thalmann.
Good morning.
Okay.
Jimmy Good morning, John.
Maybe just following up on that last point of view I guess, given the health of the leasing market and is the expectation as you think about guidance going into the end of the year.
And you can kind of hold occupancy at 96% level, even as we see kind of the eviction moratorium role.
Yeah, I mean, we think so.
Yeah, there is really.
Kind of tier of this all of this is 1 of our.
1 of our projects that we're working on now and we are carrying out the.
The folks that we think are candidates for eviction like immediately and our plan is to take those units and largely rehab them and.
<unk> hit them my easy standard terms and that number is only a 123 units so that would be really the.
The large pool of disrupted units that we would see and Q2 Q3 of Q4.
So that the small number gives us.
Optimism that we should we should be able to hold these numbers and our trends are still as healthy as they've ever been so I think so.
Okay, and then and the other kind of component of the change the guidance was the decrease in kind of the total expense expectations.
And you kind of touched on the fact that it seemed like your tax expectations or are kind of remaining the same and you are going to kind of conservative basis. There I guess, what's kind of driving that 100 basis point decline.
Kind of total same store expenses, if it doesn't seem like it's.
Change in tax expectations.
Yes, I mean I think it's.
And savings on the other the other kind of R&M categories, and payroll R&M went increase and the second quarter.
Primarily because.
And just the comp the was low basically from Q2 of last year. Obviously, we didn't really touch the use of played a lot of defense put off work orders on the maintenance side and so we worked a lot of that through and in Q2 and we're not.
And we're not going to see that we expect not to see that those elevated numbers and.
It was again the second half of the year.
And I guess, sorry, if I missed the but the the.
Change in expectations kind of now versus maybe at <unk> kind of a thought some of that 2020.
The roll off would have been 1 of the unknown.
I guess is it just.
Youre not seeing.
Cost inflation like you were expecting or.
Yes.
It's cost inflation, it's the fact that we just haven't turned.
We don't think will turn as many units and have the turn costs of our reservoir retention is higher.
People are accepting new renewals, so based on our trends and what we think.
And the leasing performance will be and the second half of the year there is not.
There is just lower capex.
Recurring capex.
Okay and then just.
And just what are you seeing and the kind of broader cap rate environment today.
Yes.
Apologies, if I missed it but the.
The assets under contract.
What was the cap rate on those.
Yes, the Charlotte deals are of blended 4 and a quarter.
Cap rates, we expect to dispose of the.
And the Nashville deals at a force of pick up of pickup and Arb, there and do it and a non dilutive way to earnings.
And by a reverse and 31.
More broadly I mentioned the portfolio.
And the institutional seller.
It has.
Those units are and largely Texas, and Florida and.
And we think.
We kind of know they're under contract of 3.5% cap rate. So.
Yes.
It's pretty it's pretty pretty pretty.
The competitive out there, but again with the chief financing and the lack of growth elsewhere and other commercial real estate.
Asset classes. This is pretty popular place to be but as Mitch said at the call at the opening of the call.
We have found 3 acquisitions here and.
Target markets that.
We have a good disposal of our capital recycling are and.
And look forward to growing more particularly and the research triangle.
Okay.
That's it from me. Thank you very much for taking the questions.
Thanks, Sean.
Thank you we'll take our next question from Michael Lewis with true of Securities.
Alright, great. Thank you.
You answered most of the mine, but I wanted to circle back to the the issue of the eviction moratorium on getting lifted I think you said you have about 123 units were you.
You don't want to effect pretty quickly so maybe a 2 parter on this could you talk a little bit maybe about that process. How quickly you get them out. If you think maybe there is higher capex on those those units and then as the second part of that question.
Do you anticipate any impact on market fundamentals.
As you kind of I, just kind of not.
Just you, but others kind of released this this all of a sudden and available inventory and so the market do you think that slows things down a little bit and your markets.
Yeah. Those are those are really good questions.
Michael So the.
As we turn the there was 123 that are kind of of our tier 1 and those folks have either.
Gone dark on us of the speaker or haven't.
Ben making any payments and largely I think most of them of have been on notice and interdiction is been filed so those are the ones. These are the units that we think we can get a hold of pretty quickly and I.
And I'd say about half of those we plan to.
Innovate.
And we know like down to the unit obviously like.
4 type of our 4 planet is so.
We're gonna have teams ready to renovate.
And you renovate those units and re lease them into the strong environment almost immediately so.
That's.
And it's good as far as your market fundamentals and like a flooding of of new tenants out there.
And as the moratorium and I think that.
Institutional owners.
Will.
We will not rent too.
The tenant thats been evicted for whatever reason.
Think that the they still have the qualify income credit checks background checks and.
We are.
And we're certainly.
<unk>.
We appreciate and understand the hard circumstances of the pandemic, but at the same time.
Yeah people people.
Paid rent or making payment plans to pay rent we've worked with our tenants and I think most institutional owners of the same.
All of the same mindset. So if your tenants are trying to to pay and made payment plans and then you'll you'll work with them and those that haven't or they go dark on you.
I think of pretty arent going to get.
The benefit of the doubt on a new lease of those folks that are evicted are probably going to a sea of <unk>.
The unit or something lower quality would be my expectation.
Thanks, and then.
Another.
The kind of macro topic.
Obviously, a lot of talk about the Delta Varian for the last couple of weeks.
Think anybody gets sick and leaves their partner.
And less of the and the <unk>.
Circumstances of course, but.
Is there any reason to think that.
If we get another wave of Corona virus.
If the Delta variant and becomes a bigger issue that Theres. Any you know is is that of rescue think of you know 2 apartment fundamentals are 2 of your business at all of them.
Or do you think that's.
And you're sort of insulated from that a little bit and your business.
Yeah, I mean, I think that.
The RSA.
Our our geographies are and.
And have been sort of the most.
And I don't say lenient, but the most progressive in terms of letting letting folks get out and work and.
And you'll go to restaurants et cetera. So.
And the economic activity and the sunbelt and the southwestern and south Eastern United.
As has the kind of led the nation.
So that's kind of a mitigating factor in terms of the new variant and I think that it would be hard pressed to see governor Abbott or our Florida for example.
For example.
And put the brakes on reopening and go backwards. So I think that that's.
That's something in our and our.
The states of favor that will allow us to continue to hopefully operate as we have been and even and.
Even.
Las Vegas, where there is.
There is temporary mask.
And we re issuances of reorders of wearing masks.
The largely not being.
Our market.
I guess prosecuted or or and for so.
Yes, I think I think for our markets.
And we feel pretty good but.
And who knows what California, and New York will do.
On the wildcard.
Thank you.
Thank you, ladies and gentlemen, once again to ask a question. Please press star 1.
And we have no further questions in queue I'll turn the call back to management for closing remarks.
Thank you I appreciate it appreciate everyones participate presentation. This morning.
Okay, great questions and we will.
The next quarter.
This concludes today's call. Thank you for your participation you may now disconnect.
Connect.
[music].
And then.
And.
[music].
Yes.
And then.
[music].
Great.
[music].
The growth.
Okay.
[music].
Okay.
Moving forward.
[music].