Q1 2023 NexPoint Residential Trust Inc. Earnings Call
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Thank you for standing by at this time I would like to welcome everyone to the next point residential Trust Q1, 'twenty twenty-three conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question.
During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again Press Star one. Thank you Christian Thomas you May begin your conference.
Thank you good day, everyone and welcome to the next one residential Trust's conference call to review the company's results for the first quarter March 31st 2023 on the call today are Brian Mitts Executive Vice President and Chief Financial Officer, Matt Mcgrew, Our executive Vice President and Chief investment Officer and bought them.
On it.
Vice President asset investment in the asset.
As a reminder, this call is being webcast through the company's website at Nx Archie Dot next point dotcom.
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 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 U S. E C for a more complete discussion of risks and other factors that could affect any forward looking statements.
Statements made during the conference call.
Speak only as of today's date and except as required by law.
Or do you does not undertake any obligation to publicly update or revise any forward looking statements.
This conference call also include an analysis of non-GAAP financial measures for a more complete discussion of these non-GAAP financial measures see the company's earnings release that was filed earlier today I would now like to turn the call over to Brian Mitts. Please go ahead Brian .
Thank you Kristen welcome to everyone. Joining us this morning appreciate your time.
Brian Mitts as Christian mentioned I'm joined here with Matt for Greener and border Mcdermott.
Kick off the call and cover our Q1 results give our updated in AAV and then update our guidance for the remainder of the year I'll turn it over to Matt Bonner after that to discuss specifics on the leasing environment and metrics driving our performance and guidance.
So let's start with Q1 results, which are as follows.
Net loss for the first quarter was $3 9 million or 15 cents per diluted share on total revenue of $69 2 million as compared to a net loss of $4 7 million or 18 cents per diluted share in the same period in 2022 on total revenue of $60 8 million.
[noise], which represents a 14% increase in revenue.
For the first quarter NOI was $41 1 million or 40 properties.
<unk> to $36 7 million for the first quarter of 2022 and 39 properties.
Representing a 12, 2% increase in NOI.
For the quarter year over year rent growth on renewals averaged 4.8% across the portfolio and year over year rent growth on new leases averaged 2.8%.
Given where rental rates are in our markets for class B apartments, and equivalent S. Four products. We believe there is still room for future outsized rent growth for the remainder of the year.
The quarter same store rent increased 13, 3% same store occupancy was down 3% to 94%.
This coupled with an increase in same store expenses of 15, 1% led to an increase in same store NOI of nine 4% as compared to Q1 of 2022.
Compared to Q4 2022 range for this quarter on the same store portfolio were up <unk>, 6% quarter over quarter.
We reported Q1 core <unk> of $18 5 million or <unk> 71 cents per diluted share compared to 77 cents per diluted share in Q1, 2022 for the <unk>.
Quarter, we completed 494 full and partial renovations and leased 565 renovated units.
She even an average monthly rent premium of $153.
Excuse me.
One 2% during the quarter.
Inception today in the portfolio, we've completed 8127 full and partial upgrades.
Which represents 34% of our current units.
4914 kitchen upgrades in Washington, Dryer installments, and 10423 technology package installations, achieving an average monthly rent premium of $153 $47 $45 respectively.
Roy of 21, 8% 65, 6% and 37, 4% respectively.
During the first quarter, we've refinanced the venue on camelback and paid down $17 5 million of the corporate credit facility through the refinancing proceeds and available cash.
As of March 31 balance in our corporate credit facilities $57 million.
The sales of old farm in Stone Creek in Houston, which we expect this quarter, we'll use some of those expected net proceeds of $63 million pay down on the remainder of the corporate facility.
Moving to now.
Based on our current estimate estimates of cap rates in our markets and forward NOI, we're reporting our NAV range per share as follows $66.66 on the low end $76 82 on the high end and $71 74 at the midpoint.
These are based on average cap rates ranging from 5% on the low end to five 3% of the high end, which remains flat from last quarter and has increased approximately 65 basis points from.
Q3 of 2022.
Moving to full year guidance, we are updating guidance as follows on core <unk>, we are guiding to $2 19 in the low end.
$3 20, <unk> on the high end with a midpoint of $3.06.
Our rental income we are estimating 10, 5% increase on the low end 12, 1% increase on the high end for midpoint of 11, 3% increase.
For same store NOI, we are estimating nine 2% growth on the low end 12, 8% growth on the high end and 11% in the for the midpoint.
And to add some additional.
Transparency and clarity and information we are showing the components to interest expense, that's obviously driving some of our results and our guidance.
We estimate total interest expense for the year, it's $65 $2 million on the low end $63 2 million on the high end.
At 64 point to me.
At the midpoint.
So with that that completes my remarks, I will turn it over to Matt and then Bonner for some commentary on the portfolio and lease environment. Thanks.
Thanks, Brian .
Let me start by going over our first quarter same store operational results rental revenue growth continued to outperform across the board with year over year growth in Dallas, Dallas, Phoenix, Atlanta, and our Florida markets in the 12% to 17% range.
With Tampa Notching growth north of 20%.
First quarter same store NOI growth continued at a strong pace in our markets with the portfolio, averaging nine 4% driven by 11, 6% growth in total revenues. We have started to see expense growth moderate also with controllable expense of just 40 basis points quarter over quarter and total operating expenses up too.
2% quarter over quarter.
Six of our 10 same store markets achieved year over year NOI growth of eight 4% or greater with our our Q1 same store NOI margin registering a healthy 59, 8%.
The portfolio experienced continued positive revenue growth in Q1 with nine out of our 10 markets achieving growth of at least seven 5% or better our top five markets for Tampa at 29% South Florida at 15, 3% Nashville at 13, 3% Phoenix at 13, 1% in Orlando.
At 12, 6%.
Renewable conversions were 65% for the quarter was six out of our 11 markets executing renewal rate growth of at least three 5% our top five markets where at Raleigh at seven seven Dallas Fort worth at $6 nine South, Florida at $6 six Tampa at five eight in Orly.
Linda Orlando at five seven.
On the occupancy front, we're pleased to report as Brian mentioned that Q1 same store occupancy remained over 94% positioning us well as we enter the peak leasing season and as of this morning. The portfolio is 96, 5% leased with a healthy 60 day trend of 91, 6%.
Year to date in 2023 market conditions have continued to spur our shift in operational focus towards maximizing resident retention, reducing our exposure to rising turnover costs and further centralization of our labor.
Through Q1, 'twenty two 'twenty three we are seeing new supply, albeit primarily primarily within the class a stock continued to deliver in our markets. We are encouraged by the placement of our assets relative to the Submarkets most directly hit with this new competition and real page project project supply inventory for our markets over the next three years to rise.
Just seven 5% with most of that delivering this year and early next.
Deliveries peak in 'twenty, three and then start to moderate in 'twenty four and then literally fall off a cliff thereafter to just 2700 units estimated in 2025 and our Submarkets. We illustrate this supply picture on page five of our supplemental.
Our internal conclusion is we are currently still enjoying relative pricing power between our upgraded housing product versus new supply <unk> assets and expect this paradigm to be particularly acute in the second half of 'twenty, four and 'twenty five and delivery significantly dropped.
On the transaction front, we expect to complete the disposition of all farmers to increase during the quarter as previously mentioned.
We'll use the sales proceeds to retire the remaining balance on our revolver.
We continue to actively monitor the capital markets for opportunities and to stay close to any movements on our on cap rates in our markets. We continue to see many institutional investors on the sidelines.
And we will wait for clarity around the interest rate environment and more recently the regional banking stress.
We've seen cap rate expansion, however, flattened over the last several months on average we're seeing nominal cap rate ranges between 475% and 5% depending on class location and vintage.
We're also monitoring a couple of large acquisitions expected to clear a four nine cap for a large portfolio of assets similar to <unk>, which is a positive read through to our NAV of.
Of 70 to 75, a share versus the current market price in the low <unk>.
In closing we're off to a strong start in 2023 through late April .
Are expecting to see continued strength in middle market rental housing, particularly in our markets and we maintain optimism that 2023 will further demonstrate our ability to produce outsized growth in NOI earnings and dividend growth.
So all I have for prepared remarks, thanks to our teams here at X point, and VH for continuing to execute and turn it back over to you Brian Yes.
Other questions.
To ask a question. Please press star one please limit yourself to one question and one follow up.
Your first question is from Matteo <unk> of Credit Suisse. Please go ahead. Your line is open.
Hi, Yes, good morning team.
Just wanted to focus on guidance for a second so your interest expense guidance you kind of go up.
About three point something million dollars, which is about 13 cents.
But the midpoint of the guidance it was really kind of lowered by three cents could you just talk a little bit about where that remaining 10 fence.
That pickup comes from given that the midpoint of your same store NOI growth was essentially unchanged at 11%.
Okay.
Well I can speak to the interest side.
Yes.
Kind of talked about this on past calls and individually with <unk>.
Some of the analysts.
There is some noise that runs through the <unk>.
The guidance slide we have a mark to market.
It shows fair value of the rate caps.
That's moving through there and obviously creates about a $3 million or so.
Increase to interest expense.
For the quarter.
I'll, let Bonnie talk about sort of where the remainder of that differential comes in.
But we continue to see for changes in the.
The mark to market piece of this which we try to estimate the best of our ability just given the changes in the forward curve and volatility of interest rate movements makes a little bit challenging and so we're trying to tighten that up and add more transparency here, but.
Yes.
Yes.
Sure.
Yes, happy to 70, or so as we look at it.
We are simply reaffirming the midpoint of our same store NOI at 11% as we look at it.
The numbers here through almost the end of April we have visibility through.
May and June on the renewal front. So we've got some line of sight, there we think that.
Ultimately, we're picking up a couple of cents a share from our original forecast on NOI.
And then there's an accumulation of a few several smaller updates to our corporate forecast that offset that 13.
Interest expense Youre talking about lines.
<unk> in our corporate G&A stockpile deferred financing cost amortization.
We can yes, we can dig in deeper offline and really give you the best best color, there, but I think that.
A little bit stronger forecasts for NOI for the year.
We're seeing some swings obviously the rate curve has gone pretty wild start the year, we had a view, yes, two months ago of where rates were going we continue to have our own view and then look at the forward curve as well and that has an impact but.
Ultimately I think that we feel good about hitting the 11% this year, we're on track to hit.
Currently a little bit a little bit ahead of midpoint. There. So I think youre picking up a little bit of benefit from that.
So just to just to just to reiterate then the pickup of that 10 to close the gap is mainly based on.
Some saw some improvement in kind of like the non same store pool and as well as some G&A improvements.
There is another another component here too that we should mention that.
The timing of the Houston dispositions. We're currently looking now towards I think a June close there. So we're kicking off a couple of additional months of NOI for those assets as well to get to the full year picture. So it's a bunch of little little incremental improvements that offset that interest.
The full picture on interest expense, which includes the mark to market of the fair value of the rate caps, which is the most dramatic move of any of those interest expense.
Okay. Thank you.
Your next question is from a call. It <unk> of Janney. Please go ahead. Your line is open.
Good morning, guys same store expense was 15, 1% for the first quarter and the mid point of guidance is currently 10, 6%.
So that assumes each of the remaining quarters are going to average around 9% are you expecting significant property tax relief or any one time items to positively impact <unk>.
Hence growth in the remainder of 2023 or just easier comps.
Yes, I'll start with volume.
This we are expecting some some real estate.
Tax tax relief and then.
A moderation of turn costs as.
As we've we've turned a large part of the rent roll in the first in the first quarter. So we expect that to moderate in the back half of the year.
Adding to that too is we did a little bit better on our insurance renewal than we thought.
Just recently I think we locked it in in the last month or so R&D everything yeah, just on that on that point. So we have an April one renewal.
It was a tough market out there, but I think that we saw some pretty significant savings we came into the year conservative on our assumptions there and I think were in the.
Single digits on premium increase where we ever in our model in 2025%. So there's some savings for the back nine months of the year and interest expense. Additionally, as you look at.
Q1 same store one of the one of the most significant single line items and there is a 2021 tax settlements that impacted.
2020, Twos Q1 same store real estate taxes, we didn't get that same settlement here in 2023, yet we still have several several active cases litigation for 2022 values.
And we are feeling better about our positioning with <unk>.
In particular on taxes, given the rise.
Rising rates decline in values and that we have a better and a better case for some tax relief this year.
And then.
Going back to your point, we really saw a run up in R&M and turn costs really in the second quarter last year, we started flowing through more of the <unk>.
Fiction post moratorium, so we've seen an elevation in that.
Turn in R&M expense that I think that as we get into the Q2 comp pools will normalize more.
Quarter over quarter, So we feel better about expense inflation for the balance of the year.
Okay. Thank you for that and then I also had a quick question on quarter over quarter, you saw a 260 basis point drop in Charlotte occupancy.
And then around 170 basis point drop in Atlanta.
Those markets.
So in Atlanta, we had a fire or rockledge asset so that thats a portion there. Additionally to preserve a ton mill in Atlanta.
We've been having.
Just a little bit more difficult renewal discussions I think that we've moderated pricing so that those are quarter ending number of 331.
And our revenue management teams working to backfill demand there.
Those assets in Charlotte, our timber Creek asset it also dealt with the casualty events.
And as Doug will deliberate a waning demand. So we've been we've been toggling revenue management, making sure that the pricing style, then set to build that occupancy back up.
Okay. Thank you very much.
Sure.
Your next question is from Amit <unk>.
Kevin <unk> of Credit Suisse. Please go ahead your line is open.
Yes, just going back to our ranks.
Again for the quarter.
<unk> taken a look at new ranks with some of your markets Phoenix Vegas.
It actually turn negative just kind of curious what kind of what's going on in the market a lot of new supply is it.
<unk> growth slowing on the demand side and kind of what made.
No rent growth kind of a negative in those market.
Yes.
Hey, Tayo, it's Matt the Phoenix as a supply story.
So there's a there's quite a bit of deliveries going on in Phoenix.
Right now that's a component of the other component is.
It's a really tough comp.
Those rents last year, but really last first half of last year, where we're seeing.
15% to 25% increases so I think thats the story in Phoenix vague.
Bagus as seasonality and weaker demand than we expected.
There is there are several of our assets.
Particularly around <unk> that are heavily giving heavy concessions to the markets.
We had to buy some occupancy.
On those two assets.
Thank you.
Got it.
There are no further questions at this time I will now turn the call over to the team for closing remarks.
Yes, I appreciate everyone's time and questions.
Feel free to reach out to us if you have additional questions happy to.
To answer them.
And until then we'll see you next quarter. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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