Q4 2023 NexPoint Residential Trust Inc Earnings Call
[music].
Operator: www. NexPointResidential.com Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust fourth quarter 2023 conference call. All lines have been placed on mute to prevent any background noise.
Okay.
Good morning, My name is Dennis and I will be your conference operator today at this time I would like to welcome everyone to the next point residential Trust's fourth quarter 2023 conference call.
All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. To withdraw your question, press star 1 again.
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 then the number one the Andhra telephone keypad to withdraw your question Press Star one again.
Kristen Thomas: I would now like to turn the conference over to Kristen Thomas, Investor Relations. Please go ahead. Thank you. Good day, everyone.
I would now like to turn the conference over to Kristin Thomas Investor Relations. Please go ahead.
Okay.
Thank you good day, everyone and welcome to the next wave residential Trust's conference call to review the company's results for the fourth quarter ended December 31 2020.
Kristen Thomas: And welcome to NexPoint Residential Trust's conference call to review the company's results for the fourth quarter ended December 31, 2023. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer, Matt McGraner, Executive Vice President and Chief Investment Officer, and Bonner McDermott, Vice President, Asset Investment. As a reminder, this call is being webcast through the company's website at nsrt.nex 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 estimates. Please see the complete disclaimer at www.nexpoint.com.au. The statements made during the conference call speak only as of today, and, except as required by law, and I expect that you do not undertake any obligation to publicly 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.
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 Bonner Mcdermott Vice President investment.
As a reminder, this call is being webcast through the company's website in fact, our T Dot next week.
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.
Listeners should not place undue reliance on any forward looking statements and are encouraged to review the company's most recent annual for one 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 <unk>.
As required by law expert he 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 earnings release that was filed earlier today.
I would now let's turn the call over to Brian. Please go ahead Brian.
Brian Dale Mitts: Thank you. Thank you, Kirsten. Welcome, everyone. Appreciate you joining us this morning. I'm Brian Mitts, and I'm also joined by Matt McGraner and Bonner McNerman.
Thank you Kristen walking everyone. Appreciate you joining this morning.
Mitch.
I'm also joined by not for Greener and bottom Mcdermott.
Brian Dale Mitts: I'll kick off the call and cover our fourth quarter and full year results and highlights. We'll update our NAV calculation and then provide initial guidance for 2024. We'll then turn it over to Matt and Bonnie to discuss specifics on the leasing environment and metrics driving our performance and guidance, as well as details on the portfolio. So, let me start with the results from the fourth quarter, which are as follows. Net income for the fourth quarter was $18.4 million, or $0.70 per diluted share, on total revenue of $68.9 million, as compared to net income of $3.8 million, or $0.15 per delivered share, for the same period in 2022 on total revenue of $69.3 million. For the fourth quarter, NOI was $42.2 million on 38 properties, as compared to $41.8 million for the fourth quarter of 2022 on 40 properties. 0.9% increase in NOI
I'll kick off the call and cover our fourth quarter and full year results and highlights.
Update our NAV calculation and then provide initial guidance for 2024.
Well, then turn it over to Matt and Bob to discuss specifics on the leasing environment and metrics driving our performance and guidance as.
As well as details on the portfolio.
So let me start with the results from the fourth quarter, which are as follows net income for the fourth quarter was $18 4 million or 70 cents per diluted share on total revenue of $68 9 million.
Compared to net income of $3 8 million or 15 cents per diluted share in the same period in 2022 on total revenue of $69 3 million.
For the fourth quarter NOI was $42 2 million on 38 properties as compared to $41 8 million for the fourth quarter 2022 on 40 properties appoint 9% increase in NOI.
Brian Dale Mitts: For the quarter, same-store rental income increased 3.8%, and same-store occupancy was up 60 basis points to 94.7%. This, coupled with an increase in same-store expenses of 2%, led to an increase in same-store NOI of 4.5% as compared to Q4 2022. Rental income for the fourth quarter of 2023 on the same store portfolio was up 1.3% quarter over quarter from the third quarter of 2023. We reported Q4. Core FFO was $17.4 million or $66 million.
For the quarter same store rental income increased three 8% and same store occupancy was up 60 basis points to 94, 7%.
This coupled with an increase in same store expenses of 2% led to an increase in same store NOI of four 5% as compared to Q4 2020 to.
Rental income for the fourth quarter of 'twenty three on the same store portfolio was up one 3% quarter over quarter from the third quarter of 'twenty three.
We reported Q4.
Core <unk> $17 4 million or 60.
Brian Dale Mitts: $0.75 per diluted share compared to $0.75 per diluted share in the 4th quarter of 2020. We will continue to execute our value-added business plan by completing 113 full and partial renovations during the quarter and leasing 132 renovated units, achieving an average monthly rent premium of $214 and a 19.9% return on investment. Since conception to date, and the current portfolio as of 12-31, we have completed 8,534 full and partial upgrades, 4,761 kitchen and laundry appliance installations, and 12,348 technology package installations, resulting in $169, $49, and $43 average monthly rental increase per unit and 20.9%, 64.7%, and 37.8% return on investment. Moving to the full year, the full year results are as follows. Net income for the year ended December 31st was $44.3 million, or $1.69 per diluted share, which included a gain on sales real estate of $67.9 million.
Cents per diluted share compared to 75 cents per diluted share in the fourth quarter of 22.
We continue to execute our value add business plan by completing a 113 full and partial renovations during the quarter and we used 132 renovated units achieving an average monthly rent premium of 2% to $14 and a 19, 9% return on investment.
In substance at eight in the current portfolio as of 12 31.
<unk> completed 8534, full and partial upgrades 4761 kitchen and laundry appliance installations.
<unk> got 348 hour package installations, resulting in $169 $49 and $43 average monthly rental increase per unit.
29% 64, 7% and 37, 8% return on investment respectively.
Moving to the full year over year results are as follows net income for the year ended December 31 was $44 3 million or $1 69 per diluted share which included a gain on sales.
$67 9 million.
Brian Dale Mitts: This compared to a net loss of $9.3 million or $0.36 per diluted share for the full year of 2022, which included a gain on sale of real estate of $14.7. For the year, NOI was $167.4 million on 38 properties, as compared to $157.4 million on 40 properties for the same period in 2022, for an increase of 6.3% in NOI. For the year, same-store rental income increased 7.1%, and same-store occupancy was up 60 basis points to 94.7%. This, coupled with an increase in same-store expenses of 5.5%, led to an increase in same-store NOI of 8.2% as compared to the full year of 2022. The company reported core FFO in 2023 of $73.5 million or $2.80 per diluted share compared to $3.13 per diluted share in Since inception of the business in 2015, NXRT has generated 10.92% compound annual growth of core FFO. For the fourth quarter, it paid a dividend of 46 cents per share on December 29th.
This compared to a net loss of $9 3 million or 36 negative 36 cents per diluted share for the full year of 2022, which included a gain on sale of real estate of $14 7 million.
For the year NOI was $167 4 million on 38 properties as compared to 157 4 million or 40 properties with the same period in 2022 for an increase of six 3% and NOI for.
For the year same store rental income increased seven 1% and same store occupancy was up 60 basis points to 94, 7%.
This coupled with an increase in same store expenses of five 5%.
Two an increase in same store NOI of eight 2% as compared to the full year 2022.
We reported core <unk> in 2043 of $73 5 million.
Or $2.80 per diluted share compared to $3.13 per diluted share in 2022.
Since inception of the business in 2015.
Our T has generated 10, 92% compound annual growth and core S F.
For the fourth quarter, we paid a dividend of 46 cents per share on December 29.
Brian Dale Mitts: Since inception, we've increased our dividend 124.5%. In 2023, our dividend was 1.62 times covered by core FFO, with a payout ratio of 61.6% of core FFO. Moving to our NAV, based on our current estimates of cap rates in our markets at Forward NOI, we're reporting a NAV per share range of $47.64 on the low end. $61.23 on the high end and $54.43 at the Midtown.
Since inception, we have increased our dividend 124, 5% for.
For 2023, our dividend was 1.62 times covered by core F O with a payout ratio of 61, 6% of core up also.
Moving to our NAV.
Based on our current estimates of cap rates in our markets. It forward NOI, we're reporting an NAV per share range as follows $47.64 on the low end 60.
$61.23 on high end <unk>.
$54.43 at the midpoint user.
Brian Dale Mitts: These are based on average cap rates ranging from 5.5% on the low end to 6% on the high end, which remained the same as last quarter and increased 60 basis points year-to-date to reflect a rise in interest rates and observable increases in cap rates in our market. Before we go to guidance, let's touch on our 2023 dispositions and subsequent events. On September 22, 2012, we completed the sale of Silverbrook in Dallas for gross proceeds of $70 million, representing a cap rate of 4.55%. The gain on sale was $43.1 million, and $16 million of the $19.5 million net proceeds were used to partially pay down the corporate credit facility on September 25th and December 13. We completed the sale of Timber Creek in Charlotte for gross proceeds of $49 million, representing a cap rate of 5.01%.
These are based on average cap rates ranging from five 5% and the low end to 6% on the high end, which remain the same as last quarter and increased 60 basis points year to date to reflect the rise in interest rates and observable increases in cap rates in our markets.
Before we go to guidance touch on our 2023 dispositions and subsequent events since 12 31.
September 22nd completed the sale of silver broke in Dallas for gross proceeds of $70 million.
Representing a cap rate of 4.55% the gain on sale was $43 1 million and $16 million of the $19 5 million net proceeds were used to pay down par.
Partially pay down our corporate credit facility on September 25th.
On December 13th.
We completed the sale of timber Creek Charlotte for gross proceeds of 49 million, representing a cap rate of 5.01% gain on sale of $24 8 million and $17 million or $24 5 million net proceeds were used to pay down our corporate credit facility on December 15th.
Brian Dale Mitts: The gain on sale is $24.8 million, and $17 million of the $24.5 million net proceeds were used to pay down the corporate credit facility on December 15. We currently have two properties, Old Farm located in Houston and Bradbourne Lake located in Charlotte, under contract that we expect to close in the first half of the year. The estimated net proceeds of $66.1 million will be used to fully pay down the rest of the corporate credit.
We currently have two properties all farm located in Houston I born Lake located in Charlotte under contract. So we expect to close the first half of the year. The estimated net proceeds of $66 1 million will be used to fully pay down the rest of the corporate credit facility.
Going to guidance for 2024, we are issuing initial guidance as follows.
Brian Dale Mitts: Going to guidance for 2024, we're issuing initial guidance as follows: core FFO per diluted share, $2.85 at the high end, $2.60 at the low end, with a midpoint of $2.72.
Core <unk> per diluted share $2 85 at the high end $2.60 at the low end with a midpoint of $2.72.
Matthew McGraner: For same store revenue, a 3.9% increase on the high end, 1.1% increase on the low end, and a midpoint 2% increase. For same store expenses, an increase of 4.3% for the high-end, 6% for the low-end, and 5.1% increase for the mid-priced, which results in a same-store NOI of a 2% increase on the high end, a 2% decrease on the low end, and So with that, let me turn it over to Matt and Bonner for additional comments. Thanks, Brian.
For same store revenue.
3.9% increase on the high end, one 1% decrease in the low end with a midpoint of 2% increase.
Same store expenses.
Increase of four 3% for the high end, 6% for the low end and five 1% increase from the midpoint.
Which results in a.
Same store NOI.
Of a 2% increase on the high end, a 2% decrease on the low end and a zero percent or flat increase at.
At the midpoint.
So with that let me turn it over to Manhattan Bonner for additional commentary.
Thanks, Brian let me start by going over our fourth quarter same store operational results. Our Q4 same store NOI margin improved to 62, 5% up 20 basis points over the prior year period same store effective rents ended the quarter at $1516 per month.
Matthew McGraner: Let me start by going over our fourth quarter same-store operational results. Our Q4 same-store NOI margin improved to 62.5%, up 20 basis points over the prior year period. Same-store effective rents ended the quarter at $1,516 per month, up 20 basis points year-over-year.
Up 20 basis points year over year.
Matthew McGraner: Occupancy ended in 2023 at 94.7%, which was up 60 basis points year over year. We saw sizable occupancy growth in some of our supply-heavy markets as we implemented a more defensive strategy late in the year. Atlanta and Charlotte finished the year 96.2% and 95.7%, respectively, while Phoenix, South Florida, and Tampa all finished the year over 95% occupied.
Occupancy ended the 2023 at 94, 7% that was up 60 basis points year over year, we saw sizeable occupancy growth in some of our supply heavy markets as we implemented a more defensive strategy late late in the year Atlanta, and Charlotte finished the year 96, 2% and 95, 7% respectively.
While Phoenix, South, Florida, and Tampa, all finished the year over 95% occupied.
Matthew McGraner: Fourth quarter same store and OI growth was 4.5%, driven by 3.8% growth in rental revenue and 4.1% growth in total revenue. We continue to see moderating expense growth with Q4 down two percentage points year over year. Bad debt also continued to trend down and finish Q4 at 1.9%, down from 2.7% earlier in the year. Payroll declined 180 basis points in Q4, continuing the downward trend in Q2 and Q3.
First quarter same store NOI growth was four 5% driven by three 8% growth in rental revenue and four 1% growth in total revenue.
We continue to see moderating expense growth with Q4 down two percentage points year over year.
Bad debt also continued to trend down and finished Q4 at one 9% down from two 7% earlier in the year.
Payroll declined 180 basis points in Q4, continuing the downward trend in Q2 and Q3.
Matthew McGraner: Repairs and maintenance expense growth was 5.4% in the quarter, continuing to moderate as well from an elevated post-COVID comp in 2022. And real estate taxes also have moderated, and true ups booked in Q4 reflect a reduction to our overall real estate taxes for the year, ending at 4.2% growth. In 2023, we shifted our operational focus to higher resident retention, reducing turnover costs, and furthering our efforts to implement AI and centralized labor. Additionally, we continue to focus on our capital efforts to reduce our overall debt. As we entered the second half of the year, our market started to see the effects of delivering record high supply, indeed, almost a four-decade high. Though positive for the year, new lease rental rates turned negative in the second half of the year, putting stress on top-line revenue growth.
Repairs and maintenance maintenance expense growth was five 4% in the quarter continuing to moderate as well from often elevated post COVID-19 comp in 2022.
In real estate taxes also have moderated and true ups booked in Q4 reflect the reduction to our overall real estate taxes for the year ending at four 2% growth.
In 2023, we shifted our operational focus to higher resident retention, reducing turnover costs and furthering our efforts efforts to implement AI in centralized labor. Additionally, we continue to focus on our capital efforts on reducing our overall debt as we enter the second half of the year our market starting to see the effects of delivering record.
Hi supply indeed, almost four decade high so positive for the year, new lease rental rates turn negative in the second half of the year, putting stress on topline revenue growth expenses continue to moderate and our efforts to reduce further reduce turnover costs help maximize growth implementing AI and centralization of labor is start.
Matthew McGraner: Expenses continue to moderate, and our efforts to reduce turnover costs help maximize growth. Implementing AI and centralization of labor have started to pay dividends, most notably in Q4 2023, which we will continue to improve on in 2024. On the occupancy front, we're pleased to report that Q4 same-store occupancy remained over 94.7%, positioning us well for 2024. And as of this morning, the portfolio is 94.8% occupied, 96.5% leased, with a healthy 60-day trend of 93.5%. 2024 retention has also started off strong, with both January and February over 50%. February month-to-date is 59%, and March is expected to finish at 60-plus percent. Turning to full year 2023, same store and OI performance, our full year of same-store NOI margin improved by 65 basis points to 61.6%. Same-store revenues increased 7.1%, while same-store NOI registered a strong 8.2% growth year-over-year.
To pay dividends, most notably in Q4, 2023, which we will continue to improve on in 2024.
On the occupancy front, we're pleased to report that Q4 same store occupancy remained over 94, 7% positioning us well for 2024 and as of this morning. The portfolio was 94, 8% occupied 96, 5% leased with a healthy 60 day trend of 93, 5% 2020 forward.
<unk> has also started off strong with both January and February over 50% February month to date is 59% and margins are expected to finish at 60 plus percent.
Turning to full year 2023 same store NOI performance.
Our full year same store NOI margin improved by 65 basis points to 61, 6% same store revenues decreased or increased seven 1%, while same store NOI registered a strong eight 2% growth year over year six of our 10 same store markets grew NOI by at least 7% no.
<unk> same store NOI growth markets for the year were South, Florida, Orlando, Nashville, and Tampa as each grew NOI by 9% or more.
Matthew McGraner: Six of our ten same-store markets grew NOI by at least 7%. Notable same-store and OI growth markets for the year were South Florida, Orlando, Nashville, and Tampa, as each grew in OI by 9% or more. Turning to 2023 acquisitions and dispositions, NXRT disposed of Silver Brooke on September 22nd, 2023 in Timber Creek on December 13th, 2023.
Turning to 2023 acquisitions and dispositions.
<unk> disposed of silver broke down seven on September 22023 in timber Creek on December 13th 2023. These sales generated a blended 30% levered IRR a five to eight times multiple on invested capital and 44 million in net proceeds of which as Brian mentioned it was used to pay.
$33 million to pay down the drawn balance on the credit facility.
Matthew McGraner: The sale generated a blended 30% levered IRR at 5.28 times the multiple of uninvested capital and $44 million in net proceeds, of which, as Brian mentioned, was used to pay $33 million to pay down the drawn balance on the credit facility. We're excited to report that Old Farm will finally close by the end of February 2024, which will generate a 22% levered IRR, a $2.92 multiple on uninvested capital, and $48 million of net sales proceeds. We will use $24 million of the net sales proceeds to pay off the remaining drawn amount on our credit facility. We will press release the closing to close the gap on the strategic disposition. As Brian mentioned, we're also under contract to sell Radborn Lake, which will generate a 19% levered IRR, a 3.5x multiple on uninvested capital, and $18 million in net sales proceeds.
We're excited to report that all farm will finally close by the end of February 2024, which will generate a 22% levered IRR at $2 99.
<unk> multiple on invested capital and 48 million of net sales proceeds we will use $24 million of the net sales proceeds and pay off the remaining drawn amount on our credit facility.
We will press release, the clothing to close the gap on the strategic disposition.
As Brian mentioned, we're also under contract to sell Radborne Lake, which will generate a nice 19 times excuse me, 19% Levered IRR of three five times multiple on invested capital and $18 million in net sales proceeds.
As Brian mentioned, turning to our 2024 guidance as Brian said at this time.
We're expecting same store NOI growth to be relatively flat for 2024, as we enter peak supply.
Across our same store properties, we are forecasting one 4% to three 2% rental income growth.
We're forecasting one 1% to two 8% total revenue growth.
Two 7% controllable expense growth.
Matthew McGraner: As Brian mentioned, turning to our 2024 guidance, as Brian said, at this time, we're expecting same-store and OI growth to be relatively flat for 2024 as we enter peak supply. Across our same-store portfolio of properties, we are forecasting 1.4% to 3.2% rental income growth, for forecasting 1.1% to 2.8% total revenue growth. 2.7% controllable expense growth and 1.6% to 3.8% total expense growth. We continue to be an internal growth business at our core, and to that end, our guidance includes the following assumptions regarding our value-add program. We expect to complete 235 full interior upgrades on select assets at an average cost of $17,150 per unit, generating $250 average monthly premiums or approximately 17.4% return on invested capital. Additionally, we expect to complete 611 partial interior upgrades at an average cost of $3,910 per unit, generating $78 average monthly premiums or 24% return on invested capital. This includes bespoke additions such as new stainless steel appliances, backsplashes, tub enclosures, and private patios. We also expect to complete 661 washer-dryer installs at an average cost of $1,000 per unit, generating $57 average monthly premiums or 70% return on invested capital.
And one 6% to three 8% total expense growth.
We continue to be an internal growth business at our core into that in our guidance includes the following assumptions regarding our value add programs we.
We expect to complete 235 full interior upgrades on select assets.
At an average cost of $17150 per unit generating $250 average monthly premiums are approximately 17, 4% return on invested capital.
We expect to complete 611 partial interior upgrades at an average cost of $3910 per unit generating $78 average monthly <unk>.
<unk> or 24% return on investment on invested capital this.
This includes the spoke conditions, such as new stainless steel appliances back slashes tub enclosures and private patios.
We also expect to complete 661 washer dryer installs at an average cost of $1000 per unit generating $57 average monthly premiums or 70% return on invested capital.
Our 2024 guidance also includes the following acquisition and disposition assumptions zero to $200 million of acquisition guidance, which given our current cost of capital. We are prioritize balance sheet cleanup and share buybacks given our implied cap rate is north of 7% at the moment.
And 150 to $2 million to $300 million of disposition disposition activity could reach the higher end of the range of our team can identify additional assets that can be accretively added via tax efficient capital recycling strategies that we've implemented in the past.
So in closing so far in 2024, we're off to a good start prioritizing occupancy and increase resident satisfaction and retention our balance sheet is much healthier after materially delevering through last year's hiking cycle, though our posture to start the year as defensive we are expecting modest growth this year specifically.
Matthew McGraner: Our 2024 guidance also includes the following acquisition and disposition assumptions. Zero to $200 million of acquisition guidance, which given our current cost of capital, we have prioritized balance sheet cleanup and share buybacks given our implied cap rate is north of 7% at the moment, and $150 to $300 million of disposition. This position activity could reach the higher end of the range if our team can identify additional assets that can be accretively added via tax-efficient capital recycling strategies that we've implemented in the past. www. NexPointResidentialTrust.com. So, in closing, so far in 2024, we're off to a good start, prioritizing occupancy and increased resident satisfaction and retention. Our balance sheet is much healthier after materially de-levering through last year's hiking cycle.
In the second half of the year as supply growth begins to wane, our internal views that we are in the eye of the supply storm so to speak right now through the third quarter in our Submarkets in 2024. For example, we see 25100 units delivering in our Submarkets in 2025 that number is more than half to 10830.
Two units and then in 2026 versus just under 1000 units of new supply delivering in our submarkets across the entire company.
So while we again, we will continue to have a defensive posture going to going starting to starting the year. We are optimistic about the portfolios intermediate to long term growth cost growth prospects for the foreseeable future.
That's all I have for prepared remarks, thanks to our teams here at X point, and VH for continuing to execute and I'd like to turn the call back over to Brian.
Matthew McGraner: Though our posture to start the year is defensive, we are expecting modest growth this year, specifically in the second half of the year as supply growth begins to wane. Our internal view is that we are in the eye of the supply storm, so to speak, right now through the third quarter in our sub-market. In 2024, for example, we see 25,100 units delivered in our sub market. In 2025, that number is more than half to 10,832 units.
Thanks Scott.
Once we'll go to Q&A now.
Thank you once again, if you would like to ask any question simply press Star then the number one on your telephone kit T path. Once again, if you'd like to ask a question press star one on your telephone keypad.
And the first question comes from the line of Kyle cancer and thick with Janney. Please go ahead.
Hey, Good morning, guys. Given you provided an EV range, how do you consider the tradeoff with closing the value gap between your stock price and NAV.
Via buybacks versus purchasing assets with long term appreciation.
Matthew McGraner: And then in 2026, there's just under 1,000 units of new supply delivery in our submarkets across the entire company. So while we, again, will continue to have a defensive posture starting the year, we are optimistic about the portfolio's intermediate to long-term growth prospects for the foreseeable future. That's all I have for prepared remarks.
Hey, Kyle it's Matt.
It's a good question I think.
The way we're thinking about it currently is we can't find any assets that we like better.
In the market.
In our own portfolio at again, north of a 7% implied cap rate.
Assets that are that are being launched so to speak or for sale, which are still few and far between.
Our way way south of that pricing.
Operator: Thanks to our teams here at NexPoint and BH for continuing to execute, and I'd like to turn the call back over to Brian. With that, we'll go to Q&A now. Thank you. Once again, if you would like to ask a question, simply press star, then the number one on your telephone kit keypad.
South of the 7% implied cap rate so as that.
Cap rate range continues to compress I think youll see us start continuing to.
Our start being more active on the acquisition cycle and utilizing sort of reverse 10, 30 ones, where we use our portfolio as currency like we've done in the past over the past 10 years by buying a deal and then selling something in our portfolio to finance it.
Operator: Once again, if you'd like to ask a question, press star one on your telephone keypad. And the first question comes from the line of Kyle Kantorincic with Janie. Please go ahead. Hey, good morning, guys.
Matthew McGraner: Given your provided NAV range, how do you consider the trade-off of closing the value gap between your stock price and NAV via buyback versus Purchasing Assets with a Long-Term. Hey Kyle, it's Matt.
Okay, and then in terms of disposition guidance, considering the sale old farm Radburn Lake and then stone Creek at Old farm, assuming price per door similar to old farm gets you to around $170 million with the midpoint of guidance for 'twenty four being $2 25 are incremental sales likely to be assets with near term expiring caps and higher rates of interest.
Matthew McGraner: It's a good question. I think the way we're thinking about it currently is that we can't find any assets that we like better in the market than our own portfolio at, again, north of a 7% implied cap rate. Assets that are being launched, so to speak, or for sale, which are still few and far between, are way south of that price, south of a 7% implied cap rate. So as that cap rate range continues to compress, I think you'll see us start continuing to, or start being more active in the acquisition cycle and utilizing sort of reverse 1031s, where we use our portfolio as currency, like we've done over the past 10 years, buying a deal and then selling something in our portfolio to finance it.
Okay.
No not necessarily I think I think the.
The assets that we will prioritize for disposition will be those that are requiring a heavier capex lift.
And or in the more of a supply concentrated submarket.
Because I think we're given where we are at peak rates for at least we believe <unk> be great.
We think that the.
The greater risk to the portfolio health.
Matthew McGraner: Okay, then, in terms of disposition guidance, considering the sale of Old Farm, Radburn Lake, and then Stone Creek at Old Farm, assuming prices were similar to Old Farm, gets you to around $170 million, with the midpoint of guidance for 24 being $225. Are incremental sales likely to be assets with near-term expiring caps and higher rates of interest? Thank you. No, not necessarily.
Yes, again heavier capex or.
Some markets that have oversized supply.
Okay, and then one last one what are the Max amount of sales you can do under REIT rules for 'twenty four.
Some of them are ahead I'm not positive I think.
The extent that we.
We utilized $2 31.
Yes.
It's a non issue for 2024 that I do know for sure, but we can get back to you on the specific number.
Matthew McGraner: I think the assets that we'll prioritize for disposition will be those that are requiring a heavier capex lift or are in more of a supply-concentrated submarket. Because I think we're given where we are at peak rates, or at least we believe we're at peak rates, then we think that the greater risk to the portfolio health is, again, heavier capex or some markets that have oversized supply. Okay, and then one last question for me: what is the maximum amount of sales you can do under REIT rules for 24? Off the top of my head, I'm not positive. I think, you know, to the extent that we utilize 1031s, it's not an issue for 2024. That I do know for sure, but we can get back to you on the specific number.
Okay. Thanks, guys.
You bet.
Your next question comes from the line of Linda Tsai with Jefferies. Please go ahead.
And Linda your line may be on mute.
Thank you.
In terms of just how much of your portfolio would you expect to recycle to help de lever over the next few years.
I think.
As we look into 2024 and 2025.
The more likely scenario would be.
Probably a greater portfolio sale.
Sort of.
Individually delevering.
Operator: Okay, thank you guys. You bet. Your next question comes from the line of Linda Tsai with Jeffries. Please go ahead. And Linda, your line may be on mute.
Once we get through the old farm sales as I mentioned, we're we're.
Were fully paid off on our credit facility and.
Matthew McGraner: Thank you. In terms of disposal, how much of your portfolio would you expect to recycle to help deliver over the next few years? I think, you know, as we look into 2024 and 2025, the more likely scenario would be probably a greater portfolio sale than, you know, sort of, you know, individually delevering. Once we get through the old farm sales, as I mentioned, we're fully paid off on our credit facility and feel pretty good about, you know, feel pretty good about where the www. NexPointResidentialTrustInc.com Got it.
And feel pretty good about.
Feel pretty good about where the.
Where the capital stack sits in terms of being hedged.
With over mid 90% of our debt still being hedged.
Yes, the again the more likely scenario I think is just just an outright disposition of the portfolio but.
Yes in terms of in terms of incremental Delevering I think we're yes.
I think we're that equilibrium.
Got it and then when you say modest growth in the second half, which markets might you see return first.
Matthew McGraner: And then when you say modest growth in the second half, which markets might you see return first? Yeah, that's a good question. So, I think as it relates to the markets that are going to be tougher, or Atlanta, Las Vegas, and Tampa in the first half of the year, we do see those picking up in the latter half of the year. Kind of stronger markets throughout for us, we think, are obviously South Florida, and then Orlando and Nashville, which we think are going to get better through the second half of the year. Thanks. Last question.
Yes, good question.
Yes.
Yes.
So I think as it relates to the markets that are going to be tougher.
Our Atlanta Las Vegas.
Tampa.
In the first half of the year.
We do see those picking up in the latter half of the year kind of stronger markets throughout for US we think.
Obviously, south Florida.
And then Orlando and Nashville, we think youre going to get better through the second half of the year.
Thanks last question just on Atlanta, any updates there on kind of fraudulent activity and puts your bad debt expectation for year end.
Matthew McGraner: Just on Atlanta, any updates there on any kind of fraudulent activity, and what's your bad debt expectation for year-end? Yeah, it's improved, you know, in terms of where it was last year. It was over, you know, almost 3%. We're seeing it down at the end of January at 1.7, 1.8%, and underwriting basically, you know, call it a 2% expectation for the year in Atlanta, and we expect to be one of the higher bad debt markets, you know, obviously, but it has incrementally improved over the past couple of months, and the trend in January is encouraging because, you know, given the holiday season and, you know, the start of the year, sometimes you have Your next question is from the line of Connor Peeks with Georgia Bank. Please go ahead.
Yes, it's improved.
In terms of.
In terms of where it was last year it was over almost almost 3%.
We're seeing it down at the end of January at 171, 8%.
And underwriting basically call it to a 2% expectation for the year in Atlanta.
And that we expect to be one of the one of the higher bad debt markets, obviously, but it has incrementally improved over the past couple of months and the trend in January as.
As encouraging because given the holiday season.
We had the start of the year, sometimes you have a little bit of a lag of bad debts.
Not out of the woods, yet, but do feel better about it.
Thank you.
Thanks.
Your next question is from the lineup of counter peaks with Deutsche Bank. Please go ahead.
Hi, Thank you on the value add program and and you touched on in your opening remarks could you compare redevelopment activity you're expecting in 2024 versus 2023.
Operator: Hi, thank you. On the value add program, which you touched on in your open remarks, could you compare the redevelopment activity you're expecting in 2024 versus 2023 and if there's any expected difference in ROI or redevelopment mix? Thanks.
And if there is any expected difference in ROI or a redevelopment next thanks.
Yeah.
Yes.
Matthew McGraner: Yeah, I'll turn the specifics of 2023 over to Bonner to compare year over year. My recollection is, roughly over 1,000 units of full upgrades last year versus a couple hundred or so this year. Do you have it on, Bonner?
Ill turn the specifics of 2023 over to over to Bonnie.
To compare year over year.
My recollection is.
Roughly over 1000 units a full upgrades last year versus.
A couple of couple of hundred or so this year the dividend, yes, yes, that's right. So as we look at the portfolio.
Bonner McDermott: Yeah. Yeah, that's right. So as we look at the portfolio, understand the softness, the supply thing, the market, when we're pushing $200 to $250 premiums in a market where new supply is $400 to $500 above us, we're having a little bit of a more difficult time getting that demand. For now, as Matt mentioned on the call, we've prioritized a shift to occupancy for the year and are really focused on, you know, achieving those occupancy goals. We've downsized the base case for full upgrades to 235 units; a hundred of those are at Pembroke Pines.
Understanding that the softness the supplies in the market.
We're pushing 200 to $250 premiums in a market where new supply is four to $500 of my boss, we're getting a little bit of both.
A difficult more difficult time getting that demand so.
For now as Matt mentioned on the call, we prioritize a shift to occupancy for the year and are really focused on achieving those occupancy levels.
Downsize the full at the base case for full upgrades to 235 units.
Hundred and those are a number times the demand at that asset individually as a special we're getting $300 premiums there easily and it's more a function of this workflow over the demand.
Bonner McDermott: The demand at that asset individually is special. We're getting $300 premiums there easily, and it's more a function of just the workflow over the demand. Across the rest of the portfolio, you know, we're asset by asset. So, you know, in a market where we're not getting a trade out, we're not doing a full rent out.
Across the rest of the portfolio.
We're asset by asset so an a mall.
<unk>, where we're not getting a trade out we're not doing a full right now are finding areas of those properties, where we can drive value. So in a market where we may have had a first generation upgrade you can go back through.
Bonner McDermott: We're finding areas of those properties where we can drive value, so in a market where, you know, we may have had a first-generation upgrade, we can go back through, add a stainless steel appliance package, add a backsplash, add a private patio, things like that. We're adding value there. But overall, year over year, you know, we were forecast to do about 1,300 units in 2023, 235 full this year, you know, shifting that focus, and we're pretty proud to report that we're 96.5% leased today, so I think you're seeing that come to fruition and work out the numbers. I think the 17.5% ROI compares just modestly down from last year. I believe it was 19 or 20%. So it's still getting a higher ROI. I got it. Thank you. That's it for me. Your next question is from the line of Buck Horne with Raymond James. Please go ahead.
Stainless steel appliance package at a backsplash add private patio things like that we're adding value there, but overall year over year.
Were forecasted at about 300 units in 2019, three $235 this year.
Shifting that focus and we're pretty proud to report that we're 96, 9% lease today, So I think youre seeing that.
Come to fruition and work out the numbers.
We are expecting this on the just to add to expecting to 17, 5% ROI I think compares just modestly down from last year I believe is 19% to 20% so still getting the higher rois.
Got it. Thank you that's it for me.
Your next question is from the line of Buck Horne with Raymond James. Please go ahead.
Operator: Hey, good morning, guys. Thanks. Just wondering if I'm maybe I missed it.
Hey, good morning, guys. Thanks, I'm, just wondering if maybe I missed it if you could.
Operator: If you could, specifically break down what the average new lease spread was during the fourth quarter and maybe as of January and kind of what the renewal spreads were and just kind of break down all of that as it blends together. Yeah, sure, Bob. Thanks for the question. New leases were down blended for the quarter 7.8%, and then renewals were just 21 basis points for the blended when you average the negative 4.14%. Excuse me, negative 4.14%. January has looked better.
Specifically break down what the new lease with the.
Average new lease spread was during the fourth quarter and maybe as of January and kind of what the renewal.
We're just kind of break down all of that as it blends together.
Yeah sure Bob Thanks, Thanks for the question.
New leases were down blended for the quarter.
Seven 8%.
And then renewals were just 21 basis points for blended when you average the blended negative four points or excuse me negative four 4%.
January has looked better.
Matthew McGraner: So the new leases were down 6.25%, and renewals are 40 basis points for a blended negative 2.69%. And so we are seeing a little bit better as we fill up the assets and have a strong occupancy base, which was the goal. Got it. That's helpful. Appreciate the color there.
So.
New leases were down six 5% renewals are 40 basis points for a blended at a negative $2 six 9%.
And so we are we are seeing a little bit better as we.
Filled up the fill up the assets and have a strong occupancy base, which was the which was the goal.
Got it that's helpful. I appreciate that.
Color there are you.
Matthew McGraner: Are you guys using concessions in the market, or what are the average concessions right now for competitive Class B properties? What are the market conditions out there right now? Yeah, I'll start, and I'll kick it to Bonner to add to that.
Are you guys using concessions in the market or what our average concessions right now for competitive class B properties.
What's the.
What are the market conditions out there right now.
Yeah, I'll start and I'll kick it to <unk> to add to that I would say that.
Matthew McGraner: I'd say that for our assets in particular and the sub-markets, we really bought occupancy in the fourth quarter. That was a priority of ours, and so we were roughly giving a blended concession in the market that we were seeing for about a month as a yield star rate was shown. And then, you know, I think as we sit here today, we still think that we need to be defensive through the first and second quarter, you know, as supply delivers, as they're giving, you know, new assets are giving, you know, sometimes two or three months. But we, again, expect that to wane during the third quarter. Bonner, do you have anything to add to that?
For our assets in particular in the Submarkets, we really we really bought occupancy in the fourth quarter. So that was.
Yes that was a priority of ours and so.
We were we were roughly giving.
Blended <unk> court appointed concession in the market that we're seeing is about a month.
Yes.
As the yield star.
Right sure.
And then I think as we sit here today, we still think that we need to be defensive through the first and second quarter.
As supply delivers as theyre, giving.
Net new assets were giving sometimes two or three months.
But we again expect that to wane during the during the third quarter commodity anything to add yes.
Matthew McGraner: Yeah, I think as we look at, you know, look at what we did in the fourth quarter, we had to give some concessions in a couple markets. We're feeling more supply pressure. Charlotte comes to mind, and Las Vegas.
Yes, I think I think as we look at it.
What we did in the fourth quarter, we had against some concessions in a couple of markets, we're feeling more supply pressure.
<unk> comes to mind Vegas.
Bonner McDermott: And, you know, a lot of those concessions are a month free for us. When the new supply is offering, you know, a couple months free, the renter, the prospect, is looking for a little bit of a discount. So in some of those markets where we were a little light on occupancy in Q3, we utilized our concessions in Q4 to help build that trend. As we look here at 2024, you know, the bulk of the concessions, I think, and it's not a big number, let's call it 20 basis points on GPR. We typically, you know, utilize the dynamic pricing model and focus more on that. But the concessions are more heavy in the first quarter.
A lot of those concessions are a month free for us.
When the new supply is offering.
A couple of months free.
The Renard a prospect is looking for a little bit of a discount so and some of those markets, where we were a little light on occupancy in Q3, we utilize concessions in Q4 to help build that trend as.
As we look here.
2020 for the bulk of the concessions I think and it's not a it's not a big number it's call it 20 basis points on GTR.
Typically utilize the dynamic pricing model and focus more on that but.
The concessions are more heavy in the first quarter overall this year I think our concession usage is probably has come down.
Bonner McDermott: Overall this year, I think our concession usage is probably going to come down based on, you know, we're 97.5% leased today. I think our folks on retention, you know, you see that in the renewal trade-out, we're being more defensive there. And I think that that should prove out, and we should not need as many concessions toward the back half. Thank you, guys. Your next question is from the line of Michael Lewis with Truist Securities. Please go ahead.
Based on our 99, 7% leased today I think our folks on retention you see that and then the renewal trade outs, we're being more defensive there.
And I think that that should prove out and we should not need as many concessions towards the back half.
Thanks, guys.
Okay.
Your next question is from the line of Michael Lewis with <unk> Securities. Please go ahead.
Great. Thank you.
Operator: Great. Thank you. You know, I think there's kind of a consensus about peak new supply sometime around mid-year, and you talked about that a little bit in some of your markets. I think it's a little tougher to forecast the demand side. I was just wondering if you had, you know, a job growth forecast built into your guidance and what you kind of think on the demand side when you were putting together those ranges. Yeah, I mean, we do. We utilize Largely Real Page, you know, as a consultant to walk through, you know, quarterly demand and job growth prospects in all of our submarkets.
I think there's kind of a consensus about peak new supply sometime around mid year, and you talked about that a little bit in some of your market.
I think it's a little tougher to forecast the demand side I was just wondering if you had a job growth forecast built into your guidance.
And what you kind of think on the on the demand side. When you were putting together those ranges.
Yes, I mean, we do we utilized largely real page.
As a consultant to walk through quarterly demand.
And job growth prospects in all of our Submarkets.
Matthew McGraner: And one thing that was a little bit encouraging this year is that they do expect to see absorption kind of, kind of, maintained across the, you know, across our submarkets, not, Yeah, not enough to outstrip, you know, the four-decade high of supply that's peaking this year, but it's still, but yes, the job growth forecasts are factored into, are factored into those numbers, and we And then, just lastly for me, you know, it's part of your strategy to use variable rate property debt and hedge it. And that's, you know, that's helpful with the renovation strategy. It kind of all fits together.
And one thing that was a little bit encouraging this year is that they do expect to see.
Sorption kind of kind of be maintained across the.
Across our Submarkets not yes.
Not enough to us.
To outstrip, yet the four decade high of supply.
It's peaking this year, but it's still but the job growth forecasts are are factored into.
Our factored into those numbers and we'd be happy to share those with you.
Okay and then just.
Lastly for me.
<unk>.
It's part of your strategy to use the variable rate property debt and hedge it and that helped.
Helpful with the with the renovation strategy at kind of all fits together.
Matthew McGraner: You know, you talked about selling assets and delevering. You know, should we expect, you know, we're calculating NET-BIT-DA that's still around 10 times or maybe a little bit north of that, you know? I don't know how, you know, maybe talk a little bit about how you look at the leverage and kind of what the end game is here, right? So, I'm trying to think about forecasting dispositions and how much you want to de-lever and what the leverage, you know, should be for this strategy, right? I think it makes sense.
You talked about selling assets and delevering.
Should we expect we're calculating net debt EBITDA, that's still around 10 times, there may be a little bit north of that I don't know maybe talk a little bit about how you look at the leverage and kind of what the end game here right. So I'm just trying.
Trying to think about forecasting out dispositions and how much you want to delever and what the leverage should.
<unk> B for the strategy right I think it makes sense you might have elevated leverage if your strategy is a little bit different.
Matthew McGraner: You might have elevated leverage because your strategy is a little bit different than some of your peers. But do you have a target leverage or kind of an end game, you know, with the dispositions and paying down debt? Yeah, it's a great question. One that we consider or talk about often.
And some of your peers, but do you have a target leverage or kind of an end game with the disposition and paying down debt.
Yes.
It's a great question one.
One that we consider.
Or talk about it often.
Matthew McGraner: So I think my overall view on this is, notwithstanding last year, because everything that could go wrong last year went wrong, just the rapid hiking cycle, supply, bad debt, fraud, everything was just kitchen-sink. And so as we look into 2024, 2025 in a more normalized, hopefully more normalized capital markets environment, a lot of us think that we're at peak rates. So we considered, for example, putting more swaps on this year, but if we did that, it'd be at peak rates. So I think the better way that we think about it is making sure that our portfolio is as liquid as possible at any given time in any given year. Given the GSE financings, the Class B liquidity in the market, these portfolios will trade again, and they will trade again at competitive cap rates. And in our view, one of the worst things we can do is to go out and fix debt or fix debt today at potentially peak rates, because a new buyer or a buyer of our portfolio at some point will likely have a better cost of capital or a different cost of capital. So that's the way we think about it.
I think I think my overall view on this is.
More notwithstanding last year.
We think that could go wrong last year went wrong.
People, just rapid hiking cycle supply bad debt tried everything was just the kitchen sink and so as.
As we look at look into 2020 for 2025 at a more normalized.
Hopefully more normalized capital markets environment, a lot of us think that we're at peak rates. So we considered for example, putting more swaps on this year, but if we did that it would be.
At peak rates, so I think the better the better way that we think about it is making sure that our portfolio is as liquid as possible at any given time.
In any given year.
Even the GSE financings the class B.
Liquidity in the market.
These portfolios will trade again will trade again competitive cap rates and the worst in our view that one of the worst things. We can do is to go out and fixed debt our fixed debt today at.
Potentially peak rates, because the new buyer or a buyer of our portfolio at some point, we will likely have a better cost of capital.
Or a different cost of capital.
So that or yes, that's the way we think about it.
Matthew McGraner: Get in, improve the assets, sell them, recycle the capital, and continue to do that. Our hope is this year we'll be able to potentially find a couple of assets later in the year to recycle capital into, and putting less leverage on that replacement asset is a strategy that we've employed in the past to incrementally de-lever. And then, as that's going to 25 and 26, if...
Get in improved the asset sell and recycle the capital and continue to can continue to do that our hope is this year, we will be able to potentially.
Potentially find a couple of assets later in the year to recycle capital into and putting less leverage on that replacement asset is a strategy that we've employed in the past is to increment incrementally delever.
And then add to that is going into 'twenty, five and 'twenty six.
Yes.
Matthew McGraner: If things play out the way they are, and supply wanes, and there's no new starts, starts down 40% year over year, we think our pricing power will be higher. I think demand for our units will be higher, and that could potentially translate into either more value for assets when we sell them, or a return to being able to raise equity ourselves. So, at that point, I think that... Is it fair to say, I mean, it sounds like it's kind of a property-by-property fluid situation?
Things play out the way they are and supply wanes and Theres no new starts starts down 40% year over year, we think our pricing power will be.
<unk> will be higher demand for our units will be higher and that could potentially translate into either more value for assets, when we sell or return to being able to raise equity ourselves and so at that point I think.
We'll look to Delever.
Okay is it fair to say I mean, it sounds like it's kind of a property by property fluid situation youre not looking at this and saying the right leverage for this strategy is eight times what are the right strategy as maybe you look at debt to gross asset value or something it sounds.
Matthew McGraner: You're not looking at this and saying, you know, the right leverage for this strategy is eight times, or the right strategy is, you know, maybe you look at debt-to-gross asset value or something. It sounds like it's more kind of a moving target, depending on the market. Is that fair?
It's more kind of.
A moving target depending on the market.
Matthew McGraner: Yeah, I mean, look, before we were, you know, before we got hit with the 500 basis point increases in interest rates in 12, 14 months. We took the portfolio down from 14, 15 times when we went public in 2015 down to where it is today. And that was intentional, and it is intentional. We still want to de-lever incrementally, but excluding last year, our investors, who we speak to often, didn't want to see us raise equity to pay down 2%, 3% debt at the time. So again, everything that could go wrong did go wrong last year.
Yes, I mean look before we were before we got hit with the.
Sure.
500 basis point increases interest rates.
2014 months, we were.
We took the portfolio down from 14 15 times when we went public in 2015.
Down to kind of where it is today.
That was.
That was intentional and it is intentional we still want to Delever incrementally.
But <unk>.
Excluding last year our investors.
Yes.
Too often didn't want to see US go raise equity to pay down two 3% data at the time.
So again everything that could go wrong went wrong last year.
We are.
Matthew McGraner: Our balance sheet is about as healthy as it's ever been, especially after we close Old Farm next week and have fresh capital on the balance sheet to go buy back stock or pay down debt. We'll make that decision. There are a couple of properties that we can just take the leverage off and have an unencumbered property or two. We do want to de-lever, but to do it wholesale right now is not what we think is best. Yeah, that makes sense.
Our balance sheet is about as healthy as healthy as it's ever been especially after we close the old farm next week.
And have fresh capital on the on the balance sheet to go buy back stock.
Or pay down debt.
We'll make that decision. There's a couple there's a couple of properties that we can just take the leverage off and have an unencumbered property or two.
But it isn't we do want to de lever, but to do it wholesale right now.
Is that what we think is best.
Operator: Thank you. NexPoint. And at this time, there appear to be no further questions. I will now turn the call back to management for closing remarks. Yeah, I don't have to think further, do you Matt?
Yes that makes sense. Thank.
Thank you.
Thanks, Bob.
And at this time there appear to be no further questions I will now turn the call back to management for closing remarks.
Yes.
I don't have the same further demos.
Brian Dale Mitts: I appreciate everyone's time today, and again, thanks to our team here and at BH. Okusanya, Buck Horne, Marilynn Meek, Michael Kodesch, Jackie Graham, Brian Mitts, Matthew McGraner, NexPoint Residential Trust Inc. With that, we'll end the call and let's talk to you after the first quarter. Thank you all for joining today's conference call. You may now disconnect. Thanks for watching!
I appreciate everyone's time today and again, thanks, thanks to our team here in at BH.
With that we'll end the call and look to talk to you.
After the first quarter.
Thank you all for joining today's conference call you may now disconnect.
Okay.
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