Q1 2024 NexPoint Residential Trust Inc Earnings Call
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Ellie: Good day, my name is Ellie, and I will be your conference operator for today. At this time, I'd like to welcome everyone to the NexPoint Residential Trust First Quarter 2024 Earnings Call. All lights have been placed on you to prevent any background noise.
Good day My name is Shelley and I will be a conference operator for today at this time I'd like to welcome everyone to the next point residential Trust's first quarter 'twenty 'twenty four earnings call. All lines have been placed on mute to prevent any background noise.
Ellie: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star and number one again. Thank you. I'd now like to hand over the call to Kristen Thomas, Investor Relations. You may now begin the conference.
Ellie: The speaker's remarks, there will be a question and answer session if you'd like to ask your questions. Your English funds should be crushed four followed by the number one on your telephone keypad.
Kristen Thomas: You'd like to withdraw your question. Please fresh start at number one again. Thank you I'd now like you hand over the call to Christian formation Investor Relations you may now begin to Kosmos.
Kristen Thomas: Thank you. Good morning, everyone, and welcome to NexPoint Residential Trust's conference call to review the company's results for the first quarter ended March 31, 2024. 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 and Investment Manager. As a reminder, this call is being webcast through the company's website at nsrt.nexpoint.com. 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 objectives.
Kristen Thomas: Thank you good day, everyone and welcome to the next word residential Trust's conference call to review the company's results for the first quarter ended March 31, 2024 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 bomber, Virginia right.
Kristen Thomas: From an asset and investment management.
Kristen Thomas: As a reminder, this call is being webcast through the company's website at <unk> Dot <unk> Dot com.
Kristen Thomas: 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.
Kristen Thomas: <unk>.
Kristen Thomas: Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent annual report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risk and other factors that could affect any forward-looking statement. The statements made during this conference call speak only as of today's date, and, except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes 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.
Kristen Thomas: Listeners should not place undue reliance on any forward looking statements and I encourage you review the company's most recent annual report on Form 10-K, and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward looking statements.
Kristen Thomas: <unk> made during this conference call speak only as of today's date and except as required by law and I think he does not.
Kristen Thomas: Do you take any obligation to publicly update or revise any forward looking statements.
Kristen Thomas: This conference call also includes analysis of non-GAAP financial measures for a more complete discussion of these non-GAAP financial measures either company earnings release that was filed earlier today.
Kristen Thomas: I would now like to turn the call over to Brian Mitts. Please go ahead, Brian. Thank you, Chris.
Kristen Thomas: I'd now like to turn the call over to Brian Mitts. Please go ahead, Brian Thank.
Brian Dale Mitts: Thank you, Kristen. Welcome to everyone joining us this morning. I'm Brian Mitts, and I'm joined today by Matt McGraner and Bonner McDermott.
Brian Dale Mitts: Thank you Christina and welcome to everyone. Joining us. This morning are Brian Mitch and I am joined today by Michael Greiner and bomber Mcdermott.
Brian Dale Mitts: I'm going to kick off the call and cover our Q1 results, provide our updated NAV, and our guidance for the remainder of the year, which we are reaffirming. I'll then turn the call over to Matt and Bonner to discuss the specifics driving our performance and guidance. Results for Key Warners follow. Net income for the first quarter was $26.3 million, or $1 per diluted share, on total revenue of $67.5 million. This includes a $31.7 million gain on the sale of Old Farm that was completed on March 1st, 2024.
Brian Dale Mitts: To kick off the call and cover our Q1 results provider updated and.
Brian Dale Mitts: And our guidance for the remainder of the year, which we are reaffirming.
Brian Dale Mitts: I'll, then turn the call over to Matt Bonner to discuss the specifics driving our performance and guidance.
Brian Dale Mitts: Results for Q1 are as follows net income for the first quarter was $26 3 million or $1 per diluted share on total revenues of $67 5 million to.
Brian Dale Mitts: This includes $31 $7 million gain on the sale of the old farm that was completed on March one 2024.
Brian Dale Mitts: The $26.3 million net income for the quarter compares to a net loss of $4 million, or 15 cents per loss per diluted share for the same period in 2023, on total revenue of $69.2 million. For the first quarter of 2024, NOI was $41.1 million on 37 properties compared to $41.1 million for the first quarter of 2023 on 40 properties. For the quarter, same-store rent decreased 0.4% while same-store occupancy increased 0.3% to
Brian Dale Mitts: $26 3 million net in terms of the quarter comparison net loss of 4 million or 15 cents per loss per diluted share for the same period in 2023 on total revenue of $69 2 million.
Brian Dale Mitts: For the first quarter of 2020 for NOI was $41 1 million on 37 properties compared to $41 1 million first quarter, 2023% and 40 properties.
Brian Dale Mitts: For the quarter same store rent decreased <unk>, 4%, while same store occupancy increased 3% to 94, 7%. This coupled with an increase in same store expenses.
Brian Dale Mitts: This, coupled with an increase in same-store expenses of 3.6 percent, sorry. 1.8% with an increase in same-store NOI of 4% as compared to Q1 2023. As compared to Q4 2023, rents for Q1 2024 on the same score portfolio are down 0.1% or $2 sequentially. The company reported Q1 core FFO of $19.6 million or $0.75 per diluted share compared to $0.71 per diluted share in Q1 2023. During the first quarter of the properties in our portfolio, we completed 59 full and partial upgrades and leased 59 upgraded units, achieving an average monthly rent premium of $240 and a 21.8% return on investment.
Brian Dale Mitts: Three six sorry.
Brian Dale Mitts: One 8% led to an increase in same store NOI of 4% as compared to Q1 2023.
Brian Dale Mitts: As compared to Q4 of 2023 rent for Q1 2024 in the same store portfolio were down 1% or $2 sequentially.
Brian Dale Mitts: We reported Q1 core SSO $19 6 million or <unk> 75 cents per diluted share compared to 71 cents per diluted share in Q and Q1 2023.
Brian Dale Mitts: <unk>.
Brian Dale Mitts: During the first quarter for properties in our portfolio, we completed 59 full and partial upgrades at least 50 non operated units achieving an average monthly rent premium of $240 and a 21, 8% return on investment.
Brian Dale Mitts: Since inception, for the properties currently in our portfolio, we've completed 8,593 full and partial renovations, 4,829 kitchen and laundry appliance installations, and 12,348 technology packages, resulting in $170, $39, and $43 average monthly rent increases per unit and a 20.9%, 51.4%, and 37.8% return on investment, respectively. NXRT paid a first quarter dividend of 46 cents per share on the common stock on Since inception, we've increased our dividend 124.5%. For Q1, our dividend was 1.61 times covered by core FFO with a payout ratio of 56.3%.
Brian Dale Mitts: Since inception for the properties currently in our portfolio, which completed 8593 full and partial rent.
Brian Dale Mitts: Renovations 4820, <unk> kitchen, and laundry appliances installations, and 12348 technology packages.
Brian Dale Mitts: <unk> and $170 $39 and $43 average monthly rent increased per unit and a 29% 51, 4% and 37, 8% return on investment respectively.
Brian Dale Mitts: <unk> paid a first quarter dividend of <unk> 46 per share on our common stock on March 28, 2024 since inception, we've increased our dividend 124, 5% for Q1, our dividend was 161 times covered by core assets.
Brian Dale Mitts: With a payout ratio of 56, 3%.
Brian Dale Mitts: During the first quarter, NXR completed the sale of Old Farm for a sales price of $103 million. This sale generated $49.4 million in net sales proceeds, a 22.1% levered IRR, and a 2.98 times multiple on uninvested capital. On March 5, 2024, NXRT fully repaid the remaining drawn balance of $24 million on its corporate credit facility. As of March 31, 2024, we had $37.1 million in cash and $335 million of available liquidity on the corporate credit facility. Furthermore, we are pleased to report that we are scheduled to complete the sale of Radborn Lake in Charlotte, North Carolina later today for gross sales proceeds of $39.25 million.
Brian Dale Mitts: During the first quarter and completed the sale of all forms for sales price of $103 million.
Brian Dale Mitts: This sale generated $49 4 million of net sales proceeds of 22, 1% Levered IRR and a $2 98 times multiple on invested capital.
Brian Dale Mitts: On March five 2024, and <unk> fully repay the remaining drawn balance of 24 million on its corporate credit facility as of March 31, 2024, we had $37 $1 million in cash and $335 million of available liquidity on our corporate credit facility.
Brian Dale Mitts: Further we are pleased to report that we are scheduled to complete the sale of <unk> Lake in Charlotte North Carolina later today for gross sales proceeds of $39 million to $5 million. This disposition is expected to retire 20 million.
Brian Dale Mitts: This disposition is expected to retire $20 million of property-level debt and generate $18.8 million in net sales proceeds, an approximate 19.3% levered IRR, and a 3.64 times multiple invested capital. Given the success of our recent pending sales, their increase in liquidity position, and what we perceive to be an attractive public-private market arbitrage opportunity, where our stock trades above 7% applied cap rate versus mid to upper fives for the private market transactions
Brian Dale Mitts: Property level debt and generate $18 8 million net sales proceeds and approximately 19, 3% Levered IRR and a 364 times multiple on invested capital.
Brian Dale Mitts: Given the success of our recent and pending sales, they're increasing liquidity position and what we perceive to be an attractive public private market, our arbitrage opportunity, where our stock trades above the 7% implied cap rate versus mid to upper fives for the private market transactions.
Brian Dale Mitts: And it's notable to touch on Blackstone's recently announced purchase of Air Communities. We initiated a share buyback program to purchase up to $25 million of our shares. To date this quarter, we have purchased approximately 8.5 million shares at an average price of which represents an approximate 40% discount for the midpoint of our Key1 NavVis. And speaking of the NAV, let's move to that.
Brian Dale Mitts: And it's notable too.
Brian Dale Mitts: Touch on Blackstone's recently announced purchase of <unk>.
Brian Dale Mitts: Eric communities.
Brian Dale Mitts: We initiated a share buyback program to purchase up to $25 million of our shares to date. This quarter. We have purchased approximately $8 5 million of shares at an average price of $31 $75 per share, which represents approximately 40% discount to the midpoint of our Q1 NAV estimate.
Brian Dale Mitts: <unk>.
Brian Dale Mitts: And speaking of the now that's moved to that based on our current estimate of cap rates in our markets afford and why we're reporting.
Brian Dale Mitts: Based on our current estimate of cap rates in our markets at Ford NOI, we're reporting an NAV per share range as follows. $45.91 on the low end, $58.97 on the high end, for a $52.44 midpoint. These are based on average cap rates ranging from 5.5% on the low end to 6% on the high end, which remains stable quarter over quarter. Moving to guidance, NXRT is reaffirming 2024 guidance ranges for earnings per deleted share, core FFO per deleted share, same store rental income, same store total revenue, same store total expenses, same store NOI, interest expense, and its related components, and reaffirming acquisitions and dispositions as follows.
Brian Dale Mitts: Per share range as follows 44, $45.91 and low and $58 97 centers on high end.
Brian Dale Mitts: Or a $52.44 midpoint.
Brian Dale Mitts: These are based on average cap rates ranging from five 5% of low end, 6% on the high end, which remained stable quarter over quarter.
Brian Dale Mitts: Moving to guidance and SRT is refer reaffirming 'twenty 'twenty four guidance ranges for earnings per diluted share core <unk> per diluted share same store rental income same store total revenue same store total expenses same store NOI interest expense and its related components and <unk>.
Brian Dale Mitts: For our acquisitions and dispositions as follows.
Brian Dale Mitts: Our core FFO per diluted share, $2.60 on the low end, $2.85 on the high end, and a midpoint of $2.72. Same store rental income, 1.4% increase in the low end, and 3.2% increase in the high end for a midpoint, a 2.3% increase. Same store NOI, a negative 2% or 2% decline on the low end, 2% increase on the high end, with a midpoint of 0%. So that completes my completed remarks; let me turn it over to Matt and Bonner for commentary. Thanks, Brian.
Brian Dale Mitts: Our core <unk> per diluted share $2 60, and the low end $2 85 on the high end for midpoint of $2.72.
Matt: Same store rental income one 4% increase in the low end three 2% increase in the high end for midpoint of two 3% increase.
Matt: Same store NOI.
Matt: Negative, 2% or 2% decline in the low end, 2% increase on the high end with a midpoint of zero percent.
Brian Dale Mitts: So that completes my Completer remarks, let me turn it over to Matt Bonner for commentary.
Matthew Ryan McGraner: Thanks Brian. Let me start by going over our first quarter same store operational results. Same store rental revenue was 3.6% for the quarter, with 7 out of our 10 markets averaging at least 3% growth, with our Charlotte and South Florida assets leading the way at 8.6% and 7.6% growth, respectively. We're also pleased to report some continued moderation in expense growth for the quarter. In the first quarter, same store operating expenses were up just 1.9% year over year.
Brian Dale Mitts: Brian.
Matt: Let me start by going over our first quarter same store operational results.
Matthew Ryan McGraner: Same store rental revenue was three 6% in the quarter with seven out of our 10 markets, averaging at least 3% growth with our Charlotte and South Florida assets, leading the way at eight 6% and seven 6% growth respectively.
Matthew Ryan McGraner: We're also pleased to report some continued continued moderation in expense growth for the quarter first quarter same store operating expenses were up just one 9% year over year.
Matthew Ryan McGraner: Of note, marketing and payroll declined 8.4% and 6.2% respectively, and year-over-year R&M expense growth continued to moderate just up 2.9% from the first quarter of 2023. Additionally, five out of our ten markets achieved year-over-year NOI growth of at least 5.9% or greater, with Orlando and South Florida leading the way at 12.3% and 9.9% growth, respectively. Our Q1 same-store NOI margin registered a healthy 61.9%, that's up 24 basis points from the prior year. Now turning to components of Q1 performance, with peak deliveries in most of our markets occurring in Q3 of this year, as detailed on page 5 of the supplemental, we continue to focus on our operational efforts to maximize resident retention, reduce our exposure to rising turnover costs, and further centralizing labor. Maintaining and building occupancy has remained a key focus.
Matthew Ryan McGraner: Of note marketing and payroll declined eight 4% and six 2%, respectively and year over year.
Matthew Ryan McGraner: R&M expense growth continued to moderate just up two 9% from first quarter of 2023 five out of our 10 markets achieved year over year NOI growth of at least five 9% or greater with Orlando and South, Florida, leading the way at 12, 3% and nine 9% growth respectively. Our Q1 same store NOI.
Matthew Ryan McGraner: Im margin registered a healthy 61, 9% that's up 24 basis points from the prior year.
Matthew Ryan McGraner: Now turning to components of Q1 performance with peak deliveries in each of our markets occurring in Q3 of this year as detailed on page five of the supplemental we continue to focus on our operational efforts on maximizing resident retention, reducing our exposure to rising turnover costs and further centralizing labor maintaining and building occupancy.
Matthew Ryan McGraner: He has remained a key focus the portfolio registered 94, 6% occupancy to close the quarter and as of this morning. The portfolio is 94, 7% occupied and 93% leased on the rental revenue side, new lease growth remains constrained due to near term concentrated supply in our markets, but there are signs that the deceleration in new lease growth is bought.
Matthew Ryan McGraner: The portfolio registered 94.6% occupancy to close the quarter, and as of this morning, On the rental revenue side, new lease growth remains constrained due to near-term concentrated supply in our markets, but there are signs that the deceleration in new lease growth is bottoming. New leases for the quarter improved 130 basis points to negative 6.5 percent from negative 7.8 percent quarter over quarter, and April is trending better than Q1 by 80 basis points.
Matthew Ryan McGraner: New leases for the quarter improved 130 basis points to negative six 5% from negative seven 8% quarter over quarter and April is trending better than Q1 by 80 basis points renewals are also positive for the quarter at 92 basis points and have accelerated sequentially since the third quarter of last year to one 4%.
Matthew Ryan McGraner: Renewals are also positive for the quarter at 92 basis points and have accelerated sequentially since the third quarter of last year to 1.4%, as we said in April. Bad debt is also turning in a positive direction, improving quarter over quarter.
Matthew Ryan McGraner: As we said in April.
Matthew Ryan McGraner: Bad debt is also trending in a positive direction improving quarter over quarter Q3, 2023 was three 2% Q4 was 2% in Q1 was down to one 8% turning approximately 90 basis points better than our expectations.
Matthew Ryan McGraner: Q3 2023 was 3.2%, Q4 was 2%, and Q1 was down to 1.8%, turning approximately 90 basis points better than our expectations. On the value add front, during the first quarter, as Brian said, we completed 59 full and partial interior upgrades, achieving an average monthly rent premium of $240 and a 21.8% ROI. We also installed 68 washers and dryer sets for an average monthly rent premium of $48 and a 54.6% ROI. Lastly, we completed bespoke upgrades on an additional 55 units with average rent premiums of $56 per unit.
Matthew Ryan McGraner: On the value add front during the first quarter as Brian said, we completed 59 full and partial interior upgrades, achieving an average monthly rent premium of $240 21, 8% ROI. We also installed 68 washer and dryer sets for an average monthly rent premium of $48 and $804 54, 6% ROI Lastly, we completed.
Matthew Ryan McGraner: Disposal upgrades on an additional 55 units with average rent premiums of $56 per unit.
Matthew Ryan McGraner: And for the remainder of 2024, we intend to complete an additional 352 full or partial interior upgrades, 465 washers and dryer sets, and 318 bespoke upgrades and units where we see demand to drive rental income. On the expense side, we completed our insurance renewal at the end of March, and I'm happy to report that our premiums will remain flat, which aligns with our midpoint guidance expectations. On the transaction front, we continue to actively monitor the investment sales market for opportunities and price discovery.
Matthew Ryan McGraner: For the remainder of 2024, we intend to complete an additional 352 full or partial upgrade interior upgrades 465, washer and dryer sets and 318 bespoke upgrades and units, where we see demand to drive rental income on.
Matthew Ryan McGraner: On the expense side, we completed our insurance renewal at the end of March and I'm happy to report that our premiums will remain flat, which aligns with our mid point guidance expectations.
Matthew Ryan McGraner: On the transaction front, we continue to actively monitor the investment sales market for opportunities and price discovery, while apartment transaction volume is at the lowest point in the past decade over the last 60 days private equity investors have been aggressively priced over $15 billion of housing product in the low 5% in place cap rate range over 240 billion.
Matthew Ryan McGraner: While apartment transaction volume is at the lowest point in the past decade, over the last 60 days, private equity investors have aggressively priced over $15 billion of housing product in the low 5 in place cap rate range. Additionally, over $240 billion of North American focused real estate closed in fund dry powder remains on the sidelines in search of 13 to 20% levered IRRs, according to EASTIL. Against this backdrop, and even with the near-term elevated supply picture, our strategically positioned SunBell portfolio screens attractively, particularly given our in-migration and demographic backdrop.
Matthew Ryan McGraner: A north American focused real estate closed end fund dry powder remains on the sidelines and searches 13% to 20% Levered IRR According to east.
Matthew Ryan McGraner: Against this backdrop and even with the near term elevated supply picture are strategically positioned sunbelt portfolio screens attractively, particularly given our in migration and demographic backdrop and D. As you can see from the supplemental according to Costar one out of every two jobs are expected to be created and XR tea markets through 2027.
Matthew Ryan McGraner: Indeed, as you can see from the supplemental, according to CoStar, one out of every two jobs is expected to be created in NXRT markets through 2027. Now, with the sale of Old Farm closed, and with the closing of Bradbourne later today, we will have roughly $36 million of cash to continue to buy back shares and or pay down debt. Given our current cost of capital, we have prioritized this balance sheet cleanup and share buybacks over external growth pursuits.
Matthew Ryan McGraner: Now with the sale of all farm closed and with the closing of <unk> and later today, we will have roughly $36 million of cash to continue to buy back shares or pay down debt and given our cost of current cost of capital. We have prioritized this balance sheet clean up in share buybacks over over external growth pursuits.
Matthew Ryan McGraner: Current levels <unk> implied cap rate remains north of 7% quarter and with the construction view when our construct with a constructive view on when supply will wane, we believe repurchasing our shares at these levels. It makes the most sense.
Matthew Ryan McGraner: At current levels, NXRT's implied cap rate remains north of 7.25, and with a constructive view on when supply will wane, we believe repurchasing our shares at these levels makes the most sense. In closing, we are happy with the start of 2024 through late April. We will remain focused on occupancy and controlling expenses to maximize NOI growth. In the long term, we remain bullish on our sunbelt market as we expect it to outpace northern and coastal cities in population, job, and wage growth.
Matthew Ryan McGraner: In closing we are happy with the start of 2024 through through late April we will remain focused on occupancy and controlling expenses to maximize NOI growth.
Matthew Ryan McGraner: And the long term, we remain bullish on our sunbelt market as we expect to outpace northern in coastal cities and population job and wage growth in the short term, we expect to see modest growth specifically in the second half of the year as supply growth begins to decline. That's all I have for prepared remarks, thanks to our teams here in export and VH for continuing to execute and I would like to.
Matthew Ryan McGraner: Turn it over to the operator for Q&A.
Speaker Change: Ladies and gentlemen, we are now opening the floor is a question answer session if you'd like to ask a question. Please press star.
Matthew Ryan McGraner: In the short term, we expect to see modest growth, specifically in the second half of the year as supply growth begins to decline. That's all I have for prepared remarks. Thanks to our teams here at NexPoint and BH for continuing to execute. I'd like to turn it over to the operator for Q&A.
Speaker Change: And number one on your telephone keypad.
Operator: Your first question comes from Karl question, Anthony Nexen, Jamie Your line is now open.
Matthew Ryan McGraner: Yes.
Speaker Change: Hey, good morning, guys, what does concessionary concession usage look like across the portfolio.
Ellie: Ladies and gentlemen, we are now opening the floor to questions and answers. If you'd like to ask a question, please press start and number one on your telephone keypad. Our first question comes from Kyle Katorincek from Cheney. Your line is now open.
Kyle Felice Katorincek: These consistent usage picking up in April versus <unk> 2004.
Ellie: Yes.
Speaker Change: You can chime in too if you have it.
Kyle Felice Katorincek: Do you have anything to add concession usage going forward.
Kyle Felice Katorincek: Hey, good morning, guys. What does concession usage look like across the portfolio? Consensus Usage picked up in April versus 1-Q-24.
Kyle Felice Katorincek: It does pick up for in the second quarter in the third quarter and then starts to wane in the fourth quarter. That's one reason why.
Unknown Executive: Yeah, I don't, and Barney, you can chime in too if you have anything to add. Concession usage going forward does pick up in the second quarter, in the third quarter, and then starts to wane in the fourth quarter. That's one reason why we're maintaining guidance until July so we have a better view on just how the supply is impacting the market rents. As we stated, the blended rents have appeared to bottom, in our view.
Unknown Executive: We're maintaining guidance until until July so we have a better view on just how the supply is impacting the market rents but.
Speaker Change: As we stated.
Unknown Executive: The.
Unknown Executive: The blended rents.
Unknown Executive: <unk>.
Speaker Change: Appeared to bottom in our view and so the use of concessions, which were a couple of weeks free too.
Unknown Executive: And so the use of concessions, which were a couple weeks free to waive. The normal fees that we would charge have begun to dissipate, and so while we're still underwriting that we'll have to use them, we're hopefully optimistic that we won't.
Unknown Executive: Waving.
Unknown Executive: The normal fees that we would charge have begun to have begun to dissipate and so while we are still underwriting that will have to use them.
Barney: We are hopefully optimistic that we will barring anything to add just to quantify it a little bit too first quarter concession use is about 24 basis points on GTR.
Unknown Executive: Yeah, just to quantify it a little bit. So first quarter concession use is about 24 basis points on TPR.
Unknown Executive: It's not in every market. We see it more in the high-supply markets. Having been out and seeing some sites, we're talking more in a couple areas of Phoenix, a couple areas of Charlotte, and Raleigh, areas where we have more new supply delivering. There's more of a market expectation for a concession, but we're trying to maintain about two to four weeks free where the new development, particularly in the highest supplied areas, are two and even up to three months free.
Unknown Executive: It's not in every market, we see it more in the high supply markets, having been out and seeing some sites, we're talking more than.
Unknown Executive: A couple of areas of Phoenix couple of areas of Charlotte.
Unknown Executive: Raleigh.
Unknown Executive: Areas, where we have more new supply delivering there is more of a market expectation for the concession, but we're trying to we're trying to maintain about two to four weeks for you where the new development, particularly in the highest supplied areas are in up to an even after three months free.
Unknown Executive: Okay, thank you. And then how close are you guys to the various upgrade opportunities within the portfolio? Just trying to get a sense of the runway left ahead of you versus all the units you've already done. Are you basically done with the technology package upgrades at this point, having done more than 12,000 of them?
Unknown Executive: Okay. Thank you and then how far are you guys through the various upgrade opportunities within the portfolio just trying to get a sense of the runway left ahead of you versus all the integrated gun right are you basically done with the technical technology package upgrades at this point, having done more than 12000 of them.
Unknown Executive: Yeah, we're basically done with the tech packages. There's some low-hanging fruit, as we mentioned, on the washers and dryers, which will hit this year.
Unknown Executive: Yes, we're basically done with the tech packages.
Unknown Executive: There is some low hanging fruit as we mentioned on the washer and dryers, which will hit this year and then as it relates to.
Unknown Executive: And then, as it relates to sort of the full interior package, we go in and audit on an annual basis what kind of bespoke upgrades we can do and then tailor-make those upgrades as we go through the year, depending on how the asset, in particular, is performing. But as kind of like a Gen 2, I think we have roughly 5,000, 5,500 units still to do, which gives us another about a year and a half, two years of internal growth to pursue as the supply picture wanes, and we can be more competitive.
Unknown Executive: Yes sort of sort of the full interior package, we go in and audit.
Unknown Executive: On an annual basis, what what kind of bespoke upgrades, we can do and then tailor made.
Unknown Executive: Those upgrades.
Unknown Executive: As we as we go throughout the year, depending on how the asset in particular is performing.
Unknown Executive: But as.
Unknown Executive: As kind of like a gen two.
Unknown Executive: I think we have roughly.
Unknown Executive: 5000, 5500 units still to do.
Unknown Executive: Which gives us another.
Unknown Executive: A year and a half two years of Av.
Unknown Executive: Internal growth to go pursue.
Unknown Executive: The supply picture wanes, and we can be more competitive thats, another kind of key component and why we.
Unknown Executive: That's another kind of key component in why we've paused and hit the brakes a little bit versus years prior. But as the supply starts to dissipate in Q4 and certainly into 25, you'll see us ramp those upgrades pretty quickly.
Unknown Executive: Paused and hit the brakes, a little bit versus years prior but as the supply starts to dissipate and.
Unknown Executive: Q4, and certainly into 'twenty, five youll see us ramp those.
Unknown Executive: Upgrades.
Kyle Felice Katorincek: Alright, that's it for me. Thanks, guys.
Unknown Executive: Pretty pretty.
Unknown Executive: Pretty quickly.
Speaker Change: Alright Thats it for me thanks, guys.
Kyle Felice Katorincek: Thanks.
Ellie: Our next question comes from Toyo Okusanya from Dushband. Your line is now open.
Kyle Felice Katorincek: Our next question comes from Tayo.
Omotayo Tejumade Okusanya: Okay Sanya from Deutsche Bank. Your line is now open.
Toyo Okusanya: Wow, douchebag. Okay. Good. Good morning, everyone.
Omotayo Tejumade Okusanya: Wow Deutsche Bank Okay.
Unknown Executive: So, a quick question on guidance. Again, a very strong first quarter. Again, understand you're going to have the asset sales, which are somewhat dilutive to earnings as the year progresses, but could you kind of walk us through, again, 4% seems to earn a Y and 1Q, but for your guidance somewhere between negative 2 and 2, again, what's causing some of that deceleration? Is it just overall concerns about supply and the impact on portfolio performance? And also, just the guidance range still remains pretty wide. So, is the thought, get through spring leasing season, have better clarity, and then maybe at that point, start to narrow the guidance range?
Toyo Okusanya: Okay.
Omotayo Tejumade Okusanya: Good good morning, everyone. Good morning.
Speaker Change: So a quick question on guidance.
Unknown Executive: Again, very strong first quarter again, I understand youre going to have the asset sales, which is somewhat dilutive to earnings as the year progresses, but could you kind of walk us through again, 4% same store NOI in one queue, but full year guidance somewhere between negative two and two.
Unknown Executive: And then what's causing some of that deceleration is it just overall concerns about supply.
Unknown Executive: And the impact on portfolio performance and then also just guidance range two remains pretty wide. So is the thought get through spring leasing season have better clarity and then maybe at that point start to narrow the guidance range.
Unknown Executive: Yeah, that's exactly right. We feel good with how the first quarter came in. Absorption was better than we thought, bad debt was, as I said, 90 basis points better than we thought, and occupancy was better than we thought, and obviously renewal rates are on the Newly side were negative, you know, five, six percent. As we get into the second and third quarter, we're underwriting still, you know, almost a gain to lease, and, you know, the GPR, we're underwriting a GPR down, you know, another 90 basis points in the second quarter, and then another 40 basis points sequentially into the third quarter, and another 90 basis points into the fourth quarter, and so if that flips, then, you know, we'll be excited to report a narrowing range and hopefully, you know, raise as we work through the second quarter, but that's the biggest reason we're just being cautious.
Speaker Change: Yes, that's exactly right.
Unknown Executive: Tayo.
Unknown Executive: Feel good with how the first quarter came in at.
Unknown Executive: Sorption was better than we thought that that was as I said 90 basis points better than we thought and occupancy was better than we thought and obviously renewal rates are and the new lease side, where there were negative five 6%.
Unknown Executive: As we get into the second and third quarter, where underwriting still.
Unknown Executive: Almost a gain to lease and.
Unknown Executive: The GTR we're.
Unknown Executive: We're underwriting of GTR down.
Unknown Executive: 90 basis points in the second quarter and then.
Unknown Executive: Another 40 basis points sequentially into the third quarter.
Unknown Executive: And another 90 basis points into the fourth quarter and such as that.
Unknown Executive: That slips then we'll be excited to report a narrowing range and hopefully right.
Unknown Executive: Raise as we work through the second quarter, but Thats. The biggest reason, we're just being cautious for the moment.
Unknown Executive: Gotcha. That's helpful. And if I may sneak one more in, again, the swaps that are going to be expiring this year, about $385 million in swaps. How do we kind of think about that? A lot of them are kind of in the money right now, so they are helping you. How do we kind of think about that as it drops off? You kind of put in new swaps at higher rates and go floating on that debt.
Speaker Change: Gotcha. That's helpful. And then if I may sneak one more in.
Unknown Executive: Again, the swaps that are going to be expiring this year about $385 million of swaps. How do we kind of think about a lot of them are kind of in the money right now so they are helping you.
Unknown Executive: Do we kind of think about that as it drops off kind of put in swaps at higher rates go floating on that debt.
Unknown Executive: Yeah, it's a great question. So, we worked on this during the first quarter and basically monitored the fluctuations in interest rates. It doesn't make a ton of sense, in our view, at peak rates, which is where we think we are at least at peak rates, to go ahead and layer on more swaps. And really, the math isn't as dangerous or as gloomy as folks might think.
Speaker Change: Yes, that's a great question so we.
Unknown Executive: We worked on this during the first quarter.
Unknown Executive: Basically monitoring the fluctuations in interest rates.
Unknown Executive: The.
Unknown Executive: Doesn't make a ton of sense in our view at peak rates, which is where we think we are at least at paper grades to go ahead and.
Unknown Executive: Layer on more swaps and really the math isn't as dangerous or is gloomy as folks might think.
Unknown Executive: We did some work, and we only have to CAGR NOI at 5% over the next 25 and 26 to maintain current FFO levels and have the swaps, all of them, expire. And that's assuming we could refi and term out all our debt at the 5% rate. Now, if we're able to CAGR at a higher rate, which we have historically done since we've been a public company, 6%, 7%, 8%, and we're able to fix our debt at a lower than 5% rate, then we get healthy, get into the $3 a core FFO range.
Unknown Executive: We did some work and we only have two CAGR NOI.
Unknown Executive: At 5% over the next 25 and 26 to maintain our current <unk> levels and have the swaps all of them expire.
Unknown Executive: And.
Unknown Executive: That's assuming we could refinance for met all of our debt at the at the 5% right now if we're able to <unk> at a higher rate, which we have historically done since we've been a public company at $6, 7% to 8% and we're able to fix our debt at a lower than 5% rate.
Unknown Executive: And then we get we get helpful.
Unknown Executive: Get into the $3 <unk> range.
Unknown Executive: So, that's a long way of saying we're going to watch the yield curve. And we believe as rents are decelerating, those numbers will eventually make it into the CPI and allow for some easing. And if and when that happens, we'll be doing the same math. But really, the powerful point is that this company will grow its same store NOI in the mid to high single digits going forward, especially as supply becomes non-existent. And that's illustrated in the supplementary, where we lay out the deliveries in our submarkets. We can see it.
Unknown Executive: So.
Unknown Executive: It's a long way of saying, we're going to watch that.
Unknown Executive: The yield curve and we believe as rents are decelerating that those numbers will eventually make it into CPI and allow for some <unk>.
Unknown Executive: Easing and Wow.
Unknown Executive: If and when that happens we'll be we'll be doing the same math, but really the powerful point is that this this company will grow same store NOI in the mid to high single digits going forward, especially as supply becomes.
Unknown Executive: Non existent.
Unknown Executive: Illustrated in the supplemental where we lay out the deliveries in our sub markets. We can see it there is not going to be any supply coming in 2006 at all and at that point. Our swaps are expiring. My guess is our equity cost of capital will improve or <unk>.
Unknown Executive: There's not going to be any supply coming in 26 at all. And at that point, our swaps are expiring. My guess is our equity cost of capital will improve, and or the value of the company will be higher than it is today.
Unknown Executive: <unk> the value of the company will be higher than it is today.
Unknown Executive: Gotcha. And what do you think you can actually raise fixed-rate paper today, whether it's five-year or ten-year unsecured? Yeah, unsecured.
Speaker Change: Gotcha and then what do you think you can actually raise fixed rate paper today, whether it's five or 10 year unsecured.
Unknown Executive: Yeah.
Unknown Executive: Unsecured.
Unknown Executive: Yeah, unsecured. We don't have an unsecured rating, so that's not really applicable to us. Fannie and Freddie debt is pricing in the 6% range on a 10-year fixed basis. We could do things a little bit better as a sponsor of Freddie, probably get in the mid-fives, but that's where it is today if we went out and tried to fix everything.
Speaker Change: We have we don't have an unsecured rating so it's not not really.
Unknown Executive: Applicable to us.
Unknown Executive: Fannie Freddie debt is pricing in the <unk>.
Unknown Executive: The 6% range on a 10 year fixed basis.
Unknown Executive: <unk>.
Unknown Executive: Yes, you can you can do things, we can do things a little bit better as a slight sponsored Freddie probably in the mid fives, but thats, where it is today. If we if we went out and tried to fix everything.
Speaker Change: Thank you.
Unknown Executive: Thanks.
Ellie: Our next question comes from Barry Oxford from Coliers. Your line is now open. Great, thanks guys.
Unknown Executive: Our next question comes from Barry, Oxford from <unk>. Your line is now open.
Barry Paul Oxford: Great. Thanks, guys.
Barry Oxford: Great, thanks guys. On the interest line item, quarter over quarter, can you talk about what drove the interest line item to be down as much as it was and how we should think about that going forward?
Barry Paul Oxford: The interest line item quarter over quarter can you talk about what drove that.
Barry Paul Oxford: The interest line item to be down as much as it was and how should we think about that going forward.
Unknown Executive: Yeah, I think, you know, given what we thought we were looking at, you know, at the end of the year, you know, looking at the forward curve, obviously, you know, it was priced at a pretty significant amount, you know, five cuts. We were talking in 2024.
Speaker Change: Yeah volume take them.
Speaker Change: Yes, I think given.
Speaker Change: What we thought we were looking at.
Speaker Change: At the end.
Speaker Change: We ended the year looking at the forward curve obviously.
Unknown Executive: And then a pretty significant amount five cuts we're talking in Q4 now that the market is somewhere around <unk> plus or minus.
Unknown Executive: Now, today, I think the market is, you know, somewhere around two cuts, plus or minus. So, you know, the SOFR curve at 1231.24 is significantly steeper than it was expected to be when we talked two months ago. That has an impact on the fair value of the swap. So there's some non-cash market activity that I think was a little bit more significantly underestimated. We got a benefit in the first quarter from that. I think that that's the biggest difference you're probably seeing in the interest expense line.
Unknown Executive: The sofa curve as of 12, 31, 74 is significantly steeper than it was expected to be here when we talked two months ago.
Unknown Executive: That has an impact on the fair value of the swaps that are some noncash mark to market activity that I think is a little bit.
Unknown Executive: Little bit more significantly estimated we got a benefit in the first quarter.
Unknown Executive: I think that that's that's the biggest differentiator pricing in that interest expense line.
Unknown Executive: Right, so with the adjustments in the swap value. That's right. Right. Okay. Now, great. It's kind of what I thought it was given, given your comments previously. But switching gears, you indicated that you were looking to buy back shares. Are you prioritizing the buyback of shares over acquisitions, or not necessarily? You could be doing both of them at the same time.
Unknown Executive: So with the adjustments in the swap value.
Unknown Executive: That's right right. Okay, no great that's kind of what I thought it was given.
Unknown Executive: Given your comments previously.
Unknown Executive: But switching gears.
Speaker Change: Thank you.
Unknown Executive: Indicated that you were looking to buy back shares are you prioritizing the buyback of shares over acquisitions or not necessarily you could be doing both of them at the same time.
Unknown Executive: Yeah, we're prioritizing the buybacks as it sits today because there's, you know, there's still a clear gap between public and private market values, like, significant, you know, almost 150 to, in some cases, 200 basis points, as it relates to our company. Yeah, the Blackstone ARC deal is, you know, 5.9 headline cap rate, but if you dig into it, it's 5.3.
Speaker Change: Yes, we are prioritizing the buybacks as it sits today.
Unknown Executive: Because it's.
Unknown Executive: Theres, a clear theres still a clear gap between public and private market values like significant almost 150 to in some cases 200 basis points as it relates to our company.
Unknown Executive: The Black Friday.
Unknown Executive: The Blackstone deal is.
Unknown Executive: 509 headline cap rate.
Unknown Executive: Dig into it it's $5 three.
Unknown Executive: Yes.
Unknown Executive: And so, like, we can't find anything in the market. And the transaction volume is, again, the lowest it's ever been in the last decade. So it makes sense to buy a portfolio that we know and love in the sevens.
Unknown Executive: It's a big bet and so it's just we can't find anything in the market and in the transaction volume is again.
Unknown Executive: The lowest it's ever been in the last decade. So it makes sense to buy a portfolio that we know and love in the Sevens.
Barry Oxford: Right, exactly. Nope, makes sense. Appreciate it, guys. Thanks a lot.
Speaker Change: Right exactly.
Speaker Change: I appreciate it guys.
Speaker Change: Thanks, a lot.
Ellie: If there are no further questions as of this moment, I'd now like to hand back over to the management for the final remarks.
Speaker Change: And no further questions at the moment I would now like to hand back over to the management for their final remarks.
Unknown Executive: Nothing further from us, we appreciate everyone's time and thoughtful questions, and we'll speak next quarter.
Speaker Change: Nothing further from US appreciate everyone's time and thoughtful questions.
Speaker Change: And we will speak next quarter. Thank you.
Ellie: Thank you, everyone, for attending today's call. We hope that you have a wonderful day. Stay safe. And you may now all disconnect.
Ellie: Thank you everyone for attending today's call and we hope that you have a wonderful day stay safe and you may now disconnect.
Ellie: Okay.
Ellie: [music].
Ellie: Yeah.
Ellie: [music].
Ellie: Yes.
Ellie: [music].