Q2 2025 NexPoint Residential Trust Inc Earnings Call

Kate: My name is Kate and I will be your conference operator today.

Thank you for standing by.

Kate: At this time, I would like to welcome everyone to the NexPoint Residential Trust Q2 2025 Earnings Call. All lines have been placed on mute to prevent any background noise.

My name is Kate, and I will be your conference operator today.

At this time, I would like to welcome everyone to the next blank residential trust Q2 2025 earning call.

Kate: 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 followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.

All lines have been placed on mute to prevent any background noise.

Kristen Griffith: I would now like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead. Thank you.

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 followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead.

Kristen Griffith: Good day, everyone, and welcome to NexPoint Residential Trust Conference Call to review the company's results for the second quarter into June 30, 2025.

Kristen Griffith: On the call today are Paul Richards, Executive Vice President and Chief Financial Officer, Matt McGraner, Executive Vice President and Chief Investment Officer, and Bonner McDermott, Vice President, Asset and Investment Services.

Kristen Griffith: As a reminder, this call is being webcast through the company's website at nsrt.nexpoint.com.

Thank you. Good day, everyone and welcome to next residential. Trust conference call to review the company's results for a second quarter, in the June 30th 2025 on the call today. Our Paul Richards, Executive Vice President, and Chief Financial Officer, Matt mcgr, Executive Vice President and chief investment officer in Bonner McDermott, vice president asset investment management.

Kristen Griffith: Before we begin, I would like to remind everyone that this conference call Board will get statements within the meeting of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations.

As a reminder, this call is doing what pass through the company's website at nxrt nextpoint.com.

Kristen Griffith: Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent annual report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements.

Before we begin, I would like to remind everyone that this conference call contains 4 billion statements within the meetings of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions, and beliefs.

Reports on form 10 K and the company's other filings with the SEC framework, complete discussion of risk and other factors that could affect any forward-looking statements.

Kristen Griffith: 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 forthcoming This conference call also includes an analysis of non-GAAP financial measures.

The statements made during this conference call speak only as of today's date, and except as required by law, NexPoint Residential Trust does not undertake any obligation to publicly update or revise any forward-looking statement.

Kristen Griffith: For a more complete discussion of these non-gap financial measures, see the company's earnings release that was filed earlier today.

This conference call also includes an analysis of non-gaap financial measures.

Paul Richards: I would now like to turn the call over to Paul Richards. Please go ahead, Paul. Thank you, Kristen, and welcome everyone joining us this morning. We appreciate your time.

For a more complete discussion of these 9 got Financial measures. See the company's earnings release. I was filed earlier today.

Paul Richards: I'll kick off the call and cover our Q2 results, updated NAB, and guidance outlook for the year, and briefly touch on a few subsequent events.

Paul Richards: I will then turn over to Matt to discuss specifics on leasing environment and metrics driving our performance and guidance. Results for Q2 are as follows. Net loss for the first quarter was $7 million, or a loss of $0.28 per diluted share, on total revenue of $63.1 million. The $7 million net loss for the quarter compares to net income of $10.6 million, or 40 cents earnings per diluted share, for the same period in 2024, on total revenue of $64.2 million. For the second quarter of 2025, NOI was $38 million on 35 properties, compared to $38.9 million for the second quarter of 2024 on 36 properties.

I would now like to turn the call over to Paul Richards. Please, go ahead. Paul, thank you, Kristen, and welcome everyone. Joining us this morning. We appreciate your time. I'll kick off the call and cover. Our Q2 results update the nav and guidance outlook for the year and briefly touch on a few subsequent events. I will then turn over to Matt to discuss specifics, on leasing environment and metrics driving, our performance and guidance results for Q2 are as follows. Net loss for the first quarter was 7 million or a loss of 28 cents per diluted share on total, revenue of 63.1 million. The 7 million net loss for the quarter compares to net income of 10.6 million or 40 cents earnings per diluted share for the same period in 2024 on total revenue of 64.2 million

Paul Richards: For the quarter, same-store rent and occupancy decreased 1.3% and 0.8% respectively. This, coupled with a decrease in same-store revenues of 0.2%, led to a decrease in same-store NOI of 1.1% as compared to Q2 2024. As compared to Q1 2025, rents for Q2 2025 on the same-store portfolio were up 0.3% or $4. We reported Q2 core FFO of $18 million or $0.71 per diluted share compared to $0.69 per diluted share in Q2 2024. During the second quarter, for the properties in the portfolio, we completed 555 full and partial upgrades, leased 381 upgraded units, achieving an average monthly rent premium of $73 and a 26% return on investment.

For the second quarter of 2025. Noi was 38 million on 35 properties compared to 38.9 million for the second quarter of 20124 on 36 properties.

For the quarter, same store, rent, and occupancy, decreased 1.3% and 0.8% respectively. This coupled with the decrease in same store, revenues of 2% led to a decrease in the same store. Noi of 1.1% as compared to Q2 2024 as compared to q1. 2025 rents for Q2 20225 on the same sort of portfolio were up 0.3% or 4 dollars.

We reported Q2 core FFO of $18 million, or 71 cents per diluted share, compared to 69 cents per diluted share in Q2 2024.

Paul Richards: Since inception, NXRT has completed installation of 9,113 full and partial upgrades, 4,870 kitchen and laundry appliances, and 11,199 tech packages, resulting in $165, $50, and $43 average monthly rental increase per unit, and 20.8%, 64.2%, and 37.2% return on investment, respectively. During the second quarter, the company repurchased 223,109 shares of its common stock, totaling approximately $7.6 million, at an average price of $34.29 per share.

During the second quarter for the properties in the portfolio, we completed 555, full and partial upgrades lease. 381 upgraded unions units achieving an average monthly rent premium of 73% and a 26% return on investment.

Since Inception and xrt is completed installation of 9,113, full and partial, upgrades, 4,870, kitchen and laundry. Appliances, and 11,199 Tech packages resulting in 165 $50.43, average monthly rental, increase per unit and 20.8% 64.2 and 37.2% return on investment respectively and HRT. Paid a second quarter dividend of 51 cents per share of common stock on June 30th 2025.

Paul Richards: During the second quarter, the company entered into a new five-year $100 million SOFR swap with JPMorgan Chase, with a fixed rate of 3.489%.

Sets Inception, with increased our dividend 147.6%. For Q2, our dividend was 1.39 times. Covered by core ffo, with the 72.2% payout ratio of core. During the second quarter, the company, repurchased 223,109, shares of its common stock totaling approximately 7.6 million at an average price of 34.29 per share. During the second quarter, the company entered into a new 5-year, 100 million. So for swap, JP Morgan Chase with a fixed rate of 3.489%.

Paul Richards: Turning to the details of our updated NavVis. Based on our current estimate of cap rates in our markets and Ford NOI, we are reporting a NAV per share range as follows. $43.90 on the low end, $56.73 on the high end, and $50.31 at the midpoint. These are based on average tab rates ranging from 5.25 at the low end to 5.75 at the high end, which remains stable quarter over quarter.

Turning to the details of our updated nav estimate.

They sent our current estimate of cap rates in our markets and Ford noi. We are reporting a nav per share range as follows

Paul Richards: Turning to full-year 2025 guidance, NXRT is tightening 2025 guidance ranges for core FFO per diluted share and same-store NOI while affirming the midpoint. NXRT is revising 2025 guidance ranges for earnings lost per diluted share, same-store rental income, same-store total revenue, and same-store total expenses. Loss per share and core FFO ranges are as follows. For earnings, loss per diluted share, $1.22 at the high end, $1.40 at the low end, with a midpoint of $1.31, and core FFO per diluted share, $2.84 at the high end, $2.66 at the low end, with affirming the midpoint of $2.75.

43.90 on the low end, 56.73 on the high end and 50.31 cents at the midpoint these are based on average cap rates ranging from 5 and a quarter at the low, end to 5 and 3/4 at the high end, which remains stable quarter of a quarter.

Turning to full year. 2025 guidance nxrt is tightening 2255. Biden's ranges for core ffo per diluted share and same store noi. While affirming, the midpoint nxrt is revising 2025 guidance, ranges for earnings of loss per diluted share. Same store, rental income, same store, total revenue, and same store total expenses loss per share in core of the ranges are as follows.

Paul Richards: NXRT is also reaffirming acquisitions and disposition guidance.

Paul Richards: Lastly, I would like to take the time to discuss a few subsequent events which have occurred over the past few weeks. On July 11, 2025, the company entered into a $200 million corporate revolving credit facility with JPMorgan Chase Bank, Raymond James Bank, RBC, and Synovus. The credit facility may be increased by up to an additional $200 million upon lender consent. The credit facility will mature on June 30, 2028, unless the company exercises its option to extend for an additional one-year term. The new credit facility spread has improved by 15 basis points compared to the prior corporate credit facility.

For earnings loss, polluted share 1 122 at the high end. A140 at the low end with a midpoint of 1.31 cents and core Pho per diluted share, $2.84 at the high end $2.66 at the low, end with affirming. The midpoint of $2.75 nxrt is also reaffirming Acquisitions and disposition guidance. Lastly, I would like to take the time to discuss a few subsequent events, which have occurred over the past few weeks.

Additional 200 million upon lender consent, the credit facility will mature on June 30th 2028 unless the company exercises. This option to extend for an additional 1 year term.

Paul Richards: On July 28, 2025, the company's board approved a quarterly dividend of 51 cents per share payable on September 30, 2025, to stockholders of record on September 15, 2025.

Matt McGraner: This completes my prepared remarks, so I'll now turn it over to Matt for commentary on the portfolio. Thank you, Paul. Let me start by going over our second quarter same-store operational results. Same-store total revenue was down 20 basis points with 4 out of our 10 markets averaging at least 1% growth, while our Atlanta and South Florida markets led the way at 3.6% and 2.3% growth, respectively. Notably, Atlanta's positive results were driven in part by 1% bad debt expense versus second quarter of 2024 bad debt expense of 4%. We're also pleased to report some continued moderation in expense growth for the quarter.

The new credit facility spread has improved by 15 basis points compared to the prior corporate credit facility on July 28th 2025, the company's board approved, a quarterly dividend of 51 cents. Per share payable on September 30th 2025 to, uh, to stockholders of record on September 15th. 2025 this completes my preferred remarks. So, I'll now turn it over to Matt for commentary on the portfolio.

Thank you, Paul.

Let me start by going over our second quarter, same store, operational results. Same store. Total revenue was down 20 basis points with 4 out of our 10 markets averaging, at least 1% growth while our Atlanta and Florida. While our Atlanta and South Florida markets, led the way at 3.6% and 2.3% growth respectively notably

Atlanta's positive results were driven in part by a 1% bad debt expense, compared to a second quarter of 2024 bad debt expense of 4%.

Matt McGraner: Second quarter, same-store operating expenses were up just 1.5% year-over-year. Marketing and payroll declined 4.7% and 2.8%, respectively, year-over-year, and total controllable expenses are up just 50 basis points. Insurance is down 20% driven by a favorable market environment on the property casualty side. Second quarter same-store NOI growth continues to improve in our markets, with the portfolio averaging a negative 1.1 percent, a marketable improvement from negative 3.8 percent in the first quarter. Five out of our ten markets achieved year-over-year NOI growth of 1 percent or greater, with Raleigh and Atlanta leading the way with 6.8 percent and 4.4 percent growth, respectively.

We're also pleased to report some continued, moderation and expense growth for the quarter second second quarter, same store operating expenses were up, just 1.5%, year-over-year marketing and payroll declined, 4.7% and 2.8%, respectively. Year-over-year and Total Control will expenses are up 50 our up just 50 basis points.

Insurance is down 20%, driven by a favorable market environment on the property casualty side.

Second quarter. Same store in a y growth continues to improve in our markets with the portfolio. Averaging, a negative 1.1%, a marketable improvement from negative 3.8% in the first quarter.

Matt McGraner: Our Q2 same-store NOI margin registered a healthy 60.9 percent. The portfolio experienced improved revenue growth in Q2 2025, with 4 out of our 10 markets achieving growth of at least 1.2% or better. Our top 4 markets were Atlanta at 3.6%, South Florida at 2.3%, Raleigh at 1.5%, Charlotte at 1.2%. Renewal conversions for eligible tenants were 54.2% for the quarter with 7 out of our 10 markets executing renewal rate growth of at least 2.75%. Again, on the expense front, they continue to moderate and finish the quarter up only 1.5 percent. Payroll declined 2.8 percent for this quarter and continues to trend downward as we implement centralized teams and AI technology.

5 out of our 10 markets achieved year-over-year OI growth of 1% or greater, with Raleigh and Atlanta leading the way with 6.8% and 4.4% growth, respectively. Our Q2 story is the same, and our margin registered a healthy 60.9%.

The portfolio experience improved revenue growth in Q2 2025, with 4 out of our 10 markets achieving growth of at least 1.2% or better. Our top 4 markets were Atlanta at 3.6%, South Florida at 2.3%, Raleigh at 1.5%, and Charlotte at 1.2%.

Renewal conversions for eligible eligible. Tenants were 54.2% for the quarter with 7 out of our 10 markets, executing renewal rate growth of at least 2.75%

Matt McGraner: Our centralized platforms for renewals, screening, and call centers alongside AI applications deployed across various aspects of the resident experience are driving greater efficiency and enabling reductions in off-site staffing, particularly within leasing offices. As mentioned previously, we are now focused on optimizing our maintenance operations to drive similar efficiencies across our markets. Again, marketing and insurance were the other categories that saw negative growth in the quarter.

Again, on the expense front, they continue to moderate and finish the quarter up only 1.5%. Payroll declined 2.8% for this quarter and continues to trend downward, as we implement centralized teams and AI technology. Our centralized platforms for renewals, screening, and call centers, alongside AI applications deployed across various aspects of the resident experience, are driving greater efficiency and enabling reductions in off-site staffing.

Matt McGraner: Turning to 2025 Second Half Guidance. Supply pressures have eased somewhat, but continue to present concentrated challenges in some of our submarkets. According to RealPage, 2Q 2025 marked the first quarterly drop of over 20 basis points in inventory growth in over 15 years, as new deliveries tapered after peaking in late 2024. Despite the slowdown, over 400,000 units were delivered in the trailing 12 months, sustaining elevated competition in lease ups.

Particularly within leasing offices. As mentioned previously, we are now focused on optimizing our maintenance operations to drive similar efficiencies across our markets. Again, marketing and insurance were the other categories that saw negative growth in the quarter, turning to 2025 second half guidance.

Matt McGraner: The upshot here is that after one more quarter of significant deliveries in 3Q of 2025, the national delivery outlook contracts to a GFC level output of just 77,000 units per quarter, which supports our thesis on accelerating fundamentals in 2026, 27, and 28. More positive news, demand outperformed expectations in the first half of the year. Net absorption surged, the national stabilized occupancy rate improved to 94.6% in July. And XRT started the year off with occupancy at 94.7% and saw an opportunity to take advantage of our historically higher occupancy by upgrading units to the market standards, completing 765 units to date with an average ROI of 20.2% and pushing rent growth, which has increased 1% on average since the end of 2024, driven by stronger retention and renewal leasing activity.

Uh, supply pressures have eased somewhat, but continue to present concentrated challenges in our sub-markets. According to RealPage, Q2 2025 marked the first quarterly drop of over 20 basis points in inventory growth in over 15 years as new deliveries tapered. After peaking in late 2024, despite the slowdown, over 400,000 units were delivered in the trailing 12 months, sustaining elevated competition in lease-ups. The upshot here is that after one more quarter of significant deliveries in Q3 of 2025, the national delivery outlook contracts to a GFC level output of just 77,000 units per quarter, which supports our thesis on accelerating fundamentals in 2026, 2027, and 2028.

More positive news, demand outperformed expectations in the first half of the year.

Net absorption surged. The national occupancy rate improved to 94.6% in July.

Matt McGraner: Front-end pricing has improved from negative 4.73% in Q1 to negative 1.5% in Q2. And in late June and July, we have seen new lease growth slow modestly as operators remain defensive amid economic uncertainty and soft consumer sentiment. Renewable rent growth has been the strongest we've seen over the past 12 months and will remain a focus for the second half of the year. We see several markets continuing to see top line growth in the second half of this year and think Tampa, Dallas, Charlotte, and Las Vegas will all exceed our revenue expectations by anywhere from 80 basis points on the low end to 130 basis points on the high end.

In XRT, we started the year off with occupancy at 94.7% and saw an opportunity to take advantage of our historically higher occupancy by upgrading units to market standards, completing 765 units to date with an average ROI of 20.2%. We have also pushed rent growth, which has increased by 1% on average since the end of 2024, driven by stronger retention and renewal leasing activity.

Front end pricing has improved from negative -4.73 in q1 to 1.5 negative 1.5% in Q2.

And in late June and July, we have seen new lease growth slow modestly as operators remain defensive amid economic uncertainty and soft consumer sentiment.

Matt McGraner: On the flip side, we think South Florida, Orlando, and Atlanta will be modestly weaker in the second half of the year. South Florida is projected to finish the year at 1.8% top-line growth versus our prior forecast of 2.6% growth. This remains our strongest market overall for rent growth, but our most optimistic expectations for growth have been tempered for now. Orlando, we expect to finish the year at negative 1% versus prior forecast of being flat, and Atlanta to finish the year at negative 70 basis points versus our prior forecast of flat, and while bad debt has improved significantly, we are feeling the pressure of new supply here, particularly in Cobb County.

Been the strongest we've seen over the past 12 months and will and will remain a focus for the second half of the year. We see several markets, continuing to see Topline growth in the second half of this year and think Tampa. Dallas, Charlotte in Las Vegas will all exceed. Our our Revenue Expectations by anywhere from 80 basis points. On the low end to 130 basis points on the high end.

On the flip side, we think South Florida Orlando and Atlanta will be modestly weaker in the second half of the Year. South Florida is projected to finish the year at 1.8 growth versus our prior forecast of 2.6% growth. This remains our strongest Market overall for rent growth, but our most optimistic expectations for growth have been tempered for now.

Orlando, we expect to finish the year at negative 1%, uh, versus prior forecast of being flat in Atlanta, uh, to finish the year at negative -70 basis points, versus our prior forecast of flat. And while bad debt has improved significantly, we are feeling the pressure of new Supply Here, particularly in Cobb County.

Matt McGraner: Due to supply pressures in these submarkets, we anticipate many of these headwinds to be short term, as many of the lease ups are expected to achieve stabilization in the later part of 2025. Bad debt performance has continued to exceed expectations driven by decline in evictions. The portfolio finished 2Q with only 50 basis points of net bad debt. We have continued to see bad debt stabilize and expect to hold bad debt between 50 and 75 basis points for the remainder of the year. We expect that the growth benefit of reduced bad debt to stabilize in the fourth quarter of this year and remain flat at pre-COVID run rates going into 26.

Due to the supply pressures in these sub markets, we anticipate many of these headwinds to be short term. As many of the lease ups are expected to achieve stabilization in the later part of 2025,

Bad debt and performance has continued to exceed expectations driven by a decline in evictions, the portfolio finished. 2q with only 50 basis points of net. Bad debt, we have continued to see bad debt stabilized and expect to hold bad debt between 50 and 75 basis points. For the remainder. Of the year, we expect that the growth benefit of

Matt McGraner: To sum up our revenue outlook, even though rents are decelerating from the first half of 2025 modestly, we still expect to see some growth when compared to the trough that occurred in the second half of 2024. Occupancy will remain the focus, but our expectation is to average 94% in the second half of 2025 versus 94.7%, which was achieved in the second half of 2024. For this reason, we expect second half 2025 revenue to be more muted than we initially thought.

Produced, bad debt to stabilizing and uh, the fourth quarter of this year and remain flat at preco run rates going into 26.

To sum up our Revenue Outlook. Even though rents are decelerating from the first half of 2025 modestly, we still expect to see some growth when compared to the trough that occurred in the second half of 2024. Oh, occupancy will remain the focus. But our expectation is to average 94% in the second half of 2025 versus 94.7%, which was achieved in the second half of 2024. For this reason, we expect the second half 2025 Revenue to be more muted than we initially thought.

Matt McGraner: On the expense front, controllable operating expenses have improved, supported by ongoing efficiencies through centralized operations and implementation of AI-driven technologies. Payroll has improved from our initial forecast, and we expect that we will lock in better performance in the second half of the year, as we beat our first half forecast by just about 500,000, or 9.7%. We see salaries remaining stable in the second half of the year, with an expectation that they remain flat. Repairs and maintenance costs have also moderated, particularly turn costs, which are trending down, and we expect to finish the year 3% below 2024 total.

On the expense front, controllable operating expenses have improved, supported by ongoing efficiencies through centralized operations and the implementation of AI-driven technologies. Payroll has improved from our initial forecasts, and we expect that we will lock in better performance in the second half of the year as we beat our first half forecast by just about $500,000 or 9.7%.

We see salaries remaining stable in the second half of the year, with an expectation that they remain flat.

Matt McGraner: Again, on our insurance renewal, it was very favorable, and the impact will be fully recognized in the second half of 2025 to the tune of $600,000 a year in savings year-over-year. Collectively, these trends support maintaining our current same-story NOI guidance at the midpoint of negative 1.5 percent, slightly softer revenue growth expectations, fully offset by efficient expense management. While rent growth has underperformed historical Q2 expectations, tightening supply-demand fundamentals, stabilizing occupancy, improving collections, and continued expense discipline support maintaining the NOI outlook.

Repairs and maintenance costs have also moderated, particularly turn costs, which are trending down. And we expect to finish the year. 3% below 2024 totals

Again, on our insurance. Renewal it was very favorable and the impact will be fully recognized in the second half of 2025, to the tune of 600,000 dollars a year in savings year-over-year.

Trends support maintaining our current same store in oi guidance. At the midpoint of negative 1.5%. Slightly softer Revenue growth expect expectations, fully offset by E, efficient man. Uh, efficient expense management,

Matt McGraner: The latest RealPage summary echoes this sentiment, quote, momentum trails expectations, but fundamentals are affirming, and that's what we're seeing as well.

Matt McGraner: A brief update on the transaction markets. We continue to actively monitor the sales markets for opportunities and stay close to many movements on cap rates. Several recent portfolio processes in our markets were recently awarded in the 5 to 5 1⁄4 cap rate range, again, supporting our NAB guide.

And while we went growth is underperformed historical, Q2 expectations tightening Supply demand fundamentals. Stabilizing occupancy, improving Collections and continued expense discipline support maintaining the noi Outlook. The latest Real Page summary Echoes, the sentiment moment, quote, momentum Trails expectations but fundamentals are firming, and that's what we're seeing as well.

A brief update on the transaction markets, we continue to actively monitor the sales markets for opportunities, and stay close to many movements on cap rates.

Matt McGraner: We too are optimistic we'll be able to recycle capital in the second half of the year with targeted acquisitions and dispositions to continue to replenish our rehab pipeline.

Several recent portfolio. Processes in our markets were recently awarded in the 5 to 5 and a quarter cap rate range. Again supporting our NAB guide.

Matt McGraner: In closing, in the near term, we will continue to prioritize a balanced approach, again, driving occupancy, maintaining discipline, rent strategies, and managing controllable expenses to support steady NOI growth, despite the transitional operating environment.

We too are optimistic. We'll be able to recycle capital in the second half of the year with targeted, targeted Acquisitions and dispositions to continue to replenish our rehab pipeline.

Matt McGraner: That's all I have for prepared remarks.

In closing in the near-term, we will continue to prioritize the balanced approach. Again, driving occupancy, maintaining discipline rent, strategies and managing controllable expense expenses to support study noi growth despite the transitional operating environment.

Matt McGraner: Thanks to our teams here at NexPoint and BH for continuing to execute.

Kate: Now, we'd like to turn the call over to the operator to take your questions. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

That's all I have for prepared remarks. Thanks to our teams here at NexPoint, BH, for continuing to execute. Now, we'd like to turn the call over to the operator to take your questions.

At this time, I would like to remind everyone in order to ask the question press star, then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Kyle Katorincek: Your first question comes from the line of Kyle Katorincek with Janie Montgomery Scott. Your line is open. Hey guys, how much of the 8 million in recurring capitalized maintenance expenditures year to date are non-revenue producing? Good question. As part of the refinancing activity last year, the agency looked at required capex, parking, pavement, siding, things like that. So we have a little bit of elevated spend this quarter over the normal. We also have some more significant projects, particularly in Nashville. We're doing two roof replacement projects in Nashville, some other chunkier spend. So I would say it's elevated certainly over run rate and skewed a little bit more towards that non-revenue generating today.

Your first question comes from the line of Kyle gurinsky with Jaime Montgomery, Scott, your line is open.

Live maintenance expenditures year to date or non-revenue producing.

Kyle Katorincek: I think as we work through that in the third quarter, we'll get to a more normalized run rate in Q4. And I know Matt touched on the increase in output of renovations. That's really more focused on kind of bespoke $1,000 opportunities. So it's not been an acceleration in all that much spend there.

As part of the refinancing activity last year, uh, the the agencies looked at, you know, required capex, parking pavement sighting, things like that. So we we have a little bit of elevated spin this quarter, uh, over over the normal. Uh, we also have some more, uh, significant projects particularly in Nashville, we're doing 2 roof replacement projects, uh, in Nashville, uh, and some other some other chunkier spin. So, I, I would say it's, it's elevated certainly over run rate, um, and, and skewed, a little bit more towards, um, that non-revenue generating today. Uh, I think as we work through that and the, the third quarter, uh, what we'll get to a more normalized run rate in Q4, um, and I know Matt touched on, you know, the the increase in output of of Renovations that that's really more focused on kind of bespoke you know 1 to 3 thousand dollar opportunities. So it's it's not been an an acceleration uh and all that much spend there that's helpful.

Kyle Katorincek: And then on the rehab program, last quarter's call, you guys mentioned it would take probably a few quarters to get back to 400 units a quarter target. So what drove such a large increase that allowed you guys to ramp up to the 500 plus units in the second quarter versus what you were thinking last quarter? Yeah, it's certainly been a focus of ours. Going into the year, we recognize, you know, there's an opportunity. It's probably not, you know, 10 to 15,000 a unit full upgrade that we've been doing. But where we've seen opportunity, we've been able to, I think, deploy a little bit faster than we expected.

Okay. And then on the rehab program, uh last quarter's call you guys mentioned. It would take a probably a few quarters to get back to 400 units a quarter Target.

So what drove such a large increase that allowed you guys to ramp up to the 500 plus units in the second quarter versus, uh, what you were thinking last quarter?

Kyle Katorincek: Credit credit to the BH construction team and the asset management folks here.

Kyle Katorincek: We identified an opportunity and we're attacking it for And then last one on that, for the ROI on your post-rehab units, what, like, is the useful life or tenure you usually use to calculate your ROI on those, and is there any difference between full and partial units? No difference, and I think historically it's been seven years. All right. Thanks, guys. Appreciate it. Got it.

Yeah. It's it's certainly been a focus of ours uh going into the year. We we recognize um you know, there's an opportunity. Uh it's probably not the you know, 10 to 15 thousand a unit full upgrade that we've been doing but where we've seen opportunity we we've been able to uh I think deploy a little bit faster than the expected. Uh credit credit to the BH construction team and the asset management folks here uh we identified an opportunity and and we're attacking it full on.

And then the last one on that, um, for the ROI on your post-rehab units, what like is the useful life for tenure you usually use to calculate your ROI on those? And is there any difference between full and partial units?

No difference and uh I think historically it's been 7 years.

All right. Thanks, guys. I appreciate it.

Got it.

Linda Taibid-Jeffries: Your next question comes from the line of Linda Taibid-Jeffries, your line is open. Hi, good morning. Phoenix and Vegas saw bigger drops in 2Q occupancy of down 340 and 250 basis points, respectively. Could you just provide some color on what's happening there? Does that have to do with value add? And then you also mentioned that Vegas should exceed expectations by year-end. Is the inflection in 3Q or 4Q?

Your next question comes from the line of Linda, Ty with Jeffrey. Your line is open.

Hi, good morning. Um, Phoenix in Vegas, saw bigger drops in 2q, occupancy of down 340 and 250 basis points respectively. Uh, could you just provide some color on, what's happening there? Does that have to do with value? Add and then you also mentioned that Vegas should exceed Expectations by year. End is the inflection in 3Q or 4 q.

Matt McGraner: Hey, Linda, it's Matt. Take Phoenix first. Phoenix is perhaps the most supply-driven market that we're seeing right now. Really, it's three properties in the second quarter that we're surrounding, lease-up deals, Enclave Heritage, and venue at Camelback. In fact, that's where we saw the most new lease rate pressure of kind of negative 8 to negative 10 percent in terms of new leases. Again, as I mentioned in my prepared remarks, we expect this to subside in the third, probably not the third quarter, but the fourth quarter and the first quarter of 2026. So we're doing all we can to be defensive there, and that makes up some of the occupancy loss.

Hey, hey Linda, it's Matt. Um,

Take Fenix. First Fenix is is uh, perhaps the most uh the the most um Supply constraint or Supply. Um

Bonner McDermott: On the Vegas front, and Bonner, correct me if you see anything different, but really it's targeted to one asset, Bella Solaro, which had a little bit more weaker traffic than we thought. So that makes up. most of the loss. Bonner, if you have a thing to add to that. Yeah, I would say for Phoenix, obviously a large geographic concentration there, that market being one of the more recent peaks in supply, you've got more concession utilization in that market than we've been accustomed to. We've had to adjust to that in the second, going into the third quarter.

Uh, driven Market that we that we're seeing right now. Um, really it's it's 3 properties in the second quarter that, uh, we're surrounding. Um, lease up deals Enclave, Heritage and venue at Camelback. That's where we saw the most new lease rate pressure, um, of kind of negative 8, to to, to negative 10% in terms of new leases again. Uh, as I mentioned my prepared remarks, we expect this uh, to subside, um, in the third probably not the third quarter but but the fourth quarter in the first first, first first quarter of the 2026. So we're doing all we can to be defensive there. Um, and that makes up some of the um, the occupancy loss, um, on the on the Vegas front and, um, Bonner. Correct me if, if, if you see anything different but really it's, it's targeted to 1 asset, um, Bella solaro which, which had, um, a little bit more, uh, weaker traffic than um, you know than than we thought. So, um, that that makes up

Bonner McDermott: Overall, we think we'll finish the year there actually low 93s to high 92s occupancy. I think we'll be all right. We need to use a little bit more concessions to buy some occupancy there, but feel okay. In Vegas, we've been seeing negative trade-outs now for a period of time. Our revenue, our gross potential rent is actually better on the outlook for the rest of the year than we had envisioned for it, but we do see a little bit of softness in occupancy that we're working through to match point. El Salar in particular saw a decrease in traffic.

Uh, most of the loss, I don't know if you have anything to add to that. Yeah, I would, I would say for, for Phoenix. Obviously a large Geographic concentration there, that, that market being 1 of the, the more recent Peaks and Supply, you've got more concession utilization in that market than we've been accustomed to. Um, we, we've had to adjust to that, uh, in the the second. I'm going into the third quarter. Um, overall, we think we'll finish the year there actually, uh, low 93s to, you know, High 92s occupancy. I I think we'll be all right. We need to use a little bit more concessions to, to buy some occupancy there but

Bonner McDermott: It only resulted in about eight few releases for the second quarter, but it's something we're monitoring and something we think we can do better on. That's another midpoint of our guidance there to finish the year at 92.8 occupancy. We certainly think we could do better and hope to, but I think we're being appropriately defensive at this point.

Midpoint of our guidance, we are to finish the year at 928 occupancy. We certainly think we could do better and hope to. But, you know, I think we're, you know, being.

Appropriately defensive at this point.

Bonner McDermott: Thanks. And then just one follow-up, what's driving the lower turn costs? Yeah, I think, you know, I think the first and foremost thing was just higher retention, you know, we're trying to close the back door and have focused on renewals, really, you know, kind of proud of the of the second quarter and into the third quarter, you know, renewal rates and so that'll continue to be a focus.

Thanks. And then just one follow-up. What's driving the lower turn costs?

Bonner McDermott: But we're also prioritizing in those market updates that we're doing, you know, the increase and kind of partial renovations is targeted towards those potential heavy turns where, you know, maybe, you know, we've already touched before and they have, you know, the majority of kind of a modern update package. But we have an opportunity to go in, you know, add a hard service counter, add a stainless steel appliance package, lighting package. We're doing smaller upgrades, trying to get, you know, a $20 premium there. And then that goes into the capital bucket. So the increase in value add is offsetting some of that turn cost.

The first and foremost thing was the higher retention. Um, you know, we're trying to to, to close the back door, uh, and have focused on renewals, uh, really, you know, kind of proud of of the of the second quarter and into the third quarter, um, you know, renewal rates and so that'll continue to be a focus. But, um, yeah. We're also prioritizing in those, um, you know, Mark Market updates that we're doing, you know, that the increase in and kind of partial Renovations is targeted towards those potential heavy turns where, you know, maybe a unit we've already touched before and they have, you know, the majority of of kind of a a modern update package but we have an opportunity to go in, you know, add a heart heart, heart service counter out of stainless, steel clients, package, lighting package, we're doing smaller, upgrades trying to get, you know, a $20 premium there and then that goes into the, the capital bucket. So the the increase uh, in value add is, is offsetting some of that term cost.

Bonner McDermott: Thanks, appreciate the color.

Thanks appreciate the color.

Matt McGraner: I will now turn the call back to the management team for closing remarks. Yeah, well, thank you for everyone's time this morning, and I look forward to talking to you again next quarter.

I will now turn the call back to the management team for closing remarks.

Yeah, well, thank you for everyone's, uh, time this morning, and I look forward to, um, uh, talking to you again next quarter. Thanks.

Kate: Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you and have a great day.

Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you, and have a great day.