Q3 2025 NexPoint Residential Trust Inc Earnings Call

Speaker #3: Hello , and thank you for standing by . My name is Laci , and I will be your conference operator today . At this time , I would like to welcome everyone to the next point .

Speaker #3: Third quarter 2020 Earnings Call . All lines have been placed on mute to prevent any background noise . After the speaker's remarks , there will be a question and answer session .

Speaker #3: If you would like to ask a question during this time , simply press star , followed by the number one on your telephone keypad .

Speaker #3: If you would like to withdraw your question , press star one again . Thank you . I would now like to turn the conference over to Kristen Griffith , Investor Relations .

Speaker #3: You may begin .

Speaker #4: Thank you . Good day , everyone , and welcome to NexPoint Residential Trust Conference call to review the company's results for the third quarter ended September 30th , 2025 .

Speaker #4: On the call today are Paul Richards , Executive Vice President and Chief Financial Officer . Matthew McGraner Executive vice president and chief investment officer .

Speaker #4: And Bonner McDermott , vice president , asset and investment management . As a reminder , this call is being webcast through the company's website at .

Speaker #4: Dot 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 beliefs .

Speaker #4: Listeners should not place undue reliance on any forward looking statements in 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 statements .

Speaker #4: The statements made during this conference call speak only as of today's date , and except as required by law and Xti does not undertake any obligation to publicly update or revise any forward looking statements .

Speaker #4: 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 .

Speaker #4: I would now like to turn the call over to Paul Richards . Please go ahead . Paul .

Speaker #5: Thank you . Christine , and welcome everyone . Joining us this morning . We appreciate your time . I'll kick off the call and cover our Q3 results .

Speaker #5: Updated Nav and guidance outlook for the year . I will then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance results for Q3 are as follows .

Speaker #5: Net loss for the third quarter was $7.8 million , or a loss of $0.31 per diluted share on total revenues of $62.8 million .

Speaker #5: The $7.8 million net loss for the quarter, compared to a net loss of $8.9 million, or a $0.35 loss per diluted share for the same period in 2020.

Speaker #5: Four . On total revenue of 64.1 million for the third quarter of 2020 . Five . NOI was 38.8 million on 30 . Five properties , compared to 38.1 million for the third quarter of 2024 .

Speaker #5: On 36 properties for the quarter . Same store rent and occupancy decreased 0.3% and 1.3% , respectively . This , coupled with a decrease in same store revenues of 0.6% and same store expenses of 6.2% , led to an increase in same store NOI of 3.5% as compared to Q3 2024 .

Speaker #5: As compared to Q2 2025 . Rents for Q3 2025 on the same store portfolio were down 0.2% , or $3 . We reported Q3 core FFO of 17.7 million , or $0.70 per diluted share , compared to $0.69 per diluted share in Q3 2020 .

Speaker #5: Four . During the third quarter . For the properties in the portfolio , we completed 365 full and partial upgrades , leased 297 upgraded units , achieving an average monthly rent premium of $72 and a 20.1% return on investment .

Speaker #5: Since inception, we have completed the installation of 9,478 full and partial upgrades, 4,925 kitchen and laundry appliances, and 11,389 tech packages, resulting in $161 million.

Speaker #5: $50 and $43 average monthly rental increase per unit and 20.8% , 64% , and 37.2% return on investment , respectively , and paid a third quarter dividend of $0.51 per share of common stock on September 30th , 2025 .

Speaker #5: For Q3 , our dividend was 1.37 times covered by core FFO , with a 73.2% payout ratio of core FFO . On October 27th , 2025 , the company's board approved a quarterly dividend of $0.53 per share , a 3.9% increase from the previous dividend per share , payable on December 31st , 2025 , to stockholders of record on December 15th , 2025 .

Speaker #5: Since inception , NXT has increased the dividend per share by 157.3% . Turning to the details of our updated Nav estimate based on our current estimate of cap rates in our market and forward NOI , we are reporting a Nav range per share as follows $43.40 on the low end , $56.24 on the high end , and $49.82 at the midpoint .

Speaker #5: These are based on average cap rates ranging from 5.25% on the low end and 5.75% on the high end , which remains stable .

Speaker #5: Quarter over quarter . Turning to full year 2025 guidance . Annex is reaffirming guidance midpoints for loss per diluted share core FFO per diluted share , same store rental income , same store total revenues , same store total expenses , and same store NOI and tightening guidance ranges for acquisitions and dispositions .

Speaker #5: Loss per share core fulfill ranges are as follows . Loss per diluted share of $1.22 at the high end . -$1.40 at the low end with the midpoint of -$1.31 .

Speaker #5: And for core FFO per diluted share , $2.84 . At the high end , $2.66 at the low end . With affirming the midpoint of $2.75 .

Speaker #5: This completes my prepared remarks , so I'll now turn it over to Matt for commentary on the portfolio . Thank you . Paul .

Speaker #6: Let me start by going over our third quarter . Same store operational results , same store total revenue was down 60 basis points , albeit with five of our ten markets averaging at least 1% growth with Atlanta and South Florida leading the way at a positive 2.8% each .

Speaker #6: We're we are also pleased to report continued moderation in expense growth for the quarter . Third quarter , same store operating expenses were down an impressive 6.3% year over year payroll and Ram declined 7.5% and 6.1% , respectively , with year over year and total controllable expenses down , a meaningful 6% .

Speaker #6: Insurance was also favorable by 19% , driven by the team's efforts here and marked improvement on the property casualty side . Real estate taxes also decreased 8.7% due to favorable protest outcomes , most notably in our Nashville portfolio .

Speaker #6: Third quarter same store NOI growth continues to improve in our markets , with the portfolio averaging a positive 3.5% . A marketable improvement from down 1.1% last quarter .

Speaker #6: Seven of our ten markets achieved year over year . NOI growth of at least 2.5% or greater , with Nashville and Atlanta leading the way at 26% and 7.8% growth , respectively .

Speaker #6: Our Q3 same store , Noi Noi margin registered a healthy 62.2% . The portfolio experienced improved revenue growth also in Q3 , with five out of our ten markets achieving growth of at least 1% or better .

Speaker #6: Our top five markets were Atlanta and South Florida at 2.8% , Tampa at 2.4% , Raleigh at 2.1% , and Charlotte at 1% .

Speaker #6: Renewal conversions for eligible eligible tenants were 63.6% for the quarter , with all ten markets executing positive renewal rate growth of at least 75 basis points or better .

Speaker #6: 6646 renewals were signed during the quarter at an average of 1.81% . On the occupancy front , the portfolio registered a 93.6% occupancy as of the close of the quarter .

Speaker #6: Market competition from lease up assets on on down the spectrum remain our biggest challenge , but clearer skies are forming ahead as of this morning , our portfolio is 93.6% occupied , 95.8% leased with a healthy trend , 60 day trend of 92% .

Speaker #6: Even though we saw elevated pressures to occupancy in concession utilization , top line rent beat our internal forecasts by 20 basis basis points for the quarter , and bad debt continues to stabilize with a meaningful 32% year over year improvement for the quarter .

Speaker #6: Again , on expenses , they continue to moderate and finish the quarter down 6.4% . Payroll declined 7.6% this quarter and continues to trend downward as we implement centralized teams and AI technology .

Speaker #6: Our centralized platforms for renewal , screening call centers alongside AI applications deployed across various aspects of the resident experience are all driving greater efficiency and enabling reductions in on site staffing , particularly within the leasing offices .

Speaker #6: As mentioned previously , we are now focused on optimizing our maintenance operations to drive efficiencies across our markets . Insurance , real estate taxes and G&A were the other categories that saw meaningful year over year improvement for the quarter .

Speaker #6: With all categories improving at least 6.6% or more . Now , turning to our updated view on supply . We believe we're close to the end of a record national new multifamily supply cycle .

Speaker #6: CoStar sees annual net deliveries having peaked at 695,000 units in the trailing 12 month period , ending in Q3 2024 , and Q4 2024 .

Speaker #6: This compares to annual net delivery of delivered units of 351,000 on average in the prior five years, with that timeframe being Q3 2014 through Q3 2019, and 282,000 units on average.

Speaker #6: Since 2001 , CoStar forecast net deliveries reached 697,000 units in 2024 , and expected to be 508,000 units in 2025 before falling significantly year over year in 2026 by 49% in 2027 , by an additional 20% .

Speaker #6: A critical Q3 for deliveries , followed by a steeper drop off for Q3 of 2025 . Deliveries are 17% down quarter over quarter and is the last quarter with more than 100,000 units delivered .

Speaker #6: An increased expectation for three Q3 2025 deliveries is followed by a significant drop-off to Q4 2025 deliveries, which are now forecasted at just 69,000 units, down 52% year over year and 41% quarter over quarter.

Speaker #6: This ushers in the start of a lengthy period where deliveries are expected to be below the long run average , and more bullish long term forecasts for prior years 2027 and 2028 delivery forecasts have also fallen so now expects 2027 deliveries of 234 units .

Speaker #6: That compares to forecasts from December of last year of 283,000 units and 231,000 units for 2028 . That compares to prior forecast of 308,000 units .

Speaker #6: That's down 27% on the whole , cautious optimism . Optimism best fits our rental market outlook . Looking better in places . Still challenge , but we have come to the time where market fundamentals are coalescing to support a more bullish outlook for multifamily .

Speaker #6: We expect the rental market will take the lion's share of new household formation and outperform the for-sale market in the near term.

Speaker #6: While some markets still have supply issues , particularly in our fast growing Sunbelt markets , demand is still there . We're absorbing units at a very strong clip right now , and part of that is due to the affordability challenges in the for sale market .

Speaker #6: It's about twice as expensive on a monthly basis to own a home as it is to rent the average apartment in the US during the quarter , the team re underwrote each of our assets assets as if we were to buy them new today with a particular view on the submarket .

Speaker #6: lease UPS . We tried to estimate based on historical lease up trends where in each of our submarkets that have supply pressures , would indeed stabilize .

Speaker #6: Lease up. We tried to estimate based on historical lease-up trends where, in each of our submarkets that have supply pressures, would indeed compete for. We define submarket stabilization as 92% occupied, with new construction deals being at least 70% leased.

Speaker #6: Our analysis showed that five of our ten markets should stabilize in the first quarter . Six of the ten in the second and eight of the ten in the third quarter of next year , with all market stabilizing by year end .

Speaker #6: Indeed , this could happen sooner as indexed NXT markets are littered with major job and corporate relocation , and announcements almost daily across finance , technology , defense , logistics , manufacturing and research .

Speaker #6: Billions of capital and thousands of jobs across names such as Align Data Centers , Alliancebernstein , Apple , Bell , Textron , Fujifilm , Goldman , Intel , Microsoft , Oracle , TSMC , Wells Fargo have all hit our markets in the past six months alone .

Speaker #6: Again , more reason for cautious optimism on the transaction front , buyer sentiment for multifamily purchasing continues to improve in Q3 , according to CBRE and our own experiences , Institutional investor allocations to real estate are expected to tick up to 10.8% in 2026 , according to Institutional Real estate Allocations Monitor .

Speaker #6: Firms like Blackstone remain bullish on commercial real estate investments , given muted supply growth and lower cost of capital in the form of lower rates and tightening spreads .

Speaker #6: Indeed , Blackstone in particular believes we're now approaching a steeper point in the price recovery , and we share that view . We continue to continue to actively monitor the sales market for opportunities and stay close to any movements on cap rates in our markets .

Speaker #6: Many investors remain sidelined , but we see opportunity to return to the market as fundamentals improve . We're expecting to recycle capital in the next couple of quarters against this backdrop and are excited to announce the NXT has been awarded the opportunity to acquire a 321 unit multifamily community in the high growth suburbs of northern Las Vegas .

Speaker #6: This asset features a unit mix focused on two and three bedroom floor plans , ideal for young families and roommates . Situations . Recent large scale developments have driven significant expansion , job growth and residential revitalization in North Las Vegas , which is now the Las Vegas Valley's most prominent industrial market .

Speaker #6: Nearby , over 15,000,000ft² of industrial space is currently under construction or planned , supporting the creation of approximately 8000 jobs in this submarket alone .

Speaker #6: We have evaluated this asset to be structurally sound . Well located and primed for value add execution . That is the best we have underwritten all year .

Speaker #6: We believe the asset has potential to generate a 7% same store NOI over the next five years . Our plan will be to acquire the asset in late Q4 , utilizing available capacity on the facility , and then we expect to execute one or more sales transactions in the first half of 2026 utilizing tax efficient 1031 reverse exchange mechanics , thereby initiating our capital recycling and growth strategy .

Speaker #6: As we head into 2026, we expect this strategy to modestly be accretive for 2026 while yielding stronger core FFO growth throughout the 2027 to 2030 period.

Speaker #6: Capital recycling to generate growth is our primary external objective . Selling mature assets with limited potential into newer growth , nicer and higher growth assets within our familiar market geographies .

Speaker #6: Transforming the portfolio and unlocking gains for tax efficient capital , recycling into high conviction assets to grow NOI at an outsized rate is consistent with the company's historic execution .

Speaker #6: We expect to continue scouring the market for the best opportunities , but but we will absolutely prioritize stock buybacks as well . In the low 30s over the near term .

Speaker #6: To summarize and reiterate a couple of points on the macro outlook: we see the market signaling a steeper recovery ahead on operations. Revenue is moderating, but at a decelerating pace, and we continue to demonstrate strong expense control driven by random labor and insurance.

Speaker #6: We have stabilized bad debt and view the financial health of our tenant demographic as quite strong and resilient to market pressures. We have full conviction that we can hit our same-store guidance and expectations, and we are positioned for improved performance heading into 2026.

Speaker #6: On the balance sheet , we're cognizant of the swap maturity overhang on our earnings forecast , and we continue to monitor that daily for for opportunities .

Speaker #6: We expect to act and replace the swap book over the near term and certainly before any expirations. On our path to growth, we see green lights ahead as it relates to our capital recycling.

Speaker #6: Recycling strategy . Good deals are available . We are confident our ability to underwrite , capitalize and execute on them and our team will be heavily focused on doing just that heading into 2026 , as well as , again , importantly , buying back stock in the low 30s .

Speaker #6: In closing , in the near term , we will continue to prioritize the balanced approach driving occupancy , maintaining discipline , rent strategies , managing controllable expenses to support steady NOI growth .

Speaker #6: While we look to accelerate our capital recycling strategy and portfolio transformation to drive external growth . As conditions on the field are set to improve .

Speaker #6: Looking ahead , we are confident in the long term fundamentals of our Sunbelt positioned workforce housing assets , which we will which we see to be well positioned to outperform other geographies given our favorable trends in population migration , job creation and wage growth .

Speaker #6: That's all I have for prepared remarks . I appreciate our team's work here at Nextpoint and for continuing execute . And that concludes our prepared remarks .

Speaker #6: So at this time, I'll turn it back over to the operator and open up the call for questions.

Speaker #3: At this time , if you would like to ask a question , please press star one on your telephone keypad . We will pause for just a moment to compile the Q&A roster .

Speaker #3: Your first question comes from the line of Omotayo Okusanya with Deutsche Bank . You may go ahead .

Speaker #7: Hi . Yes . Good morning everyone on the operating expense side . Again , things look like they're going really well . Could you just talk a little bit about if that is going to be sustainable on a going forward basis ?

Speaker #7: And I just asked that in the context of your guidance , where the midpoint of guidance suggests that FFO growth in FFO in the fourth quarter will be $0.61 versus your current $0.70 run rate , which is being helped by a better than expected expense control .

Speaker #6: Yeah , I think the there's a couple categories tied to that . You know , we think that we'll have continued improvement in sustainability on the non controllable side with insurance .

Speaker #6: We also feel good about the real estate tax . You know protests that are going on in see you know potential upside in that number on the payroll .

Speaker #6: And R and side . You know we're you know we don't see anything change changing materially . And expect that can to be consistent as well for what it implies for for core .

Speaker #6: You know I think we're you know , we're cautiously optimistic that we're , you know , the will exceed expectations as , as as usual .

Speaker #6: And that's you know , we're doing everything we can to to beat on the expense side . And , you know , in the face of these supply pressures , I don't know if you have anything to add to that .

Speaker #8: Yeah . I would just add I think on the real estate we received one pretty significant settlement that's that's kind of one timing in Q3 .

Speaker #8: So that's not necessarily the run rate for taxes there , but it does , you know , if you'll remember , Nashville is on a four year revaluation cycle .

Speaker #8: So you know , we fight this battle every four years that that occurred last year . We've been , you know , in the in the process of litigating those , we've got court dates on a couple of the other deals , but we don't we don't expect to see any dramatic shift there .

Speaker #8: So some of the real estate tax savings that you see in the quarter is more one time in nature . But I agree with Matt .

Speaker #8: You know , particularly on payload payroll and repair and maintenance expenses , those are heavy focuses for us controlling . So I do think that we can continue at least through the first quarter on the payroll run rate .

Speaker #8: You know , we've made those strategic initiatives to centralize a lot of the operations . So most of most of that activity on the PNL hit kind of April 1st and going forward .

Speaker #7: Gotcha . Can you quantify that ? One time benefit in three ? Q how much that was ?

Speaker #8: Yeah , the total there was about 800 , $820,000 .

Speaker #7: Gotcha . Oh , okay . That's helpful . Then my second question is , again , you know , your your self , your self disclosed nav .

Speaker #7: Again , you guys , you know , whether you're at the low end or the high end , depending on the cap rate , you're using , the stock has been persistently trading at this kind of huge discount to Nav .

Speaker #7: And I guess when you guys look at that over a long term period , you know , if that gap is not necessarily made up over time , how do you kind of think about kind of what next for Nxg and how you try to create shareholder value if you just kind of get a sign this perpetual large discount to Nav .

Speaker #7: Granted , a lot of the sector is already trading that way . So this is not unique to you , but just just curious how you're thinking about that .

Speaker #6: Yeah . Look , you know , we've been very clear since we became public in , in 2015 that , you know , we view the we view the company as , as , as a growth company , but we also , you know , all I mean , we also have the company set up to , to transact as well , you know , with floating rate debt .

Speaker #6: Our goal is to hit $170 million of NOI by 2027 . It's that simple . And you know , the the terminal value , you know , at least in our mind , will always be there .

Speaker #6: We think that the the portfolio is , you know , hard to replace and scale . You know , we think we have the best job , you know , best exposure to the highest job growth markets and , you know , we have , you know , we we we believe that , you know , if the if the discount isn't closed , then we'll close it .

Speaker #6: You know , we own 16.5% of the company . We're highly aligned to do so . And you know what we what we absolutely know is that even in a muted transaction environment , there's still a bid for multifamily .

Speaker #6: The transaction market is still kind of a five cap market . And especially for for assets like ours . So while the public markets are , you know , discounting , you know , multifamily stocks , we think that that will change dramatically in 2026 as new lease pricing inflects .

Speaker #6: We I think that's going to be the the catalyst of it . I see that happening . And you know , the second quarter probably of 2026 .

Speaker #6: And I think our stock will will start to perform into that into that bid of new of new lease growth . But if it doesn't , you know , we're confident that there is a terminal value and a bid for bid for the company .

Speaker #6: You know , we know that for sure . So we'd like to we'd like to continue to grow the the earnings stream . And I think we can , you know , but if not there's a bid there .

Speaker #7: Sounds good . Thank you .

Speaker #3: Your next question comes from the line of Buckhorn with Raymond James . You may go ahead .

Speaker #9: Hey . Good morning guys . Thanks for the time . Good morning . I apologize , did you guys give out the the splits on new lease .

Speaker #9: New lease rates, renewals, and the blend for the quarter.

Speaker #6: No we did we did a supplement , but we'll update it for you . The new for the quarter . New leases were down 4.06% or 58 bucks .

Speaker #6: Renewals were up 1.94% or 29, almost $30. That's a blended -44 basis points.

Speaker #9: Got it . Appreciate that .

Speaker #6: And by the .

Speaker #9: Way .

Speaker #6: October October's kind of trending the same way . I got it right here . New leases were down 3.78% or $54 . Renewals were up about 70 basis points or ten bucks for a blended down 1% .

Speaker #9: Perfect . You already beat me to my next question . I appreciate that .

Speaker #6: Got it .

Speaker #9: Step ahead of me , man . I'm also touch a little bit on the CapEx spend . Just kind of the maintenance CapEx , both recurring non-recurring .

Speaker #9: I think added to about $9 million in the quarter . Do you see that starting to taper off anytime soon , or is that kind of the run rate that you expect the portfolio to be on for at least a few more quarters ?

Speaker #6: Yeah , I mean , I think I think we're it's it's a it's a little bit elevated . And , you know , the reasons for that is because , you know , we haven't been able to recycle as much as the portfolio as we're typically do .

Speaker #6: So, there is, you know, there is a little bit of more maintenance CapEx going into it. Do you have anything to add to that?

Speaker #8: Yeah , I'd also say , you know , if you're referencing page 22 of the supplement , you'll see , you know , the interior spend is up , particularly in the third quarter .

Speaker #8: That's up . But it's also up on a on a smaller dollar improvement . So our market upgrade program where , you know , we're not doing the full enchilada of premium upgrades with , you know , hard service counters and things like that .

Speaker #8: We're focused more on kind of that . On average , it was about $4,000 upgrade . So to to some units that , you know , we touched in the past or needed , needed some help to be competitive .

Speaker #8: We're you know , we're spending about $4,000 . We're getting a $70 premium . So it's not it's not quite the historical run rate for spend on interiors , but we're still getting to that kind of 20% annual return .

Speaker #8: So we think that that makes sense short term . Pricing , you know , is under pressure . And then we I think we referenced this on the last call .

Speaker #8: The you know , the large refinancings that we did with Freddie Mac , we got , you know , new property condition assessments , those , you know , kind of dictated some larger nonrecurring CapEx spends , some , you know , milling and paving of drive lanes , some siding repairs , some , some roofs .

Speaker #8: We're also doing we're redoing a pool in Raleigh . So we've got some I would say larger projects this year . I think we're more focused on streamlining , streamlining that spend going into next year .

Speaker #6: And those are more one time in nature anyway . So should moderate .

Speaker #9: Perfect . That's a great color . I appreciate that . And again , congrats and great job on controlling the the expenses in this environment .

Speaker #9: A lot of progress there . I think I want to go back to Mateo's question about , you know , you know , capital allocation and just thinking about the Nav discount .

Speaker #9: But I guess the question really is why go after a new asset in Vegas at this point when you could , you know , buy , you know , the existing portfolio , probably at an equal or better , you know , kind of combined NOI yield and growth rate going forward .

Speaker #9: Just just kind of what's the , you know , help us walk through the rationale of why buy an asset right now when you can buy the existing portfolio ?

Speaker #6: Yeah , I think I don't think they're mutually exclusive . I think we can do both . As I said , I think , you know , the over the near term , until we close on this deal , we're going to , you know , aggressively buy back stock , given given where the given where the capital is .

Speaker #6: But our view also is , you know , we do need to show some external growth in terms of capital recycling . We're not going to be net , you know , net acquirers so to speak .

Speaker #6: So we're not , you know , going to just go out and buy willy nilly . The difference with this deal is , you know , given the situation of the asset , it's basically a going in almost a six cap that we believe we can drive to a seven and a half or an eight cap over the course of , you know , our three year , you know , value add campaign .

Speaker #6: And those opportunities don't really , you know , exist on a large scale . This is a very precision based investment . And I don't think it cannibalizes anything we're doing on a stock buyback program .

Speaker #6: You know , our free cash flow yield is still strong . And I mean , I meant what I said when we were trying to hit 170 million of NOI in 2027 by the by the end of that year , I think that that's possible .

Speaker #6: And if we do that and we apply the terminal cap rate , I think we'll all be very happy .

Speaker #9: Appreciate it . Thanks , guys . Good job .

Speaker #6: Thanks a lot .

Speaker #3: This concludes today's question and answer session . I would now like to turn it back over to the management team for closing remarks .

Speaker #6: Thank you very much for everyone's participation today. I look forward to speaking to you all live in December. Thanks again.