NexPoint Residential Trust, Inc.

Ladies and gentlemen, please stand by. Good day and welcome to the NextPoint Residential Trust, Inc., first quarter 2020 conference call. This call is being recorded. Now, at this time, I would like to turn the conference over to Jackie Graham. Please go ahead.

Thank you. Good day, everyone, and welcome to NextPoint Residential Trust's conference call to review the company's results for the first quarter ended March 31st. On the call today are Brian Mitz, Executive Vice President and Chief Financial Officer, and Matt McGraner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at www.nextpointliving.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. Forward-looking statements can often be identified by words such as expect, anticipate, intend, and similar expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding NXRT's strategy for the second quarter and full year 2020, NXRT's net asset value and its related components and assumptions, plans value-add programs, including the projected average change in rent return on investment, expected acquisitions and dispositions, and the COVID-19 crisis. They are not guarantees of future results and are subject to risks, uncertainties, assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. 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 the forward-looking statements. Except as required by law, NSRP does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes analysis of funds from operations, or FFO, core funds from operations, or core FFO, adjusted funds from operations, or AFFO, and Net Operating Income, or NOI, all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to and not a substitute for net income loss computed in accordance with GAAP. For a more complete discussion of FFO, Core SFO, ASFO and NOI, see the company's earnings release that was filed earlier today. I would now like to turn the call over to Brian Mintz. Please go ahead, Brian.

Thank you, Jackie. First, I want to welcome everyone to our earnings call here for the first quarter of 2020. Obviously, we'll discuss the highlights of Q1. I think it's a really strong quarter. However, I suspect most people are more interested in what's happened past the quarter end. So, obviously, we'll spend some time on what we've done in light of the COVID-19 issue and the impacts it's had on us and what we see going forward. J.D. So, before I start, I think throughout our commentary, we'll touch on two major themes that have kind of been the underpinning of our entire strategy. One is the benefit and resiliency of the workforce housing segment that we focus on, and the second is the benefits of our markets and specific geographies. We think both of those are a very strong J.D.: : Let me start with some highlights from Q1 other than the COVID situation. We reported a net loss for the quarter of, or sorry, net gain, net income for the quarter of $28 million or $1.08 per diluted share, which compared to a net loss of $4.4 million or negative 19 cents per diluted share in first quarter 2019. We report a same-store NOI increase to 17.8 million or a 5.6% increase compared to last quarter or first quarter 2019. We're reporting a Q1 2020 core FFO of 13.6 million or 53 cents per diluted share which is generally in line with our guidance as well as consensus, which is an increase of 15% as compared to the same period in 2019. During the quarter, we sold three properties for total gross proceeds of $86.5 million in net proceeds after debt repayment closing costs of $43.4 million. On the transaction, we realized that 34.2% IRR and a 3.98 times multiple uninvested capital. Total revenue for QON was $52.6 million and total NOI was $30 million, which was an increase of 27% and 27% year-over-year respectively, which reflects the large net acquisition activity we had in 2019. In a lot of margins for the quarter, 57%, which were in line with the same period last year at 57%. We continue to execute the value-add business plan by completing 412 full and partial renovations during the quarter, with 215 of the upgraded units being leased, achieving an average monthly rent premium of $115 and a 23.6% return on the investments. During the quarter, exception to date, across the portfolio, as of March 31st, we've completed 6,914 full and partial upgrades, achieving an average monthly rent premium of $102 and a return on investment of 24.6%. Additionally, to date, we've completed smart home technology installs in 8,880 units across 23 properties. and we've completed 195 washer-dryer installs in the first quarter of 2020, all of which is included in the 412 full and partial rehabs for the quarter. Before we saw the COVID outbreak hit, we had utilized the ATM to raise gross proceeds of $28 million at an average price of $50 per share and used the net proceeds to pay down our revolver. and then just a few short weeks later we used our repurchase program to buy approximately 1.6 million shares of stock and that's through yesterday at an average repurchase price of $27.07 per share. We ended the quarter with almost $85 million of free cash available on the balance sheet. Given the unprecedented disruption we've seen in the economy over what has Certainly in an unprecedentedly short period of time, cap rates and values have become pretty difficult to judge. Nevertheless, we're updating our NAV based on our revised outlook of cap rates and NOI. Matt will discuss this in a little more detail, what our view of cap rates are and how we arrive at those in determining our NAV, but based on all that, our revised NAV is as follows. On the low end, it's $34.57. On the high end, $42.37 for a midpoint of $38.47. That compares to midpoint last quarter of $46.31, or approximately 17% decrease quarter over quarter. And the midpoint at March 31, 2019, at $36.41. for a 5.4% increase year-over-year. For the first quarter, we paid a dividend of 31.25 cents per share on March 31 to shareholders' record as of March 16. And Monday, our Board declared a dividend per share of 31.25 cents payable on June 30 to shareholders' record on June 15. Today at our dividend is 1.68 times covered by our core FFO or payout ratio of 60% of our core FFO. Just some brief comments on our COVID-19 response before I turn it over to Matt to go into much more detail on this. Q1 started off very strong for us and I think the sector in general. But then obviously as we came into March, things changed pretty dramatically. Our markets, like I think most of the markets around the country, went into a lockdown, a shelter-in-place, safer-at-home lockdown. We saw unprecedented downward movements in equity markets, interest rates, just real estate markets, really pretty much everything in a very short period of time and saw a Record unemployment claims over a six to eight week period. So with all of this, we obviously took drastic actions, as did everyone. We've previously disclosed these in some of our press releases, but just a summary is we, through our property manager, BH, implemented new safety protocols for residents' employees. We rolled out payment plans for residents that could verify a true hardship, and Matt will give some details on those. We increased communications with our residents with a goal of making sure we were out in front of any non-payment issues to make sure we were maximizing collections or helping residents that had a true need. We immediately drew the available capacity on our credit facility just to make sure we had plenty of liquidity on the balance sheet. and then we increased our stock repurchase plan and immediately began to use that as discussed a little bit earlier. And finally, before I turn it over to Matt, we previously disclosed this in a press release on April 16th, but we estimated that the expanded unemployment benefits provided by the CARES Act provides on average about 92% of our residents' prior income if they'd been laid off. Additionally, we estimated that 19% of our residents were eligible for 100% of the stimulus provided under the CARES Act. And as Matt goes through the April and then the May details around root collections, we think that those two things have certainly helped us maintain, given all things considered, a pretty strong collection across April and May. Just a quick highlight of the Q1 results. Total Revenue is $52.6 million for the quarter versus $41.5 million Q1 of 2019, 27% increase. NOI was $30 million versus $23.6 million, also a 27% increase. Core FFO is $13.6 million or $0.53 per diluted share compared to $11 million or $0.46 per diluted share for a 15% increase. The same store pool of 25 properties and 9,521 units. Same store rental income increased 5.8%. That was driven by a 90 basis point increase in occupancy from 93.6% to 94.5% as well as a 2.9% increase in effective rents. which drove a same-store NOI increase of 5.6% from $16.9 million last year to $17.8 million for this year. As far as guidance, I think it's pretty obvious there's a lot of uncertainty in the marketplace. So we are formally withdrawing guidance, I think in line with the entire sector. and our peers. However, we've done a lot of work and analysis around our rent rolls, what we see in our markets. And so Matt's run some stress scenarios that have produced what we think are some pretty compelling, relatively speaking, strong core FFO numbers. So he's going to go into some detail on that, but we are formally withdrawing our guidance for the year. With that, let me turn it over to Matt and get into some of the details around what we've seen since the COVID outbreak.

Thanks, Brian. I'm not going to spend a ton of time on Q1 results, but they were strong. As Brian mentioned, growing things to NOI by 5.6%. We saw strength across the entire portfolio during the first quarter as usual, with six out of our 10 markets growing NOI by 5.5%, including strength in Houston, Nashville, Charlotte, Phoenix, Orlando, and Tampa. Notable things to our growth markets for the first quarter were Phoenix and Tampa at 15.7% and 14.3% respectively. On the Q1 operational front, leasing activity and revenue growth were relatively strong at blended new lease and renewal growth rates of 1.6% and 3.5% overall for the portfolio. with our top markets being Tampa, South Florida, Phoenix, and Atlanta posting 3% or better rent growth. Overall, occupancy for the portfolio improved 90 basis points year-over-year and finished Q1 for us at a historically high 94.2%. First quarter rent collections were in line with historical norms at 99.2% of built rent. For April, our preliminary operating performance metrics are as follows. April occupancy finished the month at 94%. Rent collections for the month totaled just over 95%. We signed a total of 1,085 leases in the month of April, 564 new leases down 1.65% and 521 renewals at 2.9% growth. Renewal retention for April was up 5% from Q1, 57.2% portfolio-wide and 65.6% for the same store portfolio. each a record for our company. Our preliminary data for May as of the close of business yesterday is as follows. Physical occupancy today sits at 94% with 30 and 60 day trends at 93.4% and 91.7% respectively. Rent collection so far this month total 87% up 4% from the same time last month. So far in May we have signed a total of 151 leases at a blended rate of 0.47% increase. We expect renewal retention for May to increase and remain north of 60%. For our Q2 rehab pipeline, our new base case is to complete 225 upgrades, almost exclusively full upgrades, as we are temporarily halting partials and incremental additions. We have turned and expect to continue to turn classic units that make financial sense to rehab to full upgrade status. For April, we completed 87 upgrades and at least 56 of these for a 15.3% rental premium and ROIs of approximately 20%. For May, we are scheduled to still complete 63 upgrades and in June, our base case assumes we renovate 75 units slightly better than May. There is reason to believe that we could do as many as 275 units in total for the second quarter under a more bullish reopening scenario. On the bearish side, we think we'll do 185 upgrades, assuming an additional 35 in June. For the rest of my prepared remarks, I'd like to walk you through our house view of the apartment market and some stress tests, as Brian mentioned, we have conducted on our markets and portfolio-wide. Here are some observations. Number one, to be sure, we expect a challenging leasing and operating environment over the near term. But we also have a health view on a range of worst-case scenarios, which I'll unpack in a moment. Second, from a macro view, our view is we are fortunate to have constructed a portfolio of high-quality yet affordable residential assets located in the Sunbelt. All of our markets, as Brian said, have reopened already or are in the process of reopening by the end of May. This means economic activity in our markets will resume earlier than most of the apartment REIT universe and perhaps be more immune to underlying government regulations that may be enacted to curtail a landlord's ability to collect rent and satisfy our own economic obligations. Furthermore, our view is that number one, pre-COVID, the net beneficiaries of outward migration from gateway and coastal markets are the lower tax, warmer temperate, and business climates of Texas, Florida, Georgia, North Carolina, Tennessee, and Arizona. And number two, affordable housing will always be in demand. Our belief is that COVID does not reverse these trends that may in fact accelerate them, making NXRT's portfolio even more relevant to investors who are trying to get access to positive demographic flows and asset pricing power in an otherwise near-term deflationary environment. As I said, we stress our portfolio's resiliency using the GFC as a baseline and added a few more draconian assumptions to provide a downside case scenario to certain operational metrics. Given the NXRT stock performance since the accelerated sell-off in February and March underperformed even some hotel REITs who had assets that were literally closed and had negative EBITDA, we wanted to provide some color on our underlying tenant base and the resiliency of our apartment portfolio. We conducted a deep dive on the portfolio, literally asset by asset, sub-market by sub-market, down to each tenant's income, job history, current status, and stress of the portfolio. The results were encouraging. We finished 2019 with 57 basis points of bad debt expense, roughly $900,000 portfolio-wide. Going deal by deal, we stressed bad debt over eightfold, increased bad debt over eightfold for the year to 4% of revenues. or nearly $7.5 million, which is 100 basis points wider than Green Street estimates for the year and 250 basis points wide of the GFC trough. We were particularly gruesome on Las Vegas, Orlando and Nashville for their hospitality and leisure exposure, and Houston as it relates to the energy sector, even though our portfolio's underlying tenant base has the following exposure to COVID's quote unquote hardest hit sectors. In Houston, we identified just 51 residents within our portfolio that have direct exposure to the broad oil and gas industry, or 4.31% of our rent roll. In Orlando, we identified 200 residents with exposure to hospitality and service industry, or 17% of our Orlando rent roll. In Las Vegas, just 6.4% of our resident base, or 74 residents, have direct exposure to the Strip. Given information related to approved payment plans within our portfolio, BH's operating history that goes back to 1993 on its BNC assets dating back to the GFC, we feel this is a stressed and hopefully too draconian approach to delinquency and bad debt, particularly given collection activity to date, and not forgetting that our average rent roll pre-COVID of rent-to-income ratio in our portfolio was approximately 24%. On the revenue side, we also assume rents go modestly negative in April through September and flat for the remainder of the year. Physical occupancy is assumed to be 92.9%. Selectively following these stress scenarios, economic occupancy would decline to 88.7% for the year, implying revenue reductions off of our prior projected market rent of almost $20 million. On the expense side, we have seen approximately $1.2 million in savings and controllable expenses through April. In this scenario, we've applied these trends across the portfolio. In this scenario, we're also keeping the non-controllable spot with our prior assumptions, which, remember, include a 9.25% real estate tax increase from 2019. All told, these draconian assumptions still yield, amazingly, a positive core FFO comp compared to 2019 of approximately $2.01 per share. On the NAS slide, we applied Green Street's revised assumptions that they put out on April 19th on the broader apartment sector and their coverage universe, in which, by the way, they believe, as we do, that Class B communities will modestly outperform Class A communities. Haircutting NOI for 2020 by 150 basis points wider than Green Street does in their assumptions and increasing cap rates, particularly in Houston and Las Vegas, We still arrive at a midpoint NAV of $38.47 per share at the midpoint, implying we traded a 25% discount today. So in closing, I just want to thank our teams at BH and NextPoint for all the hard work during this difficult period. I'll turn it back over to Brian. I look forward to answering your questions.

Yeah, appreciate it, Matt. Let's go ahead and turn it over to questions.

Ladies and gentlemen, if you would like to ask a question, you can signal by typing star 1 on your telephone keypad. Keep in mind, if you are using a speakerphone, please pick up your handset before making your selection. Once again, star 1 if you have a question. We will hear first from Buck Horn with Raymond James.

Hey, thanks. Good morning, guys. Congratulations on the encouraging results so far. Thanks, Will. Let's just start with, you know, I think one of your – Differentiations in your strategies in your approach to renewals and pricing, knowing that it seems like some of your incoming demand is still holding up, how do you want to approach or how are you seeing renewals in terms of what you're asking for going out to whether it's June, July, or August? How do you want to handle that pricing strategy? How do you think that will moderate going forward?

Yeah, we've seen, I think, as you've seen and mentioned, most of the apartment REIT universes just taking a broad approach of not increasing any rates, just keeping everyone flat. Our view, given our price point of roughly $1,000, is that we can still grow rents, particularly when there's demand in our markets. So we've taken a site-by-site approach. Halted it sort of in April, but have resumed that approach depending upon the trend at the site, the health of the resident base. So obviously in Las Vegas and Orlando and Houston, we're taking a different approach. But markets where there is underlying strength, such as a Phoenix and a Tampa, we're still trying to... We run scenarios where we think we can have a mid-60s to almost 70% retention ratio. It's not a one-size-fits-all approach, and it really is site-by-site. Okay, great.

And maybe drill down on, or at least a little extra color, on these markets where you think they're, you know, whether it's hospitality or oil and gas, I mean, talking about Phoenix, Orlando, Houston, Nashville, where there could be some greater degree of sensitivity. Were you able to discern any major differential in rent collection patterns in those markets where, you know, employment may have been disproportionately impacted? How are the More diversified markets holding up versus these tourism-sensitive markets.

Great question. We have something we focused on dramatically. Bear with me, but I'll give you a lot of detail. April collections, the quote-unquote worst-performing markets were Las Vegas at 90%, Orlando at 90.4%, Houston at 91.2%. and then, well, that's really it. So those kind of three were kind of low 90s. With payment plans and payments made through today, all of those are kind of 92 to 94%, so we are seeing an increase. In May, as Brian mentioned, as we stated, the collections have been really good, but those same markets, Houston today is at 86%, which is, by the way, up dramatically from the same time in April by almost 5%. Orlando, 83.4%. Vegas right at 80%. And Nashville's doing a little bit better at 85%. So those are kind of where the collection stood for April and May, and those were the weakest. The strongest were Phoenix, Tampa, Atlanta, DFW, really every other market is good. So, you know, it's helpful to have diversity, as you know.

Great. Thank you. I'll hop back to the queue. Thank you, guys. Thanks, Bob.

We'll now hear from Alex Kubicek with Baird.

Morning, guys. Real helpful color on your exposure to those hospitality and oil industry markets. Do you believe there could be some attractive reprice opportunities that drop out of the Vegases and Orlando's of the world, you know, with the soon cap rates rising? Feels like if the pain there is really temporary, could be an opportune time to acquire some things on sale. Just kind of curious what you guys are thinking.

Yeah, I think it's too early, I think, for the transaction market to crack. I don't think there's going to be a ton of opportunities in the near term just because there's not a ton of forced sellers and the maturity wall is not that great this year. And then even if there is, there's been a constructive pattern by the agencies to deal with whether it's forbearance or loan extension. So I don't think there's going to necessarily be any forced selling. There will be weak owners, but in these markets we've We've tried to pick the best locations, and most of the week owners own inferior kind of sub-market tertiary, more tertiary assets. I don't see a big on-sale apartment transaction market that will appear this year. I don't see it with the liquidity in the space, at least for value-add assets. I do think that some of the new lease-ups You know, deals that are, you know, in supply markets and our markets, they're coming out of the ground that you can't get as much traffic in or will be somewhat challenged and have concessions and negative rent rolls. But it's not going to be our focus. I do think coming out of this affordable housing is going to be more relevant than ever. I think, you know, when you When you look at all the deflation in the real estate market, you've got to try to pick your points on where you can find demand and pricing power. With unemployment where it is, sure, you need jobs to create positive apartment supply, but there won't be any new supply, at least for a while. Affordable housing, in our view, is still going to be demand, particularly on the lower density side. You know, we think that single-family rental and garden-style affordable housing will be net beneficiaries here.

That's helpful. And then just one more quick one from me. Can you tell you guys rank stock repurchasing versus other capital deployment options? You know, obviously you guys were active as of late, but just curious what your methodology is going to be as the stock continues to trade at material discounts here and publish any of these.

Yeah, I mean, we've always been supporters of the stock, particularly at a massive discount. I think if you look at our history of acquiring our stock, you know, we've made money for us and our shareholders. We're not going to raise capital or deploy capital to pay down, you know, 2.5%, 3% debt that doesn't mature for quite some time, so not that interested in doing that. And then when we are active in our stock, if it During the first quarter and then early April, we were trading at an implied cap rate even to a stressed NOI number north of 6.5%. We don't think we'll see that again as things normalize. We know our portfolio and adore it. I think that's going to be a continued focus of ours versus going out in the transaction market. Putting aside if there is some great opportunity, we'll always look at it. We do rank the buyback up there pretty high.

Great. Thanks for the time.

You bet. And now we'll hear from Peter Abramowitz with Jefferies.

Hi, yes. Just wanted to ask about your thoughts on the increased unemployment claims that's set to expire at the end of July. There's some legislation about potentially extending that. Just wanted to know if you have any thoughts on the potential outcomes and different corrections depending on what happens there.

It seems like the government's been pretty accommodated around things like this, trying to pump stimulus into the economy and I think unemployment benefits given the massive number of unemployed, newly unemployed that we've seen It seems to make sense that that's a good use of what are fiscal stimulus they're going to pump into the economy. I mean, we could be totally wrong, but it seems like they would extend that if we haven't seen a massive reopening of the economy, which seems like it's going to be slower. I mean, certainly in our markets, they've been first movers, but there's still a lot of markets in states that are Very large and represent a lot of the economy that have said that they're not going to reopen in the near term. So I would think that they do extend that.

Okay. Got it. That's helpful. Thank you.

Now we'll hear from Gaurav with META, with National Securities.

Hi, thanks. Following up on unemployment, Do you guys have an idea of what percentage of your residents are unemployed, and depending on the unemployment payments, do you make the rent?

Yeah, so I guess, you know, going back to Peter's question, and then I get to yours just from that, you know, it's not that – these aren't C apartments, and so the rent roll is, on average, household income is $55,000 to $60,000 a year for an average rent of $1,000. Just about 900 people requested, north of 14,000 units, requested a payment plan for financial hardship, which is a little less than 7%. Maybe half of those folks lost their job. We're curling the numbers, but it's not like 10, 20, 30, 40, 50% of our of our tenant base lost their job. Again, it's that kind of 7% that just requested payment plans. So I think that, you know, our view is probably half of those may be undergoing some sort of unemployment.

Okay. And I guess you guys talked about moving collections being better than what you guys saw in April.

My personal view is because the states are reopening and folks feel better about their jobs. I think that that's the number one driver. I think that's the driver of the equity investors look at diverse models and reopenings to to anticipate when the economy is going to open up and consumer spending, whether it's discretionary or non-discretionary, is going to resume. And I think that's why you're seeing the numbers increase, you know, personally. Yeah, sure, it's going to help if people did get stimulus checks. They feel a little bit better about themselves. But by and large, I think it's our markets that are reopening. I mean, you're starting to see in Dallas, you know, more traffic again. and some of our other markets, not just foot traffic but actual people on the road. It's encouraging and I think that's good signs for our markets.

Lastly, you talked about continuing some of the full upgrades for the generations. Are you still underwriting similar returns that you were writing pre-COVID on the full upgrades or has your underwriting changed?

That's the same. Like I said, in April we've We actually got a pretty sizable increase in rent. Sometimes we're 10% to 12%. We got 15% increases in rents, and still 20% to 25% ROIs. We still feel that demand is there, particularly in markets that can absorb it and are open and are performing well, like our South Florida deals and Phoenix, as two examples. We see those continue, and when they don't, we're not going to pursue them. But for right now, we think that's still a good use of capital.

Okay, thank you.

You bet.

And once again, ladies and gentlemen, to ask a question, Star 01 will now take a question from Michael Lewis with SunTrust.

Great, thank you. As you talked about, you have really good execution on the equity you issued and repurchased. You've got a nice cash balance now and long-dated maturities. I just wanted to ask how you're thinking about your liquidity and leverage, particularly if we're headed for a prolonged economic downturn. Do you think you'll be carrying a high cash balance elevated for a while here? It looks like you don't have anything other than the line really maturing until 2024. It might be early to get onto that, but Just kind of balance sheet management into the downturn.

Yeah, I think that we, until there's more clarity and certainty, definitely we'll keep higher liquidity. As Matt said before, we're not as concerned about the leverage as I think others may be. And just given where our cost of capital has historically been versus where our debt is, and given the longer-term maturities, We want to be cautious about raising a lot of capital at some rate to pay it down when we're kind of at a 3% all-in. And clearly we're not in an environment where there's going to be a lot of equity raised. So I think we'll maintain a higher liquidity than normal. We'll be very cautious about spending new capital, whether it's on rehabs, new acquisitions, or on stock repurchases.

Our free cash flow profile is pretty compelling, even under the down 20 million, 4% bad debt scenario that I described. You're still juicing out north of a $2 share, a core FFO number, which supports, in fact, a dividend increase based on our 65% target payout ratio versus versus maybe some people that have to cut their dividends, for example. So we feel pretty good about the cash position, the free cash profile, but we'll be, you know, as Brian said, we'll be smart about it.

And then, you know, you gave some detail on, you know, the surprisingly low oil exposure to tenants in Houston and talked a little bit about the hospitality sector in some of those high tourism markets. Do you know how many of your renters work in restaurants, retail, hospitality, kind of those high-at-risk jobs overall for the portfolio? And then I was also wondering, this might be a harder to answer, if you know how many of your tenants are working from home or working out of their apartment now?

Yeah, the former, you know, we have gone through the whole portfolio and sort of categorized what we think the exposure is to retail and hospitality and service. And those three buckets add up to about 15% of the rent. But that retail can include, you know, a pharmacist at CVS. So it's not great data, but it is, you know, it is a metric for you. The work from home, we haven't surveyed folks on that point, but we are, I've seen some research or questions for other management teams talk about, is this an opportunity to create a wheat work or something at a farming complex? We already started that trend last year with some of our new acquisitions, and so that could be an opportunity, but anecdotally, I'm sure it's happening, but we just don't have the figures.

That's still helpful. That's sort of where I was going with the question. And then just lastly for me, I wanted to ask about property taxes. So real estate values might be down, but I think governments are going to be in need of some money after all of this. I don't know if it's too early, but do you have any sense of kind of how that battle over taxes is? Michael, I guess that's maybe the risk for all of our listeners. I'm kind of curious to hear your thoughts.

Yeah, I am. I'm very passionate about this topic because, you know, Tarrant and Dallas County have been ruthless in their approach to landlords, 30%, 40% increase in property taxes year over year. You know, my view is it's hard for a municipality and a county to I think that there's going to be arguments against that. Our tax analysis experts, quote unquote experts, think that nothing materially goes Yeah, I'd say that it's not baked into any of our assumptions that we're going to get massive tax relief on the property tax side.

Now moving to a question from James Fullard with Leidenberg Bauman.

Good morning, guys.

Hello.

Hey, how's it going? Going good. Yeah, it's going to be a little too early for this one, but in your stress test so far, have you put any thought into the idea that the jobs in, say, Houston and Las Vegas might not return post-pandemic?

Yeah. When you stress bad debt to global financial crisis plus-plus in Vegas, which we did, and economic occupancy in the mid-'80s, which we did, which was off in the global financial crisis in Vegas, so we took Vegas down to 85%. Our view is that that's Somewhat Draconian, but maybe perhaps appropriate. And even in some of those scenarios, we're north of $2 a share at core. Houston is a much more diversified economy than Vegas, so we feel a little bit better about Houston, particularly at our price point. And quite frankly, the performance of our largest assets there now are, you know, Some of the best in the portfolio. The Houston assets don't concern us as much as it might other folks.

Is there any lag? I mean, I guess with oil and gas layoffs, it would be more of, I guess, in my estimates, more of a kind of a lag compared to the hospitality industry. Do you have any lag built into your models on that one?

Yeah, we take Houston and Vegas, for that matter, and just beat them up all year. I mean, just relentlessly until, like, yeah, I mean, there's no letting up until first quarter of 2021.

Okay, that's all for me. Thanks for the color. You bet.

And ladies and gentlemen, for any final questions, Star 1 will pause to see if they have any further questions. and with no additional questions at our queue, I'll turn the call back to your host for close remarks.

Yeah, thank you. Nothing further from us other than to say that obviously things are moving quickly and we will continue to communicate relevant information as it happens. And then we've got the virtual May read coming up here in a few weeks where we've already got meetings scheduled. And with that, ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation, and you may now disconnect.