NexPoint Residential Trust, Inc.

Good day and welcome to the NextPoint Residential Trust, Inc. Second Quarter 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jackie Graham, Investor Relations. Please go ahead, ma'am.

Thank you. Good day, everyone, and welcome to NextPoint Residential Trust's Conference Call to review the company's results for the second quarter ended June 30th. 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, estimate, may, should, intend, and similar expressions or variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding NXRT's business and industry in general, the COVID-19 pandemic and its effects on the company, NXRT's 2020 adjusted NOI estimate and the related assumptions, NXRT's strategy for the third quarter and full year 2020, and NXRC's net asset value and its related components and assumptions, planned value-add programs including projected average rent change and return on investment and expected acquisitions and dispositions. They are not guarantees of future results and forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed and any forward-looking statement, including the ultimate geographic spread, duration and severity of the COVID-19 pandemic and the effectiveness of actions taken or actions that may be taken by governmental authorities to contain the outbreak or treat its impact, as well as those described in greater detail in our filings with the Securities and Exchange Commission, particularly those described in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. 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. The statements made during this conference call speak only as of today's date and, except as required by law, NXRP 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 FFOs, adjusted funds from operations, or AFFO, and net operating income, or NOI, all of which are non-GAAP financial measures of performance, or total debt. These non-GAAP measures should be used as a supplement to, and not a substitute for, net income, loss, and total debt computed in accordance with GAAP. For a more complete discussion of FFO, core FFO, AFFO, NOI, and NetDebt to the company's earnings relief that was filed earlier today. I would now like to turn the call over to Brian Mitz. Please go ahead, Brian.

Thanks, Jackie. I want to welcome everyone to the NXRT 2020 second quarter conference call. Today we're going to discuss the highlights for the quarter. We'll spend some time analyzing Q2 results as well as the early part of Q3 through July. This is Brian Mitz. Let me start with the Q2 and year-to-date highlights. First, we announced last week on July 27th that the board elected to expand the composition of the board from five to six members, and we added Catherine Wood as an independent director. We believe Cathy brings significant experience and a unique perspective to the board, so we're glad to welcome her on. Net loss for the corridor was $9.3 million or $0.38 per diluted share as compared to a $2 million loss or $0.08 per diluted share in Q2 of 2019. Same store NOI increase for the corridor was $1.1 million or an increase of 5.8% as compared to Q2 2019. We're reporting Q2 2020 core FFO of $14.5 million or $0.59 per diluted share, which is an increase of 31.1% on a per share basis as compared to Q2 of 2019. Total revenue for Q2 was $50.7 million and total NOI was $29.2 million, which represents an increase of 17.6% and 18.9% year-over-year respectively. NOI margins for Q2 were 57.6%, which was a 50 basis point improvement over margins in Q2 of 19 of 57.1%. We continue to execute our value-add business plan by completing 411 full and partial renovations during the quarter, with 392 upgraded units leased, achieving an average monthly rent premium of $113 and 23.4% ROI during the quarter. Inception to date in the portfolio as of June 30th, we've completed 7,325 full and partial upgrades, achieving an average monthly rent premium of $95 and a return on investment of 25%. Through our equity repurchase program, we've repurchased approximately 2.4 million shares of stock through Q2 of 2020 at an average repurchase price of $25.70 per share. We ended the quarter with $85 million of cash. On our NAV per share, given the unprecedented disruption in the economy over what is also an unprecedentedly short period of time, cap rates become difficult to judge, although we do have more clarity today than we did after Q1. Nevertheless, we're updating our NAV based on our revised outlook for NOI and cap rates, and Matt will discuss this in some detail in his prepared remarks. Based on our updates and cap rates in NOI, we were revising our NAFRA share as follows. $34.37 on the low end, $42.31 on the high end, from midpoint at $38.34. That's compared to midpoint at $38.47 in the prior quarter, or 33 basis point quarter-over-quarter decrease. and a midpoint of $37.51 at June 30th of last year, or a 2.21% year-over-year increase. For dividends, for the first quarter, we paid a dividend of 31, sorry, for the second quarter, paid a dividend of 31.25 cents per share on June 30th. The sharehold is a record as of June 15th. And last Monday, the Board declared the dividend per share of 31.25 cents Per Share payable on September 30th to shareholders of record on September 15th. Year-to-date, our dividend is 1.77 times covered by Core FFO for a payout ratio of 56% of Core FFO. Overall, just big picture, our rig collections are stronger than we anticipated in Q2, and I think maybe better than everybody anticipated across the industry and that trend continued into July and Matt will give some details around that. Our biggest detractor to higher revenue was our inability to charge late fees or process evictions. The moratorium on evictions under the CARES Act ended July 27th. However, we're still restricted in certain markets and to the extent we can process evictions, we're doing so thoughtfully. Also, a number of local governments are offering assistance to residents and we're encouraging our residents to take advantage of that and also helping them to find information and or complete applications for that. The next big event that we're watching closely is the new stimulus package, or in lieu of that, how the withdrawal of stimulus may impact our results overall and our ability for tenants to make rent collections. However, given the forced nature of the situation, unprecedented decline in the economy and increase in unemployment, Not to mention the fact that it's a major election year. We continue to believe that some sort of stimulus will be forthcoming. However, we also believe that a new stimulus bill is not passed. The impact may be less than perhaps people expect. Evidence of this is the decline in assistance requested by our residents throughout the quarter and into July. and just the general strength of our portfolio and performance since COVID. And the nonpayment of rents is only impactful to the extent we can't evict nonpaying tenants, which we've been forbidden to do up until just the last week. In that regard, any additional stimulus is likely to be a double-edged sword with the carrot of more stimulus, which may help some tenants make payments, but The stick is that we have a continued extension of moratoriums on eviction. We continue to see strong demand for our product in most markets, which is evidenced by our results, as well as the demand that we've seen on our upgraded units, where we've been able to drive strong rent increases. Matt's going to go through that in a little more detail as well. One of the reasons that we see a strong demand for our product, and it's something we've talked about historically and we're starting to see now, is the trade-down effect. We believe this was a factor in 2008, 2009, and beyond, but essentially a tenant in an A product decides to trade down to one of our renovated units, saving money but sacrificing little in the way of quality or amenities. and we think this is probably a very underappreciated part of our strategy and our story. Net-net, all these factors have resulted in strong NOI growth, relatively strong new lease rent growth in most of our markets, strong renewal rent growth and occupancy compared to our public peers and far better than smaller private operators. So although some of the unknowns remain, We believe that after five months, we have a lot more transparency and understanding of how this is going to impact our business and believe that we are well positioned for the future. Let me go through some of the details on results, and I'll turn it over to Matt. Total revenues for the second quarter, $50.7 million versus $43.1 million for the same period in 2019. This is a 17.7% increase. NOI was $29.2 million in second quarter 2020 versus $24.6 million last year for 18.9% increase. Core FFO increased to $0.59 per diluted share from $0.45, which was a 31.1% increase on a per share basis. Same-store rent increased 2.1% year-over-year for the quarter. Same Store Occupancy increased 120 basis points for the quarter year-over-year, which we're excited about. That's a strong number. Same Store Revenue increased 4% for the quarter year-over-year, and that's 5% increase in rental income and a 31% decrease in other income driven mostly by the inability to charge late fees and other types of fees. Same Store NOI was $20.2 million versus $19.1 million in the same quarter last year for 5.8% Same Store NOI increase. Year-to-date, our total revenues are $103.3 million versus $84.6 million for the same period in 2019, which is a 22.1% increase. NOI is $59.2 million year-to-date 2020 versus $48.2 million last year for a year-over-year 22.9% increase. Core FFO was $1.11 per diluted share versus $0.91 per diluted share last year for a 21.4% increase. Same-store rent increase year-to-date is 1.9%. Same-store occupancy has increased 100 basis points for 2020 versus the same period in 2019. Same story on same-store revenue year-to-date, high increase in rental revenue of 5.4% increase, but a decrease in other income. Same-store NOI is $36 million year-to-date for 2020 versus $34.2 million last year for a 5.3% increase in same-store NOI year-to-date. So with that, let me turn it over to Matt to fill in some of the details for the quarter and year-to-date.