NexPoint Residential Trust, Inc.

Good day and welcome to the Next Point Residential Trust Incorporated third quarter 2020 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jackie Graham. Please go ahead, ma'am.

Thank you. Good day, everyone, and welcome to Next Point Residential Trust's conference call to review the company's results for the third quarter ended September 30th. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer and Matt McGrainer, 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 and 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 fourth quarter and full year 2020, NXRT's net asset value and its related components and assumptions, planned value-add programs, including projected average rent, 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 in any forward-looking statements. 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 specifically 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 of 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 accept 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 FFO, adjusted funds from operations or AFFO, net operating income or NOI, and net debt, 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 net debt, see the company's earnings release that was filed earlier today. I would now like to turn the call over to Brian Mix. Please go ahead, Brian.

Thank you, Jackie, and welcome to everyone joining us for the NXRT 2020 third quarter conference call. I'm joined by Matt McGrainer. I'll get us started with highlights from the third quarter year to date. Net income for the quarter was $29.6 million. or $1.19 per diluted share, as compared to $119.1 million, or $4.84 per diluted share, for the third quarter of 2019. Same story, an OI increase was $800,000, or an increase of 4.5% as compared to Q3 2019. In year-to-date 2020, Same-store NOI was 51.5 million as compared to 49.2 million for the same period last year, or a 4.7 percent year-over-year increase. Reported Q3 2020 core FFO of 13.3 million, or 53 cents per diluted share, which is an increase of 12.8 percent as compared to Q3 2019. Total revenue for Q3 was 51 million. Total NOI was 28.8 million. which was an increase of 9% and 10.3% year-over-year, respectively. NOI margins of 57% for the nine months ended 9-30-20 was an improvement over the same period in 2019 of 56.4%. We continue to execute our value-add business plan by completing 425 full and partial renovations during the quarter, with 276 upgraded units leased, achieving an average monthly rent premium of $141.00 and a 22.5% return on investment during the quarter. Inception to date in the portfolio as of September 30th, we've completed 7,584 full and partial upgrades, achieving an average monthly rent premium of $97 and a return on investment of 24.4%. During the nine months ended September, we issued 800,000 shares for approximately 38.1 million gross proceeds on our ATM, Through our equity repurchase program for the year, or sorry, inception to date, we've repurchased approximately 2.4 million shares of stock through the third quarter of 2020 at an average repurchase price of $25.70 per share. For our NAV per share, despite an unprecedented disruption in the economy as a result of COVID, cap rates appear to be stable across most of our markets. This is highlighted by the sale of the Eagle Crest property that we'll discuss for a sub-5% cap rate. Based on this additional data, we are updating our NAV based on our revised outlook for NOI and cap rates. And Matt will discuss in more detail during his remarks our view of cap rates and how that informed our ranges that we used in determining NAV. Based on that, we are revising our NAV per share range upward as follows. on the low end, $38.19, on the high end, $46.22, for a midpoint of $42.20. And that compares to a midpoint of $38.34 prior quarter, or a 10% quarter-over-quarter increase, and a midpoint of $37.51 at September 30, 2019, or a 12.9% year-over-year increase. For our dividend, we paid a third-quarter dividend of 31.25 cents per share on September 30th to shareholders' record as of September 15th. Yesterday, the Board declared a dividend per share of 34 cents payable on December 31st to shareholders' record on December 15th. This represents a 9.2% increase in the dividend from the prior quarter and a 65.7% total increase in our dividend since inception. Year-to-date, our dividend is 1.71 times covered by Core FFO which equates to a payout ratio on core FFO of 58%. Overall, we feel we have come through COVID very well. We're well positioned for the future. Rent collections remain strong in the third quarter. Class B rent collections continue to outpace Class A and C collections in general, and NXRT is outpacing the Class B segment overall. The biggest detractor to higher collections at this point is our inability to fully process evictions on the same basis we had pre-COVID. The moratorium on evictions under the CARES Act ended July 7th. However, we're still under restrictions from fully processing evictions based on the President's Executive Order barring evictions through December 31st. The lack of second-round stimulus seemed to have had a material impact on our collection's revenue or occupancy. We continue to see strong demand for our product in most markets, as evidenced by our new lease and renewal rent growth. which Matt will cover in more detail in his remarks. Demand for renovated units has remained strong. One reason that we continue to see is the trade-down effect, where tenants in a Class A product decide to trade down to one of our renovated, more affordable units, saving money while sacrificing little in the way of quality or amenities. This is an underappreciated part of the B value-add story and explains the outperformance of the B class. Net-net, this has resulted in strong same-store NOI growth, new lease rent growth, renewal growth, and occupancy compared to our public company peers focused on Class A markets, sorry, Class A assets and coastal markets. We feel we're well positioned with our focus on the major Sunbelt markets. Growth of core FFO, 19% year-over-year on a per-share basis through COVID-19. shows the resiliency of our business, durability of the Class B product and residence, and the quality of the performance by BH and our asset and revenue management teams at NextPoint. On the capital allocation front, we were able to aggressively buy back stock in March and April during the height of the downturn of the market and COVID prices that were in the mid-20s and have now been able to reissue stock in the mid-40s, creating permanent value for shareholders. Sale of Eagle Crest, which is one of the first properties we purchased, highlights the value creation power of our strategy. In just over six years, we've created tremendous value. It's shown from the 45.14% levered IRR and 5.96 times multiple invested capital. Yesterday, as mentioned, the board approved a approximately 9% increase in the dividend, which is in line with our strategy of maintaining a 65% payout Core FFO, which grew almost 19% year over year. We think that this projects strength and confidence in the company. Additionally, our only debt, near-term debt maturities are credit facility, which was set to mature in January 21. We've extended that for a year to January of 2022. So let me go through some of the results for Q3 in detail. Total revenues are $51 million versus $46.8 million in Q3 of 2019 for a 9% increase. Net operating income was $28.8 million for the quarter versus $26.1 million the same quarter of 2019 for a 10.3% increase. Core FFO is $13.3 million or $0.53 per diluted share as compared to $11.5 million or $0.47 per diluted share for an increase of 12.8%. On the same store, pool of 28 properties and 9,926 units for the quarter ended 2020, the Q3 quarter. Same store occupancy was 95.1% as compared to 93.4% for the prior quarter, or an increase of 170 basis points. Same store revenue increased to 34.1 million versus 33 million in the prior year for an increase of 3.3%. And same-store NOI was, for the quarter, $19.4 million versus $18.6 million last year for a same-store increase of 4.5%. For year-to-date, our revenues through September 30, 2020, were $154.3 million as compared to $131.4 million in the prior quarter, a 17.4% increase. Net income was $88 million versus $74.3 million last year for an 18.6% increase. Core FFO was $41.3 million or $1.64 per diluted share versus $33.5 million or $1.38 per diluted share for an increase of 18.8% year-over-year. Same store occupancy in our pool for the year of 24 properties and 9,074 units. was 94.9% versus 93.3% or 160 basis point increase. And same-store NOI was 51.5 million versus 49.2 million for a 4.7% increase. So with that, let me turn it over to Matt to discuss leasing occupancy collections and markets and some other comments.

Thanks, Brian. NXRT's operational leasing performance continued to prove resilient during the third quarter. Rent growth for new leases and renewals was positive portfolio-wide for the quarter, exceeding our expectations and largely mirroring what Green Street reported in their October 23rd note, namely identifying a shallower trough in rents for suburban Sunbelt Class B assets than apartment assets in gateway markets. For example, our new lease and renewal rates improved quarter over quarter by 105 basis points for a blended positive rate change of 1.6%. In particular, six out of our 10 markets achieved new lease growth of at least 2% or better, with our top five markets being Phoenix at number one at 6.3%, Tampa at 4.6%, Charlotte at 3.3%, Dallas-Fort Worth at 2.9%, and even our Las Vegas assets. We signed 131 new leases at a positive 2.6% change. Houston and Orlando were the only markets in the red for asking rents, each down approximately 2%, but still improved quarter over quarter. Effective renewals registered 1.4% growth, and resident retention remained strong at 52.5%. Leasing activity for the month of October on 900-plus new leases and renewals also has been positive, up a blended 1.4%. As Brian mentioned, our same-store NOI came in at a positive 4.5% for the quarter, with our NOI margin improving year-over-year by 65 basis points to 57%. Notable same-store NOI growth markets were Dallas, Phoenix, and Tampa, each at 8.5% or better for the quarter. Turning to occupancy collections and net migration, our overall occupancy for the portfolio improved 170 basis points year-over-year and finished up Q3 for us at a historically high 95.1%. Today, the portfolio sits at 94.6% occupied, 97% leased, with a 60-day trend of a healthy 92.1%. Obviously, the strategy here is to keep heads in beds and remain moderately defensive through the remainder of the year. Collection activity for the quarter stands at 97.2%, up 60 basis points quarter over quarter by this time last quarter. Though we expect risk to continue to triple in, the markets below the portfolio average are Atlanta at 96.1%, Charlotte at 95.2%, and Las Vegas at 92.9%. which are all still relatively healthy under the circumstances, and the overwhelming majority of our tenants, nearly 99%, are making some kind of payment. Many of our investors and analysts have been asking us about net migration trends into the Sun Belt. We've been tracking these trends and thought it was germane to report what we are seeing in each of our markets. We've been analyzing prior address information on new lease applications for both this quarter and year to date, While most new lease applications are intrastate, the data collected does confirm what many in our industry believe is happening right now. The top three out-of-state markets from which we received new lease applications are California, New York, and Illinois, representing a combined 35% of all new lease applications. Year-to-date, 325 California residents have applied for new leases in our portfolio, representing 19% of all total new state migrations. Roughly 175 New York residents have applied for new leases, representing 9% of new state migration, and roughly 115 Illinois residents have applied for new leases, representing 7% new state migration. On the value-add front, as Brian mentioned, we're pleased to report we completed 425 new rehabs and leased 276 of them for a blended ROI of 22.5%, demonstrating consistent demand for our upgraded but still affordable housing product. We completed rehabs in every market, but saw particularly demand in Phoenix and Nashville during the quarter. For the fourth quarter, we have slightly increased our budget interiors to approximately 325 units from 290 as discussed last quarter, mostly due to less turnover and higher occupancies during the third quarter. These rehabs will be fairly evenly distributed amongst all our markets and even in Houston and Las Vegas. Now on to transaction activity. We disposed on the last day of the quarter Eagle Crest for $55.5 million, or roughly $124,000 per unit. This price represented a 4.8% T3 over T12 tax-adjusted nominal cap rate on August trailing financials. This generated, as Brian mentioned, a 45% levered IRR and almost six times our money on invested capital. We managed to dispose of this asset ahead of more substantial deferred maintenance and will opportunistically look to 1031 the proceeds and or pay down debt. On to the NAV discussion. As we do quarterly and as a result of recent acquisitions, transaction activity, NOI growth, and third-party surveys, we've updated the table, as Brian mentioned, for a few bucks to $42.20 a share at the midpoint. The drivers of our NAV increases were outsized NOI growth and updated market cap rates, largely in Dallas. The transaction market for value-added B assets still remains quite healthy, aided by low yields on most bond equipment bond equivalent assets, relatively good collections for Class B apartments, and a productive agency bid for new debt. For example, most agency borrowers can obtain sub-3% fixed rate debt now for 10 years. For the rest of my prepared remarks, I'd like to update our four-year assumptions and comment on the dividend. As Brian mentioned, we are pleased to report a 19% year-over-year increase in core FFO during the quarter, especially given the challenging operating environment. Our goal as a company has always been to generate high single to low double-digit same-store NOI growth and corresponding annual double-digit growth in earnings and our dividends. Despite the operating environment, we still think we can generate approximately $2.10 of 4FFO this year, taking into account actual results through Q3 and assuming $2 million in further loss to lease and 3.2% bad debt expense for the fourth quarter, which would be about double our current year-to-date run rate on bad debt. This scenario also assumes flat rents on most of the portfolio, other than Houston, Las Vegas, and Orlando, which we are modeling as slightly negative. Given these assumptions, management recommended to the Board a still healthy 9.2% increase in the dividend to $0.348 per share, which represents an approximately 60% core FFO payout ratio on our full-year expectations, which we think are achievable and may even prove to be conservative. In short, amid even a tough environment, we're pleased with the resiliency and relative outperformance of our business model and look forward to working hard to achieve the results we just laid out. Finally, I'd like to congratulate and thank our team from BH and NextPoint for all the hard work and success during the quarter. Thank you, Brian.

Yeah, thank you. That concludes our prepared remarks. We'll turn it over for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question will come from Amanda Switzer with Bayard.

Great. Thanks for taking my question. I was hoping we could start on bad debts. I believe you mentioned that year-to-date bad debts running at about 1.5%, 1.6%. Was that consistent in the third quarter? And then can you just provide some additional color on that? what the breakdown of bad debt that's been recognized is between the total portfolio and the same store pool, as it looks like there are no Las Vegas properties in your same store pool currently.

Yeah, so total bad debt for the quarter was about consistent 1.5% during the third quarter. As we get into, I guess, a quarter behind us, like Q2, we've collected now almost 99% of Q2, so it is decreasing over time. In terms of the same store pool, I don't think we break it out for you, but I can tell you that Las Vegas for, I guess, for the third quarter as it sits today is roughly 92%. I guess 93%, Charlotte 95%, Atlanta 96%. Those are kind of the weakest of the markets where the rest of the average is above 97.2%.

That's helpful. And then have you guys done an updated analysis on job loss in your portfolio? I believe last quarter when you previously did it in June, you said it was about 2.5% of your residents.

Yeah, no, we haven't. We're trying to get that data together for NAI REITs, the November NAI REITs to present has been our target.

Okay, perfect. And then kind of switching gears to capital allocation, I know you guys mentioned Eagle Crest could be a 1031 asset, but beyond that, how are you guys rank ordering just your potential sources of acquisition capital between opportunities like positions and then ATM issuances today, just given your improved cost of capital?

Yeah, I think we like the ATM usage in general, you know, coming, you know, at the high end to the northern end of our NAB, largely just to continue to have flexibility on the revolvers. So we'll continue to utilize that opportunistically to retire some debt. But we do have cash, obviously, with the Eagle Crest, you know, $25 million change to to opportunistically 1031. We still like Phoenix, frankly. That's our favorite market now, and we've been looking opportunistically at some 1031 opportunities there. But other than that, we don't have any plans for new acquisitions or dispositions.

Very helpful. That's all for me. Thanks for the time.

Thanks, man.

Thank you. Our next question will come from Rob Stevenson with Jani.

Good morning, guys. Matt, just to follow up on that, I mean, are you seeing more or less product for sale today, and are sellers' pricing expectations pretty much stable versus pre-pandemic, or is it changing?

Definitely less product in the market for sure. you can catch, and one of the deal I was speaking of, or a couple of deals we were speaking of in Phoenix were deals that fell out that were under contract pre-COVID, fell out during COVID, and then the seller, the brokers kind of take them to people that know that they can close at even 95, 97% of their prior BOV range. So you see a little bit of that. In terms of pricing, It's still tremendously competitive and almost stupid in Florida. Dallas, we just sold one at 4.6, a nominal cap rate. So cap rates are kind of flat to even down in some markets. I mean, the deals that we looked at during the quarter in Florida were in the 4.25 range on real cap rates. So it's still competitive pricing and hard to find good opportunities.

Okay. And did I hear you correctly in saying that the fourth quarter implies like a 3.2% bad debt expense number?

That's right. On the $2.10 core FFO estimate.

Okay. Is that you guys just being conservative as to what might happen, or is that indicative of what you're seeing on the ground and that's really where you guys are expecting it to fall out versus just potentially?

I think that's a worst case scenario and something we don't expect to happen. Um, so we, we, we hope to achieve a better, a better result.

Okay. And then last one for me, how much incremental demand, you know, for vacant units are you seeing out there today? I mean, is it, how long is it taking to lease a vacancy today versus pre pandemic? And are you seeing people trading up, trading down price point wise, any type of color there within the markets?

So our total days vacant have come down by about five days from Q2 to Q3, now almost sub, for vacant units, sub 40 days, which is a little bit higher than our normal, but still improving, so that's been a good sign. Definitely, as Brian mentioned, we're seeing a trade-down effect, and that's borne out by, on the applications, the incremental higher household income that we're seeing from new leases. So we think that that's evidence of the trade-down effect. So it is happening. We can't quantify it, but it is happening, and especially given our new lease activity and historically high occupancy right now, we feel pretty good about where we are.

Okay. Thanks, guys. Appreciate it. Thanks, Rob.

Thank you. Our next question will come from Barry Oxford with DA Davidson.

Great. Thanks, guys. First question, when we look at the rehab, you guys have gotten very nice rental increases on those and gotten very nice returns on those. But going forward, do you feel you can still kind of get those numbers or do you feel like you might have to dial back on the rehabs?

We have dialed back. We were, you know, said to do, I think, you know, 2,500 units this year. We've reduced that to kind of 2,000 and then reduced it again to 1,800. But of the 1,800 that we've done, we've gotten the same consistent 20-plus percent ROIs, and we expect to do, like I said, 300-plus in the fourth quarter. That's going to be largely in the markets that are the healthiest, right, so the Phoenixes, the Tampas, South Florida, where we'll get that ROI, and then hopefully first or second quarter in 2021, we can resume portfolio-wide and continue to hit our pre-COVID pace of $2,500 a year.

Right, right. Looking up at the macro, just kind of following on that, So do you guys feel that we might be through most of the pain? Or sometimes when I'm looking at some stats and stuff, I feel like we may not be through most of the pain when it comes to the apartment sector as far as people that will be moving out as they fail to make rent payments. and there is no, you know, extra unemployment benefits kind of coming, at least here in the short term.

I mean, my personal view, I'll let Brian weigh in with what he believes.

I know you guys are in the southeast and southwest, which are clearly the better markets. I'm willing to concede that point.

Well, that's where I was headed. Oh, okay.

Sorry.

No, no, no.

I've traveled, you know, the of really every city in North America since COVID, every major city, including Midwestern cities and gateway cities. But I can tell you just on the ground, there's a different feeling in Texas and Phoenix and Florida. You know, there are people, you know, moving around versus some of the other cities. So I think that, you know, our macro might be a little bit different or, you know, I guess micro for the Sunbelt and We're seeing positive 6-plus percent rents in Phoenix. We had 300-plus applicants from California during the quarter to Phoenix and Nevada. So we think that continues. That's incremental demand. It's not what it was pre-COVID, but we think those trends continue.

Yeah, I think the only thing I'd add to that is that I'd say that The inability to really push evictions right now is skewing the numbers from what you typically see. There's definitely demand for the product that we can't access because tenants are staying in there. It's a pretty small amount in our portfolio. The other thing I'd add is that we report results as of a certain date, but we continue to try to collect, and we've done a good job of posting quarter end collecting outstanding amounts. For example, through the second quarter, we're almost fully collected on all of that rent and then continuing to make big strides from Q3. We expect that overall bad debt will not be as large as it may seem just at quarter end, but people are trying to find ways to make payments. Macro, it doesn't seem to have really impacted us as much as we feared and March, April, May. Okay.

No, that's reasonable. I appreciate the comments, guys. Thanks.

Thank you. Our next question will come from Buck Horn with Raymond James.

Hey, thanks. Good morning, guys. Quick question on repairs and maintenance expenses and also maybe CapEx as well. Just noticing that same store, R&M, was down nicely year over year, but also your your CapEx per unit seems to be trending down year over year as well. I'm just wondering if that's something that's intentional, sustainable, or is there maybe some deferred spending coming up in the fourth quarter or into 2021 that you need to spend for some maintenance and or CapEx items?

Hey Buck, it's Matt. The 7% number was good and appropriate, just given the lower turn that we're seeing with more attention, higher occupancy. I would expect that to continue for the rest of the year. Don't foresee any large CapEx increases for turn or otherwise. At least for the end of the year, we think it's pretty consistent and sustainable.

Okay, that's helpful. And on real estate taxes, it looks like you kind of normalized the rate of increase on real estate taxes. How is that, you know, how are those assessments looking going into year end? Are you getting any new assessments coming in that may change the trajectory of your tactic rules?

No, nothing material that would sway us, you know, heavily one way or another. So we feel pretty good about that. about where the four-year number will reside.

Okay.

All right.

Thank you.

That's good. Thanks, bud.

Thank you. Our next question will come from John Masoka with Ladinburn Thalman.

Good morning.

Morning, John.

Hey. So maybe touching on kind of the internal rehabs again, how much of the change this year from 2,500 to 2,000 to 1,800 potential rehabs is driven by your view of the market and the ability to get the rent you want on that? And how much is maybe more just the retention and the occupancy? And I guess maybe how would occupancy and retention have to kind of trend to get back to that 2,500 number?

Yeah, I think it's both. I mean, I think that in markets where we've basically halted or haven't done any rehabs are the same markets that are kind of organically trending downward, like Orlando, Houston, and to a lesser extent Las Vegas, because we've been able to achieve interior rehabs there. But those are the two that I'd say that we've driven by our view of the markets. I think going forward, there's no market other than Orlando. I think even Houston, we can pick the rehabs back up. But I would say that we would shy away from doing more. And I think that the 400 a quarter, which is 450, I think has always been our sort of run rate. But we're also adding kind of bespoke you know, washer and dryers here and there. So I think that, you know, we'll continue to push them where we can. And I think, you know, kind of eight out of our 10 markets or so are available even today and will be for the foreseeable future.

And I guess what would you kind of need to see in the macro to move to a less of kind of a heads in bed strategy and more of a pushing rental rate strategy around the rehabs and I guess just organically as well?

I think we're kind of at the trend. We're at a healthy trend right now. If we could start, I think one, we'd have to see the eviction moratoriums lifted and a solid retention ratio following those moratoriums. If folks just start leaving en masse, then we want to still remain defensive, but if the eviction moratoriums are lifted, folks stay, and we're still in the mid-90s with a strong trend where we can start sending out renewal increases in the 4%, 5%, 6% range, then that gives us sort of the green light in our view to take advantage of maybe going after a 5% plus renewal increase on the off chance that the tenant might leave, then we can go ahead and get in there and rehab that unit.

Okay. And then the net migration, how is that comparing on a year-over-year basis? Obviously, a lot of migration from California, Illinois, New York, but I'd also think even pre-COVID that probably would have been kind of a theme. I mean, is it accelerated significantly from what you were seeing before, or is that just not been a focus in prior years?

Yeah, we just started really tracking the data this year, so I think anecdotally we can tell you that it's there because we're walking around in Dallas and meet people from California and New York on a daily basis that are moving here and hear corporate reload stories almost weekly right now for Dallas, Atlanta, and Phoenix, and South Florida. But we haven't tracked it since this year. Okay.

And then one last quick one. On the balance sheet, if I heard that correctly, you extended out the credit facility to January 2022?

Correct.

Any thoughts maybe on locking that debt in on a longer-term basis?

Yeah. We'll start the process of trying to recast that for a longer term. But wanted to get it extended now just to and have that available.

Okay, that's it for me. Thank you all very much. Thanks, John.

Thank you. Our next question will come from John Peterson with Jefferies.

Great, thanks. You talked about a number of people. You like Phoenix because there's a lot of people moving in from California. I'm sure in the southeast there's people moving from the northeast. I'm curious if you're seeing a difference in credit quality of the new move-ins that you're seeing kind of in the last six months versus what you normally see?

Yeah, I think it's improving, John. Um, I think the folks that are moving from, um, gateway markets or that are moving now are, are more, are more productive people. Um, I think they're, they're in search of, um, you know, economic activity or opportunity and, um, they want to work. And so we're, we're seeing that, you know, come through in, in the lease app data and, uh, And it makes sense.

Got it. I guess I know it's kind of hard to always know this, but do you have any sense of the people moving from gateway markets, whether they're viewing this as kind of a temporary, you know, location and then they either move off to buy a home or they move back to the gateway markets they came from? Or, you know, do you think there's a little more staying power to this group of people or do you think they end up being more transient?

Yeah. I mean, I think it's age, probably age-dependent. What we saw, we were just talking about this internally the other day, what we saw in global financial crisis is folks from New York kept their houses and didn't sell them immediately in the global financial crisis, even though they moved to Connecticut, right? And then they would sell them later when New York rebounded. I think we're seeing some of that. I think we're seeing some of that now in Florida and If you're older, you can maintain the mortgage, but otherwise, I'm pretty sure that if you're younger than your middle age, looking for opportunity, your jobs are moving here, you can work from home. Most of the folks we see stay. Our view is as population increases, doubtful, or 15,000 people a month move here, that hasn't decreased. So it has to, you know, there's some staying power here, and it's borne out not only in our rents, but just a single family bid right now in these markets is equally as strong.

Got it. And just maybe one last question for me. You know, I'm curious, given COVID, if you've, you know, made any changes or, you know, thought about redevelopment of common areas to kind of, I guess, adjust for the current environment. Is that something that's necessary? Sure.

We were already doing it. We were already creating work from home leasing centers with tech amenities and creating more open spaces where people can walk and have outdoor activities and outdoor grills and amenitizing the assets prior to this. NetNet will continue to do it on new acquisitions, probably have a little bit more of a thoughtful approach to what some of the other folks are doing out there post-COVID that's new. But I guess the short answer is we were already trying to create those environments.

All right. That's all from me. Thank you.

Thank you. Our next question will come from Gaurav Mehta with National Securities.

Yeah, thanks. I was hoping if you could touch upon what you guys are seeing in terms of free rents and concessions in your market.

Free rent concessions? So we use daily pricing, revenue management system, so we don't largely offer concessions. In some markets, Like Orlando, for example, we do offer $200, $300, $400, $500 off some deals depending on where the trend is, but largely we don't give concessions.

Okay. I think in your prepared remarks you talked about trade down from Class A to Class B. Can you remind us what's sort of average rent differential between a Class A and Class B product in your markets? Sure.

Yeah, so we always think of, maybe not class A, but sort of what's the next best option for a renter that's one of an NXRT's communities. And typically that's a new garden-style asset or single-family rental. And so our average effective rent is called $1,150 today. Those newer options or single-family rental are usually $200 to $300 north of where we are.

Okay. Thank you. That's all I had. Thank you.

Thank you. Our next question will come from Michael Lewis with Truist Securities.

Great. Thank you. I wanted to ask about trends in new and renewal lease spreads. I think you said you had a positive 1.6 blended in 3.2. Should we expect that that's still softening given the environment we're in? Are you starting to see that balance out? And then I guess the same question in concessions, I realize you don't issue them, but are you seeing a lot of free rent from competitors in your markets?

Hey, Michael, it's Matt. We are seeing free rent in new lease-up deals in our markets. So if you're coming out of the ground and you're in a Class A lease-up property, you are giving two to three months in free rent. I think you can see that through through some of the larger gateway apartment REITs that own in the south, in Dallas and Atlanta and so forth. In terms of trends, the quarter was up, quarter over quarter was up about a percent. July turned positive. New leases were 1.4%. Renewals were 1.3%. August was 1.2%. Renewals were 1.4%. September new leases were up 2%, renewals were up 1.7%. So, you know, it feels like it's getting a little better, and then October's been strong, and largely we've been defensive a little bit to make sure we've got, you know, a good trend, and we're 97% leased today. So, you know, it feels like the trough is behind us in Q2, but we're still being conservative.

Okay, that sounds good. And then my second question, I wanted to dig into the October rent collection a little bit, right? So 95% collected, you've got 2.1% on payment plans. I was wondering a little, you know, maybe if it's, you know, at the danger of generalizing, you know, talk a little bit about what makes you comfortable, you know, with those people that are on payment plans, you know, why they can't pay today, but they will be able to. And then, you know, the 2.9% that's left that haven't paid and aren't on a plan, you know, You know, are those the likely, you know, is that what's informing your bad debt expense or likely evictions?

Yeah, so the payment plans start out in April at $960, bottoms in kind of August at $170. These are the numbers. And then went up in September to 300. Now they're back down to, I call it, low 200s, 240. So they're kind of steady at kind of 150 to 250 a month, really, for the last four or five months. And we feel good about those payment plans, or I would say 90% of those payment plans, because 99% There's only five basis points that we haven't received anything that are ghosting us. We feel like we will continue to collect something from those. The folks that we just haven't heard from, we've sent the applicable notices where we can and plan to pursue eviction the day after. that they were able to. That's not representing a huge number of physical occupancy that we're afraid of today.

Yeah, Michael, it's Brian. As far as the bad debt expense, we've been monitoring that very closely, and we bucket it and do kind of a tiered write-off. We've seen over the past few months that just because somebody's 30 or 60 days late That doesn't mean that they haven't paid anything, but they've not paid in full. But we've seen a lot of that come eventually. So we're trying to be conservative with the bad debt, but at the same time, not be overly punitive, just given what we've seen here historically. And that trend continues. So we are watching it closely. And the 3.2% we discussed, as Matt said, is pretty Pretty draconian, and we don't expect it, but we want to stress the numbers just to see where it put us. But we expect it to come inside of that, and the trends continue to go that way.

Okay, thanks. And then just lastly from me. Oh, I'm sorry.

I would just say that adding a little bit more color for you, and maybe this illustrates you know, why we feel good about this. But we had 959 total payment plans in April, and we've collected all but $9,000 of that rent. In May, we had 289, and we've collected all but $3,000. And so if you fast forward to, you know, August, which is the low, it's still kind of $9,000. So these are all manageable numbers that we think we can work through.

Okay, got it. And then just lastly for me, I probably asked about this before, but could you just remind me, what's the proportion of resident income that they're spending on rent?

It's about 22%, 23%. Okay, great.

Okay, that's it for me. Thanks a lot, guys. Thanks, Michael. Thank you.

Thank you. And again, as a reminder, if you would like to ask a question, you can do so by pressing star 1 at this time. Again, that's star 1 to ask a question. Okay, and I'm not showing any questions at this time. This will conclude today's question and answer session. Ms. Graham, at this time, I would like to turn the conference back to you for any additional or closing remarks.

Yeah, we're good. Thank you for joining the call. We'll speak next quarter or at NARIC.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.