NexPoint Residential Trust, Inc.

Good day, and welcome to the NextPoint Residential Trust, Inc. first quarter conference call. Today's conference is being recorded. This time, I would like to turn the call over to Jackie Graham. 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 first quarter ended March 31, 2021. On the call today are Brian Mitz, Executive Vice President and Chief Financial Officer, and Matt McGreiner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at nsrt.nextpoint.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, NXRT's updated guidance for financial results for the full year 2021, and their related assumptions, including the effect of tornado damage at Cutter's Point, expected acquisitions and dispositions, shares outstanding, and real estate taxes, NXRT's net asset value and the related components and assumptions, including estimated value-add expenditures, debt payments, outstanding debt, and shares outstanding, guidance for the second quarter of 2021, and the related assumptions, planned value-add programs, including projected average rent, rent change, and return on investment, expected return to service of units, and expected acquisitions and acquisitions. 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 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 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 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 accept as required by law, and XRP 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 Metz. Please go ahead, Brian.

Thanks, Jackie. Seems like that was a little longer than usual. I think the lawyers got a hold of that one. Well, yeah, thank you. Welcome to everyone joining us. I'll start with the highlights and commentary for the quarter, discuss results and guidance, and then turn it to Matt for his commentary on the quarter and outlook, and then we will go to Q&A. So, let's start with the highlights for Q1. Net income for the first quarter was negative $6.9 million. or negative 27 cents per diluted share as compared to 28 million or $1.08 per diluted share in the same period of 2020. Same-store NOI decreased by 100,000 for a decrease of 30 basis points as compared to 2020. We reported Q1 core FFO of 14.1 million or 56 cents per diluted share, which is an increase of 6.9% as compared to the same period of 2020. Total revenue for Q1 was $51.8 million, and total NOI was $29.6 million, which was a decrease from 2020 of 1.5% and 1.3% respectively. NOI margins for Q1 2021 were 57.1%, which is a slight increase over margins of 57% the same period of 2020. We continue to execute our value-add business plan by completing 285 full and partial renovations during the quarter, achieving an average monthly rent premium of $163 on 421 lease upgraded units, which resulted in a 20.7% ROI during the quarter. Inception to date in the portfolio is of March 31st. We've completed 5,543 full and partial upgrades. 4,364 kitchen upgrades and washer-dryer installs, and 9,422 technology package installs, achieving an average monthly rent premium of $129, $48, and $44, respectively, and a return on investment of 21.5, 74.1, and 33.3%, respectively. Based on current cap rates and our NOI, we are reporting an NAV per share range as follows, $45.07 on the low end, $55.31 on the high end, with a midpoint of $50.19. These are based on cap rates ranging from 4.5% on the low end to 4.8% on the high end. The updated NAV compares to a midpoint of $38.47 at March 31st, 2020, or a 30% year-over-year increase. For the first quarter, we paid a dividend of 34.125 cents per share on March 31st. The shareholder's record is of March 15th. The Board has declared a dividend per share of 34.125 cents, payable on June 30th, the shareholder's record on June 15th. Since inception, we've increased our dividend 66%. And year-to-date, our dividend was 1.65 times covered by core FFO, for payout ratio of 61% of core FFO. On to some high-level comments on the business, Matt will provide a little more detail in his commentary. Despite unprecedented challenges in 2020, and XRT came through the year and pandemic in very good shape. In fact, we believe that COVID and ensuing impact further prove the resiliency of our strategy, our market selection, our capital allocation strategy, Our value-add strategy, most importantly, our focus on affordable housing and Sunbelt markets and the resiliency of our tenant cohort. Net migration into our Sunbelt markets, which had been trending positive for a decade plus, accelerated during COVID as highlighted by the newly released census. This has sent cap rates to historic lows in our markets. With the increases in population and jobs in these markets, competition for desirable product has naturally increased. Since going public, NXRT has built a cost-to-capital advantage over many of our competitors that allows us to bid aggressively for the best assets. Additionally, our value-add strategy, where we can move cap rates 75 to 150 basis points over three to five years from acquisition, makes us less sensitive to absolute cap rate levels. The ongoing and widening shortage of affordable housing in the U.S., which is most acute in our Sunbelt markets and getting worse, as new household formation outpaces new housing supply, gives us plenty of runway to continue implementing our value-add strategy across our existing portfolio and new acquisitions. Increased net migration coupled with the shortage of housing has allowed our portfolio to achieve all-time high occupancies and sets us up to aggressively push rates for the remainder of the year while maintaining these high occupancies. As demand for our renovated product, we will be able to replace non-paying tenants with new tenants over time if necessary. as the eviction moratorium ends. The current environment also allows us to sell at a premium assets that have been fully renovated and will likely underperform compared to other properties in our portfolio and redeploy that capital freely into a new value-add opportunity. Let me talk about collections for just a second, kind of focusing on the governmental assistance. Through March 31st, since the beginning of the pandemic, We have received 1.1 million of government assistance, or more correctly, our tenants have, which has been used to pay rent. Through March 31st, we have been approved for, but not yet received, 615,000 of governmental assistance. And through March 31st, we requested, but have yet to get approved, 356,000 additional governmental assistance. So, we fully expect that to be approved. So there's another $1.1 million just right there that we've gotten. We expect that to increase with the new legislation that's been passed and started to filter out. Let me move to our results for the first quarter. Total revenues were $51.8 million for the first quarter of 2021 as compared to $52.6 million for 2020, which is a decrease of 1.5%. Net income decline was negative $6.9 million. as compared to $28 million in 2020. Core FFO was $14.1 million or $0.56 per diluted share, which is a $0.03 increase over 2020 and represents a 6.9% increase on a per share basis. For our same-store properties, it encompasses 13,564 units across 35 properties. Same-store rent increase was 2.2%. Our occupancy for first quarter 2021 is 95.3% as compared to 94.2% in 2020, which is 110 basis point increase. Same-store NOI was 28.3 million in 2021 as compared to 28.4 million for 2020, which was a 30 basis point decrease. Before we go to guidance for the remainder of the year, give you a quick note on our same-store results in comparison to Q1 2020. The various times during the first quarter of 2021, we had up to 93 units cross multiple properties that were down due to casualty. These down units were down as a result of the winter storm in Texas during mid-February, which is a rare event. Under our Convention for Determining Same-Store Properties, we don't remove individual units that were operational in one period but non-operational and another period due to a casualty event, like we would with an entire property that's non-operational due to casualty. For example, Cutters was completely destroyed by a tornado and has been removed from the same store pool in all of its units. If we remove these 93 units from the first quarter 2020 results, the period over period same store NOI for Q1 2021 would have been 38 basis point increase over Q1 2020 versus the 30 basis point decrease. However, to be consistent, we show our same store NOI with the results of the 93 units included in Q1 2020, same store results. So with that, let me go to guidance for the remainder of 2021. We're revising guidance as follows. Core FFO per diluted share of $2.21 on the low end, $2.37 on the high end for a midpoint of $2.29 per share that represents a 4-cent increase at the midpoint. Same-store revenues increase of 4.3 percent on the low end, 5.4 percent on the high end, with an increase of 4.8 percent at the mid, which represents a 30 basis point increase at the midpoint. Same-store expenses are flat from prior guidance at 7.7 percent on the low end, 5.5 percent on the high end, and 6.6 percent in the mid. Same store NOI, we are increasing 1.8% on the low end, 5.4% on the high end, with a 3.6% increase at the mid level, which represents a 60 basis point increase at the mid. With that, let me turn it over to Matt for his commentary on the quarter and our outlook, and then we'll go to Q&A.