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.

Thanks, Brian. Let me start by reviewing our Q1 operational results. Although the same store NOI was essentially flat for the first quarter, due in large part to a double-digit increase in property taxes, along with a peak high operational comp, we're excited about the portfolio's performance and the positive trends we're experiencing as our Sunbelt markets hit their stride. Cash collections remain favorable to NMHC comps, with 99% of Q1 rents collected and 97.8% collected for April. While federal stimulus and local rental assistance programs that Brian just mentioned have helped, Overall demand for upgraded affordable housing in the Sunbelt continues to register at historical highs. Population inflows into our Sunbelt communities have never been stronger in the history of our company. Net migration from California and New York continues to dominate our leasing applications, accounting for over 25% of our new leases signed during the first quarter, with total out-of-market applications accounting for over half of new lease halves. Low migration outflows from our markets and consistent resident retention also explain strong operational performance during the quarter. Operationally, our communities are experiencing all-time highs in occupancy, as Brian mentioned. Our Q1 same-store occupancy ended at 95.3%, and as of April 26th, yesterday, the portfolio is 95.6% occupied, 98% leased, with a 93% trend. These historically strong occupancies and trends are allowing us to materially increase rents in most of our markets. Same-store revenue growth, for example, exceeded 2.5% in seven out of our 10 markets in Q1, with virtually every market experiencing positive rental growth. On the leasing front, new leases ended the quarter at a positive 3.9%. Renewals finished at a positive 2.2% for Q1 blended rental growth of 3%. Q1 new lease growth was strongest in Atlanta, Tampa, South Florida, Phoenix, and Las Vegas, with each market growing rents by at least 5%. Renewals were also positive for the quarter in every market, even in Houston and Orlando. April so far has been even stronger. April to date, we've signed over 550 new leases with an average rental increase of 11%, with seven markets bumping rents by 10% or more. Renewals are all positive as well, registering at a blended 3.5% growth for April. On the transaction front for us, Q1 was relatively quiet, but the market for our product type continues to be historically strong. Here are a few examples of marketed deals we participated in during the quarter, none of which hit. We bid on a deal called Paragon at Kearland, a $2,000 vintage value add in prime Scottsdale location. Guidance registered at $360,000 a unit and roughly a 3% nominal cap rate on in-place numbers. Obviously, we missed that one. We bid on Discovery on Broad, a 2001 vintage value-add deal in Durham, North Carolina. Guidance was a 4.25% nominal cap rate on in-place numbers, and the property was bid up significantly over guidance. Finally, we bid on a deal called City Center on 7th, a 2013 vintage asset within one mile of our Avant at Pembroke Pines. Guidance came in at $210 million or $300,000 a unit. versus our fully loaded value-add basis of $233,000 a unit at Avant. This guidance represented roughly a 4 percent year one economic cap rate. These examples illustrate to us what an attractive buy fairways at San Marcos was for us late last year. Since closing that deal, NOI is beating budget by over 16 percent. Q1 new leases were up 7.8 percent, and April month-to-date are up a very healthy 16.7 percent. Turning to full year 2021 guidance. As Brian stated, we're pleased to announce a 4% increase in core FFO at the midpoint to $2.29 a share, which reflects an increase in total revenue by 30 basis points to 4.8%. Primary drivers of this increase were lower vacancy losses due to increased occupancy demand and our renewed ability to charge fees and obtain ancillary income. On the expense side, we see modest decreases in both controllable and non-controllable expenses, while still carrying a healthy property tax budget for the remainder of the year. As of today, we still don't have visibility on 2021 real estate tax values for 16 assets, and therefore, we are still carrying an appropriately conservative budget for those deals. Thus, with these adjustments, together with the favorable comp in the second half of 2021, and most importantly, the strong portfolio operational performance trends, we're raising the low end and midpoint of same-store NOI guidance to 1.8%, and 3.6% respectively. In closing, I'll reiterate that we're excited about the rest of 2021 for these reasons and the future of the company as well as the portfolio. That's all I have for prepared remarks. Turn it back over to Brian.

Yeah, just real quick before we go to Q&A, I think hopefully my commentary and Matt's sort of showed the strength of the Sunbelt and the value-add opportunity as well as the affordable housing opportunity. Ironically, COVID just seems to accelerate a lot of the trends we were already seeing. And I think we talk a lot about the net migration in our calls and investor presentations. And I think all that's bearing out and presents a very, very favorable platform for us to grow in the next few years. So with that, let's go to questions.

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. Our first question comes from Amanda Schweitzer, Baird.

Thanks. Good morning, all. On your comment on your value-add program, kind of what levels of increases are you seeing in terms of renovation costs, and is that impacting your projected ROIs at all today?

Hey, Amanda, it's Matt. No, we're still seeing the 20-plus percent ROIs. In fact, the Q3, Q4, and even the first quarter have remained at that 21 or higher level. Any increases due to labor costs and or cost of materials. I know there's been a lot of talk about lumber, et cetera, but most of our sourcing in terms of materials is done in bulk through BH and their capacity to get discounted pricing and then any additional costs we've been able to pass on to the tenants.

That's helpful and good to hear. And then what were the drivers of miscellaneous income during the quarter? And can you talk about your decision to include it in NOI when I believe you previously excluded it in the past?

Yeah. Hey, Amanda. So it's Brian. What was included in this quarter was business interruption insurance related to those down units I mentioned. And so we included it in NOI to get more of an apples-to-apples comparison to last quarter. As I mentioned, we didn't pull any of those units out. So, we're still carrying expense load in Q1 2021, although we did get a little bit of offset with the business interruption insurance. But still, it's a pretty big mismatch versus what the going rate for those units for the insurance company has their own formulas for calculating that. But that's what's included in there. And that's why we put it in Y. Yep.

That makes sense in what I figured. And then last one for me, on the Tennessee property tax reassessment, I saw your note on valuations coming in a bit better than expected, but has the mill rate been announced yet or is that still an area of uncertainty?

It's still an area of uncertainty, but, you know, there's a lot of forces pulling hopefully in our direction from an ownership perspective. So we're cautiously optimistic there, but nothing has been decided yet.

Okay. And then is that continued uncertainty delaying your planned dispositions outside Nashville at all? Are buyers waiting to see what those property tax increases will be?

Yeah, I think the millage rate is less of an issue versus the tax values, which came last Friday. So now that you have some certainty around the values, we can, for example, have better clarity on pricing for our for our two plan dispositions, Beechwood and Cedar.

Great. Thanks for the time.

Thank you. Our next question comes from Rob Stevenson. Janie?

Good morning, guys. Just to follow up, how whole is the business interruption insurance versus if you had them available and leased them at prevailing prices?

So it's about a $200,000 or so differential.

Okay. And then how quickly are you guys expecting to be able to get the 93 units down back into service? And were these already renovated units, or is there an upgrade opportunity as they're down as well?

Yeah, there's an upgrade. Hey, Rob, it's Matt. There's an upgrade opportunity for most of them because you had pipe burst or some kind of issue with the interior that you might as well go ahead and just renovate the whole entire unit. We think that by June, July, we should have all of them back in force.

Okay. And then last one for me, anything in particular driving the sub-95% occupancy in Nashville and Las Vegas, given how hot those markets have been? Heavy upgrades, anything in particular asset or anything?

Yeah, there's one particular asset in Nashville that drove that drove occupancy there. That was Brandywine. That was due to some humidity stuff that we had down during the storms during the first quarter there at that asset. And then Vegas is just kind of a one-time thing. Today, I think we're over 95% occupied there as we sit there today. So it's been one of our stronger markets. We're seeing that net migration from California. And it's been a It's been a kind of unique, great story for us when most of the folks thought it would be the other way.

Okay. Thanks, guys. Appreciate it.

Thanks, Rob.

Thanks.

Our next question comes from John Peterson, Jefferies.

Great. Thanks. On the property taxes, I guess my first question is, does the 1Q result, include like your anticipation of the property tax increase in uh on these nashville properties and then i was also wondering on the guidance like if you're able to parse out you know the i guess the impact of the you know the every four year increase in nashville the kind of a more normalized uh you know property tax increase like what what kind of normalized opex growth are you guys expecting to see this year just just for nashville Well, I guess I'm just looking at your guidance. Was it like positive, like 5% to 7%-ish, somewhere in that range? I'm just trying to think if the four-year increase wasn't happening in Tennessee this year, what would that number have been?

Oh, yeah. I mean, taxes in the first quarter, for example, in Nashville jumped 77%. So if that didn't happen, we'd be looking at a very different, I think, overall portfolio, same store reported number. The guidance does incorporate the changes to Nashville, which we are already carrying a very healthy budget for. So there's some modest pickup. I think it's about $70,000-ish a quarter to where we budgeted taxes. The underlying kind of... uncertainty on those 16 assets that I mentioned. We'll get clarity on, I think, eight of those between now and the end of next quarter, which should help, you know, hopefully give us the ability to tighten that range even more. But overall, for our midpoint of 2021 guidance that's just been revised, we're still carrying an 11 plus percent increase year over year at the midpoint. So, I still feel pretty good about where we're carrying it and hopefully our ability to realize some savings.

Hey, John, Matt alluded to it in his answer, but to directly answer your question, Q1 results don't reflect any assumptions that we've been making or guidance. So, in other words, it was just what we knew at the time. So, to Matt's point, you saw some pretty dramatic increases in taxes in some of the markets in Q1. that we think will decline in our guidance.

So, the OpEx increases are going to get higher from that property tax impact over the balance of the three-quarters of the year, but I guess the upward trend in NOI will be made up for by accelerating rental growth? Is that the right way to think about it?

No. No, I think the OpEx numbers that we report account for the increases that we think that we'll get. We don't just lick our finger and put it in the air. We're consulting with our tax consultants. They're very, very conservative, so we push them and try to figure out where we're going to land. That's where we come up with our budgeted 2021 numbers in Q4. when we don't even have the information. So as the year gets better and our ability to litigate throughout the year materializes, then hopefully we'll continue to see some savings. But the guidance, the bump, if you will, is a result of Q1 better occupancy and vacancy losses, and then combined with what we believe to be achievable revenue goals over the course of the rest of the year, which, you know, it's basically, you know, growing revenues by anywhere from three to 4%, which historically we've been able to do. And given the net migration and trends that, you know, both Brian and I mentioned, we feel pretty good about.

Yeah. Okay. And so then on the, on the helpful and then on the revenue side, I guess, how much more aggressive do you think you can be on pushing rents on renewals this year? And I don't, I don't know if I missed it, but, What was the tenant retention in your portfolio in 1Q?

I think 52% was the retention. We're being very aggressive. What I can tell you in April, which I reported, I had to check with our guys just to make sure I was right when we saw April numbers because there were 11-plus percent, 20% in Florida. We're sending out renewal notices in markets that are you know, strong and experienced in their migration. So South Florida, Phoenix, Atlanta, these types of markets, in some cases, noticing tenants, you know, 10 or 15%. And that way we can replace the tenant with someone that's either willing to pay that or renovate the unit and get the 11, 12% increase in terms of the new lease rate that's improved, so. I think that's going to continue in May and in June, especially if you walk around the streets in some of these communities and see the vibrance and the activity. It's good to see.

Okay, and then just one more for me. I think you guys said 25% of your applications were coming from New York and California, and I think that's about 50% of your out-of-state applications. Can you remind us what those numbers were kind of pre-pandemic so we can kind of have a base level there?

Yeah, half of that. So pre-pandemic, you know, at least in Q1 of 2020, you know, California was, you know, 8%, 9%. Now it's 19%. New York was, you know, 1%, 2%. You know, now it's closer to 10%. So it's about doubling year over year. Wow.

Okay. All right. Thank you.

Thanks, John.

Our next question comes from Buck Horn. Raymond James. Good morning, guys.

If you haven't mentioned it, what the bad debt accrual was for the quarters, the percentage of gross revenue, and with the, I guess, additional assistance you're expecting to come through from government rental assistance, what's the prospect that you're, you know, what's embedded in your guidance for a bad debt accrual going forward? Does that have a chance of normalizing in the back half of the year.

Yeah, it's Matt. Hey, Buck. Q1 bad debt was about $700,000, and then we have it normalizing to $350,000, Q2, you know, high $200,000 the rest of the year for a total of about $1.6 million, which... is about double of what it should be. And then in 2020, the whole year was 2.6. So hopefully seeing that come down, but still healthy enough of a pro forma number within the guidance that might help us see some savings later on in the year.

Very helpful. I wanted to also just dig in a little bit on the new lease rates in the first quarter, just Houston, Orlando, the two that kind of jumped out as negative. I'm kind of curious about Orlando in particular, given the strength of that market. Anything in particular in the new lease rates in those markets that's notable?

Yeah, I mean, there's really one deal that was the pain, and that was Sable Palm. That was the Disney deal. The occupancy was a challenge in the latter half of the year. We saw in Q1, we bought some occupancy there and got new lease rates were down 3.5%. Renewals were positive at 50 basis points. Occupancy then materialized to over 94.5% as we said today. that's good. And then in April, Sable was positive by just 20 basis points, and then renewals were positive by 60 basis points. And so in April, the Orlando market in general performed pretty well so far. New leases are up in April in Orlando at 5.4%, and then renewals are about 60 basis points. So recovering pretty well there. And then the one asset in Houston that just a larger asset and that had, you know, some storm-related noise with old farm. And that, too, in April has recovered. And the Houston market is positive well at 1.6% for April on new leases and 1.2% on renewals.

Awesome. Very thorough. Thank you for that. And one last one just quickly. Just wondering if, you know, given the tightness and the competitiveness of the acquisition markets, I mean, what's the realistic goal in terms of acquisition and disposition throughout the remainder of the year, and what do you think is achievable?

The dispositions, I think that we will transact on Beechwood and Cedar this year. We just complete our business plan. We're going to make a ton of money there, and then we're going to look to recycle the proceeds. I do think the $100 million on the acquisition front Some of the larger deals or cluster portfolio deals that we look at are still tougher to buy and execute on for most value-add leveraged buyers, especially given the cap rate. So I think we're cautiously optimistic in places like North Carolina or Phoenix where we can take advantage of some of our ability to find $100-ish million deals. and move quickly and decisively given our scale within these markets and come up with some great properties for our investors. Awesome. Thank you, guys. Thanks, bud.

Our next question comes from John Massica, Vladimir Thalman.

Good morning. Hey. Hey, John. I guess maybe building on the – the acquisition environment, how sensitive have cap rates and demand been to interest rate fluctuations? And I guess specifically, was there any change in kind of the broader market when you had that short acceleration in rates earlier this year, or have they largely been more a function of kind of demand?

I think it's demand. Yeah, I understand where you're going. So the The spike in interest rates we thought would create an opportunity for some deals that would fall out due to some of the leverage nature of a value-add buyer. That didn't occur. So the deal that I mentioned in Scottsdale that we bid on, the Paragon deal, that's a 3% in-place cap rate. So when you throw leverage on there, you're barely breaking even. And so that kind of just made us scratch our heads But it's continuing to be competitive, as we said today, and spreads are coming in a little bit as interest rates rise. But so far, there's 50 offers for every value-add deal we're seeing that's marketed.

Okay. And then maybe going back to the first question on the call. I guess how, if at all, has the calculus changed with regards to rehab budgeting? I mean, specifically maybe what has been the cost growth in terms of the inputs for rehab, or if you want to take the inverse of it, kind of what has been, you know, what is the new, if at all, kind of expectation in terms of rent you need to get out of a rehab project now?

Yeah, I don't think, you know, in terms of the actual costs, I think it's been pretty consistent. The biggest driver of the increase is the extent there is an increase. What I would say is we're just buying higher quality, larger unit deals. The average unit size is 800, 900 square feet instead of 600 or 700 square feet, which just naturally makes you have to buy more materials. In all cases, without exception, not even needing to knock on wood, we've been able to pass through the increases to the extent they're already in cost and receive those 10%, 12% rental increases. The demand is there, which is exciting for us because we're an internal growth company at our core, and we have another 1,500 units to do this year, so we're We're hoping we're going to do more in Q2 and Q3 and plan to and produce good results.

I guess broadly, what has been the increase in kind of input costs?

I think it's our decision to go with a higher upgrade, higher quality upgrade. So, you know, instead of, you know, maybe like a vinyl countertop or quartz. We're trying granite. In some cases, we're doing a set of black appliances. We're doing stainless or faux stainless. So those kind of bespoke type of choices that we're making, we're making them because we think that the demographic at these sites wants that and will pay for it.

Okay, and then one last detailed question. I know it's a much smaller number than tax, but where do we maybe sit in the insurance cycle? And could there be any impact to kind of insurance expense growth given some of the events this winter, particularly in Texas?

Yeah, so our renewal is March 1st. So that basically got priced into our renewal, meaning the winter storm, or as best that they could given the information at the time. We continue to pull different levers, like trying to take different risk verticals or horizontals within the stack. But it's certainly been a challenge over the last few years. There's been a lot of events. Anything in a hurricane area gets a premium put on it. But as with taxes, we do a lot to manage that situation. And I think with our increasing bulk, we're able to get better pricing than otherwise would be the case if we were a smaller operator.

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

Thanks, John. Our next question comes from Michael Lewis, Truist Securities.

Great, thank you. I just had a quick question about... You know, I think Brian said that Cutters is out of the same store pool. You've got a bunch of, you know, these 93 units at a handful of properties that are not included in one queue. So when you give the full year same store NOI guidance, are these units at these specific properties out for the whole year or as they come back online, they come back in and, you know, do you expect that to be a tailwind or a headwind? How do we kind of think about those?

Hey, Michael, just real quick, just to clarify, we do include those 93 units in the same store pool. Okay.

So as they fill back up then, that'll be a tailwind to your same store growth? Okay.

So it's a detractor for Q1 as we compare that to Q1 of 2020 because the 93 units are in both, unless we're talking about occupancy or something like that, but As far as results, it's still in that pool. We did get some of the business interruption insurance accrued for in the first quarter, but not all of it. And then we're still carrying all the costs of those properties.

Okay, I see. So it's bridging the 2.1% same-store revenue growth you had in 1Q, for example, to get up to the guidance range, which is materially higher. Maybe that's a small piece, but that's a piece that will help kind of bridge that gap. Correct. Okay. Um, and then just, um, lastly for me, um, you know, the stock valuations improves. You're now trading, um, right around the midpoint of your NAV range. Do you think about maybe issuing some equity and freeing up, um, that credit facility, which has been, you know, largely drawn for a while?

Yeah. And Michael's bad. I think, um, I think we're going to continue to monitor it. It's kind of in concert with the plan dispositions. You know, kind of the good news and sort of, you know, the opposite side in the acquisition market is the disposition market. I think when we dispo these deals, you know, I think we'll probably get a little bit more than we thought we otherwise would at the beginning of the year. So we're going to look to use all the tools. But at this stage, we don't have any material plans one way or another.

Actually, maybe I'll ask one more, which maybe you answered this mostly. You asked a little bit about the new lease rates versus the renewals. I noticed, of course, the new lease rates are more than renewals in a lot of your markets. Is that largely a function of what's happened with the rehabs doing better? Or is there another dynamic there at play that's causing those newly spreads to be better than the renewal spreads?

I think it's some of the upgrades. But I think what it speaks to more is this net migration. I think that we're seeing the demand and occupancy increase. And people moving to these sites and these markets where we have vacant units, our revenue managers are telling us that we can try to hit these numbers. And sort of the stale factor is coming in, and we're able to push pricing on a daily basis, just given the sub-markets that we're in. We're seeing folks pour in. I kind of chalk it up to probably more of the net migration more than anything else.

I appreciate it. Thank you, guys.

You bet.

There are no further questions in the queue at this time.

Great. Well, thank you. Appreciate everybody's participation, and we'll talk next quarter.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.