NexPoint Residential Trust, Inc.

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the Next Point Residential Trust Incorporated fourth quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the conference over to Kristen Thomas. Please go ahead.

Thank you. Good day, everyone, and welcome to Next Point Residential Trust's conference call to review the company's results for the fourth quarter of December 31, 2022. On the call today are Brian Mith, Executive Vice President and Chief Financial Officer, Matt McGrainer, Executive Vice President and Chief Investment Officer, and Bonner McDermott, Vice President, Asset and Investment Management. 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. 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 SEC for a more complete discussion of risk 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, NSRT does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures for a more complete discussion of these non-GAAP financial measures, see the company's earnings release that was filed earlier today. I would now like to turn the call over to Brian Mitz. Please go ahead, Brian.

Thank you, Kristen, and welcome to everyone joining us today. We appreciate your time this morning. I'm Brian Mitz, and I'm joined by Matt McGrainer and Bonner McDermott. I'll kick off the call and cover our Q4 and full-year results and highlights, update our NAV calculation, and then provide our initial 2023 guidance. I'll then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance for last year, as well as our guidance into the new year and the details on the portfolio. Results for Q4 were as follows. Net income for fourth quarter was $3.8 million, or $0.15 per diluted share. On total revenue, it was $69.3 million. as compared to net income of $38.8 million or $1.50 per diluted share in the same period in 2021 on total revenue of $58.5 million. The fourth quarter NOI was $41.8 million on 40 properties compared to $34.9 million for the fourth quarter of 2021 on 39 properties, which represents a 19.8% increase in NOI. For the quarter, same-store rent increased 17.3%, and same-store occupancy was down 20 basis points to 94.1%. This, coupled with an increase in same-store expenses of 15.3%, which was accentuated by high year-over-year comps on R&M and turnover costs, increased, led to an increase in same-store NOI of 14.4% as compared to Q4 2021. Rates for the fourth quarter of 2022 on the same store portfolio were up 2.1% quarter over quarter. We reported Q4 core FFO of $19.5 million, or $0.75 per deleted share, compared to $0.69 per deleted share in Q4 2021, or an increase of 9% on a per share basis year over year. We continue to execute our value-added business plan by completing 481 full and partial renovations during the quarter and leased 442 renovated units, achieving an average monthly rent premium of $184, which represents a 23.1 percent ROI during the year. In substance to date, in the current portfolios of 1231, we have completed 7,633 full and partial upgrades, 4,718 kitchen laundry appliance installations, and 10,191 technology package installations, resulting in $149, $47, and $45 average monthly rental increase per unit, which represents 22%, 66.9%, and 37.2% ROI, respectively. Results for the full year 2022 were as follows. Net loss for the year ended December 31 with negative $9.3 million or a loss of $0.36 per diluted share, which included a gain on sales of real estate of $14.7 million and $97.6 million of depreciation and amortization expense. This compared to net income of $23 million or income of $0.89 per diluted share for the full year of 2021, which included a gain on sales of real estate of $46.2 million and 86.9 million of depreciation and amortization expense. For the year, NOI was 157.4 million on 40 properties, as compared to 128.8 million on 39 properties for the same period in 2021, representing an increase of 22.3%. For the year, same-store rent increased 17.8%, and same-store occupancy was down 20 basis points to 94.1%. This coupled with an increase in same-store expenses, 11.1 percent, led to an increase in same-store NOI of 16.2 percent as compared to full year 2021. We reported core FFO of 2022 of $81.8 million, or $3.13 per diluted share, compared to $2.43 per diluted share for 2021, which is an increase of 28.9 percent on a per-share basis. Since inception, on a diluted category basis, core FFO has increased 11% annually. For our NAV, based on our current estimate of cap rates in our markets and forward NOI, we reported NAV per share range as follows, $67.46 on the low end, $78.15 on the high end, and $72.80 at the midpoint. These are based on average cap rates ranging from 5% on the low end and 5.3% on the high end, which has increased approximately 65 basis points from last quarter and 148 basis points year-to-date to reflect the rise in interest rates and the observable cap rates in our markets. For the fourth quarter, we paid a dividend of 42 cents per share on December 30th. And since inception, we've increased our dividend 103.9%. For 2022, our dividend was two times covered by core FFO with a payout ratio of 49.8% of core FFO. Finally, before we get to guidance, I'd like to touch on some of our recent activity with dispositions, refinancings, and some subsequent events after year-end. On December 29th, we completed the sale of Hollister Place in Houston for gross proceeds of $36.8 million, representing a cap rate of 4.37%. The gain on sale is $14.7 million, and the net proceeds of $36.5 million were used to pay down the corporate credit facility. During the fourth quarter, the company completed a cash-out refinance on 19 of its properties. The refinance decreased the spread on 17 of the refinanced properties that were previously variable rates by an average spread of approximately 14 basis points. and transitioned two properties that were previously fixed rate mortgages to floating rate mortgages with a spread of 1.55%. Upon completion of the refinancing, the company paid down approximately $260.5 million on the corporate credit facility in the fourth quarter. Additionally, on January 31, 2023, we refinanced the venue on Camelback, which effectively pushed the maturity date of the mortgage from July 1, 2024, to February 1, 2033. Two days later, on February 2nd, the company paid down $17.5 million on the corporate credit facility. These moves strengthened our balance sheet, lowered our financing costs, increased the maturity of our portfolio, and paid down our corporate credit facility, which represents our most expensive capital. Today, the average spread on the floating rate debt is 1.56% over SOFR. Our average maturity of the portfolio is 6.5 years, and as of today, the balance on our corporate credit facility is $57 million. We currently have two properties, Old Farm and Stone Creek at Old Farm, both located in Houston, under contract that we expect to close in the first half of the year. The estimated net proceeds of $63.4 million will be used to pay down the corporate credit facility to zero. Turning to guidance, for 2023, we're issuing initial guidance as follows. Core FFO per diluted share of $3.27 on the high end, $2.92 in the low end, $3.09 at the midpoint. Same-store revenues are 11.9% on the high end, 9.9% on the low end, and 10.9% at the midpoint. Same-store expenses, we estimated 10.3% on the high end, 11.2% on the low end, the midpoint of 10.7%. For same-store NOI, we are guiding to 13% on the high end, 9% on the low end, and 11% at the midpoint. So with that, let me turn it over to Matt.