NexPoint Residential Trust, Inc.

Thank you for standing by and welcome to the NextPoint Residential Trust Q3 2023 conference call. I would now like to welcome Kristen Thomas, Investor Relations, to begin the call. Kristen, over to you.

Thank you. Good day, everyone, and welcome to NextPoint Residential Trust conference call to review the company's results for the third quarter ended September 30th, 2023. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer Matt McGrainer, Executive Vice President and Chief Investment Officer, and Bonner McDermott, Vice President, Asset Investment Management. As a reminder, this call is being webcast through the company's website at nxrt.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 in our encouraged review of 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 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, NXRT 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 Mitts. Please go ahead, Brian.

Thank you, Kristen. Welcome to everyone joining us this morning. joined here by Matt McGrainer and Vonna McDermott. I'm going to kick off the call and cover our Q3 and year-to-date results, walk through our updated NAV calculation, and then give our revised guidance. I'll then turn it over to Matt and Vonna to discuss specifics on the portfolio, leasing environment metrics, and the items driving our performance and guidance. So start with Q3. Results net income for the third quarter was $33.7 million or $1.28 per diluted share on total revenue of $69.8 million as compared to a net loss of $600,000 or $0.02 loss per diluted share in the same period in 2022 on total revenue of $68.1 million. A 2.5% increase in revenue on 39 properties versus 41 properties for the prior year period. For the third quarter, NOI was 42.1 million on 39 properties, as compared to 40 million for the third quarter of 2022 on 41 properties, a 5.3% increase in NOI. For the quarter, same-store rent increased 3.1%, and same-store occupancy dropped 10 basis points to 93.9%. This coupled with a 7.7% increase in other income and a 0.3% decrease in same-store expenses led to an increase in same-store NOI of 8% as compared to the third quarter of 2022. As compared to Q2 2023, rents for the third quarter on same-store portfolio were down 40 basis points to $1,529 per unit per month. We reported Q3 core FFO of $17.1 million, or $0.65 per diluted share, compared to $0.84 per diluted share in the third quarter of 2022. For the quarter, we completed 420 full and partial renovations and leased 330 renovated units, achieving an average monthly rent premium of $215 and 23.6% ROI. which is slightly higher than our long-term average ROI on renovations. Inception to date in the current portfolio, we've completed 8,671 full and partial upgrades, which represents approximately 60% of the total units, 4,812 kitchen upgrades and washer and dryer installments, and 12,285 technology-packaged installations. achieving an average monthly rent premium of $168, $49, and $44, respectively, and a return on investment of 21%, 65.3%, and 37.8%, respectively. NXRT paid a third quarter dividend of 42 cents per share on the common stock on September 29th. On October 30th, the board approved a 10.1% increase to the dividend 246.242 cents per share, payable beginning December 29th. Since our IPO in 2015, we've increased the dividend 124.5%. Moving on to year-to-date results, net income year-to-date was 25.9 million, or 99 cents per diluted share, on total revenue of 208.6 million, as compared to a net loss of $13 million or $0.51 per diluted share in the same period in 2022 on total revenue of $194.6 million for an increase of 7.2% in revenue. Year-to-date, NOI was $125.2 million on 39 properties as compared to $115.7 million on 41 properties for the same period in 2022 for an increase of 8.2%. Year-to-date per unit same-store rent increased 3% to $1,524, and same-store occupancy was down 10 basis points to 93.9%. This coupled with an increase in same-store other income 4.7% and an increase in same-store expenses of 6.7% led to an increase in same-store NOI of 9.5% compared to the same period in 2022. We reported year-to-date core FFO of $56.1 million, or $2.14 per diluted share, compared to $2.38 per diluted share in the nine months ended September 3, 2022. Moving on to our balance sheet, as of 9-30, we had $1.58 billion in mortgage debt, of which $112 million was held for sale, and $41 million was outstanding on our corporate credit facility. This compares to mortgage debt of $1.61 billion at 12-31-22, of which $68.2 million was held for sale and $74.5 million was outstanding in our corporate credit facility. This represents a 1.8% reduction in mortgage debt and a 45% reduction in our corporate debt year-to-date. Once we sell the four assets that we show as held for sale, we'll further reduce our mortgage debt by $112 million and our corporate debt by $41 million. representing a total 9.7% reduction in leverage. As of 9.30, we have swaps with an initial value of $1.17 billion, with fixed rates ranging from 2% on the high end to 57 basis points on the low end, with a weighted average fixed rate of 1.07%. Our swaps have a liquidation value of $98.6 million as of 9.30. As of 9-30, we had interest rate caps on $1.39 billion of notional debt, with the strike prices ranging from 6.82% on the high end to 2.7% on the low end, with a weighted average strike of 5.83%. As of 9-30, we had 13 caps that were above the reference rate of 5.32%, representing $408.4 million of notional value. For third quarter, our swaps and caps reduced our interest costs by approximately $13.5 million. NXRT is 98.1% effectively fixed when considering our swaps, caps, and fixed debt, being at current or higher rates, we're basically fully hedged. And one interesting point to make regarding the capital structure, in regards to the caps and how that will impact interest expense in a rising rate environment, which is to say that our interest will remain flat to decrease as rates rise. For example, if our reference rate increases 50 basis points, cash interest expense net of swaps and caps will remain flat. If the reference rate increases by 1%, our cash interest expense net of swaps and caps will decrease by 0.12%, as we'd effectively be 106.6% hedged as new caps come into the money. Moving on to NAV for share, based on our current estimates of cap rates in our markets and forward NOI, we're reporting an NAV per share range as follows. $48.77 on the low end, $60.14 on the high end, and $54.45 at the midpoint. These are based on average cap rates ranging from 5.5% on the low end and 6% on the high end. which represents a 60 basis point increase over the prior quarter as compared to 7,100 basis point movements in five and 10 year treasuries, uh, respectively. For guidance, uh, for the full year 2023, we're revising core, uh, FFO and same store NOI guidance as follows. For core FFO per diluted share, $2.95 in the high end, $2.81 in the low end with a midpoint of $2.88. For same-store numbers, we are guiding rental revenue to 7.7% on the high end, 7% on the low end with 7.3% in the midpoint. For same-store expenses, we're guiding to 4.8% on the high end, 5.7% on the low end with a midpoint of 5.2%. And this results in a guidance of same store NOI of 9.5% on the high end, 7.8% on the low end, and 8.7% at the midpoint. So with that, that completes my prepared remarks. We'll turn it over to Matt. Thanks, Brian.