NexPoint Residential Trust, Inc.

during this time, simply press star followed with the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Kristin Griffith, Investor Relations, so please go ahead.

Thank you. Good day everyone and welcome to Next Minute Residential Trust Conference Call to review the company's results for its second quarter into June 30th, 2025. On the call today are Paul Brichard, Executive Vice President and Chief Financial Officer, Matt McGraner, 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 .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 Security Litigation Reform Act of 1995 that are based on management, 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 10K and the company's other families 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 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-GAP financial measures. For a more complete discussion of these non-GAP financial measures, see the company's earnings release that was filed earlier today. I would now like to turn the call over to Paul Brichard. Please go ahead, Paul.

Thank you, Kristen, and welcome everyone joining us this morning. We appreciate your time. I'll kick off the call and cover our Q2 results, updated NAB and guidance outlook for the year and briefly touch on a few subsequent events. I will then turn over to Matt to discuss specifics on leasing environment and metrics driving our performance and guidance. Results for Q2 are as follows. Net loss for the first quarter was $7 million, or a loss of 28 cents per diluted share on total revenue of $63.1 million. The $7 million net loss for the quarter compares to net income of $10.6 million, or 40 cents earnings per diluted share for the same period in 2024 on total revenue of $64.2 million. For the second quarter of 2025, NOI was $38 million on 35 properties compared to $38.9 million for the second quarter of 2024 on 36 properties. For the quarter, same store rent and occupancy decreased .3% and .8% respectively. This coupled with the decrease in same store revenues of .2% led to a decrease in same store NOI of .1% as compared to Q2 2024. As compared to Q1 2025, rents for Q2 2025 on the same store portfolio were up .3% or $4. We reported Q2 core FFO of $18 million or 71 cents per diluted share compared to 69 cents per diluted share in Q2 2024. During the second quarter for the properties in the portfolio, we completed 555 full and partial upgrades, leased 381 upgraded units achieving an average monthly rent premium of $73 and a 26% return on investment. Since inception, NXRT has completed installation of 9,113 full and partial upgrades, 4,870 kitchen and laundry appliances, and 11,199 tech packages, resulting in $165, $50, and $43 average monthly rental increase per unit and 20.8%, 64.2%, and .2% return on investment respectively. NXRT paid a second quarter dividend of 51 cents per share of common stock on June 30, 2025. Since inception, we've increased our dividend 147.6%. For Q2, our dividend was 1.39 times covered by core FFO with the .2% payout ratio of core FFO. During the second quarter, the company repurchased 223,109 shares of its common stock, totaling approximately 7.6 million at an average price of 34.29 per share. During the second quarter, the company entered into a new five-year 100 million sofa swap with JP Morgan Chase with a fixed rate of 3.489%. Turning to the details of our updated NAV estimate. Based on our current estimate of cap rates in our markets and forward NOI, we're reporting a NAV per share range as follows. $43.90 on the low end, $56.73 on the high end, and $50.31 at the midpoint. These are based on average cap rates ranging from five and a quarter at the low end to five and three quarters at the high end, which remains stable quarter over quarter. Turning to full year 2025 guidance. NXRT is tightening 2025 guidance ranges for core FFO per diluted share and same store NOI while affirming the midpoint. NXRT is revising 2025 guidance ranges for earnings lost per diluted share, same store rental income, same store total revenue, and same store total expenses. Loss per share and core FFO ranges are as follows. For earnings lost per diluted share, $1.22 at the high end, $1.40 at the low end with a midpoint of $1.31 and core FFO per diluted share, $2.84 at the high end, $2.66 at the low end with affirming the midpoint of $2.75. NXRT is also reaffirming acquisitions and disposition guidance. Lastly, I would like to take the time to discuss a few subsequent events which have occurred over the 2025. The company entered into a $200 million corporate revolving credit facility with JP Morgan Chase Bank, Raymond James Bank, RBC, and Sanobis. The credit facility may be increased by up to an additional $200 million upon lender consent. The credit facility will mature on June 30, 2028 unless the company exercises its option to extend for an additional one-year term. The new credit facility spread has improved by 15 basis points compared to the prior corporate facility. On July 28, 2025, the company's board approved a quarterly dividend of $0.51 per share payable on September 30, 2025 to stockholders of record on September 15, 2025. This completes my prepared remarks, so I'll now turn it over to Matt for commentary on the portfolio. Thank

you, Paul. Let me start by going over our second quarter same store operational results. Same store total revenue was down 20 basis points with four out of our 10 markets averaging at least 1% growth, while our Atlanta and South Florida markets led the way at .6% and .3% growth, respectively. Notably, Atlanta's positive results were driven in part by 1% bad debt expense versus second quarter 2024 bad debt expense of 4%. We're also pleased to report some continued moderation and expense growth for the quarter. Second quarter same store operating expenses were just .5% year over year. Marketing and payroll declined .7% and .8% respectively. Year over year and total controllable expenses are up just 50 basis points. Insurance is down 20% driven by a favorable market environment on the property casualty side. Second quarter same store and OI growth continues to improve in our markets with the portfolio averaging at negative 1.1%, a marketable improvement from negative .8% in the first quarter. Five out of our 10 markets achieved year over year in OI growth of 1% or greater, with Raleigh and Atlanta leading the way with .8% and .4% growth, respectively. Our Q2 same store and OI margin registered a healthy 60.9%. The portfolio experienced improved revenue growth in Q2 2025 with four out of our 10 markets achieving growth of at least .2% or better. Our top four markets were Atlanta at 3.6%, South Florida at 2.3%, Raleigh at 1.5%, Charlotte at 1.2%. Renewal conversions for eligible tenants were .2% for the quarter, with seven out of our 10 markets executing renewal rate growth of at least 2.75%. Again, on the expense front, they continue to moderate and finish the quarter up only 1.5%. Payroll declined .8% for this quarter and continues to trend downward as we implement centralized teams and AI technology. Our centralized platforms for renewals, screening, and call centers alongside AI applications deployed across various aspects of the resident experience are driving greater efficiency and enabling reductions in offsite staffing, particularly within leasing offices. As mentioned previously, we are now optimizing our maintenance operations to drive similar efficiencies across our markets. Again, marketing and insurance were the other categories that saw negative growth in the quarter. Turning to 2025 second half guidance, supply pressures have eased somewhat but continue to present concentrated challenges in some of our submarkets. According to RealPage, 2Q 2025 marked the first quarterly drop of over 20 basis points in inventory growth in over 15 years, as new deliveries tapered after peaking in late 2024. Despite the slowdown, over 400,000 units were delivered in the trailing 12 months, sustaining elevated competition in lead ups. The upshot here is that after one more quarter of significant deliveries in 3Q of 2025, the national delivery outlook contracts to a GFC level output of just 77,000 units per quarter, which supports our target of over 1.5 million units per quarter. The GFC is the largest GFC on accelerating fundamentals in 2026, 2027 and 2028. More positive news, demand outperformed expectations in the first half of the year. Net absorption surged, the national stabilized occupancy rate improved to .6% in July. An XRT started the year off with occupancy at .7% and saw an opportunity to take advantage of our historically higher occupancy by upgrading units to market standards, completing 765 units to date with an average ROI of .2% and pushing rent growth, which has increased 1% on average since the end of 2024, driven by stronger retention of renewal leasing activity. Front end pricing has improved from negative .73% in Q1 to negative .5% in Q2. And in late June and July, we have seen new lease growth slow modestly as operators remain defensive amid economic uncertainty and soft consumer sentiment. Renewal rent growth has been the strongest we've seen over the past 12 months and will remain a focus for the second half of the year. We see several markets continuing to see top line growth in the second half of this year, and think Tampa, Dallas, Charlotte and Las Vegas will all exceed our revenue expectations by anywhere from 80 basis points on the low end to 130 basis points on the high end. On the flip side, we think South Florida, Orlando and Atlanta will be modestly weaker in the second half of the year. South Florida is projected to finish the year at .8% top line growth versus our prior forecast of .6% growth. This remains our strongest market overall for rent growth, but our most optimistic expectations for growth have been tempered for now. Orlando, we expect to finish the year at .8% versus our prior forecast of being flat. And Atlanta, to finish the year at negative 70 basis points versus our prior forecast of flat. And while bad debt has improved significantly, we are feeling the pressure of new supply here, particularly in Cobb County. Due to supply pressures in these sub markets, we anticipate many of these headwinds to be short term as many of the lease ups are expected to achieve stabilization in the later part of 2025. Bad debt performance has continued to exceed expectations driven by decline in evictions. The portfolio finished 2Q with only 50 basis points of net bad debt. We have continued to see bad debt stabilize and expect to hold bad debt between 50 and 75 basis points for the remainder of the year. We expect the growth benefit of reduced bad debt to stabilize in the fourth quarter of this year and remain flat at pre-COVID run rates going into 26. To sum up our revenue outlook, even though rents are decelerating from the first half of 2025 modestly, we still expect to see some growth when compared to the trough that occurred in the second half of 2024. Occupancy will remain the focus, but our expectation is to average 94% in the second half of 2025 versus 94.7%, which was achieved in the second half of 2024. For this reason, we expect second half 2025 revenue to be more muted than we initially thought. On the expense front, controllable operating expenses have improved, supported by ongoing efficiencies through centralized operations and implementation of AI-driven technologies. Payroll has improved from our initial forecast, and we expect that we will lock in better performance in the second half of the year as we beat our first half forecast by just about 500,000 or 9.7%. We see salaries remaining stable in the second half of the year with an expectation that they remain flat. Repairs and maintenance costs have also moderated, particularly turn costs, which are turning down, and we expect to finish the year 3% below 2024 totals. Again, on our insurance renewal, it was very favorable, and the impact will be fully recognized in the second half of 2025 to the tune of $600,000 a year in savings -over-year. Collectively, these trends support maintaining our current same-store NOI guidance at the midpoint of negative 1.5%, slightly softer revenue growth expectations, fully offset by efficient expense management. While WINT growth has underperformed historical Q2 expectations, tightening supply-demand fundamentals, stabilizing occupancy, improving collections, and continued expense discipline support maintaining the NOI outlook. The latest real page summary echoes this sentiment. The quote, momentum trails expectations, but fundamentals are affirming, and that's what we're seeing as well. A brief update on the transaction markets. We continue to actively monitor the sales markets for opportunities and stay close to many movements on cap rates. Several recent portfolio processes in our markets were recently awarded in the 5 to 5.25 cap rate range, again, supporting our NAV guide. We, too, are optimistic we'll be able to recycle capital in the second half of the year with targeted acquisitions and dispositions to continue replenish our rehab pipeline. In closing, in the near term, we will continue to prioritize the balanced approach, again, driving occupancy, maintaining discipline risk strategies, and managing controllable expenses to support steady NOI growth despite the transitional operating environment. That's all I have for prepared remarks. Thanks to our teams here at Nextpoint and BH for continuing to execute. Now, I would like to turn the call over to the operator to take questions.

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Kyle Gaturinsic with J.N. Montgomery Scott. Your line is open.

Hey, guys. How much of the 8 million in recurring capitalized maintenance expenses year to date are non-revenue producing?

Good question. As part of the refinancing activity last year, the agencies looked at required cap bags, parking, pavement, siding, things like that. So we have a little bit of elevated spend this quarter over the normal. We also have some more significant projects, particularly in Nashville. We're doing two roof replacement projects in Nashville. Some other chunkier spend. So I would say it's elevated certainly over run rate and skewed a little bit more towards that non-revenue generating today. I think as we work through that in the third quarter, we'll get to a more normalized run rate in Q4. And I know Matt touched on the increase in output of renovations. That's really more focused on kind of a spoke, you know, $1,000 to $3,000 opportunities. So it's not been an acceleration in all that much spend there. That's helpful.

Okay. And then on the rehab program, last quarter's call, you guys mentioned you would take probably a few quarters to get back to 400 units a quarter target. So what drove such a large increase that allowed you guys to ramp up to the 500 plus units in the second quarter versus what you

were thinking last quarter? Yeah, it's certainly been a focus of ours going into the year. We recognize, you know, there's an opportunity. It's probably not, you know, 10 to 15,000 a unit full upgrade that we've been doing. But where we've seen opportunity, we've been able to, I think, deploy a little bit faster than we expected. Credit to the VH construction team and the asset management folks here. We identified an opportunity and we're attacking it full on.

And then last one on that, for the ROI on your post rehab units, what like is the use of life or tenure? You usually use the CAC as your ROI on those. And is there any difference between full and partial units?

No difference. And I think historically it's been seven years.

All

right.

Thanks, guys. Appreciate it. Got it.

Your next question comes from the line of Linda Tyred Jeffries. Your line is open.

Hi. Good morning. Phoenix and Vegas saw bigger drops in two-queue occupancy of down 340 and 250 basis points respectively. Could you just provide some color on what's happening there? Does that have to do with value add? And then you also mentioned that Vegas should exceed expectations by year end. Is the inflection in three-queue or four-queue?

Yeah. Hey, Linda. It's Matt. Take Phoenix first. Phoenix is perhaps the most concentrated, or the most supply driven market that we're seeing right now. Really, it's three properties in the second quarter that were surrounding lease deals, Enclave Heritage, and Venue at Camelback. That's where we saw the most new lease rate pressure of kind of negative eight to negative 10% in terms of new leases. Again, as I mentioned in my prepared remarks, we expect this to subside in the third, probably not the third quarter, but the fourth quarter and the first quarter of 2026. So we're doing all we can to be defensive there. And that makes up some of the occupancy loss. On the Vegas front, and Bonner, correct me if you see anything different, but really it's targeted to one asset, Velo Salaro, which had a little bit more weaker traffic than we thought. So that makes up most of the loss. Bonner, if you have anything to add to that? Yeah.

I would say for Phoenix, obviously a large geographic concentration there. That market being one of the more recent peaks in supply,

you've

got more concession utilization in that market than we've been accustomed to. We've had to adjust to that in the second and going into the third quarter. Overall, we think we'll finish the year there actually. Low 93 to high 92 is occupancy. I think we'll be all right. We need to use a little bit more concessions to buy some occupancy there, but feel okay. In Vegas, we've been seeing negative tradeouts now for a period of time. Our revenue, our gross potential rent is actually better on the outlook for the rest of the year than we had originally envisioned for it, but we do see a little bit of softness in occupancy that we're working through. To Matt's point, Velo Salaro in particular saw a decrease in traffic. It only net resulted in about eight few releases for the second quarter, but it's something we're monitoring and something we think we can do better on. That's another midpoint of our guidance there to finish the year at 92.8 occupancy. We certainly think we could do better and hope to, but I think we're being appropriately defensive at this point.

Thanks. Then just one follow-up. What's driving the lower turn costs?

I think the first and foremost thing was higher retention. We're trying to close the back door and have focused on renewals. Really proud of the second quarter and in the third quarter renewal rates. That'll continue to be a focus. We're

also prioritizing in those market updates that we're doing. The increase in partial renovations is targeted towards those potential heavy turns where maybe a unit we've already touched before and they have the majority of a modern update package, but we have an opportunity to go in at a hard service counter at a stainless steel client's package, lighting package. We're doing smaller upgrades, trying to get a $20 premium there, and then that goes into the capital bucket. The increase in value add is offsetting some of that turn cost.

Thanks. Appreciate the color.

I will now turn the call back to the management team for closing remarks.

Thank you for everyone's time this morning and I look forward to talking to you again next quarter.

Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you and have a great day.