NexPoint Residential Trust Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2024

Key Takeaways

  • Positive Sentiment: Q4 net income rose to $18.4 million ($0.70/diluted share) from $3.8 million ($0.15) a year earlier.
  • Positive Sentiment: Same-store NOI grew 4.5% year-over-year in Q4 with occupancy up 60 bps to 94.7%.
  • Negative Sentiment: Core FFO per share declined to $0.60 in Q4 from $0.75 in Q4 2022.
  • Positive Sentiment: The sale of Silver Brook and Timber Creek generated $67.9 million in gains, with proceeds used to pay down the corporate credit facility.
  • Neutral Sentiment: 2024 guidance forecasts core FFO per share of $2.60–$2.85, same-store NOI flat to +2%, and expense growth around 5.1%.
AI Generated. May Contain Errors.
Earnings Conference Call
NexPoint Residential Trust Q4 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good morning.

Speaker 1

My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust 4th Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Kristin Thomas, Investor Relations.

Speaker 1

Please go ahead.

Speaker 2

Thank you. Good day, everyone, and welcome to Next Wave Residential Trust Conference Call to review the company's results for the Q4 ended December 31, 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 and Investment Management. As a reminder, this call is being webcast through the company's website at nxrt. Nexpoint.com.

Speaker 2

Before we begin, I would like to remind everyone that this conference call contains forward looking statements within the meaning of 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 Form 10 ks 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 the conference call speak only as of today's date and except as required by law, NXRT does not undertake any obligation on publicly updated 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.

Speaker 2

I would now like to turn the call over to Brian Mitts. Please go ahead, Brian.

Speaker 3

Thank you, Kristen. Welcome, everyone. Appreciate you joining this morning. I'm Brian Mitts, and I'm also joined by Matt McGraner and Bonner McDermott. I'll kick off the call and cover our Q4 and full year results and highlights.

Speaker 3

I'll update our NAV calculation and then provide initial guidance for 2024. I'll then turn it over to Matt and Bonnie to discuss specifics on the leasing environment and metrics driving our performance and guidance as well as details on the portfolio. So let me start with the results from the Q4, which are as follows. Net income for the Q4 was 18,400,000 dollars or $0.70 per diluted share on total revenue of $68,900,000 as compared to net income of $3,800,000 or 0 point 15 dollars per diluted share in the same period in 2022 on total revenue of 69,300,000 dollars For the Q4, NOI was $42,200,000 on 38 properties as compared to $41,800,000 for the Q4 of 2022 on 40 properties, a 0.9% increase in NOI. For the quarter, same store rental income increased 3.8% and same store occupancy was up 60 basis points to 94.7%.

Speaker 3

This coupled with an increase in same store expenses of 2% led to an increase in same store NOI of 4.5% as compared to Q4 of 2022. Rental income for the Q4 of 2023 on the same store portfolio was up 1.3% quarter over quarter from the Q3 of 2023. We reported Q4 core FFO of $17,400,000 or 0.6 dollars per diluted share compared to $0.75 per diluted share in the Q4 of 'twenty 2. We continue to execute our value add business plan by completing 113 full and partial renovations during the quarter and leased 132 renovated units, achieving an average monthly rent premium of $214 19.9 percent return on investment. Inception to date in the current portfolio as of twelvethirty one, we have completed 8,534 full and partial upgrades, 4,761 kitchen and laundry appliance installations and 12,348 technology package installations, resulting in $169,49,43 average monthly rental increase per unit and 20.9%, 64.7% and 37.8% return on investment respectively.

Speaker 3

Moving to the full year, full year results are as follows. Net income for the year ended December 31 was 44,300,000 dollars or $1.69 per diluted share, which included a gain on sales of real estate of 67,900,000 This compared to a net loss of $9,300,000 or negative $0.36 per diluted share for the full year 2022, which included a gain on sale of real estate of $14,700,000 For the year, NOI was 160 $7,400,000 on 38 properties as compared to $157,400,000 on 40 properties for the same period in 2022 for an increase of 6.3% in NOI. For the year, same store rental income increased 7.1% and same store occupancy was up 60 basis points to 94.7%. This coupled with an increase in same store expenses of 5.5% led to an increase in same store NOI of 8.2% as compared to the full year 2022. We reported core FFO in 20 23 of $73,500,000 or $2.80 per diluted share compared to 3.13 dollars in 2022.

Speaker 3

Since inception of the business in 2015, NXRT has generated 10.92% compound annual growth in core FFO. For the 4th quarter, we paid a dividend of $0.46 per share on December 29. Since inception, we have increased our dividend 124.5 percent. For 2023, our dividend was 1.62x covered by core FFO with a payout ratio of 61.6 percent of core FFO. Moving to our NAV, based on our current estimates of cap rates in our markets and forward NOI, we are reporting a NAV per share range as follows: $47.64 on the low end, $61.23 on the high end, $54.43 at the midpoint.

Speaker 3

These are based on average cap rates ranging from 5.5% on the low end to 6% on the high end, which remained the same as last quarter and increased 60 basis points year to date to reflect a rise in interest rates and observable increases in cap rates in our markets. Before we go to guidance, we'll touch on our 2023 dispositions and subsequent events since twelvethirty one. On September 22, we completed the sale of Silver Brook in Dallas for gross proceeds of $70,000,000 representing a cap rate of 4.55 percent. The gain on sale was $43,100,000 $16,000,000 of the 19 $500,000 net proceeds were used to pay down partially pay down the corporate credit facility on September 25. On December 13, we completed the sale of Timber Creek in Charlotte for gross proceeds of $49,000,000 representing a cap rate of 5.01%.

Speaker 3

The gain on sale was $24,800,000 $17,000,000 of the 24 $500,000 net proceeds were used to pay down the corporate credit facility on December 15. We currently have 2 properties, Old Farm located in Houston and Adeborne Lake located in Charlotte under contract that we expect to close in the first half of the year. The estimated net proceeds of $66,100,000 will be used to fully pay down the rest of the corporate credit facility. Going to guidance for 2024, we are issuing initial guidance as follows. For core FFO per diluted share, dollars 2.85 at the high end, dollars 2.60 at the low end with a midpoint of $2.72 For same store revenue, 2.9% increase on the high end, 1.1% increase on the low end with a midpoint 2% increase.

Speaker 3

Same store expenses, increase of 4.3% for the high end, 6% for the low end and 5.1% increase for the midpoint, which results in a same store NOI of a 2% increase on the high end, a 2% decrease on the low end and a 0% or flat increase at the midpoint. So with that, let me turn it over to Pat and Bonner for additional commentary.

Speaker 4

Thanks, Brian. Let me start by going over our 4th quarter same store operational results. Our Q4 same store NOI margin improved to 62.5%, up 20 basis points over the prior year period. Same store effective rents ended the quarter at $15.16 per month, up 20 basis points year over year. Occupancy ended 2023 at 94.7% that was up 60 basis points year over year.

Speaker 4

We saw sizable occupancy growth in some of our supply heavy markets as we implemented a more defensive strategy late in the year. Atlanta and Charlotte finished the year 96.2% 95.7% respectively, while Phoenix, South Florida and Tampa all finished the year over 95% occupied. 4th quarter same store NOI growth was 4.5% driven by 3.8% growth in rental revenue and 4.1% growth in total revenue. We continue to see moderating expense growth with Q4 down 2 percentage points year over year. Bad debt also continued to trend down and finished Q4 at 1.9%, down from 2.7% earlier in the year.

Speaker 4

Payroll declined 180 basis points in Q4 continuing the downward trend in Q2 and Q3. Prepares and maintenance expense growth was 5.4% in the quarter continuing to moderate as well from often elevated post COVID comp in 2022. And real estate taxes also have moderated and true ups booked in Q4 reflect a reduction to our overall real estate taxes for the year ending at 4.2% growth. In 2023, we shifted our operational focus to higher resident retention, reducing turnover costs and furthering our efforts to implement AI and centralized labor. Additionally, we continue to focus on our capital efforts on reducing our overall debt.

Speaker 4

As we enter the second half of the year, our market started to see the effects of delivering record high supply, indeed almost 4 decade high. Though positive for the year, new lease rental rates turned negative in the second half of the year putting stress on top line revenue growth. Expenses continue to moderate and our efforts to reduce further reduce turnover costs help maximize growth. Implementing AI and centralization of labor has started to pay dividends most notably in Q4 2023, which we will continue to improve on in 2024. On the occupancy front, we're pleased to report that Q4 same store occupancy remained over 94.7% positioning us well for 2024.

Speaker 4

As of this morning, the portfolio is 94.8 percent occupied, 96.5 percent leased with a healthy 60 day trend of 93.5%. 2024 retention has also started off strong with both January February over 50%, February month to date is 59% and March is expected to finish at 60 plus percent. Turning to full year 2023 same store NOI performance. Our full year same store NOI margin improved by 65 basis points to 61.6%. Same store revenues decreased increased excuse me 7.1% while same store NOI registered a strong 8.2% growth year over year.

Speaker 4

6 of our 10 same store markets grew NOI by at least 7%. Notable same store NOI growth markets for the year were South Florida, Orlando, Nashville and Tampa as each grew NOI by 9% or more. Turning to 2023 acquisitions and dispositions. NXRT disposed of silver booked on September 22, 2023 in Timber Creek on December 13, 2023. These sales generated a blended 30% levered IRR at 5.28 times multiple uninvested capital and $44,000,000 in net proceeds, of which as Brian mentioned was used to pay $33,000,000 to pay down the drawn balance on the credit facility.

Speaker 4

We're excited to report that Old Farm will finally close by the end of February 2024, which will generate a 22 percent levered IRR, a 2.92 multiple on invested capital and $48,000,000 of net sales proceeds. We will use $24,000,000 of the net sales proceeds and pay off the remaining drawn amount on our credit facility. We will press release the closing to close the gap on this strategic disposition. As Brian mentioned, we're also in a contract to sell Radbourne Lake, which will generate a 19 percent levered IRR, a 3.5 times multiple on invested capital and $18,000,000 in net sales proceeds. As Brian mentioned, just turning to our 2024 guidance.

Speaker 4

As Brian said, at this time we're expecting same store NOI growth to be relatively flat for 2024 as we enter peak supply. Across our same store properties, we are forecasting 1.4% to 3.2% rental income growth. We're forecasting 1.1% to 2.8% total revenue growth, 2.7 percent controllable expense growth and 1.6% to 3.8% total expense growth. We continue to be an internal growth business at our core and to that end our guidance includes the following assumptions regarding our value add programs. We expect to complete 235 full interior upgrades on select assets at an average cost of $17,150 per unit generating $2.50 average monthly premiums or approximately 17.4% return on invested capital.

Speaker 4

We expect to complete 6 11 partial interior upgrades at an average cost of $3,910 per unit, generating $78 average monthly premiums or 24% return on investment on invested capital. This includes bespoke additions such as new stainless steel appliances, backsplashes, tub enclosures and private patios. We also expect to complete 661 washer dryer installs at an average cost of $1,000 per unit generating $57 average monthly premiums or 70% return on invested capital. Our 2024 guidance also includes the following acquisition and disposition assumptions. $200,000,000 to $200,000,000 of acquisition guidance, which given our current cost of capital, we have prioritized balance sheet cleanup and share buybacks given our implied cap rate is north of 7% at the moment and $150,000,000 to $300,000,000 of dispositions.

Speaker 4

Disposition activity could reach the higher end of the range where our team can identify additional assets that can be accretively added via tax efficient capital recycling strategies that we've implemented in the past. So in closing, so far in 2024, we're off to a good start, prioritizing occupancy and increased resident satisfaction and retention. Our balance sheet is much healthier after materially delevering through last year's hiking cycle. Though our posture to start the year is defensive, we are expecting modest growth this year specifically in the second half of the year as supply growth begins to wane. Our internal view is that we are in the high of the supply storm so to speak right now through the Q3 in our submarkets.

Speaker 4

In 2024, for example, we see 25,100 units delivering in our submarkets. In 2025, that number is more than half to 10,832 units. And then in 2026 there's just under 1,000 units of new supply delivering in our submarkets across the entire company. So while we again will continue to have a defensive posture going to going starting the year, we are optimistic about the portfolio's intermediate to long term growth prospects for the foreseeable future. That's all I have for prepared remarks.

Speaker 4

Thanks to our teams here at XPoint and DH for continuing to execute. And I'd like to turn the call back over to Brian.

Speaker 3

Thanks, Jack. Vance, we'll go to Q and A now.

Speaker 1

Thank you. And the first question comes from the line of Kyle Katarinsic with Janney. Please go ahead.

Speaker 5

Hey, good morning guys. Given you provided NAV range, how do you consider the trade offs of closing the value gap between your stock price and NAV via buybacks versus purchasing assets with long term appreciation?

Speaker 4

Yes. Hey, Kyle, it's Matt. It's a good question. I think the way we're thinking about it currently is we can't find any assets that we like better in the market than our own portfolio at again north of a 7% implied cap rate. Assets that are being launched, so to speak, are for sale, which are still few and far between our way south of that pricing, south of the 7% implied cap rate.

Speaker 4

So as that cap rate range continues to compress, I think you'll see us start continuing to or start being more active on the acquisition cycle and utilizing sort of reverse 1031s where we use our portfolio as currency like we've done in the past over the past 10 years buying a deal and then selling something in our portfolio to finance it.

Speaker 5

Okay. And then in terms of disposition guidance, considering the sale of Old Farm, Radburn Lake and then Stone Creek at Old Farm, assuming price that were similar to Old Farm, gets into around $170,000,000 with the midpoint of guidance for 2024 being 225 dollars Are incremental sales likely to be assets with near term expiring caps and higher rates of interest?

Speaker 4

No, not necessarily. I think the assets that we'll prioritize for disposition will be those that are requiring a heavier CapEx lift and or in the more of a supply concentrated submarket because I think we're given where we are at peak rates or at least we believe we're at peak rates then we think that the greater risk to the portfolio health is again heavier CapEx or some markets that have oversized supply.

Speaker 5

Okay. And then one last for me. What is the maximum amount of sales you can do in our REIT rules for 24?

Speaker 4

Off the top of my head, I'm not positive. I think to the extent that we utilize 1031s, it's a non issue for 2024 that I do know for sure, but we can get back to you on the specific number.

Speaker 5

Okay. Thanks guys.

Speaker 4

You bet.

Speaker 1

Your next question comes from the line of Linda Tsai with Jefferies. Please go ahead. And Linda, your line may be on mute.

Speaker 6

Thank you. In terms of dispose, how much of your portfolio would you expect to recycle to help delever over the next few years?

Speaker 4

I think as we look into 2024 2025, the more likely scenario would be probably a greater portfolio sale than sort of individually delevering. Once we get through the old farm sales, as I mentioned, we're fully paid off on our credit facility and feel pretty good about where the capital stack sits in terms of being hedged with over mid-90s percent of our debt still being hedged. So, again, the more likely scenario I think is just an outright disposition of the portfolio. But, in terms of incremental delevering, I think we're yes, I think we're at equilibrium.

Speaker 6

Got it. And then when you say modest growth in the second half, which markets might you see return first?

Speaker 7

Yes. Good question.

Speaker 4

So I think as it relates to the markets that are going to be tougher are Atlanta, Las Vegas, Tampa in the first half of the year. We do see those picking up in the latter half of the year. Kind of the stronger markets throughout for us, we think are obviously South Florida and then Orlando and Nashville, we think are going to get better through the second half of the year.

Speaker 6

Thanks. Last question, just on Atlanta, any updates there on kind of fraudulent activity and what's your bad debt expectation for year end?

Speaker 4

Yes, it's approved. In terms of where it was last year, it was over almost 3%. We're seeing it down at the end of January at 1.7%, 1.8% and underwriting basically, call it a 2% expectation for the year in Atlanta and that we expect to be one of the higher bad debt markets obviously. But it has incrementally improved over the past couple of months. And the trend in January is encouraging because given holiday season and the start of the year, sometimes you have a little bit of a lag of bad debt.

Speaker 4

So, not out of the woods yet, but do feel better about it.

Speaker 2

Thank you.

Speaker 4

Thanks.

Speaker 1

Your next question is from the line of Connor Peeks with Deutsche Bank. Please go ahead. Hi, thank you. On the value add program and you touched on in your opening remarks, could you compare redevelopment activity you're expecting in 2024 versus 2023? And if there's any expected difference in ROI or redevelopment mix?

Speaker 1

Thanks.

Speaker 4

Yes. I'll turn the specifics of 2023 over to Bonner to compare year over year. My recollection is roughly over 1,000 units of full upgrades last year versus a couple of 100 or so this year. Do you have it on Bahram?

Speaker 7

Yes, yes, that's right. So as we look at the portfolio, understanding the softness, the supply being the market, when we're pushing $200 to $2.50 premiums in a market where new supply is $400 to $500 above us. We're getting a little bit of a difficult more difficult time getting that demand. So for now, as Matt mentioned on the call, we prioritize a shift to occupancy for the year and are really focused on achieving those occupancy goals. We've downsized the full the base case for full upgrade to 2 35 units.

Speaker 7

100 of those are Pembroke Pines. The demand of that asset individually is special. We're getting $300 premiums there easily and it's more a function of just workflow over the demand. Across the rest of the portfolio, we're asset by asset. So in a market where we're not getting a trade out, we're not doing a full run out.

Speaker 7

We're finding areas of those properties where we can drive value. So in a market where we may have had a 1st generation upgrade, we can go back through, add a stainless steel appliance package, add a backsplash, add a private patio, things like that, we're adding value there. But overall, year over year, we were forecasted to be about 1300 units in 2023, 235 fold this year, shifting that focus and we're pretty proud to report that we're 96.5% leased today. So I think you're seeing that come to fruition and work out in the numbers.

Speaker 4

Expecting this on the just to add to expecting the 17.5% ROI I think compares just modestly down from last year, I believe it's 19% or 20%. So still getting the high ROIs.

Speaker 8

Got it. Thank you. That's it for me.

Speaker 1

Your next question is from the line of Buck Horne with Raymond James. Please go ahead.

Speaker 8

Hey, good morning guys. Thanks. Just wondering if I maybe I missed it, if you could just specifically break down what the new lease what the average new lease spread was during the Q4 and maybe as of January and kind of what renewal spreads were and just kind of break down all of that as it blends together?

Speaker 4

Yes. Sure, Bhak. Thanks for the question. New leases were down blended for the quarter 7.8 percent and then renewals were just 21 basis points for blended when you average the blended negative 4.14%. January has looked better.

Speaker 4

So the new leases were down 6.25%, renewals are 40 basis points for blended negative 2.69%. And so we are seeing a little bit better as we filled up the assets and have a strong occupancy base, which was the goal.

Speaker 8

Got it. That's helpful. Appreciate the color there. Are you guys using concessions in the market or what are average concessions right now for competitive Class B properties or what's the what are the market conditions out there right now?

Speaker 4

Yes. I'll start and I'll kick it to Bonner to add to that. I'd say that for our assets in particular in the submarkets, we really bought occupancy in the 4th quarter. That was a priority of ours. And so we were roughly giving blended we call it blended concession in the market that we're seeing is about a month as a yield star rate was shown.

Speaker 4

And then I think as we sit here today, we still think that we're we need to be defensive through the first and second quarter as supply delivers as they're giving new assets are giving sometimes 2 or 3 months. But we again expect that to wane during the Q3. Bahnad, do you have anything to add to that?

Speaker 7

Yes. I think as we look at it, look at what we did in the Q4, we had to get some concessions in a couple of markets. We're feeling more supply pressure. Charlotte comes to mind, Las Vegas. And a lot of those concessions are a month free for us.

Speaker 7

When the new supply is offering a couple of months free, the renter, the prospect is looking for a little bit of a discount. So in some of those markets where we were a little light on occupancy in Q3, we utilized concessions in Q4 to help build that trend. As we look here at 2024, the bulk of the concessions, I think, and it's not a big number, it's call it 20 basis points on GPR. We typically utilize the dynamic pricing model and focus more on that. But the concessions are more heavy in the Q1.

Speaker 7

Overall this year, I think our concession usage is probably going to come down based on we're 97.5% leased today. I think our focus on retention, you see that in the renewal trade out with being more defensive there. And I think that that should prove out and we should not need as many concessions toward the back half.

Speaker 1

Your next question is from the line of Michael Lewis with Truist Securities. Please go ahead.

Operator

Great. Thank you. I think there's kind of a consensus about peak new supply sometime around mid year and you talked about that a little bit in some of your markets. I think it's a little tougher to forecast the demand side. I was just wondering if you had a job growth forecast built into your guidance and what you kind of think on the demand side when you were putting together those ranges?

Speaker 4

Yes. I mean, we do. We utilize largely RealPage as a consultant to walk through quarterly demand and job growth prospects in all of our submarkets. And one thing that was a little bit encouraging this year is that they do expect to see absorption kind of be maintained across our submarkets, not enough to outstrip the 4 decade high of supply that's peaking this year, but it's still but yes, the job growth forecasts are factored into those numbers and we'd be happy to share those with you.

Operator

And then just lastly for me. It's part of your strategy to use the variable rate property debt and hedge it and that's helpful with the renovation strategy. It kind of all fits together. You talked about selling assets and delevering. Should we expect we're calculating net debt to EBITDA that's still around 10x or maybe a little bit north of that.

Operator

I don't know how maybe talk a little bit about how you look at the leverage and kind of what the end game is here, right? So I'm trying to think about forecasting out dispositions and how much you want to delever and what the leverage should be for this strategy, right? I think it makes sense you might have elevated leverage because your strategy is a little bit different than some of your peers. But do you have a target leverage or kind of an end game with the dispositions and paying down debt?

Speaker 4

Yes. It's a great question. One that we consider or talk about it often. So I think my overall view on this is more of notwithstanding last year because everything that could go wrong last year went wrong. Peak just rapid hiking cycle, supply, bad debt, fraud, everything was just kitchen sink.

Speaker 4

And so as we look into 2024, 2025 at a more normalized hopefully more normalized capital markets environment, a lot of us think that we're at peak rates. We consider, for example, putting more swaps on this year, but if we did that, it'd be at peak rates. So I think the better way that we think about it is making sure that our portfolio is as liquid as possible at any given time in any given year. Given the GSE financings, the Class B liquidity in the market, these portfolios will trade again at competitive cap rates and the worst in our view, one of the worst things we can do is to go out and fix debt or fix debt today at potentially peak rates because the new buyer or a buyer of our portfolio at some point will likely have a better cost of capital or a different cost of capital. So that our that's the way we think about it.

Speaker 4

Get in, improve the assets, sell it, recycle the capital and continue to do that. Our hope is this year we'll be able to potentially find a couple of assets later in the year to recycle capital into and putting less leverage on that replacement asset is a strategy that we've employed in the past to incrementally delever. And then add to that going into 2025 and 2026, if things play out the way they are and supply wanes and there's no new starts, starts down 40% year over year, we think our pricing power will be higher. I think demand for our units will be higher and that could potentially translate into either more value for assets when we sell them or return to being able to raise equity ourselves. And so at that point, I think that we'll look to delever.

Operator

Okay. Is it fair to say I mean, it sounds like it's kind of a property by property fluid situation. You're not looking at this and saying the right leverage for this strategy is 8 times or the right strategy is maybe you look at debt to gross asset value or something. It sounds it's more kind of a moving target depending on the market. Is that fair?

Speaker 4

Yes. I mean, look, before we were before we got hit with the 500 basis point increases of interest rates in 12, 14 months, we were we took the portfolio down from 14, 15 times when we went public in 2015, down to kind of where it is today. And that was intentional and it is intentional. We still want to delever incrementally. But excluding last year, our investors who we speak to often didn't want to see us go raise equity to pay down 2%, 3% debt at the time.

Speaker 4

So again, everything that could go wrong went wrong last year and we're our balance sheet is about as healthy as it's ever been, especially after we close Old Farm next week and have fresh capital on the balance sheet to go buy back stock or pay down debt. We'll make that decision. There's a couple of properties that we can just take the leverage off and have an unencumbered property or 2. But that's yes, it isn't we do want to delever, but to do it wholesale right now is not what we think is best.

Operator

Yes, that makes sense. Thank you.

Speaker 4

Thanks, Mike.

Speaker 1

And at this time, there appear to be no further questions. I will now turn the call back to management for closing remarks.

Speaker 3

Yes. I don't have anything further, do you, Matt?

Speaker 4

No, I don't. I appreciate everyone's time today. And again, thanks to our team here and at BH. With that, we'll end the call and look to talk to you after the Q1.

Speaker 1

Thank you all for joining today's conference call. You may now disconnect.

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