NexPoint Residential Trust Q1 2025 Earnings Call Transcript

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April 29, 2025

There are 8 speakers on the call.

Operator

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust First Quarter twenty twenty five Earnings 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.

Operator

And now I would like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead.

Speaker 1

Thank you. Good day, everyone, and welcome to the NetSuite Residential Trust conference call to review the company's results for the first quarter ended 03/31/2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer Matt McGreener, Executive Vice President and Chief Investment Officer and Bonnar McDermott, Vice President Asset and Investment Management. As a reminder, this call is being webcast through the company's website at nxrt.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs.

Speaker 1

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 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 statement. 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 statement. 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 Paul Richards.

Speaker 1

Please go ahead, Paul.

Speaker 2

Thank you, Kristin, and welcome everyone joining us this morning. We appreciate your time. I'm Paul Richards, I'm joined today by Matt McGrater and Bonner McDermott. I will kick off the call and cover our Q1 results, updated NAV and guidance outlook for the year, and briefly touch on a few subsequent events. I will then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance.

Speaker 2

Results for Q1 are as follows: Net loss for the first quarter was $6,900,000 or loss of $0.27 per diluted share on total revenue of $63,200,000 The $6,900,000 net loss for the quarter compares to net income of $26,400,000 or $1 earnings per diluted share for the same period in 2024 on total revenue of $67,600,000 For the first quarter of twenty twenty five, NOI was $37,800,000 on 35 properties compared to $41,100,000 for the first quarter of twenty twenty four on 37 properties. For the quarter, same store rent and occupancy decreased one point three percent and zero point three percent respectively. This coupled with a decrease in same store revenues of 1% led to a decrease in same store NOI of 3.8% as compared to Q1 twenty twenty four. As compared to Q4 twenty twenty four, rents for Q1 twenty twenty five on the same store portfolio were up 0.3% or $4 We reported Q1 core FFO of $19,100,000 or $0.75 per diluted share compared to $0.74 per diluted share in Q1 twenty twenty four. During the first quarter, for the properties in the portfolio, we completed two ten full and partial upgrades, leased two zero one upgraded units, achieving an average monthly rent premium of $62 and a 16.1% return on investment.

Speaker 2

Since inception, NXRT has completed installation of 8,558 full and partial upgrades, 4,795 kitchen and laundry appliances and 11,389 technology packages resulting in $172 50 dollars and $43 average monthly rental increase per unit and 20.7, 60 four point five percent and 30 seven point two percent return on investment respectively. NXRT paid a quarter dividend of $0.51 per share common stock on 03/31/2025. Since inception, we've increased our dividend 147.6. For Q1, our dividend was 1.4 times covered by core FFO with a 68.3% payout ratio of core FFO. Turning to the details of our updated NAV estimate.

Speaker 2

Based on our current estimate of cap rates in our markets and forward NOI, we are reporting a NAV per share range as follows: $44.2

Speaker 3

on the

Speaker 2

low end, dollars 58.2 on the high end, and $51.2 at the midpoint. These are based on average cap rates ranging from 5.25 on the low end to 5.75% at the high end, which remained stable quarter over quarter. Turning to full year 2025 guidance. NXRT is revising 2025 guidance ranges for earnings per diluted share and core FFO per diluted share due to the share buyback program we initiated in Q2, current interest rate environment, as well as plans to continue to layer in additional swaps. These guidance ranges are as follows: for earnings loss per diluted share, 1.08 at the high end negative 1.36 at the low end with a midpoint of negative $1.22 and core FFO per diluted share of $2.89 at the high end, 2.61 at the low end with a midpoint of $2.75 NXRT is reaffirming same store rental income, same store total revenue, same store total expenses, same store NOI, and acquisitions and dispositions.

Speaker 2

Lastly, I would like to take time to discuss a few subsequent events that have occurred over the past few weeks. On 04/28/2025, the company's board approved a quarterly dividend of $0.51 per share payable on 06/30/2025 to stockholders of record on 06/16/2024 or 2025. Since 04/01/2025, the company has purchased two hundred and twenty three thousand one hundred and nine shares of its common stock totaling approximately $7,600,000 at an average price of $34.29 per share, which is a 33% discount to our current NAV midpoint. On 04/03/2025, the company entered into a new five year one hundred million dollars silver swap with JPMorgan Chase with a fixed rate of 3.489%. This completes my prepared remarks, so I'll turn it over to Matt for commentary on the portfolio.

Speaker 4

Thank you, Paul. Let me start by going over our first quarter same store operational results. Occupancy ended the quarter at 94.4%, and we saw sizable occupancy growth in Nashville and Phoenix, which finished the quarter at 95.494.6% respectively. Charlotte, Orlando, South Florida, and Las Vegas remained strong, finishing the quarter at an average occupancy of 95.1%. We are tactically pushing rate increases and accelerating interior renovations into a fundamentally stronger peak leasing season ahead.

Speaker 4

And as of this morning, the portfolio is 95.5% leased with a healthy sixty day trend of 92%. Q one same store NOI was down 3.8% driven by 80 basis point decline in rental revenue and a 1% decline in total revenues. Though negative, we were 2% better than our internal forecast and saw an improvement of almost 40% in bad debt year over year and believe same store NOI will inflect higher over the remainder of the year. Renewal conversions for eligible tenants were 54% for the quarter, achieving a 73 basis point increase in lease renewals. April blended lease growth is expected to finish flat, but there are signs that demand remains strong, leading to positive rent growth later in the quarter and the back half of 2025, consistent with our inter inter initial guidance for the for the year.

Speaker 4

I'll return to this point in a minute. Operating expense growth finished the quarter at 3.7%, maintaining the moderate growth we have seen over the last several quarters. Repairs and maintenance expense were in line at 4.9%, and turn costs saw a 2% improvement over the prior year quarter. Market conditions in q one continued to remain strong. Nationally, over a 38,000 units were absorbed, a record first quarter leasing and demand performance.

Speaker 4

Our markets of Atlanta, Phoenix, and Dallas were top were top three for absorption, while strong showings from Charlotte and Tampa as well gave us five of the top 10 markets for q one absorption. Affordability challenges persist positioning our assets to capture increased rental demand and improve in an improving operating environment. We have shifted to rent growth initiatives in most of our markets while continuing to balance occupancy maximization where new deliveries and concessions are still impacting our assets. Through q one twenty twenty five, we have seen new supply, albeit primarily in with within class a stock, continue to deliver in our markets. We're encouraged by the placement of our assets relative to the submarkets most directly hit with this new competition, and RealPage forecast for our submarkets over the next three years project a 1.4% annual rise in available inventory, well below the recent wrap rapid growth we've seen during this historic supply wave.

Speaker 4

Indeed, RealPage's April data is forecasting a 22% decline in delivery deliveries year over year within NXRT submarkets from 17,636 units to 13,750 units. In the years to follow, the supply picture improves even more dramatically with the lack of new starts in recent years with an additional 38% decline in new supply in 2026, just 8,494 units, and a staggering 82% drop in 2027 to just 1,513 units in our submarkets. Amidst this improving outlook, we have seen a marketing acceleration in new lease pricing power in each successive month of 2025 today. We're pleased to share that effective rents ended the quarter at $1,495, up 30 basis points from the fourth quarter of twenty twenty four. '6 of our 10 markets showed flat to positive rent growth with Tampa and Las Vegas showing the strongest growth with 1.9% and the 1.6% rent growth respectively.

Speaker 4

South Florida, DFW, Charlotte, and Atlanta witnessed growth between zero percent and one percent during the seasonally slower first quarter. Moreover, using March as our last full month of data, we saw 17 of 35 properties in four of our 10 markets, South Florida, Charlotte, DFW, and Las Vegas, all shift into positive new lease growth, and that's up from from just two properties in q four. April month to date has seen further improvement to 20 properties out of our 35 properties with particular strength in Las Vegas, Seven Percent, and Tampa at 4.8%, DFW at three and a half percent, and South Florida at 2%. Renewal growth in q one was muted as we aim to reduce exposure to still stagnant new leases while minimizing turn turn costs, but our defensive occupancy has allowed us to take larger swings at rental increases in the historically stronger q two and q three seasons. We expect this strategy strategy to be a source of rent growth, allowing us to obtain higher organic rents and or churn units for varying degrees of renovation opportunities.

Speaker 4

I wanna spend a quick minute on the impacts we are seeing related to tariffs. We and BH Construction are actively monitoring this very fluid situation, but so far, the impact on NXRT is pretty muted. Most vendors we interact with have notified customers of potential increases in supply disruptions related to tariffs. Such vendors remain to NXRT or flooring suppliers like a Shaw or appliance suppliers like a GE or Paint like Sherwin Williams. So far, these suppliers are generally holding prices flat to signaling a 10 to 20% increase over the term if uncertainty persists.

Speaker 4

Across the rest of our platforms and multifamily development partners, we aren't hearing anything causing material concern. Most lumber and concrete providers, for example, are local to The US and supply chains are and have supply chains already in place. Developers are also pointing to the dearth of new construction starts as a larger offset to normalize demand for construction materials and labor. So, obviously, a situation we're monitoring, but as we sit here today, NXOG is not seeing a material impact. We continue on on the transaction front, we continue to actively monitor the sales market for opportunities and stay close to any movements on cap rates in our markets.

Speaker 4

After a pretty notable noticeable increase in marketed offerings to start the year, most institutional investors are in wait and see mode for clarity around the interest rate environment and more recently tariffs. That said, pricing expectations for quality assets in our markets remain strong, and most processes and sellers are expecting to transact at five caps. Indeed, there are several portfolio processes currently underway that should provide real time transparent transparency to our NAV guide with at similar vintages and geographical overlay to NXRT's portfolio. These guides are five to five and a quarter cap rate ranges and approximately 200 to 225,000 per unit values. In closing, we're pleased with the start of 2025 through late April and focused on driving internal growth and recycling capital as supply continues to be absorbed later in the year.

Speaker 4

In particularly, we in particular, we believe the inflection of new lease growth to be a really positive sign for our assets after many quarters of softness. That's all I have for prepared remarks. I appreciate our teams here at NextPoint and BH for continuing to execute, and now we'd be happy to take any questions.

Operator

Thank you. We will now begin the question and answer session. And And your first question comes from the line of Kyle Katrinsek of Janney. Your line is now open.

Speaker 5

Hey, good morning guys. Of your markets are you seeing enough transactional value where values at the upper end of your cap rate range versus the lower provided in your NAV slot?

Speaker 4

Sorry. Did you say what are there are there geographies where cap rates are softer, basically? Yeah. Exactly. Yeah.

Speaker 4

I'd say that, for, again, for the transactions that we've seen, take place, and the the processes going on, I'd I'd say out of our markets, probably Atlanta, I would say, is is is on the weaker side of of our NAB guidance, and then some some DFW, which makes sense given the the supply and is, you know, heavily still delivering in those those two markets. Don't know. Bonner, do you have anything to add to that?

Speaker 3

Yeah. I think it's also

Speaker 6

a qualitative discussion. Right? The the bid is is really aggressive for well located suburban, you know, b b plus assets, similar to ours. I think, you know, more of the product that's out there is either, you know, broken capital structure or, you know, outside of the Right? The, you know, the the decision to sell into the softness, you know, is is typically, you know, not not making a whole lot of money for the general partnership.

Speaker 6

So, you know, it just depends. Right? For for quality assets, those are getting bid up. You know, we were in a process on the deal we liked in Las Vegas. Matt talked about, you know, the great rent rent growth fundamentals there.

Speaker 6

We put what we thought was a very compelling offer out there and got outbid. So that was five to sub five in place. But if you look at some other assets and the syndicators that have been out there, the Tides, the other groups like that, some of those assets are a little bit weaker and a little bit lesser demanded.

Speaker 5

Okay. And then given the midpoint of your NAV range and where the stock's currently trading, could we see you guys hitting the higher end of your disposition range, selling more assets to repurchase stock and close that valuation gap over the next few quarters?

Speaker 4

Yeah. I think I I think so. I think what we'd like to do is maintain a steady buyback program with, you know, the the free cash flow that we generate, which is a lot. Then at the same time, be opportunistic to also not externally grow, but, you know, recycle capital. There's some deals that we wanna sell and and perhaps we use a portion of the of the proceeds to recycle into newer assets or or or new, you know, value add assets where we have an internal growth story as well as keeping the buyback in place.

Speaker 4

Obviously, that's share price dependent. If we run a little bit, then, you know, we we might pause and wait. Awesome. Thanks, guys. Appreciate it.

Speaker 4

Thanks, Kyle.

Operator

Your next question comes from the line of Omotayo Okusanya of Deutsche Bank. Please go ahead.

Speaker 3

Yes. Good morning, everyone. I just wanted to confirm the increase in core FFO per share guidance, that is all being driven by you're expecting more share buybacks, and as well as as you're taking care of swaps throughout the course of the year, you're locking in fixed rates that are a little bit better than you were anticipating. Is is that fair?

Speaker 2

Hey, Kyle. Yeah. This is Paul. That that's correct. So we we've seen in the marketplace on the swap side, you know, rates come down precipitously.

Speaker 2

So we were, again, able to lock in a hundred million dollar notional at sub three five, and we're actually seeing I I just checked today a little bit better, a few basis points better than that too if we were to lock in another 5,200 on a five year swap basis. We're also seeing the curve, you know, really retrace down to five to six cuts, and so that really does help the forward guidance. So that that that's, I would say, the majority of the reason how we've taken up, you know, our guidance range of those few pennies this this past quarter.

Speaker 3

Gotcha. Any reason why you just you haven't been a little bit more aggressive on the swaps then then since you're kind of seeing this happening?

Speaker 2

Mhmm. Yeah. Over the past week, it was pretty choppy. And so we we are like I said, about three weeks ago, we we did lock in that $100,000,000. And then it got pretty volatile when credit charges really did spike.

Speaker 2

And now it's you're you're seeing less of that, and you are seeing rates settle. So we're we would be able to lock in, you know, a better transaction today than we would have over the past two weeks. So we have a a keen eye on that right now. I agree with you.

Speaker 3

Okay. That's helpful. And then, Matt, your your comments earlier in regards to just kinda new rent growth and also kind of renewal growth. Again, what the fast WER in in in one q kind of x, the value add program?

Speaker 4

Yeah. They we we yeah. Most of what all the what I'm referring to in in in terms of new lease growth inflection is organic. But it's not driven by any any rehab results, which which again is is kinda like the all all I don't wanna say all clear sign for the industry, but the the folks both, you know, on the buy side and then, you know, on an operating performance perspective, like, that's what we've been waiting for. Right?

Speaker 4

The the inflection of these of these sub markets to start seeing new lease new lease growth again. So, pretty positive.

Speaker 3

Gotcha. That's helpful. And then for the value add program, again, accelerated in one q, how should we kinda think about for the rest of the year how much of that stuff we, we could potentially get?

Speaker 4

Yeah. I mean, I'd I'd say that we're, we're we're maybe hitting a jog, you know, as the as the second half of, you know, the the year. As I mentioned in my prepared comments, we're we're holding probably a little bit more units open for for rehab opportunities and and willing to take some occupancy retracement to push to push rent in the back half of the year. In markets like, you know, South Florida, you know, you Las Vegas, as Bonner mentioned. There's a lot of rehab opportunities that we're still continuing to execute because we can get the we can get those bumps and and be help and have them helpfully absorbed by the tenants.

Speaker 4

So, you know, it's it's a it's a goal for ours to get, you know, back to, you know, to 400 units a quarter in output. I don't think we're gonna get there in the next few quarters, but, you know, hopefully, by second half of the year, we're doing a couple hundred a quarter.

Speaker 3

Gotcha. That's helpful. And one more for me, you don't mind. How do we think about stock buybacks for the rest of the year with the stock at 36 to 38 versus the earlier buyback of, like, 32 to 33?

Speaker 4

Yeah. I mean, I still were at, like, a six six, six seven implied cap rate, so we still like it here. It really you know, we'll we'll take advantage on weekdays and volatile days. So I, you know, I I think I like it, you know, up to probably 10% of the, you know, 10% off the the low end of NAV range or in that, you know, six and a quarter, percent cap rate range. I think, I think that's kind of our our guiding light.

Speaker 3

Okay. That's helpful. Thank you very much.

Speaker 4

Thanks.

Operator

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

Speaker 7

Thanks. Good morning, guys, and congrats.

Speaker 2

I wonder if you

Speaker 7

could maybe dive in a little bit further on the comments about Las Vegas, given the strength you're seeing there. It seems a little maybe counterintuitive, so I kind of want to unpack it a little bit just given the signs that tourism related travel is declining into Vegas, and there seems to be some signs of some layoffs, you know, with some of the resorts in that market. So is your portfolio in Vegas, do you view that as kinda countercyclical in times of uncertainty? Or what what do you how do you attribute the strength you're seeing in Vegas?

Speaker 4

Yeah. I think the I I think for our assets, they're just in an affordable gap. Right? Like, there's there's not I mean, our average our average unit, you know, per effective unit rent is probably, you know, $1,200 in that market. And then a recurring resident burden is probably somewhere in the 25 to to $3,000, you know, per per month on a on a p and I basis.

Speaker 4

And fact of the matter is, as you well know, Buck, like, even though you've seen some some recent supply in '21 and '22 and or excuse me, starts in 2022 that hit in in the last, you know, eighteen months, that's a historically undersupplied housing market. And so with the net migration inflows, which is still occurring today in the in our affordable, you know, kind of price point and in our the in in in the markets that in the submarkets that we have, there's just not a lot of options. So it's been it's been a particular sign of strength for really the last, you know, I'd say three or four quarters, and and it's a market that we wanna continue to to look at for acquisitions, you know, given given this backdrop. I you know, I think we're I think we're still very bullish on it.

Speaker 7

Yeah. No. It's a very encouraging sign. And if you think about just kind of the overall trajectory of new lease growth, I mean, I know you're trying not to project out too far, but if if these trends continue through kinda peak leasing season, you know, where do you think your new lease, you know, rate growth would kinda peak out this year maybe by the third quarter?

Speaker 4

Yeah. It's it's a good question. I think and I

Speaker 3

looked at this last night.

Speaker 4

I think that if we can get well, just let let let me just give you a little sense of where our guide is. So, you know, we did $1,482 of net effective rents for the first quarter. You know, to get to the top end of our revenue guidance, we only have to get to 1,520, $1,520 a a a unit. That's, like, $35.40 bucks. So, you know, on a percentage increase, that's, you know, couple percent and not a whole lot of, you know, headroom there.

Speaker 4

I think that our, you know, our ability to hit, you know, $35 or 40 or $50 per unit given our assets, given the lack of affordability, you know, just given the quality of the locations, you know, I think that we have we have some potential to hit that upside and and achieve that, you know, 2% ish growth for the rest of the year, which would be great.

Speaker 7

That's great color. Appreciate the the feedback there. One real last quick or quick last one is CapEx guidance. Just wondering if you could maybe help think help us think through both recurring and nonrecurring CapEx needs as you're seeing the year progress.

Speaker 6

Yes, Buck. Happy to happy to help you with that. You know, you look at page 17 of the supplement, we've got, you know, call it $6,000,000 of kind of recurring, nonrecurring CapEx in the first quarter. It's actually down a little bit year over year. Think part of that is just the reduction in the portfolio.

Speaker 6

But that seems like a pretty stable run rate. We've got a little bit of the exterior CapEx going on at some of the properties in the second and third quarter, but nothing overly material. It's a it's a pretty pretty steady standard year. You know, to to Matt's point, I think, you know, we're we're targeting, you know, maybe 300 interior upgrades Q2, Q3 range. So you may see a little bit of pickup in interiors, but that's all demand driven.

Speaker 6

So nothing overly material in terms of change quarter over quarter for CapEx spend.

Speaker 7

Got it. All right. Thanks guys. Congrats.

Speaker 4

Thanks both.

Operator

And your next question comes from the line of Omotayo Okusanya of Deutsche Bank. Your line is now open.

Speaker 3

Yes. Thanks for taking the follow-up. When we kind of looked at your actual results versus maybe some of our estimates, it felt like OpEx and as well as property taxes and insurance came in a little bit light even like OpEx for the quarter at, like, 12 point something million a quarter. Don't think it's been that low in a while. So just curious if there's anything unique going on, if there's a onetime item in there, or how would you kinda think about those numbers as potential run rate for the rest of the year?

Speaker 6

In terms of, you know, our our guide for the year, I think I think Matt mentioned, you know, we we were a little bit ahead of of our kinda internal forecasting. But, you know, we've we've done well. We've we've worked a lot on centralization for payrolls, and we're we're ramping more of the the potting for maintenance. So we're pushing that aggressively. I I don't know that you fully realize the opportunity there.

Speaker 6

I think we'll get more maintenance payroll spend down, you know, hopefully, by, you know, the first half of twenty six, we get to kind of a normalized new run rate there. But it's something we're working pretty hard on. You know, taxes, we're we're just in the the valuation cycle there, so there there's gonna be some fluctuation. We'll, you know, fight a lot of those, you know, particularly Texas counties. We've got a couple revalue years there, but nothing material.

Speaker 6

We we didn't discuss, but we we recently renewed, our insurance, got a pretty favorable result there. So there's gonna be a little bit of savings. Has not materialized in the q one numbers. That's an April 1 renewal. But every everything, you know, on the expense front looks pretty good.

Speaker 6

Going back to Matt's comments on tariffs, you know, we we feel good about OpEx for the year.

Speaker 3

Helpful. Thank you so much.

Operator

And that concludes our q and a session. I will now turn the conference back over to the management team for the closing remarks.

Speaker 4

Yeah. Thanks very much for everyone's, you know, participation and interest today, and look forward to seeing seeing you guys at NAREIT. Thanks. Bye.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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NexPoint Residential Trust Q1 2025
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