NXRT - NYSE

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, Inc. first quarter 2025 earnings 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 followed by the number one on your telephone keypad. And if you would like to withdraw your question, press the star one again. And now I would like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust, Inc. conference call to review the company's results for the first quarter ended March 31, 2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer, Matt McGraner, Executive Vice President and Chief Investment Officer, and Bonner McDermett, Vice President, Asset Investment Management. As a reminder, this call is being webcast to 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. 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 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, NexPoint Residential Trust, Inc. 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. Please go ahead, Paul.

Thank you, Kristen. Welcome everyone joining us this morning. We appreciate your time. I'm Paul Richards, and I'm joined today by Matt McGraner and Bonner McDermett. 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. Results for Q1 are as follows. Net loss for the first quarter was $6.9 million or a loss of $0.27 per diluted share on total revenue of $63.2 million. The $6.9 million net loss for the quarter compares to net income of $26.4 million or $1.00 earnings per diluted share for the same period in 2024 on total revenue of $67.6 million. For the first quarter of 2025, NOI was $37.8 million on 35 properties compared to $41.1 million for the first quarter of 2024 on 37 properties. For the quarter, same-store rent and occupancy decreased 1.3% and 0.3% respectively. This, coupled with the decrease in same-store revenues of 1%, led to a decrease in same-store NOI of 3.8% as compared to Q4 2024, 3% or $4.00. We reported Q1 core FFO of $19.1 million or $0.75 per diluted share, compared to $0.74 per diluted share in Q1 2024. During the first quarter, the properties in the portfolio completed 210 full and partial upgrades and leased 201 upgraded units, achieving an average monthly rent premium of $62, a 16.1% return on investment. Since inception, NexPoint Residential Trust, Inc. 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, and $43 average monthly rental increase per unit and 20.7%, 64.5%, and 37.2% return on investment respectively. NexPoint Residential Trust, Inc. paid a quarterly dividend of $0.51 per share on common stock on March 31, 2025. Since inception, we have 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. Based on our current estimate of cap rates in our markets and forward NOI, we are reporting an NAV per share range as follows: $44.20 on the low end, $58.20 on the high end, and $51.20 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 remains stable quarter over quarter. Turning to full-year 2025 guidance. NexPoint Residential Trust, Inc. 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, earnings 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. NexPoint Residential Trust, Inc. is reaffirming same-store rental income, same-store total revenue, same-store total expenses, same-store NOI, and acquisitions and dispositions. Lastly, I would like to take time to discuss a few subsequent events that have occurred over the past few weeks. On April 28, 2025, the company's board approved a quarterly dividend of $0.51 per share payable on June 30, 2025, to stockholders of record on June 16, 2025. Since April 1, 2025, the company has purchased 223,109 shares of its common stock, approximately $7.6 million at an average price of $34.29 per share, which is a 33% discount to our current NAV midpoint. On April 3, 2025, the company entered into a new five-year $100 million SOFR 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.

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 95.4% and 94.6%, respectively. Charlotte, Orlando, South Florida, and Las Vegas remained strong, finishing the quarter with an average occupancy of 95.1%. We are tactically pushing rate increases and accelerating interior renovations into a fundamentally stronger peak leasing season ahead. As of this morning, the portfolio is 95.5% leased, a healthy 60-day trend of 92%. Q1 same-store NOI was down 3.8%, driven by an 80 basis point decline in rental revenue and a 1% decline in total revenue. 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 second half of 2025, consistent with our initial guidance for the year. Operating expense growth finished the quarter at 3.7%, maintaining the moderate growth we have seen over the last several quarters. Repairs and maintenance expenses were in line at 4.9%, and turn costs saw a 2% improvement over the prior year quarter. Market conditions in Q1 continued to remain strong. Nationally, over 138,000 units were absorbed, a record first quarter leasing and demand performance. Our markets of Atlanta, Phoenix, and Dallas were top three for absorption, while strong showings from Charlotte and Tampa as well gave us five of the top ten markets for Q1 absorption. Affordability challenges persist, positioning our assets to capture increased rental demand and improve in an improving lead 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 Q1 2025, we have seen new supply, albeit primarily within Class A stock, continue to deliver in our markets. We're encouraged by the placement of our assets relative to the submarket most directly hit with this new competition, and RealPage forecasts for our submarkets over the next three years project a 1.4% annual rise in available inventory, well below the recent rapid growth we've seen during this historic supply wave. Indeed, RealPage's April data is forecasting a 22% decline in deliveries year over year within the NexPoint Residential Trust, Inc. 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 to 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 price power in each successive month of 2025 to date. We're pleased to share that effective rents ended the quarter at $1,495, up 30 basis points from the fourth quarter of 2024. Six of our ten markets showed flat deposit rent growth, with Tampa and Las Vegas showing the strongest growth with 1.9% and 1.6% rent growth respectively. South Florida, DFW, Charlotte, and Atlanta witnessed growth between 0% and 1% 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 ten markets, South Florida, Charlotte, DFW, and Las Vegas, all shift into positive new lease growth, and that's up from just two properties in Q4. April month-to-date has seen further improvement to 20 out of our 35 properties, with particular strength in Las Vegas at 7%, in Tampa at 4.8%, DFW at 3.5%, and South Florida at 2%. Renewal growth in Q1 was muted as we aim to reduce exposure to still stagnant new leases while minimizing turn costs, but our defensive occupancy has allowed us to take larger swings at rental increases in the historically stronger Q2 and Q3 seasons. We expect the 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. I wanted to spend a quick minute on the impacts we are seeing related to tariffs. We, NVH Construction, are actively monitoring this very fluid situation, but so far, the impact on NexPoint Residential Trust, Inc. is pretty muted. Most vendors we interact with have notified customers of potential increases and supply disruptions related to tariffs. Such vendors to maintain NexPoint Residential Trust, Inc. are flooring suppliers like Shaw or appliance suppliers like 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. 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 have supply chains already in place. Developers are also pointing to the dearth of new construction starts as a larger offset to normalized demand for construction materials and labor. So obviously, a situation we're monitoring, but as we sit here today, NexPoint Residential Trust, Inc. is not seeing a material impact. On the transaction front, we continue to actively monitor the sales market for opportunities and stay close to standing movements on cap rates in our markets. After a 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 transparency to our NAV guide with similar vintages and geographical overlay to NexPoint Residential Trust, Inc.'s portfolio. These guides are five to five and a quarter cap rate ranges in approximately $200,000 to $220,000 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. 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 NexPoint Residential Trust, Inc. and NVH for continuing to execute, and now we'd be happy to take any questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, simply press the star once again.

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And your first question comes from the line of Kyle Katorincek of Jetty. Your line is now open.

Hey. Good morning, guys. Of your markets, are you seeing enough transactional value where values are at the upper end of your cap rate range versus the lower provided in your NAV slot? Sorry. Did you say what are there are there geographies where cap rates are softer, basically?

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

Yeah. I think it's also a qualitative discussion. Right? The bid is really aggressive for well-located suburban, you know, B B plus assets. Somewhat ours. I think, you know, more of the product that's out there is either, you know, a broken capital structure or, you know, outside the mode. Right? The, you know, the decision to sell into the softness, you know, is typically, you know, not making a whole lot of money for the general partnership. So, you know, it just depends. Right? For quality assets, those are getting bid up. You know, we were in a process on a deal we liked in Las Vegas. Kinda talking about, you know, the great rent growth fundamentals there. You know, we put what we thought was a very compelling offer out there and got outbid. So, you know, that was a five to, you know, sub-five in place. But you look at some other assets and the, you know, the syndicators that have been out there, the Tides, the other groups like that. You know, some of those assets are, you know, a little bit weaker and a little bit lesser demanded.

Okay. Thank you. And then, given the midpoint of your NAV range and where the stock is 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?

Yeah. I think so. I think what we'd like to do is maintain a steady buyback program with, you know, the free cash flow that we generate, which is a lot. At the same time, be opportunistic to also not externally grow, but, you know, recycle capital. There's some deals that we want to sell and perhaps we use a portion of the proceeds to recycle into newer assets. Or new, you know, value-add assets where we have an internal growth story, as well as keeping the buyback in place. Obviously, that's share price dependent. If we run a little bit, then, you know, we might pause and wait.

Awesome. Thanks, guys. Appreciate it.

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

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 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 that fair?

Hey, Kyle. Yeah. This is Paul. That's correct. So we've seen in the marketplace on the swap side, you know, rates come down precipitously. So we were, again, able to lock in a $100 million notional at sub-three five. And we're actually seeing, I just checked today, a little bit better, a few basis points better than that too. We were to lock in another fifty to a hundred 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 would say the majority of the reason how we've taken up, you know, our guidance range of those few pennies this past quarter.

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

Mhmm. Yeah. Over the past week, it was pretty choppy. And so we were, like I said, about three weeks ago, we did lock in that $100 million. Then I got prebulsed when credit charges really did spike. And now it's you're seeing less of that, and you are seeing rates settle. So we would be a better transaction today than we would have over the past two weeks. So we have a keen eye on that right now. I agree with you.

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

Yeah. Most of what I'm referring to in terms of new lease growth inflection is organic. It's not driven by any rehab results, which again is kind of like the all-clear sign for the industry, but 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? The inflection of these submarkets to start seeing new lease growth again. So pretty positive.

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

Yeah. I mean, I'd say that we're maybe hitting a jog. You know, as the second half of the year, as I mentioned in my prepared comments, we're holding probably a little bit more units open for rehab opportunities and willing to take some occupancy retracement to push rent in the back half of the year. In markets like, you know, South Florida, you know, you've Las Vegas, as Bonner mentioned. There's a lot of rehab opportunities that we're still continuing to execute because we can get those bumps and have them healthily absorbed by the tenants. So, you know, it's a goal for ours to get, you know, back to, you know, four hundred units a quarter an output. Don't think we're gonna get there in the next few quarters, but, you know, hopefully by the second half of the year, we're doing a couple hundred a quarter.

Gotcha. That's helpful. And one more for me, if you don't mind. How do we think about stock buybacks for the rest of the year with the stock at thirty-six to thirty-eight versus literally a buyback of, like, thirty-two to thirty-three?

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

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

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

Good morning, guys, and congrats. Wondered if you 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 kinda wanna unpack it a little bit just given the signs that, you know, tourism-related travel is declining into Vegas and there seem 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 do you how do you attribute the strength you're seeing in Vegas?

Yeah. I think for our assets, they're just in an affordable gap. Right? Like, there's not I mean, our average, our average unit, you know, perfect unit rent is probably, you know, twelve hundred dollars in that market. And then a recurring resident burden is probably somewhere in the twenty-five to three thousand dollar, you know, per month on a P and I basis. And fact of the matter is, as you well know, Buck, like, even though you've seen some recent supply in twenty-one and twenty-two and or excuse me, the stars in twenty twenty-two, that hit in the last, you know, eighteen months. That's a historically under-supplied housing market. And so, with the net migration inflows, which is still occurring today, in our affordable, you know, kind of price point and in the submarkets that we have, there's just not a lot of options. So it's been a particular sign of strength for, really, the last, you know, I'd say three or four quarters, and it's a market we want to continue to look at for acquisitions, you know, given this backdrop. I think we're still very bullish on it.

Yeah. No. It's a very encouraging sign. If you're thinking about just kind of the overall trajectory of new lease growth, I mean, I know you try not to project out too far, but if these trends continue through kind of 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?

It's a good question. I think and I looked at this last night, I think that if we can get well, just let me just give you a little sense of where our guide is. So, you know, we did fourteen hundred and eighty-two dollars of net effective rents for the first quarter. You know, to get to the top end of our revenue guidance, only have to get to fifteen hundred and twenty dollars a unit. That's, like, thirty-five, forty bucks. So, you know, on a percentage increase, that's, you know, a couple percent. And not a whole lot of, you know, headroom there. I think that our ability to hit thirty-five dollar or forty or fifty dollar 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 some potential to hit that upside, and achieve that, you know, two percent-ish growth for the rest of the year, which would be great.

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

Yeah. Buck, happy to help you with that. You know, you look at page seventeen of the supplement. We've got, you know, call it six million bucks of kind of recurring, nonrecurring CapEx in the first quarter. It's actually down a little bit, you know, year over year. I think part of that is just the reduction of portfolio. But that seems like a pretty stable, stable run rate, you know, got a little bit of exterior CapEx going on at some of the properties, in the second, third quarter, but nothing overly material. It's a pretty steady standard year. You know, to Matt's point, I think, you know, we're targeting, you know, maybe three hundred interior upgrades, in, you know, Q2, Q3 range. So you may see a little bit of pickup in interiors, but that's, you know, all demand-driven. So nothing overly material in terms of change quarter over quarter for, you know, CapEx spend.

Got it. Alright. Thanks, guys. Congrats.

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

Yes. Thanks for taking the follow-up. When we kinda 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, twelve point something million a quarter. I 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 one-time item in there or how would you kinda think about those numbers as potential run rate for the rest of the year?

In terms of, you know, our guide for the year, I think Matt mentioned, you know, we were a little bit ahead of our kinda internal forecasting. But, you know, we've done well. We've worked a lot on centralization for payroll, and we're ramping more of the potting for maintenance. So we're pushing that aggressively. I don't know that you fully realize the opportunity there. 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 right there. But it's something we're working pretty hard on. You know, taxes, we're just in the valuation cycle there, so 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 of eval years there, but nothing material. We didn't discuss, but 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 Q1 numbers. That's an April first renewal. But everything, you know, on the expense front looks pretty good. Going back to Matt's comments on tariffs, we feel good about OpEx for the year.

Helpful. Thank you so much.

And that concludes our Q&A session. I will now turn the conference back over to the management team for the closing remarks.

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