NexPoint Residential Trust Inc (NXRT) 2018 Q4 法說會逐字稿

Good day, and welcome to the NexPoint Residential Trust, Inc. Fourth Quarter 2018 Conference Call. Today's conference is being recorded. And at this time, I now would like to turn today's call over to Ms. Jackie Graham. Please go ahead, ma'am.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust's conference call to review the company's results for the fourth quarter and full year ended December 31. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer; and Matt McGraner, Executive Vice President and Chief Investment Officer.

As a reminder, this call is being webcast through the company's website at www.nexpointliving.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs. Forward-looking statements can often be identified by words, such as expect, anticipate, intend and similar expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding NXRT's strategy and guidance for financial results for the first quarter and full year 2019, expected acquisitions and dispositions, the expected redevelopment of units, the projected average rent, change in rent and return on investment after redevelopment and planned green improvements.

They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements.

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 the forward-looking statements. Except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements.

This conference call also includes analysis of funds from operations, or FFO; core funds from operations, or core FFO; adjusted funds from operations, or AFFO; and net operating income, or NOI, all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to and not a substitute for net income loss computed in accordance with GAAP. For a more complete discussion of FFO, core FFO, AFFO and NOI, see the company's earnings release that was filed earlier today.

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

Thank you, Jackie. I'd like to welcome everyone to the NXRT 2018 Fourth Quarter Conference Call. Today, we'll discuss highlights for 2018, present our results for 2018, issue guidance for 2019 and discuss the portfolio, markets and what we see ahead in 2019 for NXRT. I'm Brian Mitts, Chief Financial Officer, and I'm joined by Matt McGraner, Executive Vice President and Chief Investment Officer.

We're reporting another very solid year with the year-to-date same-store NOI increase of 7.4% as compared to the same period in 2017. Same-store revenue increase of 4.3%; core FFO for 2018 of $1.62, which is $0.21 higher than 2017 or a 15% increase. Total revenues for 2018 were up slightly 1.6% versus 2017, and NOI increased 4.7%. We continue to execute our business plan by renovating 1,432 units during the year, achieving a 25% ROI. We acquired 3 properties in 2018 for a total purchase price of $131 million and disposed 1 property for $30 million for net increase in 2018 of $101 million. We completed our first-ever equity issuance, selling 2.7 million shares at a public offering price of $33 per share in November, using the proceeds to delever by paying down our corporate revolver in full, which we drew on to fund the acquisitions in Q3. Subsequent to the end of the year, we executed 2 significant transactions. We completed an acquisition of a portfolio of 3 assets located in Phoenix on January 2 for $132.1 million with 656 units, adding approximately 400 units to our renovation pipeline.

We also executed a new $75 million corporate revolver with a syndicate of banks led by SunTrust and Raymond James. We drew down $52.5 million immediately on the new revolver to fund the purchase of the -- a portion of purchase price of the Phoenix acquisitions. So with that, let me take you through some of the additional highlights and details of activity in 2018.

For acquisitions, as mentioned, we acquired 3 properties for $131 million. These were located, 1 in Dallas and 2 in Nashville. 2, 3 are adjacent to existing properties, which we are running together to gain efficiencies. On rehabs, as mentioned, we completed 1,432 units, achieving an ROI of 25%. And subsequent to date within the current portfolio, we've completed 5,661 units at an average cost of $4,909 per unit. With those renovations, we've achieved an average rent growth of 10.6% or $93 per unit and we achieved an ROI of 22.7%, which help fuel our NOI and core FFO increases. For the remainder of -- for 2019 and into 2020, we have an ample pipeline for renovations, assuming no further acquisitions. Our NAV per share, we updated our cap rates and NOI growth and are revising our NOI range on the slide that we've included in our supplement every quarter. The NAV is as follows: $38.94 on the high end, $31.23 in the low end for midpoint of $35.09, which compares to a midpoint of $33.54 last quarter or 4.6% increase.

For dividends, we increased our dividend in 2018 by 10% to reflect the growth in core FFO. Since our first dividend after going public in April of 2015, we've increased our dividend 3 times by a total of $0.069 per share or 33.5% increase, keeping in line with our goal to maintain approximately 65% payout ratio on core FFO. On the Green improvement program that we've been talking about the last few quarters, we continue to implement that. We're doing it in conjunction with the Freddie Mac, and we replaced plumbing fixtures in 6,930 units since implementing the plan. So far, we've completed upgrades for 17 of the 28 planned properties, saving an estimated 170 million gallons of water, $1.4 million in utility cost, which equates to 17,000 per -- or sorry, $17 per unit and 33% reduction in our water bill. On share buybacks, after aggressively buying back shares in Q1 and Q2, we had no repurchases for the remainder of the year as our stock has traded at or near a premium since then. Our disposition front, as mentioned, we disposed 1 property during the year in early January. So we're net acquirers for the year, which we continue that trend in 2019 with the 3 acquisition in January and we think that makes sense given that our stock is trading at a premium.

Let me get through the results for Q4 and year-to-date. Total revenues for Q4 2018 were $39.4 million as compared to $34.9 million in Q4 '17. It's a 12.9% increase. Net income was negative $4.8 million or negative $0.21 per share versus minus $4.3 million for 2017 Q4 or negative $0.21 per share. NOI for Q4 of 2018 was $21.3 million versus $19.3 million in the same period in 2017 or a 10.4% increase. Core FFO was $9.2 million for the quarter or $0.41 per share versus $8.5 million in Q4 of '17 or $0.40 per share. Q4 same-store results across 31 properties comprising 11,091 units. Same-store NOI was $18.7 million for Q4 of '18 versus $18.4 million for Q4 of '17, which is a 1.2% increase, which was driven exclusively by higher taxes, which have been appealed and we'll discuss those later in the call in detail. For 2018, our total revenues were $146.6 million versus $144.2 million in 2017 for a 1.6% increase. Net income was negative $1.6 million or negative $0.08 per share versus a gain of $56.4 million in 2017 or $2.49 per share. NOI was $80.2 million versus $76.6 million in 2017 for an increase of 4.7%. Core FFO was $35.1 million or $0.0162 (sic) [$1.62] per share versus $30.1 million in 2017 or $1.41 per share, which represented 15% increase over 2017. For year-to-date same-store, we had 29 properties in the pool comprising 10,123 units. Occupancy for 2018 was 94.5% versus 93.9% in 2017 or 60 basis point increase. Same-store rents increased 4.1%, equating to total same-store revenue in 2018 of $123.6 million versus $118.5 million in 2017 for a 4.3% increase. Same-store expenses in 2018 were $55.7 million versus $55.2 million or 0.8% increase. Same-store NOI was $67.9 million in 2018 versus $63.2 million in 2017 for a 7.4% increase. Let me move to 2019 guidance, which we issue as follows: Net income per share on the low end is negative $0.76; on the high end $0.66, with a midpoint of negative $0.71. Core FFO per share on the low end $1.82 per share; on the high end $1.91 for a midpoint of $0.0187 (sic) [$1.87] per share, representing a 15% increase over 2018 at the midpoint. Same-store rental revenue, we're guiding to 4% on the low end; 5% on the high end, with a midpoint of 4.5%. Same-store revenues, total revenues 4.5% on low end; 5.5% on the high end, with a midpoint of 5%. Same-store expenses 3.3% on the low end; 4.3% on the high end, with a midpoint of 3.8%, which leaves us to same-store NOI guidance on the low end of 5%; 7% on the high end, with a midpoint of 6%. Before I turn the call over to Matt, to discuss the market for the portfolio and the trends we expect in 2019, I want to discuss real estate taxes in a little more detail. Real estate taxes, as everyone probably knows, represents our single largest expense item. It is also the expense we have least control over. Having said that, we aggressively can test each assessment and litigate where necessary. We currently have 7 outstanding appeals in process. So Matt will discuss in more detail in his remarks. We haven't made any adjustments in 2018 for the expected results of these appeals, mostly because they're guesses despite prior history that we have in appealing these. And we'd like to take a conservative approach to taxes, particularly things that we don't control. This is a consistent policy we've implemented throughout the history of the company. However, I want to stress, that we do continue to always try to find ways to save on whatever expense for the control or noncontrol and certainly in the tax front where we do aggressively can test these and litigate where necessary. So with that, let me turn the call over to Matt to talk about mortgage portfolios and trends.

Thanks, Brian. I'm very pleased to report another strong year in 2018 as Brian mentioned, finishing the year with 7.4% same-store NOI growth. Our NOI margin improved year-over-year by over 150 basis points to 54.9%. And we also mentioned, the average rents increased 4.1% with total revenues up 4.3%. And then notwithstanding the material real estate tax increases, which I'll unpack in a minute, 8 out of our 10 markets grew NOI by at least 6.6%. For example, our Texas market, the Dallas and Houston combined grew 7.4%. Atlanta's NOI grew 6.9%. Our national portfolio's NOI grew 7.5%, Phoenix grew 9.4% and our Florida portfolio combined average NOI growth for 2018 was 7.8%. Our leasing activity for the fourth quarter and year also remained strong, even while placing a greater emphasis on driving occupancy in Q4, which as Brian mentioned, improved 60 basis points on the same-store pool. We achieved strong effective new lease growth during the quarter with new leases of 3% on average. Our best markets were Tampa, Orlando, West Palm, Atlanta and Phoenix, all achieving new lease growth of at least 3.9% or better. Renewal growth outpaced new leases during the quarter at 4.8% and improved 90 basis points from a year ago, with 7 out of our 10 markets driving rents higher by 4.3% or more. Retention for the quarter and the year was steady at 53%, which for the year was up 200 basis points on the same-store pool year-over-year. As I mentioned, the key focus of ours in Q4 this year as opposed to years past was driving occupancy at the end of the year into the New Year that sets us up for even stronger renewal and new lease growth in the first half of 2019. We improved occupancy 60 basis points in the same-store pool alone and have already started seeing the benefits. January new lease growth was 5.8%, and renewal growth was 4.2%. January same-store NOI performance reached 6.5%. Midway through February, we're achieving 6.3% new lease growth on 175 new leases signed and 4.9% on 300 renewals.

Now turning to transaction activity before guidance. As a reminder, we acquired 1,084 units last year, increasing our presence in our core markets of Dallas and Nashville. Late August, we acquired Cedar Pointe in Nashville, again adjacent to Beechwood for $26.5 million. Recall, our plan here is to upgrade approximately 110 units over the next 3 years and achieve an average annual rent growth of 12.3%. For roughly the 5 months that we've owned the asset, we are beating our underwritten NOI budget by 14%. In late September, we acquired Brandywine I & II in the Brentwood submarket of Nashville for approximately $80 million. Recall, our plan here is upgrade 230 units over the next 3 years, achieving an average annual rental increase of 12.5%. We are beating our underwritten NOI budget here by 8.5%. Also, in late September, we acquired Crestmont Reserve directly adjacent to Versailles in Dallas for $24.7 million. Our plan here is to upgrade approximately 138 units over the next 3 years and achieve an annual average annual rent growth of 11%. We're beating this budget -- our underwritten NOI budget here by 12.6%. Discussing the recent Phoenix acquisition. On January 28, we acquired 3 well located assets in Phoenix, totaling 656 units for $132 million. This acquisition brought our Phoenix portfolio to 1,855 units or approximately 14% of our total portfolio. We acquired these 3 assets at a combined 5.3% year 1 economic cap rate and believe we can grow NOI on these assets at an annual growth rate of 6.5% through 2021 by implementing the management and CapEx value-add programs on 400 units over the next 2 to 3 years. Finally, a few comments on our guidance. For 2019 guidance, on revenue assumes the following rehabs, which largely mirrored the 2018 numbers, layered predominantly over the first 3 quarters of 2019. We plan to conduct 1,175 full upgrades and reach an average ROI of approximately 22%. We plan on upgrading 330 partial units or spending -- 330 partial upgrades at an average ROI of 27%. We also plan to install washer and dryer sets on at least 1,100 units in 2019, with average ROIs ranging between approximately 35% and 45%. Also, importantly our guidance does not include any potential settlements of real estate taxes on these 7 assets in DFW and Houston that we elected to litigate throughout the course of 2019, as Brian mentioned. And we were booking a partial accrual of less than advantageous settlement offers on these 7 material tax increases in Q4, and after delays by the municipality for settlement conferences into 2019, most of which haven't even occurred yet, we elected to book the full amount of these accruals and pursue litigation, therefore, allowing for potential higher recoveries for 2018 and 2019, consistent with what we've achieved in years past through the exercise of litigation. Based on our experience for a better chance of recovery of 2018 taxes, and probably more importantly precedent for 2019, we thought it was proper to keep fighting, and ultimately expect to reap greater positive benefit once these tax appeals are either litigated to finality and/or settlement conferences actually take place. We expect the resolution of these appeals in April through September of this year. Now onto acquisition guidance, that assumes $150 million to $250 million, that's inclusive of the Phoenix 3 acquisitions completed in January and we're actively pursuing assets in Florida, Charlotte and Nashville. Our disposition guidance of $75 million to $250 million assumes capital recycling and renovated assets in DFW, Southpoint in D.C. and potentially the Pointe at the Foothills in Phoenix, all of which would occur most likely in the second half of 2019. As Brian mentioned, our same-store guidance range is 5% on the low end; and 7% on the high end, with 6% in the midpoint and that's double the Green Street apartment coverage universal average of 3%. We expect our strongest markets for NOI growth in 2018 to be Nashville, Florida, Atlanta and Phoenix. So in closing, I'll just reiterate that we expect another strong year of demand for our value-add affordable housing product. The rent delta between Class A and B range in our markets remains historically wide at just over 27%. And while we're pleased with 2018, 7.4% NOI growth, we still have a favorable outlook for 2019. We're pleased with the 1,000-plus unit addition to our rehab pipeline as a result of the acquisitions we've made over the last 6 months. And that we'll obviously work hard to improve these numbers. We're also pleased with the 5% to 7% and 15.4% guidance to same-store NOI and FFO, respectively, both of which appear to be among the highest of our smaller and larger peers. And lastly, we've always want to extend great thanks to our teams in NexPoint and BH for continuing to execute. That's all I have for prepared remarks.

Thanks, Matt. We'll turn it over now for any questions.

(Operator Instructions) Our first question will be from Tayo Okusanya with Jefferies.

Couple from me. First of all, the property taxes. I understand your comments about appealing those taxes. But I'm just curious, I mean, it was such a big jump in 4Q, that the absolute [past] assessor. I'm just curious what they were doing to make the numbers jump so much and what you could potentially appeal? Were they just increasing the absolute tax rates? Were they actually increasing what they thought the value of the building was? And kind of how does the appeal process work on that?

Yes. Maybe we take a second to kind of go through that process. And keep in mind, it differs between the different municipalities. But in general, we receive an assessment at some point in the year, it's different across different places. But at some point, we receive an assessment. Many times, we think that the assessment is too high or outrageously too high. So we try to guide into something based on our past experience, based on the information we get from the consultants in the various markets to come up with a more realistic yet conservative assessment and then a tax from that point. So we're constantly throughout the year tweaking accruals and thinking about this process. And then, as we go through the process, if we don't get a favorable reassessment on appeal, we'll go to the next up. And typically you see that completed by the end of the year, particularly in Texas. As Matt mentioned, a lot of this has been delayed and pushed into 2019. And in most cases, we don't even have anything on the calendars as of now. So instead of -- and really for GAAP, it's -- you have no basis to not book the full accrual at the end of the year instead of having all this settled but we anticipate it got pushed out. So we ended up booking the whole accrual. We didn't attempt to make any estimates as to future recoveries, just because it's such an unknown quantity. We thought it's more prudent to just book up the full accrual in the fourth quarter. That's why you saw such a big increase in Q4. We thought...

But that was for 7 assets, right? It just seems that, first of all, large increase just across 7 assets?

Well, that's a process in general and the 7 assets continue to be litigated. But as we go throughout the year, you continue to get more and more assessments for different municipalities and it's not on the same calendar everywhere. There's some due at the end of the year, and so you don't know what you're accruing for and we start accruing for the '19-year, in this case, as we get those assessments.

Yes, I'll add 2 things to that real quickly. So the settlement conferences and these are DFW and largely in Tarrant and Dallas County. We're supposed to have settlement conferences and they were voiced to us in November and December, and those have, again been pushed into 2019. I think 4 of which were this week, like 2 -- I think, 3 of them are actually on Thursday. So what we didn't want to do is what got Brixmor in trouble a couple of years ago, if you recall, and trying to smooth out throughout the year tax increases to pattress the same-store NOI numbers. And instead, we just -- what we thought was the appropriate thing was to take it all for the appropriate year. Now I do think, there is opportunity in 2019 to recapture the -- some of these refunds, and it's anywhere in our estimation from $250,000 on the low end to, it could be upwards of $600,000. So we do think that we'll have an opportunity and ultimately some success at achieving refunds, but this is the prudent approach in our view.

Got you. Okay. That's helpful. Then let me kind of move on to my next question. The Freddie debt on the Phoenix portfolio, one, what interest rate is on that debt? And then 2, why that approach to kind of put additional debt, rather than just dealing -- without doing the dispositions to kind of fund that?

They were set up -- first, to answer your first question is that 132 over the 1 month, Freddie floating rate as we've traditionally done. And then there were all set up, as reverse 1,031s to facilitate capital recycling. So we still have that ability and plan on using it also with into the extent you'll see an [8-K] can filed with our K, we'll have that tool as well. So I think it's not a permanent surge in leverage, it's just a temporary capital recycling that we've done over the course of the last 4 years.

Got you. And the average duration of that debt is how long was the Freddie debt?

7 years.

7 years? Okay.

Our next question will be from Buck Horne with Raymond James.

Yes. So I guess, I think you addressed the property tax issue there. I just got a little more curious. I mean, what exactly was the timing situation with regards to when you understood that the property tax bills coming in were going to require this full catch up on the accrual?

Late November, early December into this year. We -- so a little more color. We actually got 3 -- so there's still 7 outstanding. We had 10 as of the end of the year, 3 were settled. We ended up booking those in Q4 of '18. So it's a fully ongoing process, but that's the kind of the timing as we start to realize that these settlement conferences weren't going to happen in Q4. And also keep in mind, what we're -- any time you talk in terms of percentages, you're comparing it to something, and in this case, Q4 of '17, which was a little bit different situation. So the increase isn't as dramatic as it seems at 4% to 6%, it's just a bad comparison point.

And you guys feel like you've adequately, like, have a -- what was the assumption for property tax increase in the 2019 guidance?

6% on the same-store.

6% on the same-store?

Yes, I think, look -- yes, I think, we're being conservative on the property tax guidance for '16 -- excuse me, for '19, certainly. And what I would also say to add to Brian's comment was that a lot of these deals, especially during the same calendar year being wrapped together. So they will settle -- they may not settle two at the same time as the third, and they may like, say, okay, we won't settle these at this price unless you take this 1 as well, and then you couple that with the fact that we haven't even had some of these settlement conferences. So that's sort of the fluid process end of 2019 that we're dealing with especially in Texas.

And Buck, stepping back a little bit out of the kind of details of the taxes. For the year, we had same-store NOI growth of 7.4%. We had strong results across the board. Core FFO was up 15%. So it's unfortunate that the tax piece is unpredictable, hard to estimate. And one of the downsides of having a lot of the portfolio located in these "low-tax states" is that they get very, very aggressive on property taxes. That's where a lot of the revenue comes from. So we have to protect ourselves and be very aggressive. And instead of taking the easy route and just taking what was on the table, we thought we could get more and we could push it. But that pushes into 2019, which we're not baking this into our guidance. Because we just don't know, but there's a situation where on the first quarter, second quarter, we could get pretty favorable results, and that hits our '19 numbers in a positive way.

Okay. That's very helpful. One last quick one. I actually also noticed a big surge in maintenance CapEx and specifically kind of the nonrecurring maintenance CapEx, this is kind of up about double or more than double last year. I was wondering if you can help highlight what happened on the CapEx side and what kind of level of maintenance CapEx you're budgeting for this year?

Yes, the surge is, I think, largely offset by the income that we're getting as a benefit of what we refer to as a resident amenity service. So that's -- things like valet, trash, security alarms that a have a core sponge, solar screens. They have a corresponding benefit on the income side. So while the -- with, I think, 15%-or-so for '19 over '18, where we are seeing a corresponding double-digit increase in revenue on that CapEx. So it's an ROI item. In terms of the ongoing recurring CapEx, which, I think, that's your question, excluding resident amenity services, that's about $860 a unit, so call it $10 million on the same-store pool.

Our next question will be from John Massocca with Ladenburg Thalmann.

As you look out into the tax -- maybe a break from the tax this year. As you look out into the pipeline of potential rehabs, are you kind of seeing opportunities to maybe do additional rehabs and kind of more of the legacy assets? I know you traditionally have in rehabs the entire amount of units outstanding in a property you purchased. And is that maybe where some of the smaller partial upgrades and kind of appliance additions are going?

Yes, the partial upgrade program is a huge opportunity and it's largely untapped. What we've been doing after we've gone through and renovated the full 5,000 units' suite of upgrades, kind of on the second generation we'll add a backsplash or upgrade the appliance and that we would consider that a partial. And it's a lower dollar amount spend in a lower dollar amount increase, but ROIs are phenomenal. So that's an opportunity that exists, I'm thinking about 3,000 units in the portfolio, 2,000 to 3,000 units.

Okay. That's -- 30% percent of the portfolio, you'd say then can be these kind of smaller dollar amounts?

Yes.

And then specifically with Southpoint, I mean, have you seen any increase in reverse inquiries, given the Amazon announcement that they're moving to Northern Virginia and has expected pricing at all, I know it's one of the assets you've kind of put up there is disposition -- central disposition candidate?

Yes, we have. The answer is, yes. And we've seen some increased interest, just generally after national multi-housing conference and in reverse inquiries. And it's 1 that we will sell this year for sure given that everything is transpired with Amazon, although, it's not in Arlington per se. So it's still drafting off of the news. And one of the reasons why we lowered the cap rate range modestly by 10 basis points. So we do expect to transact at that kind of $23 million to $24 million range this year.

And then kind of going back to the taxes, and maybe other side of things. I mean, are there any outside of kind of DFW in Houston? I know you had have been optimistic about giving some kind of positive assessments on appeal and some of the other municipalities, I mean, some of that's still outstanding? Or did some of that hit in 4Q and just get completely wiped out by what was going on in DFW, in Houston and the accrual from all that?

So I think the 2 opportunities are -- and we don't -- we haven't been able to quantify it yet, but our -- in Marietta and Atlanta because we got hit pretty hard there last year. And then Nashville, I think, we'll have a good comp set up for the same-store pool going into 2019 because we are -- those don't reassess every year so we're drafting off of kind of a stale tax number and think that, that will help bring Nashville same-store NOI numbers to the top of the heap this year. So those are, I think, the 2 opportunities outside of the potential for positive tax appeals in DFW.

Our next question will be from Merrill Ross with Boenning Inc.

Looking at the acquisition in Phoenix, the amount of money that you plan to spend on value-add is roughly twice the average that you spent so far. And I'm wondering if that means that the rental is more complex and they were therefore will take longer and regular occupancy will be more affected to the downside because of that?

I don't think so, Merrill. I think that the reason they've gone up modestly, I think, is because, #1, you have some inflation, right, in labor and in materials, but the assets that we've acquired recently are largely larger units. So larger units just require more capital. And so the spend is a little bit more, but the ROIs are correspondingly the same or roughly the same. And then the occupancy is -- we just do these on turns. We don't see any hiccup there. We're still doing them 2 or 3 weeks in-house as units naturally turn. So we had planned to continue to drive and maintain our occupancy goals in 2019.

(Operator Instructions) And our next question will be from Tayo Okusanya with Jefferies.

Another quick one just around acquisitions and on the guidance range that you provided. When I kind of think about acquisitions, would you just talk a little bit about this year, how you generally expect to fund acquisition? And based on that funding strategy, whether transactions you expect them to be accretive right off the gate? Is the accretion going to be more driven by the value-add work you do over time? And how do you balance, again, your capital allocation to acquisitions relative to your need to possibly delever?

Yes. So I think, the acquisitions that we're targeting -- first of all, the acquisitions that we've done in the last 6 months, as you heard, I went through Cedar, Brandywine, Crestmont and how we're doing compared to our NOI budgets and those have surprised to the upside quite potently and we're pleased with that. So we think those will be accretive not the same-store, but certainly going forward, especially because in the way they were funded with equity through the equity raise. The acquisitions that we've done and -- that we did in January, we're hopeful that they'll be accretive year 1, but we're certainly underwriting them to be accretive in year 2 or once they undergo full year renovations. Like I said, we think, we can grow that NOI 6.5% a year. And then balancing -- what we've always done is take a look -- taken a look at deals that we've liked and run through the model, the corporate model of how do we best finance it? Do we dispo? Do we raise equity? Do we hit the ATM? Do we do a combination of both? And you can be sure that, that exercise occurs for a $20 million deal or a $100 million deal. And so I think what'll see this year is it just depends on where we are in terms of our stock price and what the bid on the private market is. If we're lucky to continue to have a good bid here, we'll look to delever and maintain leverage and then delever. We can still do the same thing with selling assets. An upside to our core FFO guidance would be if we didn't have to sell assets. But nonetheless, it is currency to use. We can sell anything at any time right now for far more than what we -- what we're trading on an implied cap rate basis. So I guess, the long answer or the short answer from a long-winded answer is that, we're looking at all the tools and the toolbox and we do think that we'll hit that acquisition guidance this year though.

And just to go back to real estate taxes for a quick second. I think, again, you mentioned this idea that on the successful appeal, you may get about $0.5 million back or so. But again even if I kind of back that out of your same-store 4Q '18 versus 4Q '17, you figure a fairly large kind of 30% quarter-over-quarter increase. And I guess, when I think about that relative to your 6% forecast for next year, I'm just trying to understand that the differences and why real estate taxes would not go up even more than 6% next year?

As we settled -- a part of the benefit last year or the comp rather since we had a lower tax number last year as we got some of the settlements that have been kicked out to February and April this year, we settled in Q4 last year. So that was -- that's part of the benefit. And one of the, I think, or the issue -- one of the benefits though hopefully is, or at least from our consultants and lawyers' perspective is that we can toggle '18 and '19 together. So we can say, all right, we'll give a little bit more up in '18, which we have certainly obviously from all these questions and -- but we can lock in a lower number of '19, much lower than hopefully 6% increase. So that's the horse trade that we'll look to make. And we think it's possible, we've already done it on several assets 3 and we'll continue to try, but I think that -- I think that's the opportunity.

And again, Tayo, without horse trade, we end '18 at pretty strong number. So we thought that's definitely worth the "cost here" because we saw a very good quarter. And this is all accrual-based. I mean, in the end, we think, that our tax numbers are pretty strong because we don't just take the assessments, we don't just settle out of convenience for an easier path, we look to truly maximize our bottom line.

Our next question will be from Jim Lykins with D.A. Davidson.

So back to the Phoenix portfolio. First of all, I apologize that I missed this, but how many value-add units are there?

400.

400? Okay.

Yes.

And any additional commentary on that transaction, anything you can tell us about maybe occupancy, average rents? What the vintage is? How you'll be leveraging efficiencies?

Yes, great questions. Average vintage is 2 assets were built in '95, and one was built in '94. They're all large units. Some have 9-foot ceilings, 2 of them have 9-foot ceilings. The other one is 8.5. Extremely well located. There, I guess, they're larger units and they're smaller size, so you can run occupancy pretty heavy and push rents there. The average rent, I think, across the 3 of them are a little bit higher than our Phoenix average at about $1,200 a unit. They're also in more affluent areas than our other deals. So we think it's a great potential replacement -- 4 replacement assets for kind of Pointe at the Foothills when you're selling a, not a lower quality location, but certainly a deal where we've harvested gains and made some money. So that was the theory, stuff that we've done in the last 3 or 4 years.

And for value-add, you mentioned a number of full and partial upgrades. Should we be thinking about that weighted equally each quarter? What will be a good run rate to use?

Yes, I think, this year, we've always try to hit 400 a quarter. Yes, I think, 350 to 400 a quarter is still good number.

Okay. And as you look across the portfolio right now, how long do you think it’s sustainable to stay north of the 20% ROIs on value-add?

Yes, certainly through this year and into next year. I mean, I think, we ended it or the prepared remarks by saying the demand is still there and the gap between A and B is still 27%. I mean, that's our story, it has been forever. It will continue to be. We're not going to start buying new deals or see properties, we just think the B space will continue to exhibit this nice little window of affordability with the ability to drive outsized returns by delivering CapEx solutions. I think that, that story is going to continue as long as there is a need for affordable nice well-located housing in the United States are in our markets.

And Jim, for 2018, our ROI for renovations was 25%. So they were pretty -- we came into '19, pretty well north of a 20% number. We think 22%-or-so for this year is very achievable.

I'm showing no further questions in the queue at this time.

All right.

All right. We'll wrap it up. Thank you, to, everybody for participating.