NexPoint Residential Trust Inc (NXRT) 2022 Q2 法說會逐字稿

Good day, and welcome to the NexPoint Residential Trust Q2 2022 Conference Call. Today's conference is being recorded.

Now at this time, I would like to turn the conference over to Jackie Graham, Director of Investor Relations. Please go ahead, ma'am.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust conference call to review the company's results for the second quarter June 30, 2022.

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 nxrt.nexpoint.com.

Before we begin, I would like to remind everyone that this conference call contain 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.

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, NXRT does not undertake any obligation to publicly update 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.

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

Thank you, Jackie, and welcome to everyone joining us this morning. I really appreciate your time. Just a quick heads up. I'm not in the room with the rest of the team, I've dialed in. So hoping/praying I have a good connection here. I apologize in advance, if there's any disruptions to the backup contingency plan.

But as Jackie mentioned, I'm Brian Mitts, and Matt McGraner, our CIO is joining me today. I'll kick off the call and cover our Q2 and year-to-date results, update our NAV calculation and then provide guidance. I'll then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance and details on the portfolio.

Results for Q2 are as follows. Net loss for the second quarter was $7.8 million or a $0.30 loss per diluted share on total revenue of $65.8 million as compared to a net loss of $3.4 million or $0.14 loss per diluted share in the same period in 2021 on total revenue of $52.6 million, which is a 25% increase in revenue.

For the second quarter, NOI was $38.8 million on 41 properties compared to $30.2 million for the second quarter of 2021 on 39 properties, a 29% increase in NOI.

For the quarter, year-over-year rent growth on renewals averaged 16.9% across the portfolio and year-over-year rent growth on new leases averaged 21.1%. Given where rental rates are in our markets for Class B apartments and equivalent single-family rental product, we believe there is ample room for future outsized rent growth.

For the quarter, same-store rent increased 19.2% and same-store occupancy is down 150 basis points to 94.5% as we focus more on rate than occupancy during the quarter. This, coupled with an increase in same-store expenses of 10.9%, led to an increase in same-store NOI of 16.4% as compared to Q2 of 2021. Rents for the second quarter of 2022 on the same-store portfolio were up 5.6% quarter-over-quarter.

We reported Q2 core FFO of $20.3 million or $0.79 per diluted share compared to $0.56 per diluted share in the same quarter 2021 for an increase of 40% on a per share basis. In the quarter, we completed 650 full and partial renovations, an increase of 22% from the prior quarter and leased 609 renovated units achieving an average monthly rent premium of...

It looks like Brian has lost connection. This is David Willmore. I'll hop in and conclude Brian's prepared remarks.

During the quarter, we completed 650 full and partial renovations, an increase of 22% from the prior quarter and leased 609 renovated units, achieving an average monthly rent premium of $138 and 24% ROI during the year, which is 310 bps higher than our long-term average ROI and renovations.

Inception to date in the current portfolio, we have completed 6,834 full and partial upgrades, or 44% of the total units, 4,724 kitchen upgrades and washer/dryer installed in 9,624 technology package installations achieving an average monthly rent premium of $142, $48, $42, respectively, and an ROI of 21.8%, 69.7% and 33.5%, respectively, each of which helped to drive our NOI year-over-year higher by 28.5%.

On April 1, we acquired 2 properties, one located in Sandy Springs, Georgia and the other in Phoenix for a combined $143.4 million, comprising 562 units in total.

Our net loss for the year was $12.5 million or $0.48 per diluted share on total revenue of $126.6 million as compared to net loss of $10.3 million or $0.41 per diluted share in the same period in 2021 on total revenue of $104.4 million or an increase in revenue of 21%. Year-to-date, NOI was $75.4 million on 41 properties as compared to $60 million on 39 properties for the same period in 2021 or an increase of 26%.

For the year, same-store rent increased 19.2% and same-store occupancy was down 150 basis points to 94.5%. This coupled with an increase in same-store expenses of 7.8%, led to an increase in same-store NOI of 16.4% as compared to the same period in 2021. We reported year-to-date core FFO of $40.4 million or $1.58 per diluted share compared to $1.13 per diluted share in the 6 months ended June 30, 2021 or an increase of 40%.

For the year, we completed 1,181 full and partial renovations, an increase of 90% from the prior period in 2021. Based on our current estimate of cap rates in our markets and forward NOI, we are reporting a NAV per share range as follows: $80.70 per share on the low end, $96.27 per share on the high end and $88.48 per share at the midpoint. These are based on average cap rates ranging from 3.9% on the low end to 4.2% on the high end, which has increased approximately 40 basis points from last quarter to reflect the rise in interest rates and observable increases in cap rates in our markets.

For the quarter, we paid a dividend of $0.38 per share on June 30. Since inception, we have increased our dividend 84.5%. Year-to-date, our dividend was 2.08x covered by core FFO with a payout ratio of 48% of core FFO.

Turning to guidance. We are reiterating core FFO and revising our same-store NOI guidance upwards. For same-store NOI, we're estimating 14.7% on the low end and 17% on the high end. The midpoint at 15.8% is a 150-basis-point increase from our prior guidance of 14.3%. At the midpoint, 2022 core FFO guidance represents a 24% increase over 2021 core FFO of $2.43 per share.

With that, I'll turn it over to Matt for commentary on the portfolio.

Thank you, Dave. Let me start by going over our second quarter same-store operational results. Our Q2 same-store NOI margin improved to 58.4%, up 118 basis points over the prior year period. Rental revenues showed 8.8% or greater growth in 9 out of our 10 markets while same-store average effective rent growth reached a record 19.3%. 8 out of our 10 markets achieved year-over-year growth of 10.4% or higher with Tampa leading the pack with 21.7% total rental revenue growth.

Second quarter same-store NOI growth was special across the board with the portfolio averaging 16.4% holding in line with Q1, driven by an accelerating 14.2% growth in total revenues. 8 out of our 10 same-store markets achieved year-over-year NOI growth of 13.2% or greater.

Operationally, as I mentioned, the portfolio experienced continued positive revenue growth in Q2 with 9 out of our 10 markets achieving growth of at least 8.8% or better. Our top 5 markets were Tampa with 21.5%; South Florida at 18.3%; Nashville at 18%; Orlando at 17.8%; and Atlanta and Phoenix were tied at 15.4%.

Q2 renewal conversions were 49.3% for the quarter with 6 out of 11 markets, executing renewal rate growth of at least 15% and no markets were under 10%. Our leaders were Tampa at 26.2%, Orlando at 24.1%, South Florida at 22.5%, Phoenix at 16.9%. And on the occupancy front, we are pleased to report that Q2 same-store occupancy closed at over 94% despite a robust renovation output and as of this morning, the portfolio is 97.6% leased with a healthy 60-day trend of 91.4%.

The occupancy strategy for Q2 was more akin to our pre-pandemic strategy of pushing rents to force turnover in order to achieve primarily 2 goals: close the gap on loss to lease and renovate more interiors. Our 2Q same-store loss lease was 12.7%. This is about 5 percentage points ahead of RealPage's national average in the 8% range because our Class B rents continue to outpace growth -- more growth in the overall market. Our initial base case for the second half of the year saw rent growth in loss lease moderating, but the actual market fundamentals have outperformed expectations to start this year and our outlook remains constructive. We now expect to see loss lease decline into the high single digits in the second half with the most significant reductions coming in Q4 as we shift priority to higher occupancy over max rate during the slower traffic and demand season.

As Dave mentioned, our occupancy strategy also led to 650 completed rehabs during the quarter, generating an average of 25% return on investment, and our second highest rehab output since the inception of the company.

As we enter the second half of the year, we will place more emphasis on occupancy, and we'll likely see some moderation in rents but do expect continued strength in rents in the mid- to upper teens for the rest of this year and high single to low double-digit growth going into 2023. So July rent so far showing continued strength and strong traffic despite record high temperatures in most of our markets with a blended 16% growth on new leases and renewals on roughly 1,100 leases.

Turning to 2022 guidance. The strength in rent rolls and GPRs and total revenues allowed us to increase same-store NOI guidance again for the second time this year. As Dave said, to a range of 14.7% to 17% with the midpoint 15.8%.

I'll quickly share a few data points that have informed our guidance in underlying the strength that we're seeing in our markets. First, our resident incomes continue to see healthy growth.

Both ours and RealPage's data show renter average annual incomes are up 24% from January 2020. The rent-to-income ratios in our markets as of July are roughly 23% as our tenants average household incomes continue to increase to now over $70,000 annually. The gap between Class A and Class B rents also remain elevated as nearly $500 per unit, leaving little room to trade up to Class A or out to SFR. Two factors: dearth of construction financing due to credit market volatility and banking system stress tests, plus elevated hard costs are likely to keep this rent delta between Class B and other trade-up options at historically wide levels. These factors keep us constructive on our portfolio growth over the near to intermediate term.

Turning to transaction activity. No surprise here, but the transaction market has cooled significantly due to credit market volatility and negative leverage in most commercial real estate property types. Most institutional owners have put off disposition plans until later this year, unless there is a fund of life issue or pending loan maturity.

Deals under contract, pre May have seen 10% to 15% retrades on valuation, sending spot cap rates to 3.75% to 4% in our markets. We've recently seen some capitulation from sellers at 4% cap rates as well as buyers being able to underwrite growth to positive leverage in years 2 or 3. Thus, as has been the case since our first earnings call, we've been transparent on our view of cap rates in NAV, as Dave said, have adjusted our NAV downward to a new midpoint of $88 per share. At today's prices, our implied cap rate is north of 5%. And as we've routinely done in the past and to the extent we stay at these levels, we will look to sell assets, namely our Houston portfolio and buy back our stock.

In closing, the first half of 2022 has been exceptionally strong for the company. We're expecting to see further strength in fundamentals for middle market rental housing, particularly in our Sunbelt markets, and we maintain optimism that 2022 will be one of our best internal growth years ever. And that's all I have for prepared remarks.

Thanks to our teams here at NexPoint and BH for continuing to execute. And now I'd like to turn the call over to the operator for questions.

(Operator Instructions) And we'll hear first from Tayo Okusanya with Credit Suisse.

Congrats on the quarter. From our end, I guess the first question is kind of guidance related. Again, a good solid beat in 2Q versus us versus The Street of about $0.05, $0.06, but you guys didn't raise the midpoint of your guidance. So just curious about what that implies about the back half of '22.

Nothing operationally. It's a great question, Tayo, but nothing operationally. It's more of timing around the Houston dispositions on the assets and holding those on a little bit longer than we otherwise would have. As you recall, we were attempting to take them out right as the downturn in the credit markets. And like I said, put those off until probably after Labor Day. So that's the "hesitation" if you will. But again, nothing operationally. It's just that delay sort of a timing issue.

Yes, but -- if there's a delay, shouldn't that kind of help the numbers because you still have that NOI coming in?

Yes, you have the NOI, but you also have -- they're being held when we increased the revolver on the interest expense is going to basically offset the NOI.

Okay. Got you. Okay. So that's number one. And then number two, again, just again, with the backdrop of rising interest rates, again, you guys little bit more leveraged, have a lot swaps in place. Could you just kind of help us think through that and the potential impact of your rates keep rising, how that ends up impacting numbers not just in back half of '22, but kind of going into '23 given a lot of the swap maturities.

Yes. I mean the swaps will mature until another kind of 4 years or so. So the near term is favorable. What we're really talking about is the revolver. Some things we're looking to address the revolver with is we're in talks with the agencies to potentially lower spreads on the impending maturities in '24 that we think the spread differential could be about 50 basis points and largely offset any, I guess, any increased interest expense. And actually, fundamentally save us anywhere from $1 million to $2 million a year starting next year if we're able to get that done. We feel pretty good about it. So that's kind of an active balance sheet maneuver that we're in talks with now to mitigate the unhedged piece of the book.

Got you. And then one more, if I may, if you could indulge me again, just the NAV recast again with the -- with the kind of higher interest rate -- higher cap rates you guys are using. Again, it sounds like, again, you are actually seeing that in the transaction markets right now, you're kind of confirming that cap rates are moving for kind of, again, the affordable housing type multifamily. Could you talk a little bit about on the Class A side, if you're kind of seeing a similar change, even though -- again, it's not stuff you traffic and, but just given it's your market.

Yes, sure. No, we definitely are. I mean the reason why you're going to have lower cap rates in B is because you can underwrite growth. And even at the lower levered Class A core type buyer there's still basically at parity or negative leverage ongoing in cap rate with less growth. So we've seen really Class A unless it's, of course, some irreplaceable location or something special with the asset, but those cap rates are moving also into the 4 range as well.

We'll now hear next from Michael Lewis with Truist Securities.

First, I just wanted to follow up on the question about the guidance. It sounds like it's really interest expense that's keeping you from raising that because, you did $1.58 in the first half of the year, core FFO. That would imply at the midpoint just $1.43 in the back half. And it sounds like you're going to hold Houston longer, maybe that's a wash because of the financing on it. But is it fair to say it's really just the threat of interest expense that's keeping you from raising the range?

Yes. It's just -- it's really the curve is what we're trying to monitor on the revolver. And then -- like I said, we're doing a couple of things to mitigate those items as well as if we're able to sell Houston earlier. So those are some mitigants. And I'd like to remind everyone that we've raised guidance twice, too, from initial guidance of $2 and change -- $2.90 and change and then to $3.01. And so yes, I think we still feel pretty comfortable with the strength in the portfolio.

Yes, I understand. You already put the bar up there, right? 24% growth isn't even too fabby.

Yes.

And then I wanted to ask a question a little different. I noticed you had quite a few communities that had a handful of units that are down due to casualty events. I was just wondering if that's -- was that like one weather event? Is that sort of a -- is that normal to have units out of service that you're not earning on, I guess, you're collecting casualty. Anything to talk about on that, anything notable?

Yes, happy to. No, I mean, unfortunately, from time to time, the portfolio and communities experienced fires, and that's what you're seeing. We've had some kitchen fires in a couple of the assets that have taken down units. And so we're actively remediating and trying to get those back up as soon as possible.

But any operator or landlord that's over on the garden B style deal will kind of feel our pain, so to speak, but that's what that is.

Okay. And then last for me. I saw the same-store expenses were up quite a bit in the second quarter. You raised the guidance but not too much. What's kind of the outlook? Or what -- I guess, what drove that increase in the second quarter? And then it sounds -- the guidance kind of implies that will come back in a little bit in the second half.

Yes, that's a great question. Most of that is R&M in turn. So repairs and maintenance expense that we don't capitalize because it's not a capital item with ROI component. So a lot of that is, quite honestly, during the second quarter was HVAC and contract labor, where we had to fix and cool -- cool the properties during the heat. So that was a spike. We don't expect that to continue or to accelerate, but that's what it was during the second quarter. Plus, we were churning, like I said, to capture -- or close the gap on loss to lease and renovate.

Moving on to our next question, which will come from Buck Horne with Raymond James.

Question about supply in your markets and kind of what you're looking at coming to the market over the next few quarters. I know a lot of that product may not be directly competitive to your price points. But I'm curious how you're thinking about, how that may affect cap rates or asset pricing as investors kind of digest that product and/or do you think it could get to a level where it does begin to pull renters potentially away from your properties?

Yes. Good question. There is some supply coming online. I would say that those were existing deals in motion. If you're trying to start something today, like I said on the prepared remarks, it's hard to generate a yield on cost north of 5% to justify the development. But markets like Phoenix, for example are seeing some high supply. Some -- obviously, Dallas is always blowing and going. But I still don't think it's going to have a dramatic impact on our portfolios, so to speak, because I think the new developments need to achieve $1,900, $2,000, $2,100 in rent to justify that -- to justify that new build, and that's roughly $700, $800 from -- of headroom from our units.

So while we're continuing to push rents in the teens to low 20%. The end of the year, effective rent for us is, I think, $1,420 or so. So still enough headroom in our estimation to still be competitive. Added to that, some move outs, moving expenses, et cetera, it kind of addresses our underlying fundamentals and thesis. So we think we're okay.

Got it. Got it. Appreciate that. And just in terms of like leasing traffic, just as kind of fears of recession seem to drumbeat of economic concerns seem to be building out there. Have you seen any sort of change in renter traffic or behavior around current leasing in terms of interest per available unit, I don't know if it's web traffic or a walk-in traffic. Any other indicators that might suggest kind of the demand level is starting to taper off?

No, not for our -- not for the Bs. We are seeing some of that in Class C where renters not that we own Class C, but just observing Class C assets, renters are more on a fixed income basis, rents are growing at 8-plus percent in Class C. Obviously, that wage growth is hard to sustain those types of rental increases. So you might see some bad debt and some delinquency tick up in that space. But as far as Class B, we haven't seen any demand abatement yet, and obviously, still pushing through great new leases and renewals. So traffic is still healthy. Obviously, during the summer months in Phoenix or Dallas or something, it's a little bit difficult, but everything still feels good.

And now we'll move to our next caller, and that will be Rob Stevenson with Janney.

Matt, how has pricing been for any similar quality Houston assets to yours that you've seen traded recently?

For the quarter, I would say, we softly got unsolicited bids on Old Farm, in Stone Creek before the market [bell], and they were just bids we couldn't transact during the timing. But those -- that was kind of [3.75], [3.8] and then those buyers have come back and they're in the [4.25] range. So that's the best kind of apples-to-apples comparison that I can give you. So we could transact at that level today, if we wanted to.

Okay. I mean -- and from your standpoint, I mean, when you look forward, is there any urgency with oil prices where they are to transact Houston in the near term? Or if the pricing doesn't -- is it where you want it? Do you guys hold that into 2023? How are you guys thinking about that? Or is there never going to be a better time to really sell?

Yes, I agree with you, and we share that. Absolutely. We think it's a good year to do it. Oil demand, as you said, is strong, and that's helpful for the investor kind of optimism inflict in the market. And it's also Houston, we want to do a lot of things with Houston.

We want to sell the assets, buy back our stock, delever, et cetera. But those are the assets that are also the slower same-store NOI growth assets within the portfolio. So there's a multitude of reasons to sell them.

Okay. And I guess, how active are you guys in the acquisition market? I mean you bought stock -- it's just under $0.74 in the quarter. Stock is down in the low 60s versus of high 80s NAV. Are there any acquisitions that you guys could see out there that would make sense versus your own stock at this point until those stock price is much higher?

No. Not at all.

All right. And then last one for me. So if I look at the same-store revenue growth, you guys were 11.3% in the first quarter and then surprisingly jumped up to 14.2% in the second quarter. Is the third quarter really when your year-over-year comps get their toughest and so you start to see the aggregate growth come down because you're 12.7% in the first half and then the midpoint of guidance is 12% and even the high end of the guidance is only 12.4%. So it's suggesting coming down, but is there any likelihood that you can maintain 14-ish, high 13s same-store revenue growth in the third quarter? Or is it just the law of big numbers on year-over-year comps going to get in the way of that?

That's again, a good question. You're right. The third quarter comp is going to be the first kind of tougher one that we see. But right now, our revenue -- I mean, it's 1 month, but July, we're in that high teens. So I think it's sustainable, as I sit here today and obviously, things could change. But I do think we can push through teams through the third quarter. And as we build occupancy maybe 10% to 12% and 13%, 14% in Q4. So that's what we're forecasting at least. We think that we can do -- kind of 14% to 15% really is kind of our income forecast for Q3 and Q4.

Okay. And I guess last one for me then. Are you seeing any material incremental pressure or relief on material and labor cost due to the upgrades?

Not on the material costs. In terms of costs, we are having greater accessibility to the durable goods like washer and dryers like the supply chain there has loosened a little bit. So that has caused us to be able to reduce the turn time on renovation from kind of 35, 40 days, which was pandemic to less than 30. So that's where we're seeing the, I guess, the best improvement but still contract labor and goods, pricing is still elevated.

We'll now hear from Michael Gorman, BTIG.

Matt, could you just spend a minute and talk about Vegas and kind of what you're seeing in the market there? I noticed quarter-over-quarter, it was the only market with the negative rental income. But it seems like -- I don't know what happened there. The 50 basis points occupancy decline up against a pretty decent quarter-over-quarter rent growth. Can you just walk us through kind of what happened there and what you're seeing in the Vegas market?

Yes. Thanks, Michael. It's really isolated to one asset, which is Bloom. And we've had kind of notorious late payers and delinquent renters there throughout the pandemic area. And we're able to clear out quite a bit of evictions in the 75 to 100 resident range. And renovate as many of those and try to turn the demographic profile of that asset. But largely, it was the washout of those evictions where the courts opened and we were able to push through a lot of these late payers and skips and hopefully, that, that -- you won't see that again going forward.

Okay. And then I guess, just were those higher rental units -- because I'm just trying to figure out if I can compare the Vegas numbers, with like the Atlanta numbers. And they're in the same ballpark for effective rent growth, same ballpark for occupancy change. But Atlanta saw a 5% increase in rental income quarter-over-quarter and Vegas saw a 1.5% decline. I guess I'm just -- I'm not quite clear what drove that, but anything you could add there would be helpful.

Yes. I mean I think your apples to oranges there because the Atlanta job market is a little bit more diversified, less leisure and while it might be the same whole dollar rent, it's a different market, different tenant. These are -- this asset, in particular, doesn't have as much of a diversified job basis as an Atlanta asset or the other Las Vegas asset. So yes, I think it's -- like I said, I think it's just attributable to this one asset and changing the demographic profile.

Okay. Great. That's helpful. And then maybe just more holistically, as you look at the portfolio, and we get deeper into the housing cycle. Obviously, there's pressure kind of across the board with rents going up in almost every product type. Have you seen any change in terms of where the move-outs or the non-conversion renewals, where they're going when they leave your properties?

Yes. I mean I think it's for another kind of competitive garden deal most likely. We haven't -- we spent a lot of time with RealPage yesterday. And the good news for our markets is that while gateway and maybe this is what you're getting at, while gateway traffic and rents are accelerating in San Francisco, New York and other places like that. It's not coming at the expense of the Sunbelt market. So we're not seeing a flight back to New York, so to speak. What we're seeing is that people are just moving for personal reasons.

Obviously, not to buy a home, but they either had a job like a new job relocation or in some cases, doubling up with the roommate now is kind of the more likely option that we're seeing. So that's really where it's going. We're still seeing net migration data very positive, 20-plus percent inflows from California and Illinois. So that's a trend that we're continuing to see also. But otherwise, that's -- I think that's the story.

Yes, that's helpful. We noticed the same trend that the improvements on the coast not having, not coming at the expense of the Sunbelt.

Last question for me. I think you touched on it briefly, but when you're thinking about the cap rate shifts, how much of that do you think you can attribute just to the disruption in the capital markets versus are you seeing buyers change their underwriting for future rent growth. Is that having an impact on pricing as well? Or is it almost entirely just due to the cost of capital?

Yes. I think it's the cost of capital. We have had good meetings yesterday with some of the large brokerage houses as well, and it's largely just as the shock to the system that was so quick. And quite frankly, the lenders, whether it's banks that are charging more for balance sheet warehousing or the agencies that can't seem to find, they're honed into the credit market, too, with the Freddie K securitizations and spreads and demand from bond investors.

So all that is trying to find a place in our calm place to sit and settled for a while, and it just hasn't happened yet. So that's -- we know where kind of floating rate spreads are kind of for normal highly levered buyers, it's 200, if those -- so far on top of that plus cap costs, your negative leverage.

So unless you have a growth story in underwriting 10-plus percent then just didn't work right now. Fixed rate is the buy and hold long-term fixed rate buyers that's at 4.5% to 4.75% all in. And so obviously, that doesn't work unless you compare cap rate in the 4.25% to 4.5% range in that growth. So everyone seems to be liking the same assets and is constructive. But I think they're waiting to have a credit market settle down a little bit and hopefully it does.

(Operator Instructions) We have a follow-up from Tayo Okusanya with Credit Suisse.

The NOI margin improvement during the quarter, let's just talk a little bit about what drove that. And again, longer term, where we're going to expect NOI margins to be as you guys start to do more with prop, tech and just again, relative to comping you guys versus your peer group where your peer group turns to have underlying margins in the low to mid-60% range.

Yes. I mean that's been our aspiration, right, and we're continuing to do it. I think largely the improvement this quarter and really the first half of the year, was on the noncontrollable side. If you recall, over the past few years, we've just gotten hammered on property taxes and insurance. The team has gotten -- we've changed consultants in several -- on both of those fronts. And we've honed in better control on the noncontrollable expenses, if you will.

So those are a couple of the categories that we see. I'd also say on the payroll and leasing front, we're taking the lead of some of the gateway and other REITs and operators in terms of virtual leasing and having, maybe a call center leasing agents instead of having on-site employees at the sites. So I think you'll continue to see that cost come down and be more efficient on the property management staffing side. And so I'd say those are the primary 2 category drivers of same-store NOI margin improvement that we hope to continue to execute on.

And at this time, there is no additional questions in our queue. I'll turn the call back over to your host for any additional or closing remarks.

Yes. Thank you. I appreciate everyone dialing in today and look forward to next quarter. And have a good rest of the day. Thank you. Bye-bye.

And with that, ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation, and you may now disconnect.