NexPoint Residential Trust Inc (NXRT) 2025 Q1 法說會逐字稿

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. nAt this time I would like to welcome everyone to the NexPoint Residential Trust first quarter 2025 earnings call. (Operator Instructions)

And now I would like to turn the call over to Kristen Griffith, Investor Relation.

Thank you. Good day, everyone, and welcome to the NexPoint Residential Trust 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 and Investment Management.

As a reminder, this call is being webcast through the company's website at NXRT nexo.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 1,995 that are based on management's current expectations, assumptions, and beliefs.

Listeners should not place a new 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 risk and other factors that could affect any forward-looking statement. The statements made during this conference call speak only as of today's state and except as required by law and expertise 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 Paul Richards.

Kristen, and 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 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 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 the Q1 2024.

As compared to Q4 2024, rents for Q1 2025 on the same store portfolio were up 0.3% or $4. 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 for the properties in the portfolio, we completed 210 full and partial upgrades, at least 201 upgraded units, achieving an average monthly rent premium of $62 and a 16.1% return on investment.

Since inception, NXRT has completed installation of 8,558 full and partial upgrades, 4,795 kitchen and laundry appliances, and 11,389 technology packages resulting in $172, $50 and $43 average monthly rental increase per unit, and 20.7%, 64.5%, and 37.2% return on investment respectively.

NXRT paid a quarter dividend of $0.51 per share on common stock on March 31, 2025. Since inception, we've increased our dividend 147.6%. For Q1, our dividend was 1.4 times covered by core FFO with a 68.3% payout ratio of core FFO.

Turning to the details of our updated NAV estimate, based on our current estimate of cap rates in our markets and Ford and why, we are reporting a 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 the full year 2025 guidance, NXRT is revising 2025 guidance ranges for earnings per diluted share and core of per diluted share. Due to the share buyback program we have initiated in Q2, earned interest rate environment, as well as plans to continue to layer in additional swaps, these guides, these guidance ranges are as follows for earnings loss per diluted share, $1.08 at the high end, negative $1.36 at the low end with a midpoint of negative $1.22 and core FFO per diluted share of $2.89 at the high end, $2.61 at the low end with a midpoint of $2.75.

NXRT is reaffirming same store rental income, same store total revenue, same sort of total expenses, same to NOI, and acquisitions and dispositions. Lastly, I would like to take time to get 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, 2024 or 2025. Since April 1, 2025, the company has purchased 223,109 shares of its common stock, totalling 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 silver swap with JP Morgan 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 in an average occupancy of 95.1%. We're tactically pushing rate increases and accelerating interior renovations into a fundamentally stronger peak leasing season ahead. And as of this morning, the portfolio is 95.5% leased with a healthy 60-day trend of 92%.

Q1 same store NOI was down 3.8%, driven by 80 basis point decline in rental revenue and a 1% decline in total revenues. Though negative, we were 2% better than our internal forecast and saw an improvement of almost 40% in bad debt year-over-year and believe same store NOI will inflect higher over the remainder of the year.

Renewal conversions for eligible tenants were 54% for the quarter, achieving a 73 basis point increase in lease renewals. April blended lease growth is expected to finish flat, but there are signs that demand remains strong, leading to positive rent growth later in the quarter in the back half of 2025, consistent with our initial guidance for the year. I'll return to this point in a minute.

Operating expense growth finished the quarter 3.7%, maintaining the moderate growth we have seen over the last several quarters. Repairs and maintenance expense were in line at 4.9%, in turn, costs saw 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 10 markets for Q1 absorption.

Affordability challenges persist, positioning our assets to capture increased rental demand and in an improving operating environment. We have shifted to rent growth initiatives in most of our markets while continuing to balance occupancy maximization where new deliveries and concessions are still impacting our assets.

Through 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 submarkets most directly hit with this new competition and real page 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 delivery deliveries year every year within NXRT submarkets from 17,636 units to 13,750 units.

In the years to follow, the supply picture improves even more dramatically with the lack of new starts in recent years, with an additional 38% decline in new supply in 2026, just 8,494 units. And a staggering 82% drop in 2027 to just 1,513 units in our sub markets amidst this improving outlook, we have seen a marketing acceleration in new lease pricing 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 10 markets showed flat to positive 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 and 4 of our 10 markets South Florida, Charlotte, DFW, and Las Vegas all shipped 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 properties out of our 35 properties.

With particular strength in Las Vegas, 7%, and Tampa at 4.8%, DFW at 3.5%, in South Florida at 2%. Renewal growth in Q1 was muted as we aim to reduce exposure to still stagnant new leases while minimizing 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 want to spend a quick minute on the impacts we are seeing related to tariffs. We NBH construction are actively monitoring this very fluid situation, but so far, the impact on NXRT is pretty muted.

Most vendors we interact with have notified customers of potential increases in supply disruptions related to tariffs. Such vendors maintain NXRT or flooring suppliers like a [Shaw] or appliance suppliers like a GE or paint like Sherron 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 multi-family development partners, we aren't hearing anything causing material concern. Most lumber and concrete providers, for example, are local to the US and supply chains 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, an expert is not seeing a material impact. We continue on the transaction front. We continue to actively monitor the sales market for opportunities and stay close to any movements on cap rates in our markets.

After a pretty noticeable increase in marketed offerings to start the year, most institutional investors are in wait and see mode for clarity around the interest rate environment and more recently tariffs. That said, pricing expectations for quality assets in our markets remain strong, and most processes and sellers are expecting to transact at five caps.

Indeed, there are several portfolio processes currently underway that should provide real-time transparent transparency to our NAV guide with add similar vintages and geographical overlay to NXRT's portfolio. These guides are 5% to 5.25% cap rate ranges and approximately 200 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 at BH for continuing to execute, and now we'd be happy to take any questions.

(Operator Instructions)

Kyle Katorincek, Janney.

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

Sorry, did you say what are other 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 RNAV guidance and then some DFW, which makes sense given the supply is, heavily still delivering in those two markets. I don't know Bonner, do you have anything to add to that?

Yeah, I think it's also a qualitative discussion, right? The bid is really aggressive for well-located bourbon, BB plus assets, similar to ours, I think, more of the product that's out there is either, broken capital structure or, outside to promote, right, the decision to sell into the softness, it's typically, not making a whole lot of money for the general partnership, so, it just depends.

For quality assets, those are getting bit up, we were in a process on the deal we liked in Las Vegas, Matt talked about, the great rent growth fundamentals there. We put what we thought was a very compelling offer out there and got outbid.

So, that was a 5 to, some 5 in place. But you look at some other assets and the syndicators that have been out there, the tides, the other groups like that, some of those assets are, a little bit weaker and a little bit lesser demanded.

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

Yeah, I think what we'd like to do is maintain a steady buyback program with, the free cash flow that we generate, which is a lot, but at the same time be opportunistic to also not externally grow but, recycle capital. There’re some deals that we want to sell and.

Perhaps we use a portion of the proceeds to recycle into newer assets or new, 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.

Omotayo Okusanya, Deutsche Bank

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, rates come down precipitously. So we were again able to block in a $100 million notional at sub 3.5, and we're actually seeing, I just checked today, a little bit better, a few basis points better than that too if we were to lock in another $5200 on a five year swap basis.

We're also seeing the curve, really retrace down to five to six cuts, and so that really does help the forward guidance. So that's, I would say the majority of the reason how we've taken up, our guidance range of those few pennies this past quarter.

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

Yeah, over the past week it was pretty choppy and so we were like I said, about three weeks ago we lock in that $100 million and then I got pretty volatile and credit charges really did spike and now you're seeing less of that and you are seeing rates settle, so we're we would be able to lock in, 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 the facts of 1Q kind of X, the value add program?

Yeah, we, most of what all 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 it's kind of like all I don't say all clear sign for the industry, but the folks both, on the buy side and then, on an operating performance perspective like that's what we've been waiting for, right, the inflection of these. You know these submarkets to start seeing new lease growth again, so I'm pretty positive.

That, that's helpful. And then for the value add program again accelerated in one queue, 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, I'd say that we're maybe hitting a jog. As the 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, South Florida, Las Vegas.

As Bonner mentioned, there's a lot of rehab opportunities that we're still continuing to execute because we can get the, we can get those bumps and be healthy and have them healthily absorbed by the tenants. So, it's a goal for ours to get, back to 400 units a quarter in output. I don't think we're going to get there in the next few quarters, but hopefully by the second half of the year we're doing a couple 100 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 36 to 38 versus the earlier buybacks at like 32 to 33?

Yeah, I still, we're like a 6,667 implied cap rate, so we still like it here. It really, we'll take advantage on weekdays and volatile days. So, I think I like it, up to probably 10% of the, 10% off the low end of NAV range or in that, 6.25% cap rate range. I think that's kind of our guiding light.

Okay, that's helpful. Thank you very much.

Buck Horne, Raymond James.

Thanks. Good morning, guys, and congrats.

I wonder 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 kind of want to unpack it a little bit just given the signs that, tourism related travel is declining into Vegas and there seems to be some signs of some layoffs, with some of the resorts in that market.

So is your portfolio in Vegas, do you view that as kind of countercyclical in times of uncertainty or what do you, how do you attribute the strength you're seeing in Vegas?

Yeah, I think the, I think for our assets they're just in an affordable GAAP, right? Like there's not, I mean our average unit, per effective unit rents probably, $1200 in that market.

And then a recurring resident burden is probably somewhere in the $25 to $3000 per month on a [P&I] basis. And the fact of the matter is, as you well know, Buck, like the, even though you've seen some recent supply in 201 and 22 and excuse me, that starts in 2022 that hit in the last, 18 months, that's a historically under supplied housing market and so.

With the net migration flows, which is still occurring today, in our affordable, kind of price point and in the markets that 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, I'd say three or four quarters, and it's a market that we want to continue to look at for acquisitions, given this backdrop, I think we're. I think we're still very bullish on it.

Yeah, no, it's a very encouraging sign.

And if you think about just kind of the overall trajectory of new lease growth, I mean, I know you're trying not to project out too far, but if these trends continue through kind of peak leasing season, where do you think your new lease, rate growth would kind of peak out this year maybe by the third quarter?

Yeah, 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, we did $1,482 of net effective rents for the first quarter.

To get to the top end of our revenue guidance, we only have to get to $1520 $1,520 a unit. That's like $35 to $40 so. On a percentage increase that's, a couple percent and not a whole lot of, headroom there. I think that our ability to hit, $35 or $40 or $50 per unit, given our assets, given the lack of affordability, just given the quality of the locations, I think that we have some potential to hit that upside. And achieve that, 2% is growth, for the rest of the year, which would be great.

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

Yeah, but happy to help you with that. You know, you look at page 17 of the supplement, we've got all the $6 million of kind of recurring non-recurring caps in the first quarter. It's actually down a little bit, year-over-year,

I think, part of that's just the reduction in the portfolio, but that seems like a pretty stable run rate, we've got a little bit of an 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, to map's point.

I think, we're targeting, maybe 300 interior upgrades and Q2, Q3 range, so you may see a little bit of pickup in interiors, but that's, all demand driven, so nothing overly material in terms of change quarter of a quarter for, CapEx spend.

Got it. All right, thanks guys. Congrats.

Omotaya Okusanya, Deutsche Bank.

Yes, thanks for taking the follow up. When we kind of looked at your actual results versus, maybe some of our estimates, it felt like, OpEx and as well as property taxes and insurance came in a little bit light, even like OpEx for the quarter at like 12 point something million a quarter, I don't think has been that low in a while.

So just curious because anything unique going on if there's a one-time item in there or how would you kind of think about those numbers as potential run rates for the rest of the year?

In terms of, our guide for the year, I think Matt mentioned, we were a little bit ahead of our kind of internal forecasting, but we, 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, hopefully by, the first half of '26 we get to kind of a normalized new run right there, but it's something we're working pretty hard on. Taxes, we're just in the evaluation cycle there, so there's going to be some fluctuation. We'll, fight a lot of those, particularly Texas counties.

We've got a couple of reval years there, but Nothing material. We didn't discuss, but we recently renewed our insurance, got a pretty favorable result there, so there's going to be a little bit of savings, has not materialized in the Q1 numbers, that's an April 1st renewal, but every, everything, on the expense front looks pretty good, going back to maths, 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 participation and interest today and look forward to seeing you guys at Nareit. Thanks. Bye.

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