NexPoint Residential Trust Inc (NXRT) 2020 Q4 法說會逐字稿

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

At this time, I would like to turn the conference over to Jackie Graham. Please go ahead.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust's conference call to review the company's results for the fourth quarter ended December 31, 2020.

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 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, estimate, may, should, 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 business and industry in general; the COVID-19 pandemic and its effect on the company; NXRT's strategy and guidance for the full year 2021 and the related assumptions, guidance for the first quarter of 2021 and related assumptions; NXRT's net value and its related components, assumptions and planned value-add programs, including projected average rent, rent change and return on investments, the expected return to service of damaged units and expected acquisitions and dispositions.

They are not guarantees of future results and forward-looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements, including the ultimate geographic spread, duration and severity of the COVID-19 pandemic and the effectiveness of actions taken or actions that may be taken by governmental authorities to contain the outbreak or treat its impact as well as those described in greater detail in our filings with the Securities and Exchange Commission, particularly those specifically described in the company's annual report on Form 10-K and quarterly report on Form 10-Q. 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 includes analysis of funds from operations or FFO, core funds from operations or core FFO, adjusted funds from operations or AFFO, net operating income or NOI and net debt, all of which are non-GAAP financial measures of performance or total debt. These non-GAAP measures should be used as a supplement to, and not a substitute for, net income, loss and total debt computed in accordance with GAAP. For a more complete discussion of FFO, core FFO, AFFO, NOI and net debt, 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, everyone, for joining us on the NXRT 2020 fourth quarter conference call. I'm Brian Mitts and joined here with Matt McGraner.

Let me start with some highlights from 2020. Net income for the year was $44 million or $1.74 per diluted share as compared to $99.1 million or $4.03 per diluted share in 2019. Same-store NOI increase was $2.1 million or an increase of 3.2% as compared to 2019. We reported 2020 core FFO of $55.5 million or $2.20 per diluted share, which is an increase of 14% on a per share basis as compared to 2019. Total revenue for 2020 was $204.8 million and total NOI was $116.1 million, which was an increase over 2019 of 13.1% and 13.2%, respectively.

NOI margins for 2020 were 56.7%, which is equal to margins of 56.7% during the same period in 2019. We continue to execute our value-add business plan by completing 1,679 full and partial renovations during the year, achieving an average monthly rent premium of $131 and a 21.7% ROI.

Inception to date, the portfolio as of 12/31, we completed 5,355 full and partial upgrades, 4,286 kitchen upgrades and washer-dryer installs and 8,880 technology package installs, achieving an average monthly rent premium of $126, $48 and $44, respectively, and an ROI of 21.5%, 74.2% and 33.8%, respectively.

During 2020, we issued 1.3 million shares of stock for approximately $59.5 million of gross proceeds. Based on updated cap rates and NOI, we're revising our NAV per share range upward as follows: on the low end, $42.83; on the high end, $52.94; the midpoint of $47.88. These are based on cap rates ranging from 4.4% on the low end and 5% on the high side. The updated NAV compares to a midpoint of $46.31 at 12/31/2019 or a 3.3% year-over-year increase.

For the fourth quarter, we paid a dividend of $0.34125 per share on December 31 to shareholders of record as of December 15. Yesterday, the Board declared a dividend per share of $0.34125, payable on March 31 to shareholders of record on March 15. Since inception, we've increased our dividend 66%. And year-to-date, our dividend was 1.72x covered by core FFO with a payout ratio of 58% of core FFO for the year.

Overall, although 2020 provided some early challenges, we continued our track record of thoughtful capital allocation and earnings growth. Since the pandemic first hit in stocks in general, and NXRT specifically dropped to multiyear lows, we aggressively bought back stock, buying 1.6 million shares of common stock at an average price of $27.07 per share. When stocks recovered, including NXRT, we issued 718,000 shares of common stock at an average price of $43.90 per share, creating significant permanent value for shareholders. Inception to date, we have issued 2.8 million shares of common stock at an average price of $47.14 per share. We've repurchased 2.4 million shares of common stock at an average repurchase price of $25.70 per share.

Despite fully drawing our facility at the beginning of the pandemic to ensure maximum liquidity, we were able to continue our long-term deleveraging plan by paying our facility down to $183 million by the end of the year. As of 12/31, we had $57.1 million cash on the balance sheet with $42 million capacity under our facility for approximately $100 million of accessible liquidity and our dividend is 1.72x covered by core FFO.

Since going public in April 2015, we've grown core FFO 62% and NOI by 92%. This performance, combined with the thoughtful capital allocation and dividend policies, has translated in NXRT being one of the best-performing REIT stocks among all REITs regardless of property type since we went public in April 2015.

Let me go through some of the specific results for full year 2020. Total revenues were $204.8 million as compared to $181.1 million in 2019 or a 13.1% increase. Net operating income for 2020 was $116.1 million as compared to $102.6 million for 2019 or a 13.2% increase. Core FFO was $55.5 million or $2.20 per diluted share as compared to $47.6 million or $1.93 per diluted share in 2019, which represents an increase of 14% on a per share basis. Despite the challenges presented by the pandemic, our core FFO came in at the midpoint of our original 2020 guidance.

For our same-store pool, we had 24 properties consisting of 9,074 units. Our same-store rent increase was 1.4%. Same-store occupancy declined slightly by 10 basis points from 94.3% to 94.2%. And same-store NOI increased 3.2% for the year from $66.1 million to $68.2 million.

As the pandemic began, we, as did all of our peers, withdrew guidance starting in the second quarter of 2020. We are, on this call, reinstating guidance for the full year 2021 as follows: core FFO on per diluted share basis, $2.16 on the low end, $2.35 on the high end, with a midpoint of $2.25, which represents an increase of 2.3% over 2020. Same-store revenue, 3.9% increase in the low end, 5.2% increase in the high end, the midpoint of 4.5% increase. Same store expenses, we estimate will increase 7.9% from the low end, 5.3% on the high end, 6.6% in the midpoint. And for same-store NOI, we have a 0.9% increase in the low end, 5.1% increase in the high end, with a 3% increase at the midpoint.

With that, let me turn it over to Matt for his comments.

Thanks, Brian. I'll start by recapping our fourth quarter same-store operational results.

Rents in the fourth quarter grew in 6 out of our 10 markets in 2020 with Nashville and Orlando being essentially flat and Houston the only one that's slightly negative. Every other market ended the year in the black. Notable markets for same-store NOI growth for the fourth quarter were Phoenix at 11.3% and Dallas at 4.9%.

Even during the pandemic, leasing activity and revenue growth continued to improve in the fourth quarter over the second and third quarters with 8 out of our 9 markets achieving revenue growth of 1% or better. The top 5 were Phoenix at 8.4%, South Florida at 3.9%, Dallas-Fort Worth at 3.3%, Tampa at 3%, Nashville at 2.9%. Renewal conversions were a healthy 53% for the quarter, with 5 out of our 10 markets delivering renewal growth rates of at least 2% and every market was in the black. The leaders were Tampa at 3.1%, Atlanta at 2.6%, Phoenix at 2.4%, Dallas-Fort Worth at 2.3%, Nashville at 2.1%. On the occupancy front, we're pleased to report that Q4 same-store occupancy remained over 94% and is well positioned for 2021. As of this morning, the portfolio is 96.5% leased and has a healthy 60-day trend of 91.5%.

Turning to full year 2020 same-store NOI performance, our same-store margin improved, as Brian mentioned, to 55.8%. Same-store average rents and revenues each increased by 1.3% and 3.6%, respectively. NOI held strong across the majority of the portfolio in 2020, with 6 out of our 9 markets growing NOI by at least 3.9%. Notable same-store NOI growth markets for the year were again Phoenix and South Florida at 12.3% and 10%, respectively.

Operationally, overall, the portfolio generated positive revenue growth for the entire year of 2020 with 8 markets achieving growth of at least 2.4% or better, Orlando being the only outlier. The top 5 markets were Phoenix at 8%, South Florida at 6.1%, Charlotte at 5.2%, Tampa at 5%, Nashville at 4.8%.

On 2020 collections, April through December in 2020, the portfolio has collected 98.5% of all total charges. Payment plans have continued to decrease month-over-month since we started offering the program in April 2020. 2020 payment plans are 97.2% collected as of Friday. And there were 959 payment plans in April 2020. Those numbers are down to 168 payment plans at the end of the year. And as of today, just under 198 (sic) [98].

Turning to 2020 acquisitions. As Brian mentioned, we acquired one asset in 2020, Fairways at San Marcos in Chandler, Arizona for $84.5 million, while selling 4 assets for $142 million and exiting the D.C. market entirely. We plan to upgrade at Fairways 156 units at an average cost of $11,800 per unit and generate premiums of $152 a unit with an ROI of approximately 15.5%. We also plan to install smart tech packages in every unit, and we expect to generate monthly premiums there of $40 a unit. As a result, our underwritten 3-year average same-store NOI growth for this asset is 7.5%. Today, Fairways is $150,000 or 19% ahead of our NOI underwriting budget already.

Turning to 2021 guidance. As Brian said, we're optimistic we can grow same-store NOI in 2020 by at least 3%. And from a geographical perspective, we're expecting particular strength across the following markets. We expect Atlanta to grow same-store NOI by 6.7% due to the strength of the rental market, economic growth, favorable supply/demand for affordable housing and interior renovation plans for over 200 units, 85 at The Preserve at Terrell Mill and 120 at Rockledge. We're targeting $180 to $235 rent premiums and high teens and low 20s ROIs. As a result, we're budgeting 5.6% revenue growth for Atlanta.

Next on to Tampa to grow same-store NOI by roughly 5.5%, again, driven by economic growth, both internally and from surging net migration trends into Florida. Also, we expect revenue growth to reach the high 4s to 5% this year while continuing to upgrade over 50 units in the market.

Next, South Florida, we expect to grow same-store NOI by 5.4% driven again by economic growth, both internally and from surging net migration trends. We have large interior renovation plans for South Florida, particularly at the Avant at Pembroke Pines, where we expect to complete our comprehensive common area and amenity upgrades at Pembroke in 2021. We're also having a tremendous amount of success upgrading units at Avant, and we see a pipeline for another 200 or more at roughly $250 in premium and a low 20s ROI.

Finally, we expect Charlotte to grow same-store NOI by 5% driven by, again, economic growth, strength of rental markets and net migration into the State of North Carolina. We expect to upgrade over 30 units in the market and generate revenue growth of high 4s to 5% in 2021.

Out West, we expect both Phoenix and Las Vegas to grow same-store NOI in the range of 3% to 5% due to continued strength in the middle-income rental market, 4.5% revenue growth and roughly 300-unit upgrades, 200 in Phoenix and 100 in Las Vegas.

On to the acquisition and internal growth and disposition front for 2021. We are witnessing a material supply/demand imbalance for Class B Sunbelt product driving cap rates down to 4% and below in some markets, particularly with debt financing remaining at historical lows. That said, we remain active in evaluating attractive opportunities that fit our style box and do think we could likely acquire $100 million to $200 million of properties this year. We would expect to reasonably pay of this $100 million to $200 million of acquisitions with $75 million to $150 million of dispositions, with the most likely candidates being a couple of assets in Nashville where we've completed our business plans and generated tremendous value over the past 5 years.

Notwithstanding an extremely competitive acquisition market, we continue to be an internal growth company at our core. To that end, our guidance in 2021 includes the following assumptions regarding our value-add programs. We expect to complete at least 1,300 full interior upgrades, roughly the same as 2020, and expect the average cost to be roughly $10,000 per unit and generate roughly $170 in average monthly premium or approximately 20% ROIs. We expect to complete approximately 75 partial interior upgrades at an average cost of $4,400 per unit and generate $77 in average monthly premium or 21% ROIs. We expect to complete roughly 100 of other minor interior upgrades, for example, new backsplashes, bespoke appliance upgrades and framed mirrors, to name a few. We think these upgrades will average roughly $1,000 per unit and generate $50 in average monthly premium or over 30% ROIs. We expect to install approximately 425 washer-dryer sets at an average cost of $850 per unit and generate $44 in average monthly premium or roughly a 60% ROI. And finally, we expect to add 700 additional smart home tech packages, which will generate $40 to $45 in average monthly premium and a 52% profit margin.

So following 2020, we're off to a good start in January and February with leasing activity in 2021 showing signs of improvement. Combined January and February new lease growth is up over 3% and renewals continue to exceed 2% across the entirety of the portfolio.

So in closing, I'll just reiterate that we're excited about 2021. We'll work hard to generate another year of outsized NOI growth for shareholders and core earnings growth.

That's all I have for prepared remarks. I appreciate our team's work at NexPoint BH and their continued execution. Back to you, Brian.

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

(Operator Instructions) And we'll take the first question. At this time, it comes from Buck Horne from Raymond James.

I guess let's start with real estate taxes to begin with and just kind of how that impacts your outlook for 2021 guidance. It certainly seems like that is the biggest variable. So I guess I'm curious to what degree do we know that the assessments are going to come in at these elevated ranges? What amount is kind of your best guesswork here? I know Tennessee seems to be the most volatile component of coming up with these estimates. But trying to get a sense of to what degree we know the assessments are going to come in this range and to what degree is it kind of conservatism on your part relative to the guidance?

Yes. Buck, it's Matt. Good questions. And so between the upside kind of case in our guidance and the base case, the 2 significant drivers were basically an increase in rental revenue, roughly 90 basis points, and that's for market rent and a reduction of roughly $1.3 million in property taxes. And so you add those 2 together and you get a 5% NOI growth or plus that. We think that the midpoint represents a fairly conservative range, which includes the uncertainty in Tennessee with the millage rate increases that were implemented in 2020 to shore up municipality budgets. So we don't expect property taxes to exceed that base case level. And we're optimistic that there's some number between $0 and that $1.3 million that would allow us to reach the upside case.

Okay. Okay. Sounds good. One other quick one for you. There was a line item noting miscellaneous income. I think for the year, totaled about $1.8 million. Is there any color you could add to what the miscellaneous income represented? And is that some sort of repeatable fee income or what's in that line?

Yes. It's just late fees and admin fees that we were able to collect in 2020, which is down from historical levels. But nonetheless, I think that they can be collected this year, again, particularly after the CDC lifts their moratorium.

(Operator Instructions) Our next question comes from Rob Stevenson from Janney.

Matt, did you say that you had 198 payment plans versus 168 at year-end or did I get those numbers mixed up?

Yes. That's about right. So we started that with roughly 960, 980 in April, down to...

98.

Yes. Down to 98 in February. We were at 168 at year end.

Okay. So just 98, not 198, it's not an increase. It's a continued decrease.

That's right. That's right.

Okay. Perfect. Because I was wondering why it was going up. I just didn't hear that right. And then did you give January 2021 collection percentage yet?

Yes. We have it. It is just the 95%.

Then how does that compare versus December at this point, sort of 45 days in or November? Is it an improvement, status quo, a little bit weaker? How would you characterize that?

Yes. So kind of compared to, I guess, compared to last year in 2019, it's about 70 basis points behind, but it's about 30 basis points behind trend, but it's caught up and seems in line for now.

Okay. And then any substantial loan differential today versus core FFO and what NAREIT would be calculated as of that you're anticipating prepayment penalties or anything else big that's likely to come through?

No. I think we're in line kind of with NAREIT. If we sold those properties that Matt indicated, we would, I think, have some prepayment penalties, but that's factored into our guidance.

Okay. And then the last one for me, you guys gave the market-by-market quarter-over-quarter same-store operating metrics, I think it's Page 16 of the supplemental. Nashville had negative, slightly negative average effective rent sequentially and flat occupancy, but total rental income was up 10%. Can you walk me through how those numbers -- how you get to that big of a jump in rental revenue with occupancy flat and rental rate down slightly? Does the total rental revenue maybe include some sort of fees or something that were outsized in Nashville that drove that?

Hold on a second, Rob.

Okay. Because Tampa in South Florida both have both negative effective rent changes quarter-over-quarter and negative occupancy and are slightly positive, but that 10.1% jump in Nashville really stuck out.

Yes. I think it might just include the additional property at Arbors being added to the pool.

We'll take the next question. It comes from Amanda Sweitzer from Baird.

On your fourth quarter results, what was the main driver of the 90 basis point sequential decline in occupancy? And on that, did demand for renovated or non-renovated units deviate at all from your expectation during the quarter?

Yes. The demand didn't deviate. We thought we would upgrade basically what we did. There were a couple of market-specific issues, one in Houston with an asset, Hollister Place, that experienced some evictions. That has now recovered. It's about 94% occupied today. And the other one was an asset in Charlotte, had the same issue, Radbourne. And then the other deal that we own in Charlotte had a small fire, Timber Creek, that had some occupancy. But those were the main drivers of the decline. And like I said, today, we're back at 94-plus percent for those assets.

That was helpful. And then following up on some of the earlier questions, how much bad debt are you assuming in 2021 guidance? And then how much of a benefit did you realize from some of those state issued rental assistance funds in the fourth quarter?

Yes. So bad debt assumptions, roughly 120 basis points for 2021. And anywhere kind of in the band, I think this is your question in the band from the base case to the upside case, I think that, that number can decrease to about 80 basis points to cause further upside. But we're optimistic we'll be better on bad debt in 2021 than 2020. We're already seeing an increase in folks paying their rent on time. And like I said, to Rob's question, the decrease in the payment plans.

That's helpful. And then last, go ahead.

Yes. I was going to answer the aid. I think we've collected around $1 million of aid across our various markets from the local aid that's being offered outside of anything in the stimulus packages.

Okay. That's helpful. And then are you guys expecting additional aid in your guidance ranges at all or that would be incremental if you received it?

Yes. It'd be incremental. I mean, from all the states in our markets, there's over $7 billion of available aid, $400 million at the county level. And that's all available, but we're not underwriting that in the guidance.

Okay. And then last question for me is just on capital allocation. The kind of expected capital recycling in your guidance makes total sense today given cap rates, but are you exploring any alternative external growth opportunities given how competitive the transaction market is today?

Not at the moment in terms of any other deviation from our core property type or value-add multifamily. We're not trying to venture outside of any of that. We're focused on the internal growth, first and foremost, in buying, recycling the capital. And then to the extent we can arb our stock like we did in 2020, which I think Brian mentioned, we bought about $60 million at a implied 5.8% cap and sold $50-plus million at a 4.6%. I think we'll continue to do that.

The next question comes from John Massocca from Ladenburg Thalmann.

In the prepared remarks, you mentioned some market-specific NOI expectations. But if I heard correctly, they were all at or above the midpoint of kind of total NOI growth expectations. So what are the markets counterbalancing those stronger markets and why are they maybe relative underperformers?

Yes. The 2 largest detractors or kind of under the 4%, 5% are Dallas-Fort Worth and Nashville. The good news for both of those markets is if the taxes come in at the upside case for either market, then those markets will be above the midpoint and should provide upside to our guidance. So it's largely, it's almost entirely tax-driven.

Okay. Understood. And then as we think about 4Q same-store rental rate change, what would that have been if you excluded uplift from rehab projects?

Ex, we have organic, probably just under 1%, so call it 70 basis points.

Okay. And then as we think about kind of the NOI expectation for next year, in terms of occupancy, are you kind of seeing current levels as maybe the ceiling on total occupancy particularly versus 4Q or is the potential uplift there as well as kind of rental rate?

Yes. I think there's a lot of uplift in occupancy. I think that's going to be a primary driver of growth first and then the rates will once you have stabilization across.

And I guess is the ceiling kind of the 96.5% you're at today or it can even go higher? Just where it kind of shakes out at the end of the month?

Yes. I mean, we've historically run around 94% and pushed rate instead of another 1 point, 1.5 points in occupancy. So I think we'll continue to do that. I'd be surprised if we pushed in higher than 96%.

The next question is a follow-up question from Buck Horne from Raymond James.

Just one quick follow-up for me. You mentioned in some of your NOI forecast and your outlook that you're seeing continued economic strength in the Sunbelt markets, plus some factor of continued in migration, population trend that seems to be playing out. I'm just wondering in some of the early lease application data, whether it's fourth quarter or the January, February numbers you've got so far, just is there any tangible uptick in applications coming from out-of-state or out-of-market residents that are part of that net migration effect that you can quantify.

Yes. Absolutely. So January, the January numbers we have to net migration, a total move into our markets, for NXRT markets, out-of-state into our markets was 10.9%. Majority of that, 11% from California, 9% New York, Ohio was 8%, and then Illinois was above 5%. January 2021 net migration data into our markets, and we can send it to you, to Buck later after the call. But just to give it to you here, was 14.4%. And so roughly 3.5% increase kind of January over January. Same leading markets, California, 19% of those numbers. So went from almost 11% in January 2020 from California to 19% in 2021. New York, 14%, that number is up about 8% year-over-year. So definitely seeing an impact in a big way, both in Texas, specifically Phoenix and then Florida.

Buck, it's Brian. Sorry, I just want to follow-up on your earlier question about miscellaneous income. You were talking about the actual miscellaneous income on the face of the financials. So we misunderstood your question. But what that $1.77 million is mostly business interruption insurance that we received on the Cutter property, which was basically completely destroyed in October of '19. And so we've been rebuilding it this year and getting income from that insurance.

There we go. That's helpful. I appreciate that.

Yes. I mean, once that's operational, again, that will flip up into NOI and out of the miscellaneous income.

The next question comes from Jon Petersen from Jefferies.

Great. I think as we think about kind of more leisure travel affecting certain markets. I'm kind of looking specifically at Orlando and Vegas, places that you have significant exposure. I mean, can you help us characterize maybe specifically how some of your properties are positioned there? And if you expect some uplift as we see more leisure travel? And then kind of on the other side of that, I like the migration trends you guys were just talking about. I mean is your same-store guidance underwriting some kind of unwinding of that in migration turning into out migration as things reopen?

Yes. So we really took it on the chin with your first question on leisure travel markets. In Orlando in 2020, the one asset I can think that comes to mind is Sabal Palm at Lake Buena Vista, which was directly impacted by the closure of the theme parks. And in some cases, got down to 90% flat occupancy, which we hadn't seen since we owned the asset. We're getting through those issues and are really optimistic that we could see that property come back and perform much, much better in 2021.

Vegas, on the other hand, really wasn't as weak as we thought it would be, obviously, with the strip closed down and a lot of the leisure-related jobs were lost or furloughed. What we saw that kind of offset that was in migration from California particularly and that kind of helped us have a pretty good year in Vegas all told and I think ended the year positive from a year-over-year basis. I particularly don't believe that outward migration or excuse me, net migration trends into these markets will reverse because of a vaccine or some other development. I think that these cities are the cities they were 20 years ago. They offer a lot of lifestyle and other amenities at an affordable cost while we're located in these markets, and we think they'll continue to grow. And I don't think that once the millennial or other new jobs, applicants comes and stays in the Sunbelt will return anytime soon. But that's, I mean, that's our personal belief.

Yes, along with that is the jobs and companies that have moved there, and they're not likely to turn around and go back, especially in our renter cohort. These aren't people that were escaping the cities, and then they're going to go back once things return to normal. I mean, they're more working-class people that have made permanently to follow jobs or companies.

The next question, it comes from Michael Lewis from Truist Securities.

I wanted to ask about the cap rate assumption in the NAV calculation. It looks like you took the cap rate down about 30 basis points across all the markets. So I was just wondering if you could give a little more color on, is that due to interest rates or some kind of blanket assumption or alternatively, it's based more on transactions you're seeing in each of those markets, just kind of a coincidence that they're all the same and the level of transactions and the confidence you kind of have in cap rates right now?

Yes. So the main drivers were tightening of the high end and it was to bring cap rates sub-5%. I haven't seen a 5% cap rate in several years now. And so I think from what -- when we surveyed CBRE and Green Street and RealPage, they came back, frankly, at a lower number than these are. And from a transactional perspective and in the acquisition market and bid intent, we haven't seen and have offered on assets most recently in Tampa and Charlotte that have gone sub-4%. And we were holding our nose bidding around 4.4%, 4.5% cap rates. So there's a lot of capital out there, to your point. There's an incredible amount of sub-3% debt financing as well. And it's just driving a material supply/demand imbalance for this type of product in the Sunbelt.

Makes sense. Matt, you mentioned at its core, this is an internal growth company. You have about 14,000 units. There's kind of, I'll call it, modest net acquisition activity in the '21 guidance. Do you like the size of the company or do you think there are any advantages to diversifying or going into new markets or just kind of growth of the portfolio in general or do you like where you are now?

Yes. I mean, great question, and we debate it a lot. We've kind of never been the company that's saying, we're going to go own 50,000, 75,000 or 100,000 units. We've had basically 40 properties since we've been public and went public in '15, and we were able to quadruple the market cap by recycling capital. And that's what we care about, first and foremost, is the stock price and getting that up for stockholders.

We don't want to venture into any new property types, so to speak. But we are looking at and intrigued a little bit by the Research Triangle in Raleigh-Durham. Alexandria in the life sciences, biotech space made some acquisitions there. We like the job growth there. We like the demand drivers there. That's a market that we're searching for and could be interesting over the next few years for us. But other than that, we're comfortable and like what we're doing.

Sounds good. And then just lastly for me. I'm going to ask about a line item in the income statement as well. That corporate G&A line was down a fair amount sequentially and year-over-year. When I look at the guidance for next year, it looks like it goes back up. Was there anything unique that we should look to that kind of drove that 4Q number a little lower?

Yes. I think maybe being conservative on the guidance, we did see some drop in audit cost and in some of our kind of overhead there. Pretty minimal and immaterial amount, but there's certainly less travel and stuff that's getting flushed through corporate G&A just with the pandemic. But yes, we don't really expect a material increase in those expenses. But I think we, for guidance, kind of averaged and backed out to where we thought it would be historically.

The next question comes from John Massocca with a follow-up question from Ladenburg Thalmann.

Just a quick one on capital recycling. I mean, I guess as you think about that today, understanding there's timing and the kind of bespoke transactions. Would that be Day 1 dilutive on a per share basis given kind of the cap rate dynamics you're seeing today or do you think it would be largely potentially what you can dispose of is equal on a Day 1 NOI versus what you can take on.

Historically, we've done it in a reverse manner. So we've acquired the property before we've settled on the disposition, and that's cash accretive. But depending on where you buy the deals, could be, to your point, cap rate dilutive but on a stabilized basis would probably more than likely, like if we buy 4.25%, 4.5%, our goal is to generate 75 to 125 basis point NOI lift post-rehab in 3 years. So the kind of 1.5, second year cap rate accretion would deliver at that point would be the way we think about it.

Yes. And there's a couple of other things. Sorry, as I said, we typically recycle out of something that's older and have gone through the rehab process. And so the upside there is not as much, to Matt's point, as the new deal we're bringing in. And then not so much NOI focus, but core FFO if we're refinancing that new deal or putting financing on that new deal at a cheaper cost of debt than what the current deal is. Ultimately, I think that's accretive to core FFO and ultimately, NAV.

That ends the question-and-answer session for today. And I'd now like to turn it back over to you for any closing remarks.

Yes. No. We're good. Appreciate everybody's participation, a lot of good questions. We look forward to 2021. 2020 was definitely a tougher year than we thought going in, but I think we came out pretty well and well positioned and have some good prospects for the future. So thank you for everybody's participation.

This concludes today's call. Thank you for your participation. You may now disconnect.