Good day and welcome to the NexPoint Residential Trust Inc., Third Quarter 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Marilynn Meek. Please go ahead.

Thank you. Good day everyone and welcome to NexPoint Residential Trust conference call to review the company's results for the third quarter ended September 30. 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 site at www.nexpointliving.com. Additionally, a copy of the company's third quarter 2017 supplemental information is available for your review on the Investor Relations section of the company's website. Before we begin, I would like to remind everyone 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 also be identified by words such as expect, anticipate, intent, and similar expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding expected property acquisitions and dispositions and NexPoint's strategy and guidance for financial results for the full year 2017. They are not guarantees of future results and are subject to risks, uncertainties, assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent Annual Report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward-looking statements. Except as required by law, NexPoint does not undertake any obligation to publicly update or revise any forward-looking statements. The conference call also includes analysis of funds from operations or FFO, core funds from operations or Core FFO, adjusted funds from operations or AFFO, and net operating income or NOI all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to and not a substitute for net income loss, computed in accordance with GAAP. For a more complete discussion of FFO, Core FFO, AFFO, and NOI see the company's earnings release that we filed earlier today. I would now like to turn the call over to Brian Mitts. Please go ahead Brian.

Thank you Marilynn and welcome everyone to the NexPoint 2017 third quarter conference call. I'm Brian Mitts, Chief Financial Officer, joined with by Matt McGraner, our Chief Investment Officer. I'll kick-off our prepared remarks by reviewing highlights from the third quarter, go through our third quarter results, and I'll turn it over to Matt for detailed discussion of portfolio, Q3 activity in our markets. Before I do that let me kind of take a step back and maybe talk about the business a little bit. We've been public now about two and a half years, little bit more and I think we -- on these earnings calls, we spent a lot of time in -- details the quarter that we just left and talking about the next quarter -- the next year. So, we thought maybe it might make some sense to take a step back and look at the last two and a half years, kind of what we've achieved here in put this quarter and future quarters in this in context. So, moving on to some of those highlights. We first took the company public in April 2015, since then we've grown the market value by approximately $200 million which is done organically as we haven't raised any equity, either at IPO or since. We've actually done the opposite. We instituted a share repurchase plan, as we were trading at times what we felt was significantly below our NAV. We tried to be very transparent about how we think about NAV and where we put that. We bought back a total through the third quarter of 2017, 308,313 shares. So, we've been actively using that buyback plan. When we first did the spinoff and went public, we had our NAV at the midpoint of $15.35. Today, as we…

Thanks Brian. Unpack the value-add results real quickly here. And as Brian mentioned, we completed full and partial renovations on 422 units on average cost of $4,000 per unit. We received $79 increase on net capital for a quarter average of 23.5% of ROI. Including the latest Rockledge and Atera acquisitions, we now have an updated pipeline of another 3,800 full and partial interior rehabs to complete over the remaining next eight quarters. In addition to interior rehabs, we would like to expand the scope of existing value-add opportunities to include additional residents, amenities and other improvements. Some of these programs include a valley trash pick-up that we've talked about on previous calls; the cost is about $14 per month to implement. We had a $25 per unit premium on that in the stabilized NOI margin of 44%. We recently introduced technology packages with Nest Learning Thermostats, Bluetooth shower speakers, and smart Bluetooth locks, and the cost is about $500 a unit to implement those and we get a $35 per month increase on that for an 84% return on investment. We've been implementing this for a couple of years, but I want to mention it here again, constructing private yards in our garden style communities, cost varies, but we typically get $50 to $75 per month, an increase in an average of 50% ROI on net capital. We're also participating in the Freddie Mac Green Advantage program, yet another innovative initiative from Freddie, designed to promote investment and improve the sustainability of affordable housing through investments in water and energy infrastructure. We've escrowed approximately $4.2 million to finance these improvements in 20 of our properties, which will be completed by the summer of 2019. This is important, we believe these improvements will reduce water and sewer cost at each…

Thanks Matt. Let me quickly go through before we turnover for questions. We're updating and revising our guidance as we go into the final quarter to tighten our ranges and for most part, we're increasing guidance. So, for revenue, we are guiding towards $143.5 million on the low end, $145 million on the high end and mid-point of $144.250 million as compared to prior midpoint $144 million, so increasing our midpoint there slightly net income $56 million on the low end, $56.6 million on high end, for mid-point $56.2 million, approximately $2.2 million increase over our prior midpoint. NOI, we are estimating at $75.9 million in the low end, $77.25 million in the high end, for mid-point at $76.5 million, which is slightly higher than our prior mid-point at $76.25 million. Core FFO per share on a diluted basis we estimate $1.15 per share on the low-end, $1.20 on the high end for midpoint of approximately $1.17, which is a penny higher than prior guidance. Core FFO per diluted share $1.37 in the low-end, $1.47 on the high end, for a midpoint of $1.43, a $0.03 increase over prior guidance. AFFO per share on a diluted basis $1.63 in the low end, $1.68 in the high-end for midpoint of approximately $1.65, which is the same as prior quarter. Acquisitions and dispositions, we -- other than what we announced here, we don't anticipate any further activity, so $197.2 million on acquisition side and $228.1 million on the disposition side for the year. So, with that, that concludes our prepared remarks. So, at this time I'll turn it to the operator for questions.

Thank you. [Operator Instructions] And we'll now take our first question from Rob Stevenson with Janney.

Good morning guys. Is there anything non-recurring earnings wise that you guys are expecting to hit in the fourth quarter?

Plus or minus?

No, I mean in the third quarter, as we mentioned, the hurricane damage was very minimal. So, that's the only thing that really had out there, there is nothing in the fourth quarter.

Okay. And then any markets today where you -- where you aren't seeing the redevelopment returns that you want to see and have either halted activities or decided not to start on certain projects?

We started -- we halted the DC assets, stop growing a while back and have recently restarted as we've been getting tremendous gains, so that's an example where we kind of monitored the situation and acted accordingly. We're getting lower ROIs on the Parc500 CityView asset in West Palm Beach, that allow the 12%, that's been largely a labor and materials issues just on the topline. We're still getting the $100 rental increases, but that's kind of the lowest that we've seen. Otherwise the quarter was very, very strong. I mean throughout the -- Atlanta we averaged 34.6%, Dallas 24.2%, Houston 22%, Nashville 31.7%, Orlando 29%, Tampa 29%, so you can see we're still getting the types of returns that we are used to.

One thing that we'll definitely do is monitor as far as the Florida, Texas markets and you could probably expect an increase in labor, just given what's going on with the rebuilding. So, we'll make sure that we're monitoring that and acting appropriately.

Okay. And then how are you guys thinking about asset concentrations these days with the Dallas and Atlanta representing -- continuing to represent such a large portion of portfolio? I mean would you guys have any problem with the vast majority of the next $200 million of portfolio additions are in those two markets or are you guys all are being equal, like -- more or likely to take deals in other markets, its similar return thresholds?

I think the latter. Yes I think we're pretty full and happy with. We love the markets in Dallas and Atlanta, they are incredibly strong. But we recognize that just having 50% of our NOI in those two markets, we need to expand out. So, we're concentrating on doing more in Charlotte, Nashville, in South Florida, so that's -- I think that's where you see us continue to look.

And when you see with our last two acquisitions, which were in Dallas and Atlanta, is they really swaps. So, we didn't actually increase our exposure, we just swapped out what we think were deals that were kind of all the way through the program and inferior to what we swapped into.

I mean, when you take a look at Dallas -- the market of Dallas and Atlanta and the deals that come across your desk, is there anything going on in those markets that would suggest that returns would be higher there on deals that you see over the next year than your other markets that would prevent you from diversifying?

Yes, I mean there's certainly a lot betters [ph] in the tent, both in Atlanta and Nashville, excuse me in Dallas, having 20 offers on Timberglen, for example, -- is a prime example of just the amount of value-add activity. And same goes with Atlanta, but I think what you've also seen with respect to the two acquisitions that we recently completed is us continuing to allocate capital where we think the market is less efficient, i.e., that $20 million to $50 million equity check, Atera was one example of $30 million equity check in Rockledge was in close to $50 million or so. There's is not a lot of people that -- they can write those checks in order to -- want to for the value-add asset and can close like we can and have liquidity to do so. And so we will continue to focus on that size, but in the single asset, the $25 million to $30 million deal, it's really, really competitive in those two markets.

Okay. Thanks guys. Appreciate it.

Thanks Rob.

[Operator Instructions] And we'll now take our next question from Craig Kucera with FBR Capital Markets.

Hey, good morning guys. Appreciate the color on Atera and I sort of garnered from the commentary that there's value-add. But is that sort of your typical property where you are going to be able to take out about 60% of the units and do a value-add over the next few years?

Yes, albeit at a lower cost per unit. We're probably in a do more partial upgrades there than would be a typical heavier value-add, so spending anywhere from $1,500 to $3,00] still getting the same type of returns on the capital, but it's a newer build in that type of dealings, doesn't have the same type of all appliances, so it will be a lighter touch.

But still a lot of opportunity.

And your stock is trading nicely today, but clearly, we're not too sincerely far from $23.27, when can you be back in the market, buying stock if you decided the right time and price?

48 hours.

Got it. And as far as your dispositions, I appreciate the color on the sale of Timberglen, but I wasn't sure if I missed something on Southpoint Reserve, do you anticipate getting that sold in the first quarter or kind of where we are in the marketing process there?

Yes. We're still marketing it. Albeit, we're continuing to grow NOI, I mean this quarter alone it was 23% better than the third quarter last year. So, we're not going to give it away. And we've been achieving that double-digit increases in NOI. So, we'll make a decision over the next kind of couple months to the extent we can continue to achieve those returns and will probably potentially hold it and take it back it out in the spring.

Got it. And when you think about selling these assets, I know a big part of the strategy has been recycling capital, but I think you have a longer term goal of maybe some deleveraging. Does that -- are we at a point where that enters into the conversation or do you still think that you're going to be recycling capital to a large extent in the new assets, I mean B assets?

Yes, I think we're focused now on incrementally deleveraging. What you're seeing over the last two quarters, there's a lot of activity, but realty stuff that we planned and announced back in May and June. So, now we have a clear -- having that behind us, having executed and done everything we said we were going to do on time and on the numbers that we put out, I think now we have the ability to delever, which we've been doing and then we will with the sale of Timberglen doing incrementally more.

Yes Craig, it's hard to kind of see through the activity, but when we do these deals where we do reverse 1031, we're using for exactly the kind of get to the -- from the buy to sale, but what we're doing on at the property levels, putting less debt on the property that we buy versus what we just sold. So, over time is the noise of kind of having the higher leverage through the first facility participate, you'll start to see that leverage come down. So, on a run rate basis, it should be lower each quarter going forward.

Got it. And one last one from me, I'll jump back in the queue. Just want to circle back on your commentary on how you're focusing on renewals. How do you think about what every, say 1% increase in renewal does to your savings and if you've gone from 47% to 49% over a couple of months, kind of how far do you think you can -- retake it?

I think it's one of the biggest opportunities that we have. We made a point in the third quarter to along with BH to focus on showing the back door, if you will, -- making sure that we can renew our residence, because it's not only time now factor where you can continue to get rent and you don't have to clean the carpet, turn the unit and incur that expense, it's also days vacant. There's a number of kind of later term impacts to the financials. And so I think it's extremely important, particularly at this point of cycle, although we're getting healthier increases, I think -- most of our peers, we still have a dramatic opportunity, I think three to five percentage points more in the ability to renew our current residents and keep them happy and still get 4%, 5%, 6% renewal rates. It's getting tougher and tougher to move in general. And so if we can keep them here all the better. But it's one largest opportunity I think on the topline that we have to the positive.

Okay. Thank you.

And we'll now take our next question from John Massocca with Ladenburg Thalmann.

Good morning gentlemen.

Hi John.

Hey John.

So, It kind of looks to kind of expanding the portfolio or altering the portfolio, given how competitive the class B market is particularly in places like Dallas and Atlanta and that you mentioned before your exposure there is pretty high and would you look more to buying assets in newer markets or would you just look to like up the concentration in some existing markets that you're less exposed to like in Nashville or South Florida?

Yes, primarily the latter. So, I think our concentration of markets where we're already located. We don't really have any new markets on our radar that are actionable today, but we are doing a lot of work in these, Nashville, Atlanta -- Nashville, Charlotte, South Florida, this type of markets where remaining opportunities, concentrate and try to expand there.

Yes, keep in mind, if you roll back 12 months, we've increased our exposure on Houston quite a bit, notwithstanding that the sale we had in July, the three of our last five acquisitions were in the Houston market. So, that's not a new market for us, but the one we increased pretty significantly.

Yes, makes sense. And then kind of with the current portfolio and also the Houston asset that's not in the same-store portfolio, would you look at kind of your tax increases, is that something you think you can moderate both for the same-store portfolio, I know, Houston you talked when you purchased that asset, that there might be some way to claw back some of those tax increases. How successful have you been with that?

We're still -- I guess the short answer is, we're still working on it, particularly, in Tarrant County in Dallas, that's been the most aggressive municipality or county that we've dealt with, but we're actively in either litigation or negotiation for settlements on lower values. So, we're still working on it. We think that we have resolution for most of the fourth quarter and then Houston in the same regard; we're still working on that. Houston is going to be little [low], we'll see how that plays out given the hurricane-related issues and see how the county's deal with that, but to be determined, but right now we think we're still on track for what we have previously discussed.

Makes sense. And then lastly, kind of more on the balance sheet, I know you guys talked about deleveraging in the context of capital recycling, but when you look at your decision to either buy back stock or possibly utilize retained earnings to delever, how do you go about that process given the leverage kind of what's the impetus to buy back stock versus maybe take some money off the line?

I'll start with that, I think the way we look at stock buybacks is where we think NAV is versus where the stock's trading and if it's a meaningful discount, I think that's a very accretive use of capital, it's pretty simple calculation. As far as debt side, I think in our growth as a company, it's not terribly unusual for a company our size doing more highly levered and some of our larger peers. So, although we have a longer term plan to get leverage down, it's not our primary concern on a day-to-day basis and not as actionable frankly as the stock trades down and we have ability to buyback and view to what we think NAV and the true value is, we think that's a better use of capital over the course of our buyback which is been about 18 months -- not quite 18 months, we spent $5 million. So, it's not -- what are you going to do with $5 million plus leverage and [Indiscernible] move the needle. I think the actions of buying stock back and talking about the earnings calls and during meetings is significant. It shows a willingness to do it in a discipline to allocate capital accordingly, but $5 million is moving the needle regardless of what you do, but -- that's kind of how we think about it at least. Do you have anything to add?

Yes, I just would add that we generated enormous amount of free cash flow on a relative basis and quite of that were delevered, but we're not keen and don't think of the great capital allocation decision to pay down 3.3% debt, it doesn't -- that's pretty good accretive use of capital for the comment, which we're a large owner and that's the way we think about every capital allocation decision. How does it affect -- how does it affect our NAV? How does it affect our shareholders and obviously, how can we get the stock price as high as possible?

And one last thing I'd add. In my earlier comments I mentioned that since we've been public we've grown the NAV to approximately 95%. So, part of our plan all along was to grow into that leverage and again notwithstanding the fact when we take out these bridge lines to fund the gap between the buy and a sale, by and large we delevered the balance sheet quite a bit.

Makes sense. All right. That's it from me. Thanks very much.

Thanks John.

Thank you.

And it appears there are no further questions in the queue at this time. And I'd like to turn the conference back to Mr. Brian Mitts for any additional or closing remarks.

Yes, thank you. Just to wrap-up kind of recap, again 9% plus same-store NOI growth, what we think is very strong. It's not like an unusual quarter for us. So, that story continues to be impact. We continue to see strong returns from our investments in upgraded units. So, we think that's driving value and very strong. We like where we sit, notwithstanding these conversations we've had about deleveraging, where we are at the balance sheet and from Matt's point, we have a very low cost of capital and net debt, which we've achieved through the swaps, while still maintaining the flexibility that we get from the floating rate debt. So we like that. We think the results we're achieving on dispositions proves the story overall -- the value creation story. And I think when we first came to market and probably still today there is a large contingent to C and B assets is not very desirable, but we produced a ton of value in those for the company and also shareholders. And also the spend that we continue to focus on NAV and hope to achieve similar results into the future. So, with that, thank you to everyone who attended or will listen in the future and we'll see many of you at NAREIT here in few weeks, which we are hosting here in Dallas and then this time in February for the year-end call. Thank you, everyone.

And ladies and gentlemen that concludes today's conference call. We thank you for your participation.