Good day and welcome to the NexPoint Residential Trust Inc., Fourth 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 fourth quarter ended December 31. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer and Matt McGraner, Executive Vice President and Chief Investment Officer. As a reminder this call is being webcast through the company's website site at www.nexpointliving.com. Additionally, a copy of the company's fourth 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 was filed earlier today. I would now like to turn the call over to Brian Mitts. Please go ahead Brian.

Thank you Marilynn. I’d like to welcome everyone to the NXRT 2017 fourth quarter conference call. Today, we are going to discuss our Q4, 2017 and full year 2017 results as well as this year 2018 guidance. I'm Brian Mitts, Chief Financial Officer, and I’m joined by Matt McGraner, our Chief Investment Officer I'll begin our prepared remarks by reviewing the highlights of 2017 reviewing the Q4 and full year results and then I’ll present our 2018 guidance before turning it over to Matt who will go through a detailed discussion of the portfolio and some of the details of our activity for the year and then what we see ahead in 2018. To start, well to say that we’re extremely pleased with the quarter and the year. Again, we believe our results continue to show the power of the value added strategy that we have in the portfolio as we’ve achieved the higher Same Store metrics in the mutual fund peer group again which we’ll discuss as part of our results. We moved into the highlights for this year starting with acquisitions, we acquired three properties for a total of 1,348 units at a price of 197.2 million. As far as dispositions we disposed off nine properties during the year for a total of 2538 units, garnering gross proceeds of $224.4 million, we realized 46% IRRs and a 2.7 times multiple from these sales. To put these in the context and to discuss some in relation to the overall year, these were done with purpose and were strategic. We felt like the properties we sold were sort of our lower call to properties. We had already done the bulk of rehab in those and we upgraded the properties that we feel really good about from a location perspective and…

Thank you, Brian. I’m going to talk about our value-add results, our same-store core and recap of the fourth quarter, the full year 2017, go over some leasing activity, talk about a couple of transactions and then bring it back to a high level through our NAV accounts. First on our value added fund. For the 2017 calendar year we completed full and partial renovations as Brian mentioned of 1408 units at an average cost of just under $5000 per renovated unit. That renovation achieved an $89 monthly written premium consistant with what we’ve done in the past and it has resulted in a 22% [Indiscernible] which is a better metric than we’ve reported in 2016. For 2018, we plan on continuing at this pace. We are planning on upgrading approximately 1600 units which again is inline with what we’ve done over the past several years. Going to our Same Store recap as Brian mentioned for the fourth quarter Same Store NOI was up a healthy 10.5% average rent increased to $908 per unit from $868 at the year before, it’s a 4.7% increase. Revenues accelerated at 6.7% while expenses grew just 2.3% which benefited from the results of somewhat material and favourable tax appeals and two of our markets Dallas and Nashville. And NOIs topline growth for the quarter was incredibly strong with 8 out of our 9 markets growing total income by 5% or more. Same Store results by market for full year 2017 are as follows. Dallas, we achieved 9.8%, NOI Same Store NOI growth, one property in DC Metro did 21.7%. Atlanta achieved a 6.9% NOI growth; Nashville achieved 9.3% NOI growth, Charlotte 7.1% NOI growth, Phoenix 6.9%, West Palm Beach 10.2%, Orlando 6.5%, Tampa Bay 8.4%. The leasing activity for the fourth quarter was also…

Great. Thanks Matt. That’s it for prepared remarks. We’ll turn it over for questions.

[Operator Instructions] And we’ll take our first question from Jim Lykins with D.A. Davidson. Please go ahead.

Good morning everyone. First, are there any additional plan, dispositions and then also any color you can give us on how you’re thinking about acquisitions in 2018?

Yes. We have no plan, dispositions at this moment. We’re evaluating constantly the activity in the market. And same thing on the execution side, I think a lot of as we just mentioned, we did a tremendous amount of capital recycling in 2017 selling and buying almost dollar-for-dollar north of $200 million of assets. So we think a lot of that dispositioning is running, of course, what we’re going to try to do this year is keep burners down and execute and operate the assets well and produce that outside same-store NOI growth.

Okay. And If I miss this, sorry, I apologize, but did you disclose the cap rate for Timberglen?

Yes. It’s a 5, 4 nominal.

5, 4 nominal. Okay. And also, could you just talk about what you’re seeing right with construction costs and labor, I’m wondering how much the hurricanes still affecting labor and just how you see that trending right now and into the year?

Yes. So, labor in general, I think which is good and bad, but it’s definitely increasing. Our payroll numbers are up year-over-year by 3% for our budgets and then we’re seeing from just a qualitative aspect it’s very difficult to keep and maintain contract workers subs to execute the value-add program. And then, as far as material costs, there’s another aspect that’s increasing. Lumber, we don’t build, thankfully we don’t develop anything, just redevelop, so we’re not giving ground-up construction, but we have heard that lumber prices, for example, are up 20% since the hurricane and that’s nationwide, its not such in Houston. So, materials, we’re seeing inflation in the market, I guess that’s the bottom line.

Okay. It’s very helpful. Thanks Matt.

You bet. Thanks Jim.

And we’ll move to our next question from John Massocca with Ladenburg Thalmann. Please go ahead.

Good morning everyone.

Good morning, John.

So, given the rise in interest rates have you guys seen any cap rate expansion recently in the Class B apartment space? And would you expect that to be kind of given the lack of supply of good workforce apartments? Would respect their cap rates to be sticky even if interest rates rise?

Yes. Interest rates have risen dramatically on the tenure, that’s the fact that there's still near historical lows. What is also happen is basically the agencies for value-add assets that they provide financing for value-add assets, basically for point-for-point broght spread in, Freddie Mac for example yesterday brought spreads in another 10 basis points. And the reason is because there is so much capital chasing multifamily securitizations in debt right now. [BP aspires] for agencies use to demand 14%, 15% type of returns. Today it’s closer to 10 to 11. So as long as our capital still out there which there’s a wall that we think that the financing environment will continue to be constructive for value-add assets. And I’ll eco what Camden's management team said on their call, which is there is still so much demand out there for housing and especially given the short term duration of the assets that should adjust with inflation, the shorter term duration at least should adjust upward if we see inflation. Those two things should create a continued positive environment for transaction activity. And we still as the Timberglen sale demonstrated, we received 20 plus offers on that deal conducted 48 tours and that was when the tenure was 260. So I guess both simply, we’re still on a very constructive transaction environment.

Make sense. And then, can moving on to the buyback, I mean how do you guys view utilizing – it doesn’t sounds like me any more dispositions to fund the buyback at least planned in 2018, how do you view using retain capital to fund the buyback versus maybe pay down debt, so retained cash flow I should say?

Yes. I mean, I think that largely most of our debt is now fix until 2022, 2021 at 3.25%, so we don’t see very much virtue in paying down 3.25% debt. So, our portfolio as you know did generates a tremendous amount of free cash flow, sufficient enough to fund buyback activity. We just through February 13, we’ve been able to put $3 million to work, and Brian if you have anything to add to that?

Yes. I’d say current prizes we’re still 20% below what we feel through NAVA, and so we think that’s a pretty easy capital allocation decision, we can buy a stock at 20% discount.

Make sense. And I know its not really a factor yet, but I mean, longer term, do you ever worry about the effect that the buyback might have on liquidity or is that something where its something you’re willing to risk potentially?

Yes. I would say, we’re definitely on the risk. We think that liquidity and the stock will improve as demand improves, and I think as demand for our stock continues to outpace supply a bit, that’s a good thing for everyone that owns it.

We certainly understand the supply demand dynamics in the market, but we have – what we think is the most unique strategy in the space its the only one and we think the virtue of it is shown not only in our results today, but the results we put out last few years and the people find their way into the stock one way or the other. The fact that we are willing to rebuy or repurchase our stock at the discounts when it trades down, I think should give investors and potential investors lot of comfort that we’re going to allocate capital properly and not – do anything that destroy value.

Understood. That’s it from me. Thank you very much.

Thanks, John.

And we’ll take over next question from Rob Stevenson with Janney. Please go ahead.

Good morning, guys. How are you guys looking at 2018 in terms of occupancy versus rental rate? I mean, you guys are operating about 94. Some of the peers are up at 96. Is that a conscious effort to push rental rate harder? Is that a byproduct that’s having units down for periods of time for renovation? You guys looking to consciously drive occupancy meaningfully higher in 2018 and if so what is that so to suggest for the rental rate growth as you move forward?

Yes. I think we’re budgeting 94, but I’d say our aspiration is to get to 95 across the portfolio, obviously there’ll be some – with rehap strategy there’ll be some lag in that we will never achieve the 97 for guys that aren’t conducting our strategy. We don’t see really any trade-off, fortunately for us on the income side given when we push the occupancy up, I mean, we’re still budgeting total income growth near 5.5%- 6% and then being able to push occupancy. What we saw in the third quarter when we took our occupancy up during that quarter when we still conducted rehaps. We didn’t lose that much rate. We probably lost 50 basis points or so in rate that that was it. So we think that this year we’ll continue to be constructive on that front. And the way one thing to speak to that is that our recurring resident burden which is basically the effective rent plus the fees is only a $1000 and $0.61 for 2018 – excuse me, $1,061 for 2018, that still in our mind extremely affordable. So we feel that that can be pushed as well as keeping the deals pretty full and pushing up to 95.

Okay. And then lastly from me, what is your 3.5% to 4.5% Same Store expense guidance assume for property tax increases and labor and insurance?

4.6% in real estate taxes, insurance is about 5% and we renew in April, but we have a pretty good what that’s going to be and it worked hard on that. And what is the third one.

Labor personnel – yes, how aggressive is personnel moving up in your core market?

Yes. Its 3% across the portfolio is our payroll number, the contract labor which is more of the subs and painting and stuff that can push up to 5% to 7% in some markets.

Okay. So you’re not feeling from your property manager any type of material sort of wage stuff where it started to move the other way rather than sort of moved down over the years to sort of three percentage?

Yes. It’s about 3% on on-site.

Okay, perfect. Appreciate it, guys.

Thanks Rob.

[Operator Instructions] And we’ll take our next question from [Indiscernible] with Jefferies. Please go ahead.

Hi. Yes, Good morning. Just following up on Rob’s question about operating expenses, I think most of your peers also put out similar numbers, but they’re talking about lower Same Store packs OpEx because they are planning to control all the cost but utilities, repairs and maintenance on that kind of stuff. Could you talk a bit about your outlook for controllable expenses? And why you are seems to be a little bit higher than theirs?

Yes, sure, I think on the Same Store basis ours is going to all of the higher because we’re spending more in really I would say, three in the four categories. Other then payroll and in R&M we’re just seeing more of inflation as I mentioned as a response to Jim’s question. For contract labor materials, reservicing tugs on turns and doing those types of things. The costs have just gone up. As well as contract labor for example, painting contracts and landscaping, those costs have also gone up which I would say, more – its probably more drastic for our deals being garden styled than like a high-rise. And then for marketing we’re just spending more this year to attract and upgrade our demographic profile. So that’s going up about 5% to 7% as well. So just across the board other than payroll for on-site staff we’re seeing inflation out there in the market which it’s tough on your expense line, but we think we’ll probably see some results -- some better results and positive results on the topline as well as the results of inflation.

Okay. That’s helpful. Second question may relative to many of the other apartment REITs that are kind of more in the Class A area. Could talk to a little bit about just what you’re see in regards to one job growth prospects for current mainstream workforce? And also what you see in regards to the apartment supply that will focus on this particular group of workers?

Yes. So, the job markets, at least for our tenant base is really tight. I think that across most of our markets we’re -- I think eight out of our nine markets are in the Top 25 -- Top 25 in job growth and they’re all growing 1% to 3% this year expected to grow jobs at 1.3%, that’s a number of across the board, but its representative of our tenant demographic. And then there is for supply, there’s just isn’t – there’s not any new affordable housing being built in America certainly in our markets and there’s if you want to consider single family rental and shadow supply, but that market is tight as you know from the public REITs reporting in that space. So those again, as I mentioned to Rob, our recurring resident burden is just north of a 1000 bucks and investors, how to make work given work construction cost, how to build the new garden deal today which is about $140,000 to $170,000 of unit. Can’t make the returns work unless they’re subsidize and then they subsidize how thing you’re probably less favorable part in the town than where our assets are located.

Got sir. All right. Thank you.

You bet.

And we’ll take our next question from John Massocca with Ladenburg Thalmann. Please go ahead.

Just a quick follow-up, You mentioned there were no plans running near term dispositions, but how do you look at your one D.C. area asset from kind of strategic standpoint, its been a good performer over the last couple of quarters but its you still last in the market. Is that something where you just hold on to just kind of one-off or if you ever had some proceeds to put to work you might expand in that market. Just any color would be helpful.?

Yes. I don’t see us expanding in the market. Given the relationship with BH there’s already scale on that market and they operate a number of assets in the mid Atlantic, so I’m not worried about stretching resources there, but to your point earlier it keeps going up, the NOI keeps going up. It was up 21% last year and then it budgeted to do almost double digit this year. So can’t complaint about that.

Absolutely not. That’s it from me. Thanks.

Thanks John.

[Operator Instructions] And at this time, it appears there are no further questions. I’d like to turn it back for any additional or closing remarks.