Good day and welcome to the NexPoint Residential Trust Inc., First Quarter 2018 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Marilynn Meek. Ma'am, please go ahead.

Thank you. Good day, everyone and welcome to NexPoint Residential Trust conference call to review the company's results for the first quarter ended March 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 first quarter 2018 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 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 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 NexPoint's strategy, guidance for financial results for the full year 2018. 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. Thanks to everyone who is joining the call. Appreciate your time today. I am Brian Mitts, and I am going to start the call, go through some of the highlights for the quarter and touch on some of the more important numbers and talk about guidance. And then I am going to turn over to Matt McGraner who is also joined me, talk to the portfolio so the things we are seeing in a marketplace and then kind of highlight where we are trading versus where we see some things going on in the - particularly in the private market kind of pull everything together and put in a context. Let me start with some of the highlights for the quarter. I'd say it was definitely quite quarter by our standards. But we basically execute our plan and try to allocate capital in a smart way, which I'll get you here in a second. On that front, we had no acquisition this quarter. We had one disposition which we already discussed. It was put out in our subsequent event in the 10-K, and we talked about it last quarter but that was the Timberglen property located in Dallas, 340 units, sold at for gross proceeds of $30 million, retired the mortgage on the property $17.2 million. With that transaction, we closed out the reverse 1031 exchange for the Atera property which is also in Dallas. And then with some of the proceeds we paid down remainder of the Bridge facility of $8.6 million that we had taken out last year to buy out our JV partner and partially fund the acquisition of Rockledge asset in Atlanta. On that property, we realized the 45% IRR and 2.8x multiple on our invested equity. So, again, kind of showing the…

Yes. Thanks Brian. So flush out the same store little bit more in detail. As Brian mentioned, we did 5.9% same store growth in the first quarter. The average rent picked up from $899 last year or last quarter to $933 for the first quarter. That's a 3.9% increase. The revenue is accelerated 3.6% and expenses grew just 90 basis point as Brian mentioned. Our top line growth for the entire portfolio was incredibly strong, with 8 out of our 10 markets growing at least by 3.3% or more. For historically, the worst quarter for seasonality. Same store results by market. Dallas had a healthy 9.2%; Houston was negative 9.8% which I'll get into a minute. DC Metro was 3.8%; Atlanta was 3.4%; Nashville, 10%; Charlotte, 6.4%; Phoenix, 8.2%; West Palm Beach, 10.1%; Orlando, 7.4% and Tampa 7.8%. So very healthy in Florida and our four markets. Leasing activity continues to be really strong especially for the first quarter despite the seasonality. We experienced new lease growth of 4.3% with our top five markets being Orlando, Tampa, Phoenix, West Palm and DFW. Orlando came in at 9.5%; Tampa, 8%; Phoenix, 7.6%; West Palm Beach was 7.2%, and DFW at 4.5%. Renewal increases were also strong averaging 3.9%, our top markets being Orlando again Nashville, Dallas and West Palm Beach. Orland led with 6%, Nashville, 5.1%, Dallas, 4.8% and West Palm at 4.4%. We continue to focus on renewal retention. We did a great job in the first quarter; remain very strong at 52.7%. Some of the highlights that Brian mentioned that we want to talk about briefly. In the markets, as far as transactional activity, obviously we continue to allocate capital to our internal growth initiatives, and a share repurchases activities. As Brian mentioned, we asked the board and they…

Thank you. So to kind of summarize, we think very good quarter. We think the year looks pretty strong from where we sit. We don't have the supply issues that maybe some of our peers and multifamily sector are dealing with. We think that our portfolio of leased assets are priced in public markets are somewhat under-priced, based on what we're seeing. So we're taking advantage of that by continuing to invest on the rehab front, and put out more units to Matt's point, try to drive the rents up. And we think we have a long runway on that given what we're seeing out there as far as a newer product or some of the competing product. We're also doing a second generation type of rehab, which we talked about last quarter. It's a detail which is helping us to push rents as well. And then, of course, we're taking advantage of the disconnects between what we think the value of the portfolio is versus what is price in public markets. So with that Marilyn we' will turn it over for questions.

[Operator Instructions] The first question comes from Rob Stevenson from Janney.

Good morning, guys. You talked about accelerating redevelopment given the difficulty in redeploying capital into acquisitions. I mean given what you are doing currently how significant is your capacities to ramp on a quarterly basis over and above what you're doing or where do you just sort of run out of manpower to be able to accomplish the renovations on a cost-effective basis?

Yes, I think that we have the ability to do another 150 or so units per quarter. It was harder in the first quarter to achieve that run rate for a couple reasons. One we just renewed more folks at a higher rent, which is probably smart during the season, but we expect and have at least for the month of April that for the rest of the year --the remainder of the year that we should be tracking that 400 to 500 range per quarter, which has historically been fairly consistent. But that is a focus of ours.

Okay. And Matt you've sort of faded out when you were talking about Houston. What was behind the drop-off in revenues there on the same store basis?

Yes. I appreciate the question. So rental revenue was down 6.3% and that was largely as a result of three deals and lease up that are surrounding Tanglewood, Everly and Alexan 5151. Those are all stabilized now and actually March was great, it was on budget. The asset and this is --I'm speaking about old farm which is at 734 unit deal that we bought in the Galleria area. And it's performing exceptionally well now and expected to be one of the best performers here on out throughout the year. For example, we signed I think almost 85 leases in the last four weeks, current occupancy is up to 93% and it's leased by almost 98 % now. So we think it's a blip on the radar, but it did affect results for the first quarter. Also the city over billed us for water pretty dramatically. So we expect that we'll get a credit back in the later quarters. So it should work itself out, but it was a large contributor to the negative for the first quarter.

Okay and then in terms of expenses what are you guys spending these days on a per unit basis on hard turnover costs?

What do you mean by hard turnover costs? Like years?

Well not obviously not the large rental rate but what are you spending to do any work on a unit on average between the time somebody moves out and the next tenant moves in terms of painting, carpet cleaning, carpet replacements, the sort of repairs and maintenance not so much the wholesale kitchen and bath renovations?

Yes. It's about a 300 unit on the low end, in the market $300 to $500 per unit.

Okay and then lastly for me, the insider ownership moved up 19.5 to 20.7 this quarter. How much of those 120 basis points was the lower share count from you guys buying back versus how much was it management putting more money in?

Both were factored in February. There is a stock vesting on the Alto. So that contributed, obviously, we bought back quite a few shares that contributed and then Jim continues to put money or in the stock. So I'd say the buybacks had an effect but the price, bigger effect was of the vesting of shares in February.

Our next question comes from John Massocca from Ladenburg.

So would you ever consider selling individual assets solely to buy back shares or are the tax consequences of that just too severe?

I think we have, we did that early on in June of 2016 when we sold our Jacksonville portfolio, it's a retire debt and then we instituted the buyback plan shortly thereafter. So yes we'd be open to it for sure.

Yes. I would add that if you look at the history of the company, we've never raised outside equity, we aren't paying out everything obviously. So we were well covered by 1.5x on core FFOs. So it's a little bit of cash flow that's there to deploy and acquisitions, rehabs or share buybacks. So, yes, it comes from a number of sources, but I mean in general to buy 60 million of stock over the last two years, you get a little bit into the proceeds from sales.

Understood and then are you seeing any difference in pricing for Class D multifamily assets being sold as part of portfolios versus individual assets? I know you had mentioned both markets were pretty strong, but you think you could maybe sell a portfolio i.e. what you did with the NAV portfolio and recycle that accretively into assets on a one-off basis or are both markets just a little too tight right now?

Well, the good thing about when you sell assets and recycle to capital of what we've done, we compound the equity returns on the original cost of our fund. So we will always continue to do that. So we don't necessarily look at it in a binary manner that we can't redeploy assets in large part what we have done is recycle capital into higher margin, higher NOI margin properties in better locations. So that's something that I think that will continue to focus on. But it is a difficult market. We were at a Greenstreet conference in New York a couple weeks ago and David Schwartz at Waterton said this in front of a large group. He said that, well, basically what I said you can't find any garden deal or value add asset that's north of a five caps. So you just got to be really selective and that's a single asset in portfolios. There's a lot of capital chasing these assets right now. And what I think it is the convergence of value add buyers and core plus buyers chasing the same assets, obviously, core plus buyers have a lower cost of capital and then the value add guys haven't gone away and with the leverage that the private market can get these are still relatively attractive yields in a stable asset class. So I think it's going to continue to be strong. It's good time to own our assets.

Yes. What Matt mentioned is reflected in the numbers we're providing higher margin, will higher quality assets, the fact is total revenues and total NOI hasn't really dropped that much, although our portfolios is eight properties less than it was this time last year.

Makes sense and then kind of a little bit more on a granular level. Your tax expense on the same store basis decline 2.3%. How much of that was from new tax appeal versus flow-through from tax appeals in prior quarters, generally speaking?

Did you say 2.3 you mean decreased 2.3%?

Sorry, correct. Yes. I just I think some of that obviously got to be from stuff happening into 2Q, 3Q and flowing through. How much of it is that versus a new tax appeal that lowered your expense there?

Most of our processes are well really all our taxes are disputed. So every single property, every year, thing on the municipality that they settle in different times. So it's hard to say the negative - the reduction of 2.3% will occur on in any specific quarter. I think for this quarter I think it was largely as a result of settlements that we had disputed in 2017 in our Texas markets, which we think that we achieved a favorable result. That being said, the municipalities aren't necessarily getting any easier. So it's hard to pinpoint exactly an answer to the question, but I would just qualitatively say that that's--

So you guess you kind of expected to normalize here in the coming quarters, given that this Texas appeals kind of -

Well, as Matt said -

Overlap

We pretty much dispute everything and the municipality has been pretty aggressive. The public markets may not appreciate the value of our assets but the municipalities certainly do. So I think you'll see to extent that we can have success in that process. We will continue to see some favorable tax numbers in the next few quarters vis-à-vis that the prior year but it's hard to predict. I think what you saw this quarter the vast majority, it was a result of what we had done in 2017 probably coming to fruition and settling or getting a better answer and paying that than what we had experience or some of the initial assessments.

Yes, if you want to get granular I can give you sort of two markets that I think will largely see savings in the rest of the year once we appeal and that's Atlanta and Charlotte. Atlanta was up 17%, it was up 17.5% and we're obviously disputing that with vigor. And then Charlotte was up 7%.

Our next question comes from Craig Kucera from B. Riley FBR.

Hi, good morning, guys. I would like to know if we can get an update on Southpoint Reserve at Stoney Creek. I think we were looking for a sale price maybe around $19 million in the second quarter. Has anything moved in regard to your expectations there, whether timing or pricing?

Definitely pricing. So NOI has gone up materially. We think that now we can get north of $22 million around $22 million. And then we are obviously minding the acquisition front and trying to find a use of proceeds to cycle or a replacement property cycle that capital into or buy back shares. But I think that I would expect at least for the first half of the year that we could - that you'll see us recycle out of that.

Got it. Based on that revised NOI is that still around a five cap? Or can you give us some color there?

I think five in a quarter on in place, but as I mentioned our budget NOI was up. Our budgeted NOI not underwritten but our budget NOI was almost up 12% on the same store basis. So if we achieve that cap rate might be higher on our budgeted number, but on our T3 number we'll look to dispose that on a 5 to 5.25.

Got it. One more for me just given the amount of inbound calls, when you think about your guidance, are there any other dispositions embedded in that guidance? Or any incremental share buybacks beyond what you guys have already completed here in the first and early here in second quarter?

I'll take the buyback question. I think, yes, there absolutely is depending on where the stocks trading, we telegraphic quite a bit by putting out the NAV slide. So $30.68 is kind of where we think value is, the extent we're trading in the 26, 27 context. I think you can expect that we would take advantage of the fact that we have even more ability to buy stock in a longer time frame with an expanded program, not on the dispositions.

Yes. I think that's the only one that we are seeing today. And it would be sort of apples- to-apples like selling something for $22, something for $22 to $25 at a higher NOI margin. So I wouldn't expect from a core FFO basis any earnings leakage. We would try to recycle it in an effective manner. So as not to dilute the earnings stream.

Okay. At this time, I'd like to turn the call back over to Mr. Mitts.

Yes. Thank you for the time. That's all we have today. Appreciated, we'll I think see some of you in NAREIT here in a month or so. And look forward to that. We'll talk to you in three months. Thank you.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.