Please stand by. Good day, and welcome to the NexPoint Residential Trust Second Quarter 2019 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 Conference Call to review the company's results for the second quarter of 2019. 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 www.nexpointliving.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, 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, NXRT's guidance for financial results for the full year 2019 and the related assumptions, net asset value and the related components and assumptions, guidance for the third quarter of 2019 and the related assumptions and expected acquisitions and dispositions. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Listeners should not place undue reliance on 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, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements. This 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, Jackie. I want to welcome everyone to our 2019 second quarter conference call. Today, we will discuss our Q2 and year-to-date results for 2019, update guidance for 2019, discuss some of our recent acquisitions and dispositions and discuss the portfolio in our markets in general. I'm Brian Mitts, Chief Financial Officer, joined by Matt McGraner, our Chief Investment Officer. So let me jump into some of our highlights for the quarter. We are reporting what we feel to be another solid quarter with same-store NOI increase for the second quarter of 5.4% and 6.2% for the six months ended June 30. We're reporting 14-odd percent increase in Core FFO per share for the six months ended June 30 as compared to the same period in 2018. Total revenues for the second quarter were up 20.8% and total NOI increased 23.9% year-over-year. Total revenues for the year-to-date 2019 were up 19.6% and total NOI has increased 23.6%, again, versus the same period in 2018. Our NOI margins remained strong at 57.1% for the second quarter and 57% year-to-date. We saw strong rent growth in the second quarter, in both renewals and new leases at 4.1% and 5.3%, respectively. We continue to execute our value-add business plan by completing 475 full and partial renovations during the quarter, leasing 381 of those units, achieving a 27.1% ROI during the quarter on the interior renovation dollars spend on the leased units. Inception to date in the portfolio is the 630, we have completed 6,594 units, achieving an average rent increase of 10.9% and average ROI of 23.2%. Additionally, in the quarter, we completed Smart Home Technology installs in 4,891 units and 228 washer dryer installs. During the second quarter, we acquired one property, Summer's Landing in Fort Worth for $19.4 million consisting…

Thanks, Brian. As Brian said, we saw strength across the entirety of the portfolio with 7 out of our 10 markets growing NOI by at least 6.3% on a same-store basis including Atlanta, Phoenix, West Palm, D.C., Charlotte, Tampa and Orlando. The notable markets for Phoenix growing at 13.1%, and we also saw a reacceleration of NOI growth in Atlanta to 7.9%. Leasing activity and revenue performance were equally as strong during the quarter. For example, we achieved healthy new lease growth of 4.1% overall and 5% on the same-store pool with 7 out of 10 markets delivering growth of 3.8% or better. Leaders in both categories were Charlotte at 9.7%, Phoenix at 7.6%, Atlanta at 7%, D.C. Metro at 5.7% and Orlando at 4.8%. Renewal growth continued to outpace new leases and delivered 5.3% growth across the portfolio with every market, except for Houston, growing at 4% or better. Top 5 renewal markets were Atlanta at 7.6%, Charlotte at 7.4%, Phoenix at 6.7%, D.C. Metro at 5.9% and then DFW, our largest market, at 5.8%. Renewal retention was unchanged from Q1 finishing the quarter with a healthy 51%. To update you guys on our subsequent transaction activity, new acquisitions and dispositions, as previously disclosed, we marketed 6 property portfolios through CBRE that resulted in very competitive offers, both individually and as a portfolio, proceeding over 22 offers on the portfolio alone and 200 offers on the 6 individual assets. As a reminder, these six assets were Abbington Heights, Belmont at Duck Creek, Edgewater at Sandy screens, Heatherstone, the Pointe at the Foothills and The Ashlar. The disposition cap rate was a nominal 4.7% after-tax adjustment, and we expect to generate a 27% levered IRR and a 2.71x multiple on invested capital. The purchase for today is nonrefundable on $12…

Yes. Thanks, Matt. I've no additional remarks either, so we'll turn it over for questions.

[Operator Instructions]. And we'll go first to Jon Petersen with Jefferies.

So if I was looking at your specific -- your markets page, it looks like occupancy declined in a lot of the Florida markets. Even though it was like rate growth was still pretty good, and overall revenue growth looked pretty good. So I wasn't quite sure how to think about, maybe there's some differences in timing there and what not. But maybe just high level, what's driving the occupancy in those markets?

Yes. John, it's really just a tough comp from last year. I think we're usually right in there at 94% in that market and then 96% was just the quarter end date from Q2. So that was the biggest change. As you said, the revenue growth both on new leases, renewals and other income was still healthy. I believe our financial occupancy was almost 96%, like 95.6%. So I think it's just, sort of, a quarter ending timing issue.

And then in terms of the rent growth on new leases, I guess, do you have that number excluding rehabs?

Yes. New leases on the same-store pool or just overall?

On the same-store pool, yes.

3.9%.

Okay. All right. And then in the July -- do you have that for overall too? In terms the rent growth excluding rehabs?

363.

Okay, cool. And then -- you guys still had a presentation in July with your acquisition pipeline. I don't know if you have any -- can you give us any, sort of, thoughts on the timing around closing some of those acquisitions. And I guess whether -- if in terms of maybe just the percentage of that pipeline that we should expect to actually close?

Yes. I -- given the guidance raise that we made today, we feel pretty good about completing acquisitions that are transacted in a way that's nondilutive to earnings in terms of timing. So we felt pretty good about hitting that midpoint number as it sits today in -- like I said, in a timely manner that can be at or near or just after the same day that the big portfolio closes on August 30.

And next, we'll go to John Massocca with Ladenburg Thalmann.

Do we -- just kind of just touching on that last point, I mean, what is driving -- you guys kind of gave some color on what's driving the low end and the midpoint of the acquisition assumptions and guidance. But what, kind of, is driving that 351 number at the high-end?

Yes. I think that at the high-end, we have a number of offers out in really targeted markets in Nashville, South Florida, Phoenix, that we've been working on for -- really in earnest in last kind of three or four weeks as we've locked in the sale in the hard-earnest money. So we're best and final in two of them. We think we'll hit on at least one of them, which gets you to the midpoint. I feel pretty good about being able to reach that mid- to higher-end but, call it, maybe not September 1 but shortly thereafter.

Okay. And then maybe on the disposition side, kind of what's kind of in the assumption for the midpoint in the high-end? Just any color on that?

Yes. Just one more deal on the midpoint, which would be roughly either Southpoint or a deal in Nashville, Woodbridge. And if we sold both of those, that makes up the high-end but that would be it for the year.

And then apologizes if I missed this in the prepared remarks, but what was the close date on the acquisitions completed subsequent to quarter end?

I think July 17 was the closing on Glenview reserve and West Place. And then I want to say July 1 was Summer's -- June 6 for Summer's Landing.

Okay. And then I guess the Houston market struggled a little bit in the quarter. What drove that? And was it just something weather-related? Is there supply in that market that's affecting you guys?

Yes. So this has been a topic of conversation recently here. And we had real page in our office yesterday discussing it. It's just the market, as it sits today, is still pretty anemic in terms of new lease growth. There's still psychology of concessions, whether you're at the high-end or in the B space. That said, we do expect and are seeing a strong pickup in Q3 at some of -- at two of the three assets that we own there. And expect to have those contribute or largely contribute more to the same-store growth in the third quarter.

And then in Nashville, was any of that slight under performance versus the other market's going to potentially go away when you -- in the portfolio disposition given the one Nashville asset that's in there?

Yes. Absolutely. I think that our same-store pool especially in Nashville improved dramatically once Abbington Heights sold, that asset has struggled for us and is probably the largest single contributor to underperformance in Nashville.

[Operator Instructions]. And we'll go next to Barry Oxford with D.A. Davidson.

When you guys were selling the Sunbelt Portfolio and you said -- I think you guys had 22 offers on the portfolio, what type of other buyers were showing up there or was it just more of, kind of, a hotchpotch?

Yes. So what we did was we ran the portfolio at a CBRE Dallas office, but we searched nationwide or kind of blasted out nationwide to every single type of buyer on their list and they're the largest commercial real estate services firm in the world. So they reach everyone. So we offer the portfolio both as you can buy them all or you can buy them individually. And so the people that wanted to buy them all, which was your larger, sophisticated, institutional type either private sponsors or funds, we received 22 offers from those types of buyers. And then individually, there was over 200, I think, 214 individual offers from local groups and national buyer. So we opted for what we believe to be a strong cap rate to a strong buyer that could do them all at once. And a very sophisticated group and then we feel like, I said with $12 million of hard-earnest money today, that this transaction will close on time.

Do you feel in general out there in the marketplace that there's a little bit of a portfolio premium?

Depends on what it is. Yes, I mean for B properties in the $250 million to $500 million range. Yes, the one-off individual asset market right now for B properties in the Sunbelt is extremely competitive. We've lost deals recently in Phoenix at 4.25% cap rates for 20-year-old product. We lost the deal on Nashville that Starwood was selling or -- in Atlanta that Starwood was selling at a 4.5% cap rate and that asset was 20 years old. The cap rates had pushed even further lower than what we had anticipated this year and our acquisitions, luckily, the resource that these three were all off-market or through BH. So that's why we've been able to get a little bit of cap rate orb [ph] instead of competing on the one-off acquisitions.

Right, right. On the -- last question on the off-market. Do you see opportunities, kind of, as you look out over the horizon to continue to source it? Or do you feel that most sellers out there want to go to that kind of -- for lack of a better work-competitive bid process?

Yes. Certainly, the latter, most sellers will opt to generate an auction but, again, I think historically we've tried to focus on larger size checks and will continue to do that. And like I said to John's previous question, we feel pretty good about hitting on one or two more.

[Operator Instructions]. And it appears we have no further questions. I'll turn things back over to our speakers for any additional or closing remarks.

Great. Thank you. Yes, we have nothing further, so appreciate everyone's time. Let's conclude the call. Thank you.

And that will conclude today's conference call. Thank you, everyone, for your participation. You may now disconnect.