Good day, and welcome to the NexPoint Residential Trust Second Quarter Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Jackie Graham, Director of Investor Relations and Capital Market. 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 second quarter ended June 30, 2021. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer; Matt McGraner, Executive Vice President and Chief Investment Officer, and Bonner McDermett; Vice President, Asset Management. 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. 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 take undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures see the company’s earnings report 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 to everyone joining us this morning. Appreciate your time. I’m Brian Mitts. I’m joined by Matt McGraner. I will kick off the call with some highlights in the quarter, then cover our numbers for the quarter and year, and wrap up with guidance which we are revising upward. Then I’ll turn it over to Matt who will discuss our portfolio and some of the metrics driving our performance and leading us to revise our guidance upward. As Matt will discuss in his prepared remarks, the acquisition environment is challenging, I think as everyone knows, although we’ve been able to find some opportunities. We closed on the acquisition of two properties in the quarter and Matt will provide some details on that during his remarks. But regardless of acquisitions or the environment as we have said many times, our growth and value creation strategies was not predicated on new acquisitions. We have the ability to significantly increase value through our organic rehab program, which has continued in earnest during the second quarter and for all of 2021. So, we got just a couple of the highlights here real quick for the second quarter and year-to-date. Net loss for second quarter was negative $3.4 million or negative $0.14 per diluted share. This compared to a loss and $9.3 million or a loss of $0.38 per diluted share in 2020. Same store NOI increased by $179,000 or 0.6% compared to the second quarter 2020. We reported second quarter’s core FFO $14.2 million or $0.56 per diluted share, which compares to $0.59 per diluted share in the second quarter 2020. We continue to execute our value-add business plan this quarter by completing 336 full and partial renovations during the quarter and reached 408 renovated units achieving an average monthly…

Thanks, Brian. Let me start by reviewing our Q2 operational results. Our cash collections remain favorable to NMHC comps with 99.2% of Q2 rents collected and while federal stimulus and local rental assistance programs have helped overall demand for upgraded affordable housing and the Sunbelt continues to register at historical highs. The population inflows into our Sunbelt communities also continue to make new highs. We are witnessing increased trends in our markets as we exit the pandemic with a 35% increase in out-of-state applications quarter-over-quarter and a 29% increase year-to-date. Net migration from California and New York continue to dominate our leasing applications year-to-date, increasing 52% and 19% year-over-year respectively. Low migration outflows from our markets and consistent resident retention also explain the strong operational performance during the quarter and the first half of the year. Our communities are still experiencing all time highs in occupancy. Our Q2 same store occupancy ended up at 96.1%, that’s up 80 basis points quarter-over-quarter and as of July 26, the portfolio is 95.8% occupied, 98.3% leased, with a 94.2% trend. These historically strong occupancies and trends are allowing us to materially increase rents in most of our markets. Same store revenue growth for example exceeded 2.2% in 7 out of our 10 markets in Q2 and every market experienced positive rental growth. On the leasing front, we really started to see a pickup in June, but every month exceeded our expectations. New leases ended the quarter at a robust 14%. Renewals finished at a positive 6% for Q2 blended rental growth rate of 9.9%. Here are the numbers by month, which demonstrate an acceleration through the quarter and into July. April new leases were up 10.8% with renewals being 5.1% for a blended increase of 7.85%. May new leases were up 13.4%, renewals…

Right. Thank you. We’ll turn it over for questions.

Thank you. [Operator Instructions] We will take our first question from Amanda Sweitzer from Baird.

Thanks. Good morning all.

Good morning.

I wanted to start on your same store rental income guidance. It’s coming down marginally. And it certainly doesn’t seem to have been driven by lease rates. Is that being predominantly caused by some of the casualty events that you mentioned or any changes in your assumptions on bad debt for the rest of the year?

Yes. I’ll start, Amanda, it’s Matt. We have booked as the moratoriums ended here in the coming months, we’ve decided to take a write-off of bad debt that’s backward looking so to speak. So, the change isn’t really forward looking, it’s just revisions to the annual number which we could expect to recapture some of that income later on in the second half of the year. So, it’s not really forward looking, it’s just a revision. And then I think that’s primarily it. But Mitts, if you have anything else.

Yes. So, I think we’ve been in a weird spot here because typically what we do is move to evict a tenant that would either kind of force a payment or they would leave in which case we just based it right to balance off and maybe we could recover a little bit down the road. Here, we’ve been carrying balances for tenants that we obviously can evict. So, they’ve been in place, but instead of writing a lot of it off because people have been making payments over time or they don’t like paying, whatever. We’ve been trying to be conservative and prudent with what we’re writing off. Now, as Matt mentioned, we get to the end of the moratorium and start to formulate a plan around evictions and trying to collect some of that. We think it makes sense to start writing off those balances as they -- it looks like that a tenant may be a candidate for eviction. So, we think that’s a pretty conservative number. I don’t think the casualty losses -- well, they do impact, these were any business interruption we’re getting, insurance proceeds are going to other income. So, it obviously doesn’t hit that rental revenue line, but we’re starting to bring those units back online now and that should clear things up and part of what’s driving our additional increases throughout the year.

That’s helpful and makes sense. And then as you think about blended lease rates going forward. Do you think there is still room here to increase renewal rates and further narrow that gap to new lease rates? Are you getting to the point where you think turnover will increase if you push renewal rates further?

Yes. I think there is definitely room to see them kind of converge. Right? So, obviously we can’t time 25% new leases every quarter, probably going forward, but we do expect to see those two numbers converge. I mean if you look back in 2016 and 2017, the portfolio regularly had double-digit renewal increases during peak leasing season. So, so far we’re optimistic as I said in July were 24.4% new leases, 8.18% renewals on almost 1100 leases. Every single market is in double digits on the new lease front and then high single digits on the renewals. So, I think, I mean, as the markets are as healthy as they’ve ever been on the leasing front, so I mean, we expect this to continue through the second half of the year.

Okay. Thanks. Appreciate the time, guys.

Thanks Amanda.

Thank you. [Operator Instructions] We’ll take our next question from John Massocca with Ladenburg Thalmann.

Good morning. Can you hear me?

Good morning John.

Maybe just following up on that last point, I mean, I guess given the health of the leasing market, is the expectation as you think about guidance going into the end of the year that you can kind of hold occupancy at that 96% level even as we see kind of the eviction moratorium roll?

Yes. I mean, we think so. There’s really -- we’ve kind of Tiered this out. This is one of our projects that we’re working on now and we are Tiering out the folks that we think are candidates for eviction like immediately and our plan is to take those units and largely rehab them and/or hit them like easy standard terms. That number is only 123 units. So, that would be really the large pool of disrupted units that we would see in Q3 or Q4. So, that small number gives us optimism that we should be able to hold these numbers and our trends are still as healthy as they’ve ever been. So, I think so.

Okay. And then the other kind of component of the change to guidance was with a decrease in kind of the total expense expectations. You kind of touched on the fact that it seems like your tax expectations are kind of remaining the same and you’re on a kind of conservative basis there. I guess what’s kind of driving that 100 basis point decline in kind of total same store expense if it doesn’t seem like it’s a change in tax expectation?

Yes. I mean, I think it’s savings on the other kinds of R&M categories and payroll. R&M increase in the second quarter primarily because it was against a comp that was low basically in Q2 of last year. Obviously, we didn’t really touch the units, quite a lot of defense, put off work orders on the maintenance side. And so, we worked a lot of that through in Q2. And we’re not going to see that -- we expect not to see that -- those elevated numbers in the second half of the year.

And I guess, sorry, I missed it. But the change in expectations, kind of now versus maybe at 1Q kind of thought some of that 2020 roll off would have been known. I guess, is it just you’re not seeing cost inflation like you were expecting or?

Yes. I mean, it’s cost inflation. It’s the fact that we just haven’t turned. We don’t think we’ll turn as many units and have the turn costs, our resident retention is higher, people are accepting new renewals. So, based on our trends and what we think the leasing performance will be in the second half of the year, there’s not -- there’s just lower CapEx, recurring CapEx.

And I guess, sorry if I missed it, but the change in expectations kind of now versus maybe at 1Q, some of that -- never thought some of that 2020 roll out would have been -- sort have been known. I guess, is it just, you’re not seeing cost inflation like you’re expecting or?

Yes. The Charlotte deals are a blended four in a quarter cap rates. We expect to dispose the Nashville deals at a four, so pick up an ARB there and do it in a non-dilutive way to our earnings by reverse 1031, more broadly, I mentioned the portfolio that’s an institutional seller that has -- those units are in largely Texas and Florida. And we think those are -- kind of know they’re under contract at 3.5% cap rate. So, it’s pretty competitive out there. But with, again with the cheap financing and lack of growth elsewhere in other commercial real estate asset classes, this is pretty popular place to be. But as Mitts said, at the call, at the open of the call, we have found three acquisitions here in target markets that we have a good dispo ARB, capital recycling ARB and look forward to growing more particularly in the Research Triangle.

That’s it for me. Thank you very much for taking the questions.

Thanks, John.

Thank you. We’ll take our next question from Michael Lewis with Truist Securities.

Great, thank you. You answered most of mine, but I wanted to circle back to the issue of the eviction moratorium getting lifted. I think you said you have about 123 units where you’d want to evict pretty quickly. So, maybe a two partner on this. Could you talk a little bit maybe about that process, how quickly you get them out if you think maybe there’s higher CapEx on those units? And then as the second part of that question, do you anticipate any impact on market fundamentals as you kind of not just you but others kind of release this all of a sudden available inventory into the market, do you think that slows things down a little bit in your markets?

Yes. Those are really good questions, Michael. So, as we turned, there’s 123 that are kind of our Tier 1 and those folks have either gone dark on us, so to speak or haven’t been making any payments and largely I think most of them have been on notice and eviction has been filed. So, those are ones -- these are units that we think we can get a hold of pretty quickly. And I’d say about half of those we plan to renovate and we know like down to the unit obviously like what floor type or floor plan it is. So, we’re going to have teams ready to renovate those units and release them into the strong environment almost immediately. So that’s good as far as your market fundamentals and like a flooding of new tenants out there as the moratorium ends. I think that most institutional owners will not rent to a tenant that’s been evicted for whatever reason. I think that they still have to qualify income, credit checks, background checks and we’re certainly -- we appreciate and understand the hard circumstances of the pandemic, but at the same time people have paid rent or making payment plans to pay rent. We worked with our tenants and I think most institutional owners are of the same mindset. So, if your tenants are trying to pay and make payment plans then you’ll work with them. Those that haven’t or that go dark on you, I think are pretty -- aren’t going to get the benefit of doubt on a new lease. So, those folks that are evicted are probably going to a C-unit or something lower quality would be my expectation.

And then another kind of macro topic, obviously, a lot of talk about the delta variant in the last couple of weeks. I don’t think anybody gets sick and leave their apartment unless in the worst circumstances of course, but is there any reason to think that, if we get another wave of Corona virus that’s -- if Delta variant becomes a bigger issue that there is any -- is that a risk you think to apartment fundamentals or to your business at all or do you think that’s-you’re sort of insulated from that a little bit in your business?

Yes. I mean I think that our geographies are and have been sort of the most, I don’t say lenient, but the most progressive in terms of letting folks get out and work and go to restaurants, etc. So, the economic activity in the Sunbelt, in the Southwestern and Southeastern United States has kind of led the nation. So, that’s kind of a mitigating factor in terms of the new variant. I think that -- it’d be hard for us to see, Governor Abbott of Florida, for example, put the brakes on reopening and go backwards. So, I think that that’s something in our markets favor that will allow us to continue to hopefully operate as we have been and even in Las Vegas, where there is temporary mask, reissuances or reorders of wearing masks. They’re largely not being, I guess, prosecuted or enforced. So, I think for our markets we feel pretty good, but who knows what California and New York will do. Those are wildcards.

Thank you.

Thank you, ladies and gentlemen. [Operator Instructions] We have no further questions in queue. I’ll turn the call back to management for closing remarks.

Yes. Thank you. Appreciate everyone’s participation this morning. Great questions, and we’ll see next quarter.

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