Good day and welcome to the NexPoint Residential Trust Q4 2021 Quarterly Conference Call. Conference is being recorded. At this time, I would like to turn the conference over to Jackie Graham. Please go ahead.

Good day, everyone. And welcome to NexPoint Residential Trust's conference call to review the company's results for the fourth quarter and full year ended December 31st, 2021. On the call today are Brian Mitts, Executive Vice President, and Chief Financial Officer and Matthew McGraner Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at nxrt.nextpoint.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 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 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, and welcome everyone joining us this morning. I appreciate your time. I'm Brian Mitts, I'm joined by Matthew McGraner. Let's kickoff the call with some commentary on the quarter ended year, and then the cover our results and wrap up with guidance which we are initiating for 2022. I'll then turn it over to Matt to discuss specifics on the lease environment and metrics driving our performance guidance and our now estimate. With net migration continuing into our core Sun Belt markets and the continued shortage of high quality, affordable housing, NXRT continues to enjoy enormous pricing power with new lease rates increasing 24.5% and renewal rates increasing 15.6% across the portfolio in Q4 of 2021. Net migration or markets continues unabated. This continues to track capital and some cap rates to historic lows, and then rate increases to historic highs in our markets. As we've discussed before, our growth prospects are not dependent on acquisitions. We continue to achieve mid-cap returns from our value-add strategy, where we can move yields 50 to a 100 basis points over three to five years from acquisition, which makes us less sensitive to absolute acquisition cap rate levels, non-going and widening shortage of affordable housing in the U.S. which is more acute in our Sun Belt markets as new household formation outpaces new housing deliveries gives us plenty of runway to continue implementing our value-add strategy across our existing portfolio and new acquisitions. Increased net migration coupled with the shortage of housing, positions NXRT to continue to aggressively push rates into 2022, while still maintaining high occupancies. Net income for the fourth quarter was $38.8 million or $1.50 per diluted share on total revenues of $58.5 million as compared to a net loss of $4.2 million or minus $0.17 per…

Thank you, Brian. Let me start by going over our fourth quarter Same Store operational results. Our Q4 Same Store NOI margin improved to 59.4% up 358 basis points over the prior-year period. Rents showed 6% or greater growth in all markets, while Same Store average effective rate growth reached 11.2% for the portfolio. Houston lagged the other markets at 6.2%, while Atlanta, Phoenix, Las Vegas and Tampa all registered 12.8% or better year-over-year growth. Fourth quarter Same Store NOI was remarkable across the board, with portfolio averaging 15.9% driven by 8.9% growth in total revenues and a well-managed 1.7% growth in total operating expenses. Operationally, the leasing activity in revenue growth showed sustained upward momentum in the fourth quarter was seven out of our ten markets, achieving revenue growth of 7% or better. Our top-five being Tampa at 15.3%, Orlando at 14.9%, Nashville at 10.8%, South Florida at 9.9%, and Phoenix at 9.3%. Renewal conversions were a healthy 55.2% for the quarter with 7 out of our 11 markets executing renewal rate growth of at least 15% and no markets under 9%. The leaders were Tampa at 24.5%, Orlando at 19%, South Florida at 17.5%, Phoenix at 17.1%, and Atlanta 16.7%. 2020 rent growth picked up considerably in our markets starting in Q2 last year. And through Q2 and Q3, we took advantage of market conditions and achieved new lease rates of 23.8% in Q3 and 24.5% in Q4. Renovations slowed in Q3 due to 60% resident retention and the GAAP between organic new lease growth and renewals widened. We made the strategic decision to push for higher new renewal rates to close that gap and provide more renovation opportunities. As a result, we saw retention drop to 54% and renewal increases grew from 10.5% in Q3 to 15.6%…

Thank you. Open it up for questions then.

[Operator Instructions]. And we'll go to our first question from Buck Horne with Raymond James.

Hey, good morning guys. Congratulations, great work. Fantastic quarter. So a question I guess relates to [Indiscernible], going to provide some great color around comparisons of all alternative options for your customers. But the concern is of course, affordability in can the consumer continue to keep up with this rate of increase for too long? Just any color you have on rent-to-income ratios. How those are trending? What is the profile of the incoming renter in your portfolio looking like these days? And as you guys are starting to intentionally incur a little bit more turnover, just any signs of consumer pushback, any color you can add around that.

Yeah, I'll take Buck. Thanks for the comments and the question. So pre -pandemic our average household income was roughly $50,000-$55,000, today that's ticking up over 60. So we're attracting a higher demographic, some of that's some of the newer deals in South Florida and Phoenix and Raleigh, Durham. But we're seeing -- at the same time, we're pushing rents, our percentage-based materially really is a few 100 bucks while I -- we think are and we're seeing our average household income go up over 10% over that pre -pandemic to today. So that gives us -- that coupled with the Delta and the deepening between us and single-family or us in the next Garden deal, we still think we're a seriously attractive option, especially when you consider all the amenities that we're adding to the assets. What we've seen is higher retention as I alluded to in our comments, because when people walk around, it's just not that great of an option to go to get somewhere else. To your question about our people pushing back; yes, absolutely they are. But our teams at [Indiscernible] are doing -- this quarter are doing a great job of asking the perspective tenant to go and source other options. And often when they do, they come back and they're saying, well, it's going to cost me $500 to $1,000 to move, and I like what you guys have done here and there's no other better option. So that's why we're seeing above-average retention and above-average renewal increases.

That's great. And one question, I frequent come across is given the rate of these types of rent increases, what's your perspective? Is there going to be push-back from, whether it's local politicians, or City Counsels, or do you have any risk in certain jurisdictions where, whether it's some sort of ordinance or whether or not a moratorium of sorts? What's your perspective on the risk of a rent regulation coming into play?

Certainly lower than the gateway markets. We haven't encountered really any -- other than sort of [Indiscernible] or other than pandemic moratoriums, we haven't necessarily encountered any regulation or unionization of renters like in [Indiscernible] San Francisco and our markets thankfully, and then often times the municipalities are getting their condo flush do with increased property tax revenues I think I have to hand in this as well as filling their own coffers for their budgets. So I think luckily we own in markets and core markets that are less regulated. And as of today, we don't see anything from a regulatory standpoint, pushing back on our ability to meet the demand out there for people moving into our markets.

Good guys, appreciate the color. Thanks. I will draw, I'll drop back in the queue. Thanks.

Thanks, Buck.

[Operator Instructions] We'll go to our next question from Aaron Skloff with Skloff Financial Group.

Question about labor and cost of materials on your renovations. Can you tell us what you're projecting in your cost line for those types of items or any other costs outside of that, that may alter your expectation, including things like property taxes or any other important expense line items, please? Thank you.

Yes. Our cost of materials is up -- cost of materials and labor up a blended an additional 3% over what they were in 2021. But our rental increases are up roughly 9% above what they were in 2021, so we feel like we're more than offsetting that cost. There's no other kind of line items, other than what you mentioned between costs and labors that make up the renovation CapEx.

An outside of renovations, the property taxes, real estate taxes. Are you confident that the jurisdictions that you were speaking about being relatively friendly will remain friendly? And does that change with any other markets that you're evaluating new entries into?

We're not evaluating entry into any new markets and jurisdiction historically haven't been friendly to us. They try to raise our property taxes by a massive degree. This year is a little bit look better than last year. Last year we are -- from 2021 to 2020, we expected double-digit increases in property taxes, this year it's closer to seven on a same-store basis feel a little bit more optimistic this year about not having that large non-controllable expense be so high.

Great. Thank you for your clarity.

[Indiscernible].

[Operator Instructions]. A follow-up question from Aaron Skloff.

You tell us a little bit about what your capital structural look like and going forward, what type of instruments you may be using and how that might affect fully diluted shares outstanding going forward?

Cap structure remains pretty simple for us. We're not in the market looking for any sort of exotic data equity instruments. We have a basic Cap structure of common equity and then secured debt on each assets and then a company-wide revolver. So to the extent that we raised equity, it would be on a common basis. Most most likely during AGM execution, and we've historically done that at a premium or greater than a premium to our NAV.

Thank you.

We'll take our next question from Peter Abramowitz with Jefferies.

Thank you. I just wanted to ask about the composition of your acquisition pipeline. How much of that is deals that are off market and sourced through relationships? And is there any big difference between those type of deals and what's being marketed?

Hey, Peter, thanks, thanks for the question. I'd say roughly $100 million, $150 million are off. What I would call source through the family of BAH and are really our existing relationships that will. I don't want to say we are going to get like a fill but it should be a better cap rates in a widely marketed yield. So hopefully we'll hit on those and we think we will, we think there's a few in Raleigh. We think there's a few in Phoenix and a few in Atlanta that we're particularly interested in. And then kind of the marketed and that sub-set is about four deals. A couple of $100 million. The marketed deals that have been launched from NMHC and in here for average, roughly 13 to 15 deals, we expect those to be extremely competitive. Not withstanding a spike in the 10-year and interest rates recently, there's not really been any discounts. So we are still hovering around the low 3% cap range on a nominal basis.

Got it. I guess, for the off-market deals, would it be fair to say that those are dilutive, kind or excuse me -- accretive in year one for the cap rates kind of solution, to say that?

Yes, when you take a forward look and you use our NAD, the [Indiscernible] put off market deals would look to be in the high threes to low fours, so depending on where you think we're trading, the NAD perspective and what you think we can do with the same-store NOI growth profile in the first year. Yes, I think that we'll have a positive [Indiscernible], especially when if we're able to pair that with the disposition of Houston in the low threes too.

Got it. It sounds good. Thank you.

Thank you.

All right. Looks like that was the final question. We appreciate everyone's time, and thank you for the questions and comments.

And this concludes today's call. Thank you for your participation. You may now disconnect.