Thank you for standing by. My name is Christina and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] And I will now turn the floor over to Kristen Thomas, Investor Relations. Kristen, you may begin the call.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust conference call to review the company's results for the second quarter ended June 30th, 2024. 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 and Investment 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 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.

Thanks, Kristen. Welcome to everyone joining us this morning. Appreciate your time. I'm Brian Mitts. I will be joined today by Matt McGraner and Bonner McDermett. I'll start the call and cover our Q2 results, updated NAV and guidance outlook for the year, and I'll turn over to Matt and Bonner to discuss some of the specifics in the leasing environment and metrics driving our performance and guidance. Results for the second quarter are as follows. Net income for the second quarter was $10.6 million or $0.40 per diluted share on total revenue of $64 million. This includes an $18.7 million gain on the sale of Radbourne Lake that was completed on April 30th. The $10.6 million net income for the quarter compares to net loss of $4 million or $0.15 loss per diluted share for the same period in 2023 on total revenue of $69.6 million. For the second quarter of 2024, NOI was $38.9 million on 36 properties compared to $42 million for the second quarter of 2023 on 40 properties. For the quarter, same-store rent decreased 1%, while same-store occupancy held stable at 94.1%. This coupled with an increase in same-store revenues of 2.3% led to an increase in same-store NOI of 2.4% as compared to Q2 2023. As compared to Q1 2024, rents for second quarter on the same-store portfolio were up 0.4% or $6 sequentially. We reported Q2 core FFO of $18 million or $0.68 per diluted share compared to $0.77 per diluted share in Q2 2023. During the second quarter for the properties in our portfolio, we completed 59 full and partial upgrades and 36, sorry, and leased 56 upgraded units, achieving an average monthly rent premium of $240 and a 20.1% return on investment. Since inception for the properties currently in our portfolio,…

Thanks, Brian. Let me start by reviewing our second quarter same-store operational results. Same-store rental revenue was 2.6% with five of 10 markets averaging at least 2% growth, while our Las Vegas and Atlanta markets led the way at 9.2% and 6.6% growth respectively. Total same-store revenues for the portfolio were up 2.3% year-over-year. We're also pleased to report some continued moderation in expense growth for the quarter. Second quarter same-store operating expenses were up just 1.2% year-over-year. Specifically, marketing and payroll declined 5.2% and 80 basis points, respectively, year-over-year, R&M expense growth continued to moderate up just 80 basis points from 2Q 2023 and we finalized several prior year property tax appeals, resulting in 1.6% reductions year-over-year and are still in active property tax appeals on 14 assets. Second quarter same-store NOI maintained a healthy growth in our markets with the portfolio averaging 2.4%. Five of 10 markets achieved year-over-year NOI growth of 3.7% or greater, with Las Vegas and Atlanta leading the way at 12.3% and 9.6% growth respectively. Our Q2 same-store NOI margin registered a healthy 61.1%, which was up 10 basis points from the prior year. Operationally, on the income front, the portfolio experienced continued positive revenue growth in Q2 with five out of our 10 markets achieving growth of at least 2.3% or better. Our top five markets were Las Vegas at 8.4%, Charlotte at 6.8%, Atlanta at 5.5%, South Florida at 4%, and Raleigh at 2.4%. Renewal conversions for eligible tenants were 65% for the quarter, with eight out of 10 markets executing renewal rate growth of at least 1.1% and a blended average of 2.11%. On the occupancy front, the portfolio registered a healthy 94.1% as of the close of the quarter and as of today remains 94.1% occupied, 96.5% leased, and a…

Appreciate it, Matt. Let's open it up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Kyle Katorincek from Janney Montgomery Scott. Your line is open.

Hey, good morning, guys. You noticed that Raleigh real estate taxes accounted for 33% of your total expenses due to the four-year reassessment. Did that come in materially higher than you guys initially estimated?

Yeah. So right now in Raleigh, it's kind of a tale of two deals, right. The Six Forks asset, we actually came in ahead of our consultants' estimates. We're pretty satisfied with that outcome. The Mooresville asset, the High House asset, that one, we're having to do a little bit more fighting. So you see us still accruing at a higher rate. We think that there's savings there. If you look at our spread for full year numbers, there is about $0.5 million range of outcomes. Matt referenced the 14 deals that are actively in protest for 2024. The High House asset there is one of those, and that could be one of the more material drivers, if we can get that down. So, we're still working on that. It certainly is a big impact, but, as you mentioned, it's kind of a four-year opportunity. Bite at the apple, and then it will be fixed for the next three. So, we're going to do everything we can with the consultant to control that outcome, but hopefully we have more to report come Q3.

Okay. And then are there any other multiyear tax reassessments maybe for the next 14 and larger markets that are going to be coming up within the second half of 2024?

No, that's the one. So, Charlotte, Mecklenburg County was last year, Nashville last year as well. So those are the three with kind of odd tax situations, but we're dealing with Raleigh now. I think, we're pleasantly surprised with Six Forks outcome, and we think we can, through some sale comp data, some income approach, get the High House result down.

Okay. Thank you. And then could you guys provide an update on the sales process with Stone Creek and Houston? Should we still expect it to close before year-end 2024?

Yeah, we're still marketing it and negotiating with a couple of different buyers. Do have offers, attractive offers that we think we can execute on and believe we can transact before year-end.

Okay. Sounds good. Thanks, guys. Appreciate it.

You bet.

And your next question comes from the line of Omotayo Okusanya from Deutsche Bank. Your line is open.

Yes. Good morning, everyone. Just in terms of the refinancing of the debt, one, could you talk about any fees or prepayments you may have to deal with now as it pertains to kind of refinancing these assets, if that exists? And then, second of all, the ongoing process to refinance, I know sometimes with HUD and GSE that it can take a while. There's a lot of paperwork. It can be very administrative. Just kind of talk us through a little bit about how easy that process will be to kind of get it done?

Yeah. Hey, Tayo, it's Matt. So the fees, because we're sticking with in our -- the Freddie Mac currently has, I think, all the debt on the portfolio, it's really considered a modification versus a complete refinancing for accounting purposes. There's going to be some breakage costs, but they're negligible, $10 million, $15 million that can be amortized over the life of the seven years. So, that's that. And then the execution on the Freddie side with JPMorgan, JPMorgan is a current lender, and then Freddie Mac, obviously, is we're a sponsor with Freddie and have refinanced and financed with them, I think, over $6 billion in the history of the company. So, we're in a very good cadence with them. We have signed applications. We'll be working through thirds over the next 30 days, third parties, and would like to and believe we can close by the end of the third quarter on the first tranche. And we're concurrently, while we're doing the first tranche, we're concurrently on the second tranche and then close out a month later. And so we expect this to -- yeah to be pretty routine for us. And again pretty excited about it.

That's helpful. And then the same-store revenue guidance, sorry, same-store revenue in second quarter. Again it seems like occupancy was somewhat flattish year-over-year, rents, again, were kind of down a little bit, but your same-store revenue numbers, I think, for the quarter, you were up a little bit. Just curious, again, is that ancillary income doing better? Is that bad debt doing better? Could you talk a little bit through that and potential implications for the rest of the year?

Yeah. Bonner, you can give me the specifics, but I think a lot of it is bad debt. And as we go forward, the second half of the year, we were underwriting a GPR reduction of roughly $2 million, but also a lower vacancy loss of about $300,000 and then better bad debt of upwards of $800,000. And I think that's what drove the income, total revenue for the first half. But Bonner, can you?

Yeah. And I think one of the things that might get lost in translation here. So we report 630 physical occupancy at 94.1% for the same-store pool. The full quarter, effective occupancy, financial occupancy, was 94.9%. We carried pretty strong occupancy end of the quarter, and the average occupancy throughout was higher. So overall we had a pickup in occupancy. We also have our bad debt is down about 1.7% year-over-year. So we're pleasantly surprised there. I think we've done well to work through kind of the eviction activity overhang from COVID. And so the quarter we did 1.9% growth in revenue. A lot of that is in, I think, a pickup in occupancy and bad debt.

Thank you.

[Operator Instructions] Thank you. With no further questions, I'll turn the floor back over to the management team.

Yeah. Thank you. Appreciate everyone's time this morning and we'll talk again next quarter. Thank you.

Thank you. This does conclude today's conference call. You may now disconnect. Have a great day.