NexPoint Residential Trust, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Congratulated Brian Mitts on retirement and welcomed Paul Richards as new CFO.
• Fourth quarter and full year financial results discussed, including net loss, net income, NOI, core FFO, etc.
• Highlighted value-add business execution, with 58 full and partial renovations in Q4 2024, achieving significant rent premiums and ROI. Inception to date, completed numerous upgrades and installations resulting in rental increases and high ROI.
• Discussed 2024 transaction activity, including property sales generating net sales proceeds, stock retirement, and refinancing activity with significant gross proceeds and improved interest rates.

Segment Performance

• Fourth Quarter 2024: Net loss was $26.9 million or $1.06 per diluted share on total revenue $63.8 million. Net operating income was $38.9 million on 35 properties, a 7.6% decrease from Q4 2023. Same-store rental income increased 90 basis points, same-store occupancy was stable at 94.7%, same-store NOI decreased 40 basis points. Core FFO was $17.7 million or $0.68 per diluted share compared to $0.75 per diluted share in Q4 2023. Completed 58 full and partial renovations, achieving an average monthly rent premium of $150 and 19.2% return on investment.
• Full Year 2024: Net income was $1.1 million or $0.04 per diluted share. NOI was $157 million on 35 properties, a 6.2% decrease from 2023. Same-store rental income increased 2.3%, same-store occupancy was stable at 94.7%, same-store NOI increased 90 basis points. Core FFO was $73.1 million or $2.79 per diluted share compared to $2.92 per diluted share in 2023. Generated 10.8% compound annual growth in core FFO since inception in 2015.
• NAV Estimate: NAV per share range was $44.56 on the low end, $58.52 on the high end, and $51.54 at the midpoint, based on average cap rates from 5.25% to 5.75%.

Guidance

• 2025 Core FFO: Per diluted share range of $2.83 at the high end, $2.56 at the low end, with a midpoint of $2.70.
• Same-store Revenue: 1.3% increase on the high end, 20 basis points decrease on the low end, midpoint at 50 basis points increase.
• Store Expenses: Increase of 2.4% on the high end, 4.9% on the low end, midpoint at 3.7% increase. Resulting in same-store NOI range of 50 basis points increase on the high end, 3.5% decrease on the low end, and negative 1.5% decrease at the midpoint.
• Value-add Programs: Expect to complete 425 full interior upgrades, 3 partial interior upgrades, and 661 washer and dryer installations, with specific average costs, premiums, and ROI assumptions.
• Acquisition and Disposition: Will underwrite limited value-add pipeline opportunities, with potential increase in volume later in 2025 as prospective buyers underwrite rent growth.

Risks

• Conference call contains forward-looking statements based on management's current expectations, assumptions, and beliefs. Listeners should not place undue reliance on forward-looking statements and are encouraged to review the company's filings with the SEC for risks and other factors affecting forward-looking statements.

Question and Answer

Q: Total rental income for Atlanta was up 160 basis points quarter over quarter, but average effective rent was negative 10 basis points and occupancy was negative 160 basis points. So what drove the positive result there?

A: In Atlanta, there were higher options and the rollout of bulk WiFi across assets, along with one gig fiber retrofitted units. Also, bad debt improvement with a positive inversion expected in 2025.

Q: Please provide some color on what drove the 290 basis point decrease in occupancy in the Raleigh Durham market.

A: Pressures in the Morrisville submarket, a high house asset under pressure, and some personnel change. The supply picture is expected to improve in the back half of the year.

Q: Could you please walk me through would you think the most interest expense 2025 even I guess, some of the stock maturity.

A: Roughly a quarter million of swaps expiring in June, with a 50 basis point decline in spread, resulting in a 12 cent benefit for 2025. Assumptions on higher for longer rates, but upside if Fed cuts in the second half.