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Edited Transcript of NXRT earnings conference call or presentation 29-Oct-19 3:00pm GMT

Q3 2019 NexPoint Residential Trust Inc Earnings Call

DALLAS Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of NexPoint Residential Trust Inc earnings conference call or presentation Tuesday, October 29, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Dale Mitts

NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director

* Jackie Graham

NexPoint Residential Trust, Inc. - IR Manager

* Matthew McGraner

NexPoint Residential Trust, Inc. - CIO & Executive VP

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Conference Call Participants

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* Andrew T. Babin

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Barry Paul Oxford

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Buck Horne

Raymond James & Associates, Inc., Research Division - SVP of Equity Research

* Craig Gerald Kucera

B. Riley FBR, Inc., Research Division - Analyst

* John James Massocca

Ladenburg Thalmann & Co. Inc., Research Division - Associate

* Omotayo Tejamude Okusanya

Mizuho Americas LLC - MD & Senior Equity Research Analyst

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the NexPoint Residential Trust, Inc. Third 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, Ma'am.

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Jackie Graham, NexPoint Residential Trust, Inc. - IR Manager [2]

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Thank you. Good day, everyone, and welcome to NexPoint Residential Trust's conference call to review the company's results for the third quarter 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 fourth quarter 2019 and the related assumptions, expected acquisitions and dispositions, new acquisition metrics and planned value-add programs. 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 statements. 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 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.

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [3]

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Thank you, Jackie. I'd like to welcome everyone to the NXRT 2019 Third Quarter Conference Call. Today, we'll discuss highlights for the year, present our quarterly and year-to-date results through the third quarter, update guidance for 2019, discuss recent acquisition and disposition activity as well as the portfolio markets. I'm Brian Mitts, and I'm joined by Matt McGraner.

Q3 was our most active quarter to date, so there's a lot of ground to cover. First, I'll start with the highlights for the quarter. We're reporting a same-store NOI increase in Q3 of 4.4% and a 5.1% same-store NOI increase for the 9 months ended September 30. Consistent with our high-growth strategy, we're reporting a 13.8% increase in core FFO per share for the 9 months ended September 30 as compared to the same period in 2018.

During Q3, we acquired 4 properties for $484 million, consisting of 2,568 units. For the year, we have acquired 8 properties consisting of 3,420 units for $636 million, increasing our exposure in the Florida, Nashville and Phoenix markets and adding approximately 2,000 units to our redevelopment pipeline.

Total revenues for Q3 were up 28.3%, and total NOI increased 30.8% year-over-year. Total revenues year-to-date for 2019 were up 22.6%, and total NOI increased 26% over the same period in 2018, reflecting our acquisition activity.

NOI margins remained strong at 55.7% for the third quarter and 56.5% year-to-date. We saw solid rent growth in Q3 2019 in both renewals and new leases at 4% and 3.5%, respectively. Continue to execute our value-add business plan by completing 588 full and partial renovations during the third quarter, with 418 of those units being leased in Q3, achieving a 25.2% ROI during the quarter. Inception to date in the portfolios of 9/30, we completed -- we've completed 5,842 full and partial upgrades, achieving an average ROI of 24.2%.

Additionally, we completed the Smart Home Technology installs in 2,271 units across 8 properties in Q3 and 6,089 units across 19 properties since the introduction of the Smart Tech package. Also, we completed 130 and 410 dry -- washer-dryer installs for the third quarter and year-to-date, respectively. During Q3, we sold 6 properties consisting of 2,218 units for a sale price of $290 million.

Net proceeds were used to acquire the Pembroke and Brentwood properties. For 2019, we acquired a net of $346 million in assets. We utilized the ATM in Q3, raising gross proceeds of $40.5 million before operating expenses at an average price of $46.69 for a 16% premium to the midpoint of our revised NAV and increased our shares outstanding by approximately 867,000 shares. Generally, we used the net proceeds from the ATM to pay down our revolver, which had an outstanding balance of $107 million at the end of the Q3. Year-to-date, we've raised $50.7 million under our ATM at an average price of $45.24 issuing approximately 1.1 million new shares.

Based on updates in cap rates and NOI growth, we're revising our NAV per share range upward as follows: $36.72 on the low end, $43.99 on the high end, with a midpoint of $40.36 as compared to midpoint of $37.51 in Q2, or a 7.6% increase.

For the third quarter, we paid a dividend of $0.275 per share on September 28. Yesterday, the Board declared a dividend per share of $0.3125 payable -- per share, payable on December 31 to shareholders of record on December 17.

This represents a 13.6% increase over our prior dividend and a cumulative 51.7% increase over our initial dividend in April of 2015.

Year-to-date, our dividend payout ratio is approximately 59% of core FFO. But we estimate it'll be 65% of core FFO for the full year. Let me go through some of the high-level results for the third quarter of 2019. Total revenues were $46.8 million as compared to $36.5 million in Q3 of 2018, which is a 28.3% increase. Net operating income was $26.1 million for the third quarter of '19 versus $20 million last year, which is a 30.8% increase. Core FFO was $11.5 million for the quarter or $0.47 on a per share diluted basis versus $8.9 million or $0.42 per share last year, which is an increase of 11.9%.

Same-store rent increase for the quarter was 3.2% over last year. Same-store occupancy was down 80 basis points from last year to 93.3%. Same-store revenue was $30.7 million for the third quarter '19 versus $29.6 million in '18 or a 3.7% increase. Expenses were $13.8 million for the third quarter versus $13.4 million last year, which is a 2.8% increase. Same-store NOI for the third quarter of '19 was $16.9 million versus $16.2 million last year or a 4% increase.

For year-to-date results, total revenues were $131.4 million for 2019 versus $107.2 million for 2018. This is a 22.6% increase. Net operating income was $74.3 million versus $58.9 million or a 26% increase. Core FFO is $33.5 million year-to-date 2019, which is $1.38 per share on a diluted basis versus $25.9 million or $1.21 per share on a diluted basis for an increase of 29.6%.

On a same-store basis for the year, same-store rent has increased 4.1%, same-store occupancy is down 80 basis points also to 93.3%. Same-store revenue is $90.7 million versus $87.1 million, which is an increase of 4.1%. Same-store expenses were $40.3 million year-to-date 2019 versus $39.2 million in 2018 or a 2.8% increase.

Same-store NOI is $50.4 million for 2019 versus $47.9 million in '18, which is a 5.1% increase.

Today, we're updating guidance. Our revised guidance for 2019 assumes a range of $636 million to $877 million for acquisitions, the range of $290 million to $340 million for dispositions. These assumptions, we're updating 2019 guidance as follows: Core FFO per share on a diluted basis is $1.88 on the low end, $1.95 on the high end, with a midpoint of $1.92, which is up $0.02 from last quarter; same-store revenue is a 4.5% increase on the low end, 5.5% increase on the high end with a 5% increase in the midpoint, which is unchanged from last quarter; same-store expenses, we estimate, will increase 2.5% on the low end, 3.5% on the high end with a 3% midpoint, which is also unchanged from last quarter; and same-store NOI is 6% increase on the low end, 7.3% on the high end with a midpoint of 6.6%, which is up from 6.3% last quarter. It should be noted in our same-store guidance that we believe fourth quarter will be a very good quarter on a comparative basis.

As you all may recall, we had a large tax hit in the fourth quarter of 2018. In response, we budgeted very conservative estimates for taxes across the entire year and therefore, fourth quarter 2019 comparison to Q4 2018 will be favorable just for that reason alone, if not others.

So let me turn it over to Matt now to fill in some of these details and then we'll go to Q&A. Matt?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [4]

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Thanks, Brian. To cover some same-store results briefly, our same store NOI margin continued to improve year-over-year by 39 basis points to 55.7%. Same-store average rents and revenues each increased 3.7%, as Brian mentioned. Rents were up at least 3% in every market except Houston, which remained flat. We saw strength across the entirety of the portfolio with 7 out of our 10 markets growing NOI by at least 6.7%, including Houston, Nashville, Atlanta, Phoenix, West Palm Beach, D.C. and Tampa.

Notable same-store NOI growth markets were Nashville at 13.4% and continued acceleration of NOI growth in Atlanta to 10.3%. On the leasing activity front, revenue growth continues to be strong with 7 out of our 10 markets achieving new lease growth of at least 4.3% or better with our top 5 markets being D.C. at 10.8%, Charlotte at 7.7%, Phoenix at 6.9%, Tampa at 6.5% and both South Florida and DFW at 5%. Effective renewals registered at 3.5% with 8 out of our 10 markets delivering growth of 3.4% or better.

Turnover in occupancy conversions were a healthy 51%. And on the transaction activity front, as Brian mentioned and as previously disclosed, we were quite active during the quarter, acquiring approximately $485 million worth of properties and disposing of the Sunbelt Portfolio for approximately $290 million.

Our largest acquisition in the history of the company, Avant at Pembroke Pines, is off to a strong start and is beating underwriting budget by -- so far by 81 basis points and sits at a healthy 95% occupied as of today. As a reminder, we purchased this 1,520-unit community for $322 million for year 1 economic cap rate of 5%. We plan to upgrade 938 units at an average cost of $15,900 a unit, generating premiums of $235 a unit and ROIs of approximately 17.7%. We also plan to install Smart Tech packages in every unit and expect to generate monthly premiums of $45 a unit. As a result, our underwritten 3-year average same-store NOI growth for this asset is 8.4%.

Arbors of Brentwood acquisition recap briefly, located in Nashville and built in 1986. We purchased this 346-unit community for $62.25 million for a year 1 cap rate of 5.44%. We plan to upgrade 147 units at an average cost of $10,200 a unit and generate premiums of $166 a unit and ROIs of approximately 19.5%. We also plan to install washer and dryer sets in 200 units and expect to generate monthly premiums of $40 a unit. We also plan to install Smart Tech packages in every unit and expect to generate monthly premiums of $45 a unit. As a result of these programs, our underwritten 3-year average same-store NOI growth for this asset is 7%.

On the NAV front, as Brian mentioned, we've updated our NAV to $40.36 a share at the midpoint. The drivers of the NAV increases were outsized NOI growth and updated reflection of market cap rates in Nashville and Charlotte. While we are trading at a premium to our implied NAV, I think it's important to highlight that we're still trading at a discount to what it would cost to build a new garden apartment complex in our submarkets.

Looking ahead to Q4 and the full year 2019 results, as Brian mentioned, we are boosting our full year 2019 same-store NOI growth guidance to 6.6 -- excuse me, 6% on the low end and 6.6% at the midpoint and continue to be excited about Q4, the full year of 2019 and the next 12-month run rate of earnings.

On the asset management front, we're working hard to execute on our full year plan outlined at the beginning of the year to push renovations in Q3 and then drive Q4 occupancy with fewer upgrades. We expect this revenue management plan to bring the total portfolio occupancy to 95% by year's end. This increased occupancy will boost total collections and directly influence Q4 same-store performance.

We continue to feel good as a result about hitting our 4.5% to 5% revenue growth targets for 2019. We also see growth in our other income as we continue to roll out our Smart Home Technology packages and other resident amenity services. As Brian mentioned, we have completed over 6,000 units across 19 properties to date and the build-up on the revenue side of this equation is turning faster and further expect to reach 100% penetration by the -- by Q3 of 2020.

Finally, the third driver for full year same-store growth is the favorable tax comp for 2019. In October 2018, real estate tax expense across the same-store pool registered $1.76 million as we trued up budgets in that 1 month last year. Our October 2019 real estate tax accrual is $1.33 million, creating a $432,000 favorable year-over-year comp. Again, we believe all these factors and the continued strength in our portfolio will result in a strong quarter and a full year for 2019.

In closing, I'll just reiterate that leasing demand for our affordable housing continues to be very strong. We continue to be very excited about our cost to capital as well as our 2019 acquisitions and the addition of over 3,000 units to our pipeline to upgrade over the next coming quarters.

And that is all I have for prepared remarks. Brian?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [5]

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Thanks, Matt. Yes, that's the conclusion of our prepared remarks. We'll turn it over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Buck Horne with Raymond James.

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Buck Horne, Raymond James & Associates, Inc., Research Division - SVP of Equity Research [2]

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I want to start with the occupancy, and I think you alluded to your strategy just wrapping up your comments there, but just wanted to dive in on the occupancy strategy going into year-end with -- I guess with some thought around -- are you seeing any signs that there are any pressures or resistance levels to renewal increases? And how do you want to -- where do you want to get occupancy at before year-end? I guess you mentioned the 95% target, but what's -- how does the strategy unfold there?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [3]

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Yes, so we tried this last year and ended up almost rehabbing too many units in Q4. This year, we've tried -- we have implemented almost 600 units or upgraded almost 600 units this quarter, which is just a little over double our pace on a run rate basis for the year. So that was purposeful. And then going into Q4, we don't expect to upgrade many full interiors. We'll try to do Smart Home Techs, and then washer-dryers where we can in the partials. But the goal is to try to renew over 60% of residents for the fourth quarter and as I stated, drive occupancy to 95%. A lot of that is focused on Dallas, frankly. There is, obviously, our NOI concentration, our unit concentration is most robust in Dallas. And so I think that's going to be a key contributor to occupancy growth in Q4.

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Buck Horne, Raymond James & Associates, Inc., Research Division - SVP of Equity Research [4]

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Okay, but your biggest characterization is that simply due to the timing of the renovation schedule and not necessarily price resistance on the rent increases.

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [5]

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Well, I mean there's seasonality in price resistance in Q4 in general. So we just have found in years past that we don't fully get the 10%, 11%, 12% rent increases on rehabs. And so I think for us, in our revenue budget at least this year, we focused on hitting 95%, 96% in Q4. But it -- nothing, no resistance, so to speak, it's just more seasonality in our plan.

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Buck Horne, Raymond James & Associates, Inc., Research Division - SVP of Equity Research [6]

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Okay. Okay. And on the expenses side, just noticing both in the income statement, you had about a 10% jump in same-store repairs and maintenance, and then on the capitalized maintenance side, looks like it was up about 15%. Is there any sort of one-time catch-up spending in the -- kind of the repairs and maintenance items or reestablishing maybe a new run rate for R&M/CapEx? What do you think the -- that appropriate spending level is per unit?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [7]

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Great, great question. It's not a new run rate. There are one-time items in there. Specifically, there is a fire inspection, or there's 3 large contributors and fire inspection at Terrell Mill in Atlanta was a big number, it's almost $40,000. There was a lot of one-time tree trimming expense in Nashville and Atlanta. And then there were dumpster and trash issues at a couple of properties in Florida that were kind of city code mandated. In our expense policy, those items needed to be expensed in the quarter. There's also within the R&M number about 19% of that spend in Q3 was contracts, contract costs related to revenue enhancement items and resident service amenity income, other income items. So there is an offset to that expense.

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Operator [8]

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And our next question comes from Tayo Okusanya with Mizuho.

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Omotayo Tejamude Okusanya, Mizuho Americas LLC - MD & Senior Equity Research Analyst [9]

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Congrats on the good quarter. I am back in the seat and looking forward to working with you again. Couple of questions. So fourth quarter, again, when I just kind of run the numbers in regards to your same-store NOI forecast for the year, it suggests same-store NOI growth in fourth quarter has to be like 11%, 12%. And I think you mentioned 3 key factors, the occupancy gain, the better comps in regards to taxes and you will have more upgraded units, which are better, kind of, NOI growth, so to speak. I was just wondering across those 3 buckets, could you, kind of, give us a sense of how much is coming from each bucket to, kind of, see this big ramp in same-store NOI growth?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [10]

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Yes. I think the 2 are occupancy and taxes. Taxes alone will be probably 300 basis points-ish on the low end, and then the occupancy is not to be understated. I think our revenue management plan there is going to contribute a lot. I think in terms of just -- fourth quarter for 2019 over 2018, we do think we can hit anywhere from 8% to 11%.

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Omotayo Tejamude Okusanya, Mizuho Americas LLC - MD & Senior Equity Research Analyst [11]

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Got you. Okay. That's helpful. Then the second question I have is a fair amount of deal activity this quarter, which is great to see, and I appreciate the details you provide in the sup, just giving us some metrics around what you're expecting from the portfolio. First of all, could you talk a little bit just about the cap rates on these deals relative to your kind of implied cap rate, number one? And then number two, the upgrade costs of kind of $10,000 per unit, $13,000 per unit seemed particularly high relative to what you've done in the past, plus the premium rents also seem particularly high. Could you just, kind of, talk a little bit about those 2 factors as well?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [12]

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Yes. Absolutely. The acquisition environment continues to be healthy. As everyone knows, it's in the multifamily business. The -- so the acquisitions that we've done year-to-date, the Phoenix ones, I'll start with those because those were done in January. I think -- I feel like we can turn around and sell those and make $20,000, $30,000 a unit today. We bought those going in at anywhere from 5 to 5.25. Those were trending more 5.6, 5.7 right now just on performance.

The other acquisitions we've done throughout the year have underwritten cap rates probably right around a 5%. But given our upgrade plan and the history of our NOI growth, we think that we can get that 5% to 6%, 6.5% over the course of 3 years. And so that's how we're thinking about it. Not necessarily year 1 accretive although 90% of these acquisitions are, but by the time we go through the first wave of interior upgrades, we're well into the accretion and a higher yield than where we're trading at an implied cap rate today. So that's the answer to the first part.

The second part, everything's gotten more expensive. I will say the deals we've done recently are a little bit more of a premium in quality. So that's why you're seeing a larger CapEx per unit on the interior side, just frankly the demos support it. And we think that going forward, that's probably what we'll do. Although that each of these deals continue to have value add so we're not like straying and going into A- or A+. We're still focusing on workforce. But the South Florida market, for example, the higher-end suburbs of Nashville all support a little higher spend to higher-quality upgrades. So that's why you see the increase in the spend.

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Omotayo Tejamude Okusanya, Mizuho Americas LLC - MD & Senior Equity Research Analyst [13]

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Got you. And then just the premium rents are expecting. I mean some of these numbers out there are like $233 a month, is that a combination of just premium rents from the upgrade plus the $40, $50 from Smart Tech plus $40, $50 from washer-dryer. Is that kind of how I get to that kind of $233 number?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [14]

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No. I mean I think that those are more of the partials. The full spend, the larger interior upgrade costs are -- the $230 is -- are a result of comps in the market. We always try to identify a superior but achievable comp in the market. And typically that comp is a new garden deal that's $300 or $400 above where the in-place rents are at the deal we're acquiring. So if we can spend a little bit more and reach $200, $300, we feel good about it. But that's -- all these attributes exist in every deal we've done this year.

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Omotayo Tejamude Okusanya, Mizuho Americas LLC - MD & Senior Equity Research Analyst [15]

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Got you. So that has nothing to do with additional value add from Smart Tech, washer-dryer, it's just -- if I renovate this apartment to kind of make it look nicer relative to market comps, I think that can boost rents $233?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [16]

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Yes.

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Operator [17]

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And our next question comes from Drew Babin with Baird.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [18]

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Question on the top line. It looked like occupancy declined quite a bit in Phoenix, Orlando and South Florida year-over-year in the third quarter. Are those -- was that CapEx influence in those markets, is that sort of a strategic creation of scarcity value to drive rate? Or is there something going on on the supply front that's influencing that? Just hoping you can give a little more color on that.

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [19]

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Yes. I mean, I think you answered your own question, Drew, pretty well. It was -- I think part of it was a fair -- we had a high -- higher occupancy last year on the same-store basis in each of those markets. But the portfolio did try -- we did turn over more units in those 3 markets end of third quarter this year. And correspondingly, those were some of the highest rents on new leases that we achieved. So it's more of just -- as we've been stating, trying to get as much rent in rehabs done in Q3 and then in Q4, focus on building and maintaining occupancy.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]

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So it'd be fair to say that you mentioned Dallas is kind of a main driver of that occupancy growth from 3Q to 4Q and maybe the 3 markets I mentioned are the ones that kind of where you could get more of those units online, kind of more rate generation, would that be fair?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [21]

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Yes. I think that's a fair statement. Although, Dallas, from just a greater supply standpoint, has a little bit less rent growth in the market than some of these other markets. So we'll just try to renew as much as we can there and be in more of a defensive posture there when in reality, on a revenue management side, I think we'll still be able to drive both occupancy and new leases in these other markets, especially like the Phoenixes and Orlandos.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [22]

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Okay. And one from me. Just -- as you [transition] the same-store portfolio from this year's same-store portfolio to next year's, I guess how many new properties go into that? And sort of, is there any way that you can quantify kind of the remaining opportunity from value-add CapEx, occupancy and things like that, kind of embedded in what becomes same-store next year?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [23]

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I think on a full year basis, everything that we've bought will not be included. So that'll take a while to catch up. But as we finish each quarter that whatever we bought in the prior year, the quarter before will end up in there. So for example, what we bought this quarter will be a part of fourth quarter 2020.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [24]

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Okay. But as far as how many properties and units are entering the portfolio next year. So I understand that wouldn't include this year's acquisitions, but I guess, kind of, what is becoming same-store that's new?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [25]

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Yes. I think it's the 3 that we bought end of '18.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [26]

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We can follow up offline about exactly which properties. I was just maybe trying to triangulate kind of what the -- the remaining embedded opportunity is in those that we'll see in same-store property results next year.

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [27]

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Yes. It's going to be Cedar Point, Crestmont Reserve and Brandywine I & II.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [28]

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Okay. I'll follow up offline on those.

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Operator [29]

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And we have our next question from John Massocca with Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [30]

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Just on the guidance side, there's a pretty kind of -- obviously, most of the significant increase in what you're expecting on the acquisition front was the closed acquisitions that occurred in 3Q, but there was a little bit more additional kind of increase in what you were expecting or at least putting in the guidance number. So I mean is there anything specific driving that? Any deals that are kind of in the pipeline today? Or is that just generally what you think you can potentially get done between now and the end of the year?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [31]

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You're talking about revenue guidance or acquisition guidance?

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [32]

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Sorry, acquisition guidance, should've make that clear.

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [33]

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Yes. Nothing concrete today, but we're still looking at acquisitions across key markets. I'd say Charlotte, Phoenix, still looking in South Florida, evaluating other markets, including Las Vegas as a potential growth market, but nothing concrete today. But we do like our cost of capital and feel good about the execution of the deals that we've done this year.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [34]

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Okay. And then because the disposition guidance didn't really change, is that just a reflection of the fact that you guys like your cost of capital today? And then ultimately, that would be kind of the capital markets are more attractive to fund that future kind of external growth going forward?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [35]

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I'd say yes, but with the caveat that we're always willing to recycle capital as we've done for the past 5 years. We have potentially a couple deals that can trade early next year, but they're small. But those will obviously be at 10/31 exchange into new acquisitions. But yes, we, I think, largely -- with the NOI growth that we see in our existing portfolio, we'd rather fund new acquisitions out of our cost of capital than sell assets.

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Operator [36]

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And our next question comes from Barry Oxford with D.A. Davidson.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [37]

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Building on the sourcing equity, could you guys use the ATM as a source? And would that be enough for your 2020 plans?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [38]

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The answer is yes. We could use it. Is it enough? I think it depends on what we see on the acquisition front. We do have the line revolver that we've used in the past. So if we're not in a great place from a stock price perspective, we can pull down the line. But I think over the course of 2020, I would imagine that we could utilize the ATM to do whatever we needed. It may just be a timing issue of when we can utilize it.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [39]

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Right. And then, of course, you'll have dispositions also that will act as a source of equity.

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [40]

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Correct.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [41]

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So switching gears real quick. When we look at units to rehab, you guys said you are, kind of, pulling back here in the fourth quarter. What can we expect as far as rehab as far as units in 2020 compared to '19?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [42]

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Yes. I think it's going to look a lot similar, 250 or 350 a quarter with -- and full interior upgrades with partials adding another 100 or so a quarter, and then as I mentioned the Smart Home Techs, which are about $1,400 to install. And then a corresponding $40 premium, $40, $50 premium. You'll see us implement that program across the entirety of the portfolio by the end of the third quarter of next year.

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Operator [43]

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(Operator Instructions) And our next question comes from Craig Kucera with B. Riley FBR.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [44]

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I think last quarter, you mentioned potentially receiving a property tax refund from an appeal to Atera. Do you have any update there? And is a positive resolution of that a component of what you're expecting to occur in your fourth quarter property taxes?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [45]

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Yes. It's -- it has not been resolved. The tariff has not been resolved. We're still working -- "working" with the city of Dallas to resolve it. We have our next meeting scheduled in November. And the second question, it is not factored in entirely to the fourth quarter.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [46]

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Got it. And that's -- I was just going to say that's expected to be maybe $125,000 to $175,000?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [47]

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That's right.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [48]

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Okay. Just want to circle back to the occupancy. I know we've had a lot questions about it, but I wanted to just ask another question. More specifically as it relates to Florida, I think the same-store pool there has been under pressure for a couple quarters here in a row. And I think sequentially, rents were basically flat in a couple markets. Does that -- when we think about sort of the vacancy there, is there any skew towards units that are renovated that continue to be vacant? Or is it more of a broad mix across units that have not been renovated and those that have?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [49]

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Yes, it's a broad mix. And it's really one property, I think, that's been the larger contributor. It's Parc500 which had a couple of supply, the newer supply comes in, that's a higher price point deal. And then we haven't renovated as many units as we wanted to there for a whole host of reasons. But I think it's -- that's -- that deal in particular has been the driver, which -- at least, the good news to report there is now trending 95% as we sit here today. So we do expect that to snap back here in fourth quarter.

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Craig Gerald Kucera, B. Riley FBR, Inc., Research Division - Analyst [50]

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Got it. And I think just based on your overall commentary, it doesn't sound like you're looking to slow down your value-add spending, certainly slow it down from third quarter, but just basically move throughout 2020 to more normalized pace of maybe 250 to 300 units a quarter?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [51]

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Yes. No. No slowdown at all. Again, we think that actually, the ROIs we've being getting on the existing rehabs, especially in the fourth -- excuse me, the third quarter have been the highest ever since inception. So they continue to be strong, and we'll continue to spend it, spend the money because we're getting the returns, and that's our story has been.

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Operator [52]

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And our next question comes from Rob Stevenson with Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [53]

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So I think that -- Matt, you talked about the couple little deals on the disposition side, that's the Southpoint Reserve at Stoney Creek and Woodbridge assets that are being held for sale on the financials?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [54]

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That's right.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [55]

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And how significant are we looking at -- I mean if you don't want to give dollar values then sort of what type of NOI is coming off those properties to figure out how significant that number could be?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [56]

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Yes. I mean I think -- I don't mind giving it to you. I think the Woodbridge is $30 million, $31 million type gross sale price and Southpoint's $23 million, $23.5-ish million.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [57]

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Okay. So a little over $50 million. Okay. And then in terms of acquisitions on your contract today for you guys? Anything that you guys could talk about there?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [58]

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Under contract -- we have nothing under contract at the moment.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [59]

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Okay. And then so I guess the question, and I know you talked about it a little bit before on the -- on how to bridge the, sort of, same-store, but if I think about it sort of you did $0.47 of core FFO in the third quarter and the midpoint of the guidance range is $0.54 and I think the bottom end of the range is $0.50, easily see the $0.03 there. To get the $0.07 sequential change, is that almost all basically -- if you're not adding additional acquisitions into the mix, is that almost all the occupancy left and the contribution from -- the remaining contribution from the third quarter acquisitions?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [60]

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Absolutely. Yes. I mean if we...

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [61]

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Is there anything else of size in there in terms of sort of closing that quarter-to-quarter gap?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [62]

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Yes. Those are the main components. And obviously, like, we say acquisitions, but Avant in and of itself was a $320 million acquisition. So that's a big driver as well.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [63]

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Okay. And then just last one from me. Matt, what are you spending on Smart Tech per unit and -- versus what you're getting back? I think you said it was like $44 a month or something like that, but what's the outlay per unit on that? And has the composition of that package what you're offering in there changed at all or is likely to change as we head into 2020? Are you adding new things, getting rid of some other things that tenants aren't finding helpful, et cetera?

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Matthew McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [64]

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Yes. The composition isn't changing much. The price is around $1,400 with the premium to be about $40 to $50 depending on where the community is located. The residents really love it. It provides more sense of security, the Nest thermostats, people like more energy efficient. We still do from time to time, the Bluetooth shower speakers that we've joked about in the past. But nothing's really changed in terms of the composition of the package. And out of really everything other than, I'd say the washer and dryers that we do, people will pay for this. That's why you'll see it in every unit -- every single unit that we own between now and the end of the Q3 next year.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [65]

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Okay, and then I guess....

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [66]

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It's like $1,400 spend per unit. So it's kind of a 40% to 50% ROI annually.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [67]

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Okay. And I mean in terms of both this and your rehab program, are you seeing any material cost inflation on labor? And I guess to a lesser extent, materials but also -- but most probably labor these days versus 3 or 6 months ago. Is that continued upward pressure? Has that pressure abated? How should we be thinking about that?

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [68]

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Yes. Our labor spend is up about 7% to 10% over really the whole entire portfolio. So it is -- material is not so much at all, frankly, but the labor is 7% to 10%. And then the good news is we've been able to pass that on and still getting the corresponding ROIs that we are used to.

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Operator [69]

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(Operator Instructions) And at this time, I'm currently showing no questions in the queue.

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [70]

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Great. Well, we'll wrap up the call. Thanks for everyone's time and we'll be talking later. Thank you.

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Operator [71]

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Thank you, ladies and gentlemen, that concludes today's teleconference. You may now disconnect.