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Edited Transcript of NXRT earnings conference call or presentation 18-Feb-20 4:00pm GMT

Q4 2019 NexPoint Residential Trust Inc Earnings Call

DALLAS Mar 3, 2020 (Thomson StreetEvents) -- Edited Transcript of NexPoint Residential Trust Inc earnings conference call or presentation Tuesday, February 18, 2020 at 4:00:00pm 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 Ryan 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

* John James Massocca

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

* Omotayo Tejamude Okusanya

Mizuho Securities USA LLC, Research Division - 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. Fourth 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 conference call to review the company's results for the fourth quarter and full year ended December 31.

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 strategy and guidance for financial results for the first quarter and full year 2020, expected acquisitions and dispositions, the expected redevelopment of units, the projected average rent, change in rent and return on investment after redevelopment and new business metrics relating to the Las Vegas portfolio. They are not guarantees of future results and are subject to risks, uncertainties, 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 Fourth Quarter Conference Call. Today, we'll discuss highlights for the year, present our results for 2019, provide guidance for 2020 and discuss recent acquisitions, dispositions, our portfolio in general, markets and just what we see in the year ahead.

I'm joined here with Matt McGraner, our Chief Investment Officer.

So I'll start at high level. 2019 was our most active year so far on acquisition and disposition front. We acquired a net of $587 million of properties. Same-store NOI increase for the year of 6.7%, which was 20 basis points above our midpoint guidance. Consistent with the high-growth strategy for 2019, we're reporting a 19% increase in core FFO per share, which is $1.93 per share and 10 basis points above the midpoint of our guidance.

During the year, we acquired 11 properties for $877 million, consisting of 4,583 units, an increase in our redevelopment pipeline by nearly 3,000 units. We sold 6 properties during the year, consisting of 2,218 units for sale price of $290 million and rolled those net proceeds into a couple of new acquisitions.

Total revenue for 2019 was $181 million, and total NOI was $103 million, which was an increase of 28.3% and 30.8% year-over-year, respectively, reflecting the large net acquisition activity during the year. NOI margin increased 200 basis points to 56.7% for the year from 54.7% in 2018. We continue to execute our value-add business plan by completing 2,516 full and partial renovations during the year, with 1,671 of those units being leased, achieving a 25.3% return on investment during the year.

Inceptions to date, within properties still in portfolio as of 12/31, we've completed 6,927 full and partial upgrades, achieving an average return on investment of 24.5%. Additionally, for 2019, we completed Smart Home Technology installs in 8,546 units and completed 1,327 washer and dryer installs for the year.

We utilized the ATM in 2019, raising gross proceeds of $72 million at an average price of $45.98, and increased our shares outstanding by approximately 1.6 million shares. Generally, we used the net proceeds from the ATM to fund the acquisitions and pay down our revolver. Based on updates in cap rates, which are based on tightening in the market as evidenced by transactions that we're seeing as well as the NOI growth mentioned, we're revising our NAV per share range upward as follows: on the low end, $42.08; on the high end, $50.53; for a midpoint of $46.31 as compared to the midpoint of $40.36 in the prior quarter or 14.7% quarter-over-quarter increase, and a midpoint of $35.09 at the end of 2017 or a -- sorry, 2018, or a 32% year-over-year increase, while our stock also returned 32%.

For the fourth quarter, we paid a dividend of $0.3125 per share on December 31. And yesterday, the Board declared a dividend per share of $0.3125 payable on March 31 to shareholders of record on March 16. Year-to-date, our dividend is 1.7x covered by core FFO, making our payout ratio approximately 59% of core FFO.

Going to our -- just high-level results for 2019 as compared to '18. As mentioned, total revenues were $181 million in 2019 as compared to $147 million in 2018. This is a 23% increase. Net operating income was $103 million in 2019 versus $80 million in 2018 for a 28% increase. Core FFO was $47 million -- $47.6 million or $1.93 per share versus $35.1 million, which was a $0.31 increase or 19.1% increase for the year.

For our same-store pool, we have 25 properties comprised of 9,057 units. Our same-store rent increase was 3.6%. Same-store occupancy declined 30 basis points to 94.5%. Same-store revenues increased 4.3% to $119 million. Same-store expenses increased 1.4% to $52.7 million. And same-store NOI was $66 million versus $62 million in 2018, or a 6.7% increase.

Just real quick, I want to go through some of our historical performance since we're ending a year and rolling into a new year. Core FFO for the past 3 years has increased 31%. Our NAV at the midpoint, as we calculate it, has increased 86%. We've increased our dividend substantially, and our stock price has returned 30.5% on an annualized basis over the past 3 years. We've issued 4.3 million shares. The average price of $37.76, and bought back 737,000 shares at an average price of $22.64.

So overall, we think we've had a good capital allocation. And we're carrying our same-store NOI growth down to the bottom line as evidenced by the increase in core FFO.

For 2020 guidance, we will -- we made the following assumptions: a range of $50 million to $100 million for acquisitions, a range of $50 million to $100 million for dispositions, and $40 million raised on our ATM to pay down the revolver or fund those acquisitions. So with those assumptions, 2020 guidance is as follows: our core FFO per share, on a diluted basis, is $2.15 in the low end, $2.27 on the high end and $2.21 in the midpoint, representing a 14.5% increase over 2019.

Same-store revenue is estimated to be 5% increase in the low end, 6% increase on the high end, with an increase of 5.5% at the midpoint.

Same-store expenses, we expect an increase: 5.3% on the low end; 6.3% on the high end; for midpoint, increase of 5.8%. And then same-store NOI, we expect to increase: 5% on the low end; 7% on the high end, for a midpoint, increase of 6%.

So with that, let me turn it over to Matt to go through the portfolio of acquisitions, dispositions.

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

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Yes. Thanks, Brian. I'm going to start by going over our Q4 2019 NOI performance. And let me start with our same-store NOI margin improving year-over-year by 250 basis points to 56.1%. Rents were also up at least 3% in every market except Houston, which remained flat. We saw strength across the entirety of the portfolio as usual, with 7 out of our 10 markets growing NOI by at least 5.2%. That includes Dallas, Houston, Atlanta, Phoenix, Orlando, D.C. and Tampa.

The notable same-store NOI growth markets for the fourth quarter were Dallas at 17.1%, and continued acceleration in Atlanta, delivering a robust 20% NOI growth, largely driven by favorable real estate tax comps. Operationally, leasing activity and revenue growth showed continued strength in the fourth quarter. And 7 out of our 10 markets achieved revenue growth of at least 4.3% or better. Our top 5 markets were D.C. at 9.1%, Atlanta at 7%, Phoenix at 6.1%, Charlotte at 5.8% and DFW at 4.5%.

Renewal conversions for the quarter were a healthy book 54%, with 6 out of our 10 markets delivering renewal rate growth of at least 3.4%. On the occupancy front, I'm pleased to report that Q4 same-store occupancy improved 110 basis points from the third quarter to 94.4%, positioning us well for 2020. For example, as of this morning, our portfolio sits at 96% leased with a healthy trend -- a healthy 60-day trends at 91%.

Turning to full year 2019 same-store NOI performance. The NOI margin also improved for the year by 126 basis points to 55.6%. Same-store average rent and revenues, each increased 3.6% and 4.3%, respectively. NOI was strong again across the entirety of the portfolio, with 9 out of our 10 markets growing NOI by at least 4.5%. The notable same-store NOI growth margins for the year were Atlanta and Tampa at 11.8% and 9.1%, respectively.

Operationally, the portfolio experienced robust revenue growth in 2019, with 8 out of our 10 markets achieving growth of at least 4.4% or better. The top 5 markets here where D.C. at 7.5%, Nashville at 6.8%, Phoenix at 6.1%, Atlanta at 6%, Orlando at 5.5%.

Now turning to 2019 to acquisitions and dispositions. As Brian mentioned, we were quite active during the year, $876 million of new properties while selling $290 million. This activity, of course, allowed us to reload our rehab pipeline by adding another 3,000 units to renovate. The 2 largest components, as you might remember, of our 2019 acquisition activity were the Avant at Pembroke Pines and a Las Vegas 3 portfolio. Both deals are performing extremely well as it sits today. As a reminder, we purchased the Avant at Pembroke Pines for $322 million for now a year 1 economic cap rate of 5%. We planned there to upgrade 938 units at an average cost of $15,900 a unit. It generate premiums of $234 a unit and ROIs of approximately 18%. We also plan here to install smart tech packages in every unit, which would generate a monthly premium of $45 a unit. As a result, as you may recall, our underwritten 3-year average same-store NOI growth for this asset was 8.4%. Today, we're on that budget, in fact, beating it by $260,000 or 4.22% ahead of NOI underwriting.

For Las Vegas 3 portfolio, we purchased these 3 assets for a total of $241 million, also a year 1 economic cap rate of 5%. You may recall, we plan to upgrade 392 units at an average cost of $9,960 a unit, generating premiums of $130 a unit and ROIs of approximately 15.4%. We're also plan to install washer and dryer installs in 588 units and expect to generate monthly premiums of $40 a unit there. Smart tech packages are to be installed 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 portfolio is 6%.

Now turning to 2020 guidance. As Brian said, we're excited to guide 5% to 7% same-store NOI growth for 2020 premiums. From a geographical perspective, we're expecting particularly the strength across the following markets. We expect Phoenix to grow same-store NOI by 11% due to the strength of the real market, economic growth, favorable supply-demand for affordable housing, our large interior renovation plans, which total altogether, 8.1% budgeted revenue growth and 3.35% budgeted expense growth. We expect Nashville to grow same-store NOI by roughly 10.5% in 2020, again, due to strength of rental market, economic growth, favorable supply-demand for affordable housing and large interior renovation plans at Brandywine and Arbors of Brentwood and Glenview Reserve. Also here, we expect to generate revenue growth of 8% and 3.22% budgeted total expense growth.

Finally, we expect Atlanta, Charlotte and Tampa to each grow approximately 7% due to continued strength of the middle-income rental market here and 7%-plus revenue growth and 5 plus -- approximately 5% total expense growth for the market.

Our 2020 guidance includes the following assumptions regarding our value-add programs. We expect to complete 1,373 full interior upgrades at an average cost of $8,500 per unit, expect to generate $150 average monthly premium or approximately 21% ROIs. We expect to complete 550 partial interior upgrades at an average cost of $2,240 per unit, generating $62 average monthly premiums or a 33% ROI margin. We expect to upgrade another 1,329 units in a bespoke upgrade, for example, new backsplashes, appliances, frame mirrors, new lighting, et cetera, at an average cost of $445 per unit, generating an $18 average monthly premium or 48% return on investment.

We plan to install 859 washer and dryers during the year at an average cost of $819 per unit, which would generate $45 on average in the monthly premium or 65% ROI. Finally, we plan to install 3,000 additional Smart Home Technology packages, with the expense coming online right away, while income rolls out over time. Recall, $35 to $45 average monthly premium here, $24 in average operating expense with a 52.5% profit margin.

On the real estate property tax side, we are budgeting growth of 9.25%, which, we feel, is appropriately conservative and provides the potential to beat budget by aggressive tax management and litigation.

Finally, operationally, so far in 2020, we are off to a great start in January and February. January preliminary revenue was right in line with budget with an NOI budget [fee] of 2.5%.

I'd like to finish my prepared remarks with a brief overview of our 2020 acquisition and disposition guidance. We think we'll need to acquire $50 million to $100 million of properties this year after a robust activity in 2019. We've already identified an asset in the submarket of Sandy Springs in Atlanta, which would source off market and has a purchase price of approximately $55 million. We're best in final on another 2 or 3 deals in the Phoenix -- the Phoenix market and Charlotte market, which saw about $120 million.

Our team is continually underwriting approximately 20 total assets today with a $1.4 billion in gross real estate value, and we'll continue to look for accretive acquisitions during the year. On disposition side, we have 2 assets under contract at a sub-5% cap rates in Nashville, Willow Grove and Woodbridge for $63 million. Buyer's nonrefundable closing expected to occur on March 31. We're negotiating a contract on Southpoint Reserve for $23.5 million, with a target close date sometime in second quarter, approximately June.

In closing, I'll just reiterate that we're excited about 2020, as Brian said, and we'll work hard to generate another year of 5.5% to 7% NOI growth and double-digit earnings growth. That's all I have for prepared remarks.

Thanks to our teams here at NexPoint and BH for continuing to execute.

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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. So before I turn it over to questions, there's one question we've seen in some of the notes -- early notes this morning that I'll go ahead and address here.

You've seen some changes within our rental income and other income from prior periods as a result of implementation of ASC 842, which is the new lease standard. So we did implement that in 2019 and restated those numbers on a retrospective basis. There'll be more detail in the 10-K on that when it's filed.

So with that, let me turn it over to the operator to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

We will take our first question 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 dive into the updated NAV estimate, maybe first of all. And the updated get tightened up cap rate ranges you see yourselves. Just maybe a little bit -- if you could provide any more color on where you're seeing the numbers coming in because like pricing has tightened up considerably. And if these are your projections on value-add Class B assets or is this -- do you have a source for this? Or is this kind of where you're getting the data from internally? Just any additional color on the pricing of assets in the market that's behind the new NAV estimates.

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

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Yes. Buck, it's Matt. So primarily, the change was driven by a transaction that was announced in January, which was the acquisition of Aragon Holdings portfolio. It's a national portfolio of roughly 14,000 units and the Harbor Group, 2 sophisticated parties. From our numbers -- and we looked at the transaction, and then we confirmed brokers that went off at a 4.6% tax-adjusted cap rate on T3 NOI over T12 expenses. So that largely drove, I think, a lot of the changes that -- their portfolio, with the exception of a few assets in Denver, basically overlay with ours pretty well.

So that's kind of point #1. Point #2 is, as you know, CBRE and Green Street marking now for us every quarter. And from our experience in the market today, in terms of just acquiring deals or chasing deals, it's really tough to find anything north of a 5% cap rate, and that's just a nominal basis. And then in markets such as Phoenix, you can expect to pay 4.25% for value-add assets today. So it did come down quite a bit, but I think it's still somewhat a conservative number, especially given the appetite and financing available for the assets.

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

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Yes. Makes sense. I appreciate the extra color there. Secondly, on the property that had the tornado damage, I guess, Cutter's Point. Could you provide any update on the damages there? Do you anticipate any business interruption recoveries as 2020 goes on? And how do you -- or should we anticipate any other drag or losses from the loss of the operations of that property?

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

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Yes. So that was the result of the tornado that came through in late October through the Dallas area. We've taken all the units offline there and are beginning the reconstruction process. We have full insurance coverage from total replacement cost of all the buildings as well as business interruption insurance. For example, in the fourth quarter, we basically had no difference from what we had budgeted on that property, and we expect that to be the same thing in 2020.

What you'll see in the fourth quarter is a casualty loss, just the way GAAP accounting works. And given that we had to book that at the end of the year, you'll see a flip in 2020 as we rebuild and get the insurance proceeds and ultimately, you'll see accounting gain on that transaction. But economically, there will be no loss to NXRT as a result of that. So we're fully covered.

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Operator [6]

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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 [7]

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The Harbor Group transaction that you mentioned, I think you mentioned that you've looked at it. Can you talk about what sort of held you back on that transaction? The opportunity, talking about the initial yield, but obviously, longer-term unlevered IRR, kind of where that stood relative to what NXRT looks for? And I guess kind of relaying that to the current environment, do you see any deals out there right now, larger in size, that you see potentially closing, not just for NXRT, but in general, over the next year?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [8]

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Yes. So thanks Drew, it's Matt. The deal, we chased it for quite some time. It is an attractive portfolio. One of the things about it that was compelling was the units were fairly untouched. So there's a true value-add story to the interior program. A couple of things held us back. Number one, there was a large in place a piece of amortizing loans that you had to assume. And so given the low LTV and just the nature of the fixed-rate debt, it was an agency that you guys assume that the cash-on-cash returns weren't all that compelling. Number two, we -- while we looked at it, we're not one to go out and double the size of the company in a way that just so transformational without there being a thoughtful approach to doing so. We were very active during the year, anyway, kind of to the tune of net $600 million, and we think we can still move the needle, as you'll see this year in our execution that still provides the same total return story for us. So we didn't think such a transformational asset and chasing it made a ton of sense.

In terms of deals out there in size, there's a few portfolios from -- ranging in kind of $175 million to $250 million that are out there. The 2 that I know of are in the Southeast and Southwestern United States, our core markets. Both of those are expected to be kind of 4.5%-type numbers on cap rates. So I'm still -- and we're not chasing either one of those. But still, as I said, very, very compelling or -- very aggressive markets out there.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

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Appreciate that color. And with the cap rate kind of convergence between suburban markets and urban markets, value-add and core, is there anything that NXRT is looking at this year that might look a little more kind of urban-ish and/or core relative to the past? Or can we still expect the additions to the value-add renovation pipeline with each deal?

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

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Yes. We're going to stay a workforce housing value-add company. There is a convergence in cap rates. The good news is, we set ourselves up pretty well in 2019 to have an execution year in 2020, first and foremost, an internal growth story, which we'll execute on and think that will drive double-digit returns for us this year. That being said, there are instances where we can be one-off. And I think, maybe not in the first half of the year when everyone has allocations and are eager to put money to work. But I do think, in the second half of the year, which is the time period in which we've been historically more active that we can -- that we'll be on the lookout, whether you have any kind of election drama or what have you in rates. So that's what we're going to try to hone in on in the second half of the year. By then we'll have some more ammo in the terms of our revolver, which we'll pay down. So we'll be opportunistic, probably more in the second half, but still in workforce housing.

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Andrew T. Babin, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [11]

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Okay. And just one more for me, too. Just judging by the guidance assumptions themselves. Should we expect any real change to the net debt to EV ratio by the end of the year? Will it still sort of be in that mid-50s range that it's been over the last few years?

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

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Yes. I mean, I think, no material change unless we like our stock later in the year, but I wouldn't expect any material change in first half.

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Operator [13]

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Our next question comes from Tayo Okusanya with Mizuho.

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Omotayo Tejamude Okusanya, Mizuho Securities USA LLC, Research Division - MD & Senior Equity Research Analyst [14]

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So just a quick question on guidance. Again you -- some very strong assumptions being built in, but I'm just kind of curious when I -- and a very strong year-over-year growth. But when I take a look at fourth quarter at $0.54 and annualize that, that's really $2.16. So I guess I'm a little bit surprised that you start-up at such a strong point at the end of the year, but full year guidance at the midpoint is at a $2.21, given just how much growth you're still expecting?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [15]

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Yes. I mean I'll take the first stab at it. I think that we're -- we've kind of reloaded hot in the fourth quarter with all the deals online that we were expecting to sell to any way to kind of pay down some of the leverage we took on in the fourth quarter to buy the Las Vegas 3 portfolios. So we knew that kind of 2 or 3 deals were coming out of the system anyway. So that pulled those out of your numbers. And then I do think that we're fairly conservative on the real estate tax, but the property tax side, budgeting almost 9.5% growth there. So we -- I think from my perspective, those are the 2 factors, but I'm not sure you want to add anything to it.

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Brian Dale Mitts, NexPoint Residential Trust, Inc. - Executive VP of Finance, Treasurer, CFO, Secretary & Director [16]

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Yes. In the fourth quarter of 2019, you had some tax refunds come back in that impacted that core FFO. So you're starting from a point that's probably a little higher than the run rate back (inaudible). As Matt said, with the conservative assumptions we've built in. We still plan to do everything we do always in regard to taxes, which is fight them, litigate them. Whatever we can do, and it's proven successful in the past, although it created some chunkiness in quarter-over-quarter results. So I think that's really what you're seeing in that $0.54

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Omotayo Tejamude Okusanya, Mizuho Securities USA LLC, Research Division - MD & Senior Equity Research Analyst [17]

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Great. That's helpful. And then just one other follow-up. The information you provided in regards to 2020 guidance around amount of readouts you expect to do, the washer and dryer program you expect of smart tech. You expect all very helpful. The question I have is, how much of that -- of all those actions is actually -- do you actually expect to translate over into 2020 earnings? Should we be thinking, you do all this stuff, but only half of it is actually going to hit 2020 numbers based on timing? I'm just kind of curious.

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [18]

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Yes. There is some bandwidth in those numbers to provide for seasonality or rent roll fluctuations. But I would expect that, call it, 75% of those planned upgrades are in the guidance.

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Operator [19]

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Our next question comes from John Massocca with Ladenburg Thalmann.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [20]

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So just sticking on kind of the rehab. You guys kind of mentioned the bespoke upgrade program, which seems like it was kind of a new addition to your redevelopment program. How is that going to essentially get rolled out? Is that kind of -- are there kind of in place plans for each asset you own? Or is that kind of a time-to-time thing as issues come up or as the desires of tenants kind of change? Just kind of how we should think about that program going forward, would be helpful.

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

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Yes. No, there are specific -- the bespoke programs are specific 2 assets that we have gone in and audited each unit in each of the properties. So for example, Eagle Crest, Silverbrook, Timberglen, Radbourne, Sabal, like all of these have specific targeted into your upgrades. Like, for example, on Eagle Crest, we're putting in new lighting for $194 that we think will get $11 rent premium at 67% estimated ROI. So I think -- we think that there's, like I said, probably 2, 4, 6, 8, 10, 12 assets that are targeted for these programs.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [22]

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And I guess maybe why not do kind of full unit upgrades. Is that because you're putting extra accessories into already upgraded units? Or is it just the market won't bear kind of the additional rent from a full unit upgrade?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [23]

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No. It's honestly deals that we still like really well that have gone through a first generation, and in some cases, maybe even a second. And this is just an incremental value-add story that we can drill on. And like if deals are still growing 4% to 5% organically in market rent, adding these can push it up above 5%. So deals that we still want to hold on to not sell, but there's still a little bit of kind of differentiated (inaudible) of them.

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John James Massocca, Ladenburg Thalmann & Co. Inc., Research Division - Associate [24]

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Good. Understood. And then thinking about kind of acquisitions and dispositions, given the kind of counterbalance each other, but are you expecting any kind of -- maybe if you think about 2020 numbers, this dilution, given maybe the differential in pricing between value-add units and units that are a little bit more kind of fully updated, and also just timing.

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [25]

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Yes. Every -- I mean all the -- everything I just discussed is neutral. So you won't see any disruption in terms of earnings, and there's no like material cap rate differential are there that would be unfavorable to us. So I don't -- I wouldn't expect -- we wouldn't expect those to occur.

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Operator [26]

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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 [27]

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Matt, did I hear you correctly that the Nashville assets that you're selling are $63 million and $23.5 million for Fredericksburg?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [28]

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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 [29]

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Okay. So if I do my math correctly, the Nashville assets are basically almost being sold for double what you bought and rehab them for, and Fredericksburg one is about a 25% increase?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [30]

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Yes. That's what I'm trying to explain. The Nashville's one little bit more unique as we refi those deals a few times. It's actually from what the basis of the equity is when we bought them in '14, almost like 4x, a little over 4x.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [31]

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Okay. And so once you sell the Fredericksburg asset, am I correct in assuming that, that exit you from your D.C. market?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [32]

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Yes, sir.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [33]

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Is that a market you plan to have a presence in going forward? Or just not as compelling as the Sunbelt markets?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [34]

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Yes. It's -- I mean we just haven't had as good of an experience there as other markets. So we're not actively looking there. And I wouldn't expect us to do once we're on top line.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [35]

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Okay. And then last 1 for me. You talked about the units that you guys plan to rehab. How many properties will you actually be sort of done within 2020 to the point to where if the pricing was right that you'd be in a position to sell them versus ones where you still got redevelopment work on it throughout 2021 and beyond?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [36]

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Yes. So every single deal in the portfolio, including the ones we're selling, still have some rehab potential as part of the story, leave meat on the bone for the next guy. In terms of like what we could sell, I think, are another maybe 1 or 2 in Dallas, and that's probably it. Largely, we're otherwise pretty comfortable and love the rest of the portfolio.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [37]

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Okay. So to the extent that you guys see more acquisition opportunities, it's likely to not be funded by dramatic amounts of additional dispositions. It's going to wind up being funded more on the equity side.

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [38]

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Correct. Yes. Never say never, but you won't -- you're not going to probably see us a drop of $300 million sale on this year as we did last year.

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Operator [39]

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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 [40]

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Real quick. On the 30 basis point decline in occupancy, what was that? Was that a function of maybe 1 particular property? Or was it more a function of you guys were pressing rents and therefore, achieved a higher NOI out of the property, but you lost some tenants? Maybe kind of give me a little color?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [41]

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Are you talking sequentially on the same-store basis, year-over-year?

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [42]

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Yes. Exactly.

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [43]

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Yes. I mean it's just -- I think it's just timing, just seasonality. I mean, I think, from the third quarter, which was our stated goal on the third quarter call, we made a lot of progress. 110 basis points from quarter-over-quarter in the same-store pool, which, quite frankly, we weren't that pleased with our execution in the third quarter.

Fourth quarter, we did, I'd say, a fairly admirable job. And then what's really probably important about this in general is that our first quarter of 2020 set up to be pretty compelling in terms of the trends. So that's what we're excited about.

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Barry Paul Oxford, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [44]

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Okay. So as we move through 2020, we should see occupancy, for lack of a better word, nudging upward?

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Matthew Ryan McGraner, NexPoint Residential Trust, Inc. - CIO & Executive VP [45]

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Yes. It's one of the largest goals for the company in 2020.

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Operator [46]

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Ladies and gentlemen, this concludes today's question-and-answer session. I will now turn it back to Brian Mitts for closing remarks.

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

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Yes. Thank you. Appreciate all the great questions and participation, and look forward to a great year, and thanks for everyone's time.

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Operator [48]

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Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation, and you may now disconnect.