Ladies and gentlemen, please stand by. Good day, and welcome to the NexPoint Residential Trust Q1 2022 conference call. Today's conference is being recorded. Now at this time, I would like to turn the conference over to Jackie Graham. Please go ahead, ma'am.
Thank you. Good day, everyone, and welcome to NexPoint Residential Trust conference call to review the company's results for the first quarter ended March 31, 2022. 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 broadcast through the company's website at nxrt.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions, and beliefs.
Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent Annual Report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements. The statements made during this conference call speak only as of today's date, and except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, please see the company's earnings release that was filed earlier today. I would now like to turn the call over to Brian Mitts. Please go ahead, Brian.
Thank you, Jackie. I appreciate everyone's time this morning. I'm Brian Mitts, and I'm here with Matt McGraner. I'm gonna start the call by going through our Q1 results, talking about our NAVs, and then I'll finish up with guidance, which we are revising upward. I'll turn it over to Matt to discuss some of the specifics in the portfolio, dig into the leasing numbers and different metrics driving performance this quarter. For Q1, net loss was negative $4.7 million or $0.18 loss per diluted share on total revenue of $60.8 million. That compares to a net loss of $6.9 million or a $0.27 loss per diluted share in the same period in 2021, and that was on a total revenue of $51.8 million.
For the quarter, same-store rent increased 11.7%. Same-store occupancy was down 90 basis points to 94.4%. We'll discuss a little bit about the occupancy and what's driving that. This coupled with an increase in same-store expenses of 4.7% led to an increase in same-store NOI of 16.4% as compared to Q1 2021. We reported a Q1 core FFO of $20.1 million or $0.78 per diluted share compared to $0.56 per diluted share in Q1 of 2021, for an increase of 39.5%. For the quarter, we completed 531 full and partial renovations during the quarter, which was an increase of 50% from the prior quarter, increasing our velocity there.
Leased 489 renovated units during the quarter, achieving an average monthly rent premium of $138 and a 26.3% ROI during the year, which is about 450 basis points higher than our long-term average ROI on rehabs. Since inception to date, in the current portfolio, we've completed 6,398 full and partial upgrades, 4,510 kitchen upgrades and washer/dryer installations, and 9,624 technology package installations, achieving an average monthly rent premium of $139, $48, and $44 respectively, and an ROI of 21.8%, 70.8%, and 33.5% respectively.
For NAV, based on the current cap rates that we're estimating in our markets, our partially actual NOI as well as our forward NOI for the next two quarters, we're reporting an NAV per share in a full range, $94.58 on the low end, $111.23 on the high end for a midpoint of $102.90 at the midpoint. These are based on the cap rates that we estimate between 3.5% and 3.8%, which is unchanged from last quarter. For the first quarter, we paid a dividend of $0.38 per share on March 31, and the board declared a dividend for Q2 in the same amount. Since inception, we've increased our dividend 84.5%.
For the first quarter, our dividend was 2.06 times covered by core FFO, which is a payout ratio of 48.5% of our core FFO. Turning to guidance, as mentioned, we're revising guidance upwards as follows. For core FFO per diluted share, $2.93 on the low end, $3.09 on the high end for a midpoint of $3.01. That compares to, the prior guidance of $2.97 or a four-cent increase. For same-store NOI, we're estimating 12.6% on the low end, 16% on the high end with a midpoint of 14.3%.
That compares to our prior guidance of 13% for a 130 basis point increase. At the midpoint of our 2022 core FFO of $3.01, represent a 23.9% increase over our 2021 core FFO of $2.43. With that, let me turn it to Matt.
Thanks, Brian. I'll start by going over our first quarter same-store operational results. Our Q1 same-store NOI margin improved this quarter to 59.8%, up 264 basis points over the prior period. Rental revenue showed 6.3% or greater growth in all markets, while same-store average effective rent growth reached 15.6%. While still strong, Houston lagged at 7.5%, while all other markets achieved year-over-year growth of 15.3% or higher. Tampa led the pack with 22.7% effective rent growth to $1,216 a unit per month.
First quarter same-store NOI growth was pretty special across the board, with the portfolio averaging 16.4%, driven by 11.3% growth in total revenues and a well-managed 4.6% growth in total operating expenses. Eight of our 10 same-store markets achieved year-over-year growth of 7.5% or greater. On the leasing front, the portfolio experienced continued positive revenue growth in Q1, with seven out of our 10 markets achieving growth of at least 8.7% or better. Our top five markets were Orlando at 16.4, Tampa at 14.7, Nashville at 14.2, Phoenix at 14.2, South Florida at 12.2%.
Renewal conversions were also a healthy 55.2% for the quarter, with eight out of our 11 markets executing renewal rate growth of at least 15%, and no markets were under 10%. The leaders were Tampa again at 27%, Orlando at 24.6%, South Florida at 21.5%, DFW at 20.7%, and Phoenix at 19.2%. As Brian mentioned, we increased our rehab pace in Q1, completing 531 units, which made up about 30% of all available new lease inventory signed during the quarter. Rehabs added roughly 8% additional growth on top of an already organically strong 17%. We created some additional vacancy during the quarter to add more rehab inventory as demand for rehab units continues to increase and be extremely well-received by our tenant base.
On the occupancy front, we're pleased to report that Q1 same store occupancy remained above 94%, positioning us well as we enter the peak leasing season for 2022. As of this morning, the portfolio is 96.5% leased with a healthy 60-day trend of 92%. Also as of today, new lease and renewal growth continues to keep pace with Q1 and April, with new lease growth of 24% and renewal growth north of 18%, as I said, through this morning. Turning to the 2022 acquisitions and dispositions. As Brian mentioned, we acquired two assets on April 1, The Adair in Sandy Springs, Georgia, and Estates on Maryland in Phoenix. These purchases added 562 units to our portfolio for a total purchase price of $143.4 million.
We used cash on hand and proceeds from a $70 million upside to our revolver to acquire them and expect to recycle capital from successful property dispositions in Houston, as we previously discussed last quarter, to reduce leverage later in the year. The Adair and Estates purchases should enhance internal growth for the next three years and extend our rehab pipeline in two of our best-performing markets. A little more on the business plans for each of these deals. We purchased the Adair for $65.5 million for a year one economic cap rate of 4%. We plan to upgrade 225 units at an average cost of $10,265 a unit and generate premiums of $161 a unit with an ROI of approximately 20%.
We also plan to install smart tech packages in every unit and expect to generate monthly premiums of $40-$85 a unit per unit for that amenity. As a result, our underwritten four-year average same-store NOI growth for this asset is 6.5%. For Estates, we purchased it for $77.9 million for a year one economic cap rate of 4.3%. We plan to upgrade 165 units at an average cost of $11,700 a unit and generate premiums of $142 a unit and ROIs of approximately 17.5%. We also plan to install smart tech packages in every unit here as well and expect to generate monthly premiums of $45 per unit.
As a result, our underwritten four-year average same-store NOI growth for Estates is 7.7%. Turning to guidance, as Brian said, we're excited to announce an upward revision to our prior guide of 11%-15% same-store NOI growth for 2022 to a range of 12.6%-16.1% with a midpoint of 14.3%. As you can see, the upward guidance revision is primarily attributable to a stronger than expected revenue growth and is widely written and illustrated on the highlight page of our supplemental. Our core markets are continuing to experience strong net migration. This population growth and lack of quality affordable housing should remain elevated this year in our opinion.
As illustrated again by the highlight page, compared to other multifamily options, there's still a significant delta between Class B, Class A, and SFR rents in our markets, with deltas ranging from $300-$500 a unit for multi and nearly over $700 for SFR. In closing, I'll just reiterate that we're excited about the strong start to the year, and are expecting to see continued strength in the middle market rental housing, particularly in our core Sun Belt markets. That's all I have for prepared remarks. Thanks to our teams here at NexPoint and BH for continuing to execute. Turn it back over to you, Brian.
Yeah. Let's go to questions.
Ladies and gentlemen, if you'd like to ask a question, you could signal by pressing star one on your telephone keypad. Just keep in mind if you are using a speakerphone, please make sure your mute function is released so that signal can reach our equipment. Once again, star one for questions. We'll pause to allow everyone an opportunity to signal. We'll hear first from Michael Lewis with Truist Securities.
Great. Thank you. I wanted to ask a little about how you're controlling interest expense. I realize you have hedges in place to fix your debt, but I was surprised to see the interest expense go down this quarter, and I think it was below what you had guided to for the quarter. I realize you raised the interest expense guidance just a little bit for the full year. Could you maybe talk about, especially since you now have a more sizable balance on your credit facility? Can you just kind of walk through that math, you know, in the first quarter and talk about how you're thinking about higher rates?
Hey, Michael, it's Brian. You're breaking up a little bit on our end, but I think I caught most of that. Yeah. Obviously, with the floating rate debt and interest rates moving upwards, that's something that we're very focused on. The portfolio is very hedged, which is muting a lot of that increase from our perspective. The math on it is essentially other than really the corporate facility, which we are paying down with the net proceeds from Houston. That'll decrease. That's part of the math, you know, where rising rates would otherwise affect us, but it won't because we'll pay that down or not to the same extent.
Then the rest of it is we just pay less on the swaps as rates increase, and at some point that flips, and we end up getting paid on the swaps. Overall, it really mutes our change in interest rate expense throughout the year. Again, I just didn't really get the full question, but hopefully that addressed it. If not, you know, happy to follow up.
Yeah. No, that's helpful. And then, you know, kind of a bigger picture question. You know, a lot of people are kind of guessing the next stage of the economic cycle, with maybe, you know, increasing risk of a recession. I was wondering how you're thinking about the next stage of the multifamily cycle, right? Obviously, rent spreads aren't always gonna be 20%, and, you know, that's expected and that's okay. But how do you see this. You know, how do you see this kind of going? I mean, do you. You know, it sounds like your spreads into April are still extremely strong. I mean, how do you think about how the multifamily cycle might end?
Yeah. Hey, Michael, it's Matt. I think we're experiencing sort of a rerating of rents across the core Sun Belt markets. While they're pretty dramatic on a percentage basis, the whole dollar, you know, $1,300-$1,500 rents is still in comparison to, you know, gateway markets, still kind of favors a cost of living advantage for the Sun Belt. You know, the multifamily cycle, I think can continue, you know, as long as we see these population trends in net migration and job growth. Really, the only, in my view, existential threat to our business is an uptake in crime.
As long as we can, you know, continue to see our submarkets prevent that and provide safe and affordable housing, I like our business, especially again, on a relative price point. Transactions and interest rates and kind of the volumes that we're seeing haven't really stopped. There's over $10 billion of product out there in terms of pipelines and portfolio transactions. I think that the bidding for those deals will be less wide as they have been in the past or at least last year. You know, stronger groups such as ourselves, other REITs, you know, the larger asset managers will probably get narrower to just the qualified guys or the more qualified groups instead of, you know, casting a wider net. Transactions are still getting done.
You know, the agencies are still productive. The banks and life cos are getting more aggressive as the agencies are slower to produce or, you know, tighten spreads. But just the sheer amount of equity capital, I think, will keep a strong transaction volume this year. Then as long as you can see elevated growth over inflation, you know, I think that our business continues to be strong. I can't other than, you know, following the other REITs that own in different areas in the gateway markets, I can't really speak to their view, but this is, I think our view is pretty constructive this year.
Yeah, that's great color. It's interesting to hear you talk about crime. I think a lot of us think of that as like a northern or coastal city problem, but the rates have certainly gone up everywhere. Just lastly, I wanted to ask about, you know, you had a lot of your operating expenses up. The one that was down was the big one, which was real estate taxes, was down year over year. I just wanted to ask about that and, you know, maybe you were able to find some success fighting some of those or, you know, maybe talk a little bit about what's happening on real estate taxes.
Yeah. You're exactly right, Michael. We've you know, I'm knocking on wood while I answer this question, but we've had a little bit of success so far in the first quarter from 2021 appeals. Most notably in Tarrant County, we had about $350,000 of savings and settlements that we you know didn't expect. That's some attribution for that. Overall, we've you know had a more muted I guess real estate tax paradigm this year than in the last few. You know, it's not like in the last few years, frankly, we were frustrated by being 3%-5% higher than our peers. Hopefully that'll flip in our favor this year.
So far, we've had some success in Texas appeals.
Great. Thank you, guys.
You bet.
Thanks.
Now we will take a question from Omotayo Okusanya with Credit Suisse.
Yes. Good morning, everyone?. Just to follow up on Michael's question around the swaps. Brian, could you give us a sense of just like when the swaps start to expire, and like are they in place for the next one or two years? Or when do we kind of start to worry about the swaps coming off and then you having to put on new swaps in a rising rate environment?
Yeah. Hello, Tayo. How are you?
I'm good.
Yeah. It's not until really 2026 that we start to see these swaps fall off. We had a couple that ended at the end of this quarter, Q1. I think there's another one that expires or matures in July. The vast majority of them go out for the next four years. That's about one point-
Gotcha
$1.2 billion of swaps.
Okay. That's helpful.
And then the second quest-
Sorry, I was just gonna refer you to page 22 of our supplement. We've got the swap table there if you want to take a look at it.
Okay.
Sorry, go ahead.
Thank you. Then the second question is more realizing you're in a very unique part of the market with affordable housing, but still curious if you're kind of starting to see any impact of rising rates around kind of better retention because people suddenly can't buy homes or more demand because people suddenly can't buy homes. Again, realizing you're kind of in the affordable housing segment, but wondering if you're seeing any of that at all?
Hey, Tayo, it's Matt.
Hi, Matt.
Yeah. Good to hear from you, man. The retention is strong. It's at 55% as I mentioned. We think that the trend will remain elevated. You know, oftentimes, this is kind of sort of anecdotally, we'll send out renewal notices and, you know, get some pushback from tenants and we're like, "Okay. Well, then go check the market. Go check, you know, before you make your decision." Or even sometimes after your decision, they come back to us and they realize that, you know, there's really no other affordable option that's better when you add on moving costs plus the rent delta that's highlighted on our highlight page and supplemental.
We're seeing, you know, probably a quarter of our renewal notices coming back with that sort of same narrative. We ended up, you know, renewing them and that's that. We're also experiencing still an upward trend in sort of our demographic data. I think the latest data we show for household income is now up to $71,000 for our units, which is, you know, up from $56,000 and $60,000. We're continuing to sort of see enhanced wage growth within our tenant cohort. That's positive. For the vacancy aspect from us, the courts are open again largely in our markets.
You know, we've had a chance to move out some of the slower payers, or non-payers, really at a time when we can benefit from the leasing season. We're starting to, you know, take advantage of that kind of forced turnover, if you will.
Gotcha. One more for me. The demo data you just referenced, are you getting that just from the new applicants, or you kind of have demo data for your entire pool of residents?
Yeah. That's just tested as of Q1. It'll include, you know, the newer leases, but plus the legacy assets.
Gotcha. Thank you. Great quarter.
You bet. Thank you.
As a reminder, it is star one to ask a question. We'll now move to Peter Abramowitz with Jefferies.
Hi. Thank you. I just wanted to go back to kind of the interest expense and how it's factoring into the full year guidance. Just kind of looking at the first quarter results and annualizing them would get you kind of well above to where you are in terms of the new full year guide. I know you have, you know, you're dealing with the rising rates, and you talked about that before. Is there anything else kind of within the numbers that's kind of driving that sequential decline in the FFO run rate on a quarterly basis? Or is there just kind of a significant degree of conservatism in the guide?
Yeah. Hey, Peter?, it's Matt. I think there's some conservatism for sure, but maybe what's not flashing out to you is we're also factoring the dispositions of the Houston portfolio as well. That would, you know, sort of mute the run rate a tad, if you will, because there's slightly more value, you know, to those deals than the ones we just bought.
Got it. Okay. I guess two years into the pandemic, how are you kind of tracking the in-migration, any signs that, you know, there's potentially a slowdown or on the other side, that it's remaining just as strong as it was kind of in the early days of the pandemic? I guess kind of what are your general thoughts about, you know, is the acceleration in migration that we saw really over the last few years, how sustainable is it? Is it gonna sustain to kind of a normal pace of what it was before 2020?
Yeah. Great question. I think you guys do a pretty fantastic job. I saw your report that you put out following mail tracking to zip codes. I think in that report, I think only our portfolio had, you know, positive zip code trends, so in each of our markets. You guys are all over it. We track them, you know, every quarter, year-over-year out-of-state. This year it increased 11%. You know, still double-digit increase. The first year out of the pandemic, it was like, you know, call it 18%, 19%, 20%. I guess you could call that a slowdown, but it's also, you know, compounding annually. They're still elevated.
California's still the number one place where people are moving from. Then New York and Virginia and Illinois kind of follow that. California is still 20% of each of our new leases or new lease apps. Illinois and New York are in double digits also. In terms of, is it gonna slow? I think sure, naturally, there's some regression to the mean because New York and those other markets are reopening, so to speak. Boy, we like our problems relative to theirs. We're still positive on that migration trend again, as your data illustrates.
Got it. One more for me, just to follow up on that. Not sure if this is too detailed to answer off the top of your head, but the residents applying in new markets that are coming from New York?, I'm guessing Florida's at the top of the list for where they're going. Any others that stand out, markets in your portfolio where movers from New York are going?
Yeah, we do track it. In order, Florida's first, then Atlanta, Charlotte, and Nashville are two, three, and four. Out of California, just 'cause I have you. Arizona-
Yeah.
Nevada, 1 and 2, and then Tennessee, 3.
Got it. That's helpful.
That's our market. Yeah. You got it?
Correct. Thank you.
Ladies and gentlemen, this will conclude your question and answer session. I'll turn the call back over to your host for concluding remarks.
Yeah, I appreciate everyone's time. Great questions. Another great quarter. As we discussed, we think it's gonna keep going forward for this year. We'll see you in a few months. Thank you.
Ladies and gentlemen, this will conclude your conference for today. We do thank you for your participation, and you may now disconnect.