NexPoint Residential (NXRT) Q3 2026 Earnings Call Transcript

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DATE

Nov. 3, 2026

CALL PARTICIPANTS

• Executive Vice President and Chief Financial Officer-Paul Richards
• Executive Vice President and Chief Investment Officer-Matthew Ryan McGraner
• Vice President Asset and Investment Management-Bonner McDermett

TAKEAWAYS

• Core FFO -- $0.52 per diluted share for the quarter, representing a $0.07 decrease relative to analyst consensus and a decline from $0.70 in the prior year period.
• Total Revenue -- $64.5 million, an increase from $62.8 million in the prior year period, reflecting the addition of the Sedona at Lone Mountain property to the portfolio.
• Net Loss -- $11.5 million or $0.45 per diluted share, compared to a net loss of $7.8 million or $0.31 per diluted share a year ago.
• Same Store NOI -- Decreased 8.2% to $35.6 million, driven by an 11.2% increase in same store operating expenses.
• Core FFO Guidance -- Midpoint lowered to $2.22 from $2.45 per diluted share, reflecting $0.10 impacts from both lower same-store revenue and higher same-store expenses.
• Same Store NOI Guidance -- Midpoint lowered to negative 4.3% from a previous forecast of negative 1%.
• Total Debt -- $1.62 billion at quarter end, resulting in a leverage ratio of 77% based on total debt to market capitalization plus total debt.
• Occupancy -- Ending physical occupancy was 92.9%, a decrease of 70 basis points year over year and 140 basis points below submarket averages.
• Average Effective Rent -- $1,489 across all properties, representing a 0.7% decrease versus the prior year period.
• Midtown Crossing Acquisition -- $32 million purchase of a 228-unit community in Raleigh on Oct. 2, 2026, with a total projected investment of $153,000 per unit including capital expenditures.
• Net Asset Value -- $38.33 per share at the midpoint, a decline of $8.43 from the prior quarter, with 25 basis points of the decline attributed to a higher cap rate range of 5.5% to 6%.
• Interest Expense -- $18.1 million for the quarter, up from $15.8 million in the second quarter, following the expiration of several interest rate swaps in September.
• Interest Rate Exposure -- Management estimated that every 25 basis point move in SOFR impacts FFO by $0.14 per share once remaining swaps expire.
• Nashville Tax Swing -- $854,000 negative year-over-year impact on same-store expenses due to a one-time tax refund received at Residences at Glenview Reserve in the third quarter of 2025.
• Resident Amenity Services -- $640,000 in quarterly expense growth, primarily due to a bulk fiber internet rollout at 12 properties in Atlanta, Nashville, Phoenix, and South Florida.
• Marketing Expense -- Rose 32.1% on a same-store basis, as properties below target occupancy increased spending to drive leasing traffic.
• Repairs and Maintenance -- Increased 20% year over year for same-store properties, reflecting management's decision to pull forward unit turns and exterior amenity projects.
• Insurance Savings -- Decreased 11.8% year over year following the company's April insurance renewal.
• New Lease Trade-outs -- Negative 4.5% for the quarter, with declines reaching negative 6% in September as the company added concessions to recover occupancy.
• Renewal Lease trade-outs -- Positive 3.2% for the quarter, led by a 4.2% increase in the Raleigh market.
• Oct. Retention -- Rose to 57.5% from 54.9% in Sept., following a deliberate reduction in renewal rate increases to protect occupancy.
• Share Repurchase Authorization -- $150 million authorized by the board for a two-year period, with purchases to be funded primarily from asset disposition proceeds.
• Disposition Guidance -- $0 to $200 million with a $100 million midpoint, aimed at reducing floating-rate debt and funding the Midtown Crossing acquisition.
• Value-Add Program -- 708 interior upgrades completed in the quarter, achieving an average monthly rent premium of $42.54 and a 21.1% return on investment.
• Bad Debt -- 0.8% of gross potential revenue, remaining flat compared to the third quarter of 2025.

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RISKS

• Richards stated, "Our leverage is too high for the rate environment," identifying debt reduction as the company's primary capital priority through asset sales.
• McGraner noted the portfolio is facing significant headwinds from "50-year highs in supply and a 30-year high in interest rates," which forced the company to use heavy concessions in September.
• Richards warned that the fourth-quarter Core FFO payout ratio is expected to exceed the current dividend, stating the board will decide by January 2027 whether to "reset the dividend at an appropriately covered level."
• Richards noted that same-store revenue guidance was lowered by $0.10 per share, with vacancy and bad debt being the largest contributors to the downward revision.

SUMMARY

NexPoint Residential Trust, Inc. (NYSE:NXRT) reported third-quarter results that missed analyst expectations, prompting management to lower its full-year guidance for Core FFO and same-store NOI. The company stated that elevated repairs, maintenance, and marketing expenses, combined with occupancy pressure in a high-supply environment, negatively impacted the bottom line. Management reported that while renewal growth remains positive, new lease pricing turned sharply negative late in the quarter as the company shifted strategy to prioritize physical occupancy through the winter. The company is actively pursuing a deleveraging plan involving asset dispositions to reduce exposure to floating-rate debt as interest rate hedges continue to expire.

• Management estimated the value of the Avan at Pembroke Pines asset alone at $8 to $9 per share, which represents approximately half of the company's current market capitalization.
• McGraner stated that supply deliveries in the company's submarkets have likely peaked, with deliveries projected to reach the lowest point of the current cycle by 2028.
• The company reported that the Atlanta market is showing signs of stabilization, with NOI growing 5% and vacancy losses declining 43% year over year.
• Bonner McDermett noted a shift in marketing fundamentals, stating that younger tenants are increasingly utilizing artificial intelligence platforms like ChatGPT for housing searches instead of traditional search engines.
• Management stated that the $150 million share repurchase program will be executed methodically, utilizing excess cash from "rifle-shot" asset sales to capture the gap between the current stock price and the $38.33 midpoint net asset value.

INDUSTRY GLOSSARY

• AFFO: Adjusted Funds From Operations; a non-GAAP financial measure used to evaluate REIT performance by adjusting FFO for recurring capital expenditures and equity-based compensation.
• Basis Point: A unit of measure for interest rates and other percentages equal to one one-hundredth of one percentage point (0.01%).
• Core FFO: A non-GAAP measure that adjusts FFO for non-recurring or non-core items such as casualty losses, mark-to-market adjustments, and amortization of deferred financing costs.
• FFO: Funds From Operations; a standard performance measure for REITs that adds depreciation and amortization back to net income.
• NAV: Net Asset Value; the estimated market value of a company's total assets minus its total liabilities, often expressed on a per-share basis.
• NOI: Net Operating Income; a measure of property profitability calculated as total property revenues minus operating expenses.
• REO: Real Estate Owned; a term used for a property that is owned by a lender after an unsuccessful sale at a foreclosure auction.
• SOFR: Secured Overnight Financing Rate; a benchmark interest rate used for dollar-denominated derivatives and loans.
• Trade-out: The percentage change in rent when a new lease is signed or an existing lease is renewed compared to the previous lease rate.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the NextPoint Residential Trust third quarter 2026 earnings call. I will now hand the conference over to Carly with Communications and Corporate Affairs. Carly, please go ahead. Thank you, Al. Good morning, everyone, and welcome to NextPoint Residential Trust conference call to review the company's results for the third quarter ended September 30, 2026. On the call today are Paul Richards, executive vice president and chief financial officer Matthew Ryan McGraner, executive vice president and chief investment officer and Bonner McDermett, vice president asset and investment management. As a reminder, this call is being webcast through the company's website at nxnxrt.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 2000 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, the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward looking statement.

The statements made during this conference call speak only 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 is also includes an analysis of non GAAP financial measures. For a more complete discussion of these non GAAP financial measures, see the company's earnings release that was filed earlier today. I would now like to turn the call over to Paul Richards. Please go ahead, Paul.

Paul Richards: Thank you, Carly, and good morning, everyone. I will walk through our third quarter and year to date same store results, expenses, interest, the Midtown Crossing acquisition, the balance sheet, NAV, the dividend, and changes to our full year outlook, including how we think about 2027. Then Matt will cover operation and market fundamentals looking forward. I will start with the headline. Q3 came in below expectations. Core FFO was $0.52 a share, $0.07 below consensus. We are lowering our full year core FFO midpoint to $2.22 from $2.45 and our same store NOI midpoint to negative 4.3% from -1%. Third quarter core FFO was $13.4 million or $0.52 per diluted share compared to $0.70 a year ago.

FFO was $11.7 million or $0.46 a share and AFFO was $16.2 million or $0.63 Net loss was $11.5 million or $0.45 per diluted share. Including $23.2 million of depreciation and amortization. That compares to a net loss of $7.8 million or $0.31 a share a year ago. Total revenue was $64.5 million, up from $62.8 million with Sedona in the numbers. Total NOI was $36.6 million across our 36 properties, On a same store basis, 35 properties and about 98% of our units revenue was down 70 basis points. Expenses are up 11.2%, and NOI was down 8.2% to $35.6 million Occupancy ended the quarter at 92.9%, down 70 basis points.

And average effective rent was $1.49 thousand down point 7%. Year to date, core FFO is $1.87 a share against $2.14 last year. Expenses drove most of the quarter's NOI decline. About $2.7 million of the $3.2 million. 3 specific items explain the decrease. First, Nashville real estate taxes. Last year's third quarter carried onetime real estate tax refund at residences at Glenview Reserve which equates to a swing of about $854 thousand. and does not reoccur. Excluding Nashville, real estate taxes were up less than 1%. Second, resident amenity services which is mostly our bulk fiber internet rollout.

That line was up about $640 thousand this quarter as we brought fiber online at about a dozen properties in Atlanta, Nashville, Phoenix and South Florida. Residents pay for their services so most of that cost comes back to us. Amenity fees rose about $387 thousand and in Las Vegas, the equivalent fees now sit in rent under all in pricing. Net, the program cost roughly $100 thousand more than last year which is immaterial. And looking at the full program, including the smart connection fees residents pay. Our amenity services brought in about $404.1 million more than they cost this past quarter. it is a net contributor to NOI, not a cost center. Third, controllable expenses.

Usually a reliable strength for us, ran higher through the quarter. Interior, turnover repairs were up 14.9% exterior and amenity repairs, 13.8%, and landscaping 13.7%. Marketing was up more than 30%, and office operations, 14.2%. As properties below target occupancy expense to drive traffic. Lastly, utilities rose 11.8%. Some of that was by deliberate choice. Given how soft this year has been, we pulled a lot of work forward into 2026 and spent capital where we think it attracts new residents.

Unit turns and readiness, move in gifts, exterior amenity projects such as pressure washing, vent and gutter cleaning, and in-unit upgrades like washer and dryers, we would rather put that money in front of prospects now even if it keeps expenses elevated for a quarter or 2. Other spending did not earn its keep, and we are cutting it. Net of national real estate tax swing, expenses grew about 7.3%. Strip out resident amenity services as well as. it is. as well, and it is about 5.1%. Part of that is by design, and part is. Part of it is noise in a seasonally heavy quarter, But it is more than this revenue environment supports over time.

Matthew will walk through the specific actions we are taking. The bright spot is insurance, down 11.8% on our April renewal. Moving on to year to date same store. A single quarter can carry a lot of noise, so the 9 month view is the better read on the run rate on the portfolio. Year to date, same store revenue was down 1.2%, expenses were up 3.9%, and NOI was down 4.6%, to $109.3 million. That 3.9% includes fiber rollout and the marketing we put in front of prospects. Excluding resident amenity services year to date same store expenses were up 1.6%. Normalizing for last year's Glenview tax refund as well.

Same store expenses were just 40 basis points year to date. We are up just 40 basis points year-to-date. Apologies. Underneath that, the core cost base is holding to date insurance was down 16.3%. Real estate taxes were down point 7%. Payroll down. Point 6%, and property management fees down 1.6%. The pressure is concentrated in repairs and maintenance. Up 16.4%. Including the fiber program, utilities, up 7.2%, and marketing up 39.4%. it is important to state clearly that the third quarter's -8.2% is not our run rate. It carries a prior year tax refund that will not reoccur. A fiber rollout that pays for itself upon penetration and expense work we choose to pull forward.

Our fourth quarter guidance implies same store NOI down about 3.3%. Better than year to date pace and well under half of the third quarter decline. Now interest expense. We priced since initial guidance. The step down landed in September on schedule, swaps attached to about $717.5 million of debt at a fixed rate near 1.14% reached their scheduled runoff. Today, we have about $192.5 million of swaps at a weighted average of 2.68%, which fixes about 13% of our floating rate mortgage debt. That $92.5 million with KeyBanc that runs through January first next year and the $100 million JPMorgan swap at 3.49% that runs to 2030.

Swap settlements contributed $5.2 million in the second quarter $3.4 million in the third, and we expect about $600 thousand in the fourth. Third quarter interest expense was $18.1 million, up from $15.8 million in the second quarter. Full year interest expense is now projected at about $71.8 million close to the $71.2 million we discussed in August. Our adjusted weighted average interest rate was 4.75% at quarter end, against 3.58% at June 30. The rate backdrop has not helped. The Fed raised rates in September, to a range of 3.75% to 4.4% held last week. With 2 members voting for another hike. The 10 year treasury touched 5.3% early October, sits near 4.9% today.

On maturities, our first mortgage maturity is October 2028, and the rest of our mortgages run to 2031 and beyond. Total indebtedness was about $1.2 billion quarter end. On October 2, we acquired Midtown Crossing, a 228 unit 2 thousand vintage community in Raleigh. $43.2 million or about $140 thousand a unit. Our all in cash basis, including $1.9 million of CapEx funding is about $153 thousand a unit. Bought it from an REO lender book, and the seller had already put $3.1 million of capital into the property. So the upside is operational.

Raleigh is a market we all know well. it is our strongest renewal market, this quarter, at positive 4.2% with the smallest new lease decline in the portfolio at negative 0.9%. Midtown takes our wallet exposure from 625 to 853 units. We are starting at a lower occupancy and getting to 93% occupancy. About 27 net leases and in place rents so about 10% below the Raleigh 2 to 4 star average. $1.32 thousand versus $1.48 thousand. Render rights who grow rents to 1.4 thousand by month 36. Grows NOI from $1.44 million to $2.15 million by year 3 stabilizing north of the 7% cap rate.

On returns, we project a 7% NOI CAGR a mid teens levered IRR, and a 2.1x multiple on invested capital over a 7 year hole. Balance sheet deleveraging. Our leverage is too high for the rate environment, and bringing it down is our first capital priority. Here's the order. Disposition proceeds, to go to debt reduction first. Share repurchases are funded from sale proceeds with no new borrowing. And we will measure progress against our leverage targets. We are planning to pair Midtown, with a disposition or 2. The proceeds are expected to retire the borrowings we use for Midtown which keeps that trade roughly levered neutral. And any incremental amount creates capacity for buyback.

This position guidance stays at $0 to $200 million with a $100 million midpoint. Each sale at private market prices also supports our NAV. During the third quarter, we completed value add initiatives of 708 units and leased 25 upgraded units at an average monthly premium of $42.54 and 21.1% return. The premium continues to run lower because the miss's targeted scope has shifted. Most of the quarter, quarter's work was lighter and bespoke upgrades. Plus washer dryer installs at lower performing properties These upgrades cost less reduced vacancy time related to the work being completed and allow for a more targeted approach relative to individual competitive sets at each property.

Since inception, more properties currently in the portfolio, we have completed 11 thousand interior upgrades 5.3 thousand kitchen and laundry packages, and 11.5 thousand tech packages. They have earned an average monthly premium of $147, $51, and $43 and returns of 20.7%, 62.7%, and 37.2%, respectively. Our estimated net asset value at quarter end is $38.33 per share at the midpoint, using a cap rate range of 5.5% to 6% across the portfolio. that is down $8.43 from $46.76 last quarter I wanna take some time to explain the change. We moved our cap rate range up 25 basis points to reflect higher long term rates and wider pricing on older assets. That accounts for $4.45 of the decline.

The rest comes from lower NOI expectations and other balance sheet changes. Net leverage on our admin point is now 62%, up from 57%. We think the range is grounded. Walker and Dunlap's third quarter average cap rates in our markets range from 4.6 to 5.5%. In UDR's recent joint venture with Apollo, valued portfolio averaging 39 years old at about 6% cap rate. Our range sits at or above those markets and in line with the UDR mark, on older product. At a price of $180.04 stock trades about 5.35 thousand% below our midpoint, and well below our low end of the range.

Will cover how we are using the tools to have we have to help close that gap. On the dividend, the board declared a fourth quarter dividend of 53¢ per share payable December 31. Third quarter core FFO covered in almost 1x. With the swap repricing now in our run rate, fourth quarter 4 FFO at about $0.35 implied. We will fall short of it. Instead the fourth quarter dividend, the board weighed a lot of moving pieces. Including the macro backdrop and the Fed path. It will decide by the next meeting whether to reset the dividend at appropriately covered level, and we will announce the decision when it is made.

We are lowering full year core FFO guidance at a range of $2.17 to $2.27 per diluted share a midpoint of $2.22 down from $2.25. Same store NOI guidance moved to a range of negative 5.1% to negative 3.6% with the midpoint of negative 4.3%. Here's the bridge from $2.45 to $2.22 in 5 pieces. Same store same store revenue down $0.10. Vacancy is the largest piece at $0.08, then bad debt at $0.04. And concessions at $0.01. Partly offset by $0.01 from each rent, fiber, and revenue and other income. Same store expense, down $0.10. 7¢ is controllable, led by repairs and maintenance at $0.05. $0.03 is utility and real estate taxes, and we are seeing fewer appeal settlements.

Interest expense. Down $0.02. From additional quartering of borrowings, including the financing of Midtown Crossing. Interest income. Down $0.01. On a quicker repayment schedule, on the DSP loan that we had initially modeled. And lastly, corporate G&A and property tax. About 9¢ of that is third quarter actuals about $0.11 is the lower fourth quarter forecast. The rest is interest. Looking at 2027 guidance and fourth-quarter results, but the pieces are visible today. Financing line is visible in the contractual obligations table in our supplement. And it moves with SOFR because most of our debt now floats. Each 25 basis point move in SOFR is worth about $0.14 a share once the KeyBanc swap ends.

NOI is the swing factor, and that is our operating plan. Our expense work and disposition program are built to move. Here's a full set of revised ranges. Earnings loss per diluted share: On the low end, $1.72. Midpoint, a $1.68. High end, a dollar 63. The prior midpoint is a $1.54. Core FFO per diluted share: a low end of $2.17 midpoint of $2.22, the high end, $2.27, and a prior midpoint of $2.45. Acquisitions now range from $32 million to $200 million with a $160 million midpoint that includes Midtown Crossing, which closed October 2. Dispositions, remain $0 to $200 million, with a $100 million midpoint. And with that, I will turn it to Matthew.

Matthew Ryan McGraner: Thank you, Paul. On the revenue side, operations are still moving sideways, as he noted. We are grinding through it, and work is starting to show in renewals, retention, and conversion. In August, our guidance assumed new lease pricing slightly negative in the third quarter, and slightly positive in the fourth. We ran the summer to that plan. We held asking rents and set minimum renewal increases of 1% to 3% from June through August for a significant portion of our assets. Turnover suffered and anticipated demand did not sustain our previously strong occupancies. Occupancy slipped from 93.6% at the end of June to 92.5% at the end of August.

In September, we cut price and added concessions to win it back. New lease trade outs went from negative 3.3% in July to negative 6% in September. And concessions for the quarter were $634 thousand up 74% from last year. Occupancy recovered to 92.9% by the end of the quarter, but came at a cost and effective rent. RealPage puts occupancy in our submarkets at 94.3%. Ended the quarter about 140 basis points below that, The good news is our same store portfolio is 94.6% leased today, and we expect physical occupancy to improve throughout the fourth quarter. Ultimately, the supply picture keeps improving. In the third quarter, our submarkets absorbed 3.65 thousand units against 3.23 thousand units delivered.

For the full year, RealPage has our submarkets roughly balanced. Deliveries in our submarkets are 42% below the 2024 peak and new starts are running 54% below last year's pace. Taking an even closer look, 28 of our 36 properties have fewer than 500 units delivering in 2027 and 2028, deliveries are on track to be the lowest of the cycle. Deliveries are well off the peak, but there are still about twice as many apartments in lease up as normal. Roughly 1.2 million units nationally in August. We believe that as interest rates moved up this summer and into the fall, developers accelerated the depth of their concessions.

Modestly fewer properties are offering concessions, but the ones that do are offering the most in 15 years. Your page has the average discount on stabilized units at 11.1% in September, close to 6 weeks free. And it is reached the older buildings like ours, about a quarter of units in 1.99 thousands-vintage buildings now offer concessions. Up from 18% 3 years ago. Positives for the quarter were. There were many. Renewals were a bright spot for the quarter. Every market posted positive renewal growth. Outside of Las Vegas where all in pricing inflates the comparison. Raleigh led at 4.2%, and Phoenix followed at 3.5%, both encouraging signs.

In October, we lowered renewal increases on purpose to protect occupancy and retention rose to 9. To 57.5% from 54.9% in September. We also saw same store blended lease trade outs rise quarter over quarter by 100 basis points and reached basically equilibrium for the quarter. Another positive sign. Conversion improved. 39.3%, up from 34.2% a year ago. And 40-41% in October. Self guided tours were almost half of all tours. People are touring, but more of the ones who tour are signing leases. Credit held steady. Bad debt was 80 basis points across of gross potential revenue, flat with last year. Rent to income across the portfolio is about 21% on average household income of about $86.5 thousand.

Atlanta's operations are stabilizing and provide a useful road map. NOI grew 5% there with vacancy loss down 43% and concessions down 50% from last year. Regional fundamentals can be replicated overnight, but the trends in this bellwether Sun belt market are encouraging for the remainder of our portfolio. Insurance, as Paul said, savings stuck, and other income grew 29%. Most of the fiber fees that offset the new amenity cost. In October, leased occupancy was 95.3 against 92.3% physical, and that gap is signed leases we expect to move in over the coming weeks. Today, we are at 94.6% leased. On the go forward plan at this point in the year, we are prioritizing occupancy first through the winter.

We have reset renewal pricing. October retention of 57.5% is the early result. New lease pricing could continues to target recovery of the 140 basis point gap to submarket occupancies ahead of the spring leasing season. Our fourth quarter guidance assumes average financial occupancy of 92.8% and concessions of 1.9% of gross potential rent We would rather spend that now and start 2027 off with positive momentum in occupancy. We decided to pull a lot of expenses forward, as Paul said, into 2026 also. And that spending is aimed at winning new residents, turns, exterior, and amenity work, and in-unit upgrades.

It will keep expenses elevated for the final months of 2026, we think that is the right trade in a year this soft. Regarding capital allocation, first, we will pay for Midtown Crossing with a couple of dispositions, as Paul mentioned, and our expected to retire the Midtown borrowings in an incremental amount. Thereafter creates buyback capacity. Second, we will buy back stock with sale proceeds while we trade at roughly 7% north of a 7% implied cap rate on our NOI guidance. On October 26, our board authorized up to $150 million of repurchases over the next 2 years.

Our disposition guidance is $0 to $200 million We are working the market to execute on 1 or 2 rifle-shot disposals in asset where we made a lot of money. And can transact at a healthy spread to our implied cap rate. On the dividend, as Paul said, the board has weighed a lot this fall, including the macro backdrop, recent Fed moves, mid elections, and real estate fundamentals. Its first meeting in 2027, board will decide whether to reset the dividend to a level that is appropriately covered. The fourth quarter dividend of 53¢ already declared and payable by December 31 is not affected.

In closing, operations remain challenged in Q3 as we digest again, 50 year highs in supply and a 30 year high in interest rates. Lease ups accounted. Lease ups discounted hard this summer, and we held rate a little too long into that tape. On expenses, we chose to spend this year too. Chose to spend this year to win resins, and you will see that for another quarter or 2. But we are not panicky. We are not gonna chase occupancy at any price, sell assets into a week bid, or make a decision we would regret. When this cycle inevitably turns, which it will.

We will continue to grind through the supply, operate the properties well, and protect their equity value. After all, portfolio still throws off enormous cash flow. On capital, we will be methodical. We will sell asset. Assets 1 or 2 at a time when the price reflects private market value and put the proceeds to work in order. Fund Midtown, reduce debt, and buy back stock at a discount. Each sale is sized and timed on its own merits. that is because we still believe this is a great business, our portfolio is impossible to replicate at scale. Deliveries in our submarkets are again down 42% from the peak.

Starts are down about half, and 2028 is set to be the lightest year of the cycle. Once the lease up backlog clears, pricing power come comes back to well located workforce housing in Sunbelt job markets. And the real estate's worth far more than the stock. Our NAV midpoint, is $38.33 a share. The stock trades around $18. We believe our largest asset, Avan at Pembroke Pines alone is worth $8 to $9 per share, about half of our market cap today. We would now like to open the call up and take your questions. Operator?

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Peter Abramowitz. With Deutsche Bank. Your line is now open. Please go ahead.

Peter Abramowitz: Yeah. Thanks for taking the question, and I appreciate all the color in the prepared remarks. Just wanted to ask, I guess as you kind of approach year end, and do your 2027 budgeting process, you know, it is been a very challenging year. So you know, as you kind of look across your markets and your footprint not only from a supply demand perspective, but also an operational perspective, What kind of gives you confidence that things will potentially get better in 2027? And how are you sort of thinking about that as you prepare for your budget process?

Matthew Ryan McGraner: Yeah, hey, Peter. Thanks for the question. I think the math gives us confidence. You know,, we are doing a little work about the supply coming out of the GFC and you know, it is almost the same story coming out of that I think we are seeing, you know, coming out of this latest cycle. And what happened after that is we had pricing power for a number of years, and, you know, I think we see that same trend today. You know, we have we have been probably a little bit too optimistic in 2026 as I think the rest of the you know, the Sunbelt peers have, also.

We also did not forecast an Iranian war, the AI trade becoming what it is today, and then you know, a lot of the other macro factors that I do not think will replicate in 2027. So I think, you know, as we are not done with the budgets, but we are reviewing them now. And I think we see you know, reasons for optimism. Just from the supply, you know, picture alone. We think that migration to the Sunbelt markets will continue. You know, there is certainly still robust job growth in our markets, and so you know, the macro backdrop for us is, I think, as good as it has been in 5 years going into next year.

And then, you know, hopefully, the units and the markets will be absorbed. I think the midterm elections will maybe portend some new net international immigration, which will be, you know, helpful demand driver. And then I also think affordability continues to be another demand driver for our portfolio that has not really mattered, and I think it will I think it will in 2027. You know, our units have, you know, we have great places. We have great assets in places to live, and we have amenitized the assets and now offer a great product at an affordable price, and I think we will see that next year show up. To our benefit.

Peter Abramowitz: Okay. I appreciate that, Matthew Ryan McGraner. And then you mentioned the fiber optic rollout had somewhat of an impact. On the expense miss in the quarter. But I think you said, you know, it should come back to you, in the form of revenue in the future. Could you just sort of quantify, you know, how much the uplift could be? And how should we think about that from timing perspective?

Paul Richards: Yeah. I think if you strip out the. it is a net neutral effect on NOI because you. But if you strip out the expenses from NOI what do we say the expense was? After-- Yeah. 1 point 9 percent. So the noise in terms of you know, the rollout and, you know, we are we are rolling it out in several of our main markets. So the expense growth is offset, and it is actually factored into 2 revenue lines. So it is it is a little bit more challenging. it is in other revenue, and it is also in resident amenity fee income.

So the net effect, and I we spoke to it on the call, our resident amenity service platform provides a margin, I believe, for the third quarter. was a $400 thousand operating profit on those expenses. Noise of it is just getting through you know, the volume of you know, new lease charges that we are, applying to the resident base. So the typical structure is a 1 gig fiber program at about a 60 to $65, you know, resident charge. So you are seeing that you are seeing that growth in both revenue and expense. there is some noise in the same store year over year comparison because of that.

But ultimately, our resident amenity service package does drive revenue growth and NOI growth.

Peter Abramowitz: Alright. I appreciate that. And then a question on the dividend. I think you said you may revisit that. Next quarter. But I guess just curious kind of why not reduce it now you know, put yourself in sort of a more conservative position I am just curious how you are how you are thinking about that.

Matthew Ryan McGraner: Yeah. Well, ultimately, again, board decision. Management. You know, we have a view. I think why not now is because you know, the just literally the last 30 to 45 days have been incredibly volatile. Now you saw so for take up a 100-basis-point, 10 year up, you know, 116 basis points in 60 days and. Or something like that. So something material You got midterm elections today. And, you know, I think there is a lot of good views on the board, that you know, studied this for a living. And, you know, they. You know, they appropriately, in my view, wanted to get through this you know, this period of time.

You know, on an annualized basis, the dividend's covered. You know, it will not be in the in the fourth quarter on a on a 1 quarter spot in time, but, you know, I think that we will have a clearer view in the first of the year in January to make a better decision. We are already seeing, you know, with the core we bond, you know, issues and all the AI trade and demand and, you know, that whole story, you know, play out. We are back know, the 10 years off 40 basis points in a week. So again, I think it goes back to where we are panic. We are not panicking.

And I think that if you look at you know, the appropriate time to make that decision is when we have more information. And I and I think that is that is the. that is why they are not saying, you know, let's do something today. But that. But we are focused on it. Like I said, the portfolio generates tremendous amount of cash flow, and it is a tool that we will use. To buy us time and not degrade the portfolio by selling assets, at a discount that do not make sense in this environment.

Because, again, you know, we think that this is gonna be a really good business still in 2027 is gonna be better than 2026, at least for us. Right. And so I guess that leads me into the next question. Know, you mentioned, I think, Avan at Pembroke Pines. You. I believe you said you think it is worth 8 or $9 a share in the private market. So I am just curious, like, you know, what consideration have you given to exploring, selling, especially some of those larger assets where, you know, there could be more liquidity and more demand in the private market. Particularly to address, you know, either capital needs or bring down leverage You know?

Just kinda curious if you have given consideration if that discount is so wide. You know, is that something that you are you are actively considering in terms of, of addressing that discount near term? Yeah. 100%. I mean, we are we are, we are looking at every asset every day. You know, getting BOVs from, you know, the East Hills, Newmark, the JLL, the CBREs, and trying to figure out you know, what the assets are worth. I think right now, as we sit here today, spot cap rates are elevated because you have you know, negative leverage across most value add deals. Yeah.

But I think at the first of the year, we can rifle shot, as I said in my prepared remarks, a couple deals where we have made a ton of money. You know, and generate enough cash flow to pay off that debt. It will not be a bond. You know, that thing is know, a unicorn, so we will keep, you know, we will keep that and, you know, operate it well. But I think the there is there is 2 or 3 deals of some size in markets that are doing well that we are actively, you know, getting BOVs on and trailing processes that are already in the market.

For example, in Atlanta, there is a there is a deal that is you know, pretty similar to Terrell Mill. Terrell Mill, we have owned forever and have made a bunch of money there and can sell and generate a lot of cash. And feel good about, you know, where that could possibly trade in the in the near term. So we are not worried about, you know, you know, paying down this stub of debt on the facility. And then, you know, to the extent that we can, you know, generate excess cash, we will buy the, you know, we will buy the stock aggressively like we have in the past.

We are not doing is trying to do, you know, something you know, weird like merge at a--you know,, do an off stock deal or something, you know, down here because we protect the equity. I mean, keep in mind, we own 20% of the company. As management and a board. So, you know, we are highly aligned to do the right thing. Right. Okay. that is helpful. And then last 1 for me, you know, on that point, I guess, you speak to kind of the interest in the private market for the at the portfolio level.

I know it is something you have you have kind of talked about if you do not get the cost of capital and you know, the equity performance you are looking for, it is something you would consider So just curious on your latest thoughts on that. And know, any conversations or interest that you are feeling from potential parties? Yeah. I think I think we have to, you know,, again, give ourselves the grace of getting through this 50-year high of supply. I think we have largely done that, and I think once you see new lease growth inflect, and you get blended lease growth that is positive sequentially for a few quarters.

Not even a few, just maybe 1 or 2, enough to where the breadth is across the market and everyone's saying the same thing. RealPage saying the same saying the same thing. Witton is saying the same thing. Parsons is saying the same thing. Burns is saying the same thing. Then I think that the. that is when you would look you know, to monetize, I think, a portfolio like ours that you know, again, it is hard to replicate and scale. I do not think we are too far off of that period.

I think, you know, again, you know, call me optimistic or hopeful or whatever, but I think the math in our markets points to absorption and points to you know, better lease pricing in 2027 and 2028. It was better than in 2026 it was in 2025. So I think, you know, it will happen, and we wanna give ourselves a few quarters to bring the buyers back to market. there is not enough depth in the market as I sit here today to recommend doing anything in scale. Especially given the volatility in the in the macro backdrop. A fed hiking into an economy that is really propped up on, you know, on sort of 1 trade.

And, you know, I think I think interest rates are likely to be potentially broken, you know, if we continue this path. So that is something else we are watching. Yeah. If you get any more retracement back in the in the risk free rate, then that will help our pricing. In the private market and in the public market. So yeah, I would say we are we are we are again, not doing anything right now, but looking forward to the back half of 2027 if something was attractive, we will consider it. Alright. that is all for me. I appreciate the color, and thank you for the time. You got it, Peter. You covered a lot. Appreciate you.

Operator: Your next question comes from the line of Michael Lewis. With Truist Securities. Your line is now open. Please go ahead.

Michael Lewis: Sure. Thank you. My first question is a clarifying 1 on the operating expenses in the quarter. and kind of what it means for the run rate going forward. So it sounds like you underestimated real estate taxes, but that number will not carry through into the future. And, likewise, it sounded like the repairs and maintenance might not carry through more than a quarter or 2 either. Am I characterizing that right, that expenses should ease, or are they structurally higher now?

Bonner McDermett: Yeah. I think that is right. And I will hit the first is a little easier. So there are really 2 components that drive. That you just look at the Q3 real estate tax number. So 1 is that pre- significant real estate tax refund we realized in Nashville last year. Right? It was great news then. is a terrible comp today. So if exclude that overall, I would say our real estate tax control has been really good. I think year to date, you know, excluding that, our real estate taxes are about 1% growth year over year.

In terms of the full year outlook, there is a little bit of an impact, I think, Paul mentioned, in kind of the bridge to a full year core there is about a $0.04 that I would say we were, in August, a little bit more optimistic for settlement of some appeals. Right? Dallas County, Tarrant County in Texas, couple others. We got since then, our TRIM notices for our Florida valuations as well. So all of that has really informed what we think the full year expectation is for, you know, tax settlement. We are, you know, historically very aggressive in terms of fighting the counties with kind of the softness in the market.

We feel like we have even more ammunition to go and really, you know, drive some better outcomes on taxes. But I think a couple things we think are either slipping into Q1, particularly in Texas, right? We are not getting to settlement as quickly as we would like. There could be a little bit of upside maybe in the higher end of our range, but I think that we took down a couple of refund expectations into Q4. That probably moves into Q1. So it is not a structurally higher tax outlook. If anything, we feel better about this year and next year's taxes.

And then terms of the repairs and maintenance, so it kind of balances with what we are seeing with occupancy. Right? And we have talked about you know, the amount of information we are collecting and the next point intelligence platform, the AI data points, the funnel. Everything that we are gathering today is really informing. When we are touring a prospect, we are surveying, we are getting that feedback, and some of, I think, that some of what we have seen, you know, that we need to be doing a little bit better is building hygiene, maintenance, right? We have spent a little bit more heavily on contracted pressure washing, making sure that the landscaping is top notch, right?

As we compete more directly against some of these you know, a, a minus, and new construction deals, we have gotta make sure that you know, our seasonal flowers are top notch. Our buildings are fully maintained. Right? We are not encountering, you know, cobwebs, things like that. But I do think that as we look to push pricing we took some of that feedback and, you know, send spent a little bit more on repair and maintenance. You know, it is largely you know, building and improvements, landscape, And it is it is kind of you know, chunky in terms of Q3 timing of it.

I do not think that it is it is necessarily structural but something that, you know, we are we are focused on, you know, resident and prospect satisfaction. And that goes to address those comments.

Michael Lewis: Okay. Thanks. And then what should we read into the October portfolio trends, right? So the blended rent spread was 20 bps lower than in 3q. Occupancy fell 50 or 60 bps in the month. You know, maybe some seasonality there as well. But you know, at 1 time, you had been talking about kind of a hockey stick same store revenue recovery in 2027. I understand your comments about supply and such, but it, you know, it seems like we should take from these results that there is you know, no reason to expect that now. Is that fair?

Matthew Ryan McGraner: Sorry. No reason to expect what? A hockey stick? Yeah. You know, a sharp recovery in same store revenue in 2027. Yeah, I would say a sharp recovery. I guess to what degree. I think we are, you know, we are gonna be incrementally positive on, you know, on the revenue side and these numbers. Like, we are not at all pleased with the occupancy numbers and the new lease numbers and yeah, we were pleased with renewals. But yeah, I think it is fair to say perhaps that you know, the analyst community was right, but maybe for the wrong reasons.

And what I mean by that is the increase in interest rates that we saw over the last 60 days, we did feel you know, concessions start to creep up right as we were basically recording in Q2. You know, that the you know, so the short term and the long end both rallied and we saw the development community and the ownership community in our in our markets, particularly in Sunbelt, starting to get really defensive. So maybe you could say that, you know, we did not anticipate that. Not sure that, you know, anyone did, but I do not think that is gonna be the case in 2027.

So I do think not putting a number on you know, what revenue will be right now, but I do not see that happening again. If anything, I think I see the opposite. And, you know, we are very, very pleased with the job growth numbers in our markets and you know, that is that is to our benefit. And hopefully, we can start getting some of the some of the supply demand imbalance back in our favor. Finally.

Michael Lewis: Okay. Thanks. And then lastly for me, I just feel like this needs to be asked, and it is really kind of a you know, how did this happen kind of question. And what I mean is you know, how were you so exposed to interest rates and so naked to this increase in rates? I think you said every 25 bps in rates is now 14¢ on an FFO number that is you know, expected to be $2.22. And so far it is already higher than what you used when you projected your interest expense in the supplemental. And forecasted to go higher. So you know, what do you do. What can you do now?

It sounds like maybe some asset sales. And, you know, how do you manage leverage going forward now?

Matthew Ryan McGraner: Yeah. it is it is it is a good kind of, like, you know,, I guess, you know, armchair quarterback quick question. When we. The truth is we were focused on, swapping a third to half of the portfolio in February and March and did not hit our targets. Perhaps we are, penny wise at the time, but we were ready to swap out a lot in the range of, you know, kind of 3 on the SOFR swap rate, which would be basically equilibrium on 53¢ dividend. So, you know, that is what happened. And then we were not gonna chase it you know, along the along the way, you know, up.

And, you know, kept getting away from our target. I do not think that we believe the short term, is stronger than, you know, the market believes. And what I mean by that is you know, rents have been negative for several years, and then it is not showing up in the data yet. So, you know, we I think we have a lot of, you know, intelligent people around the company and around the firm we did miss a target that we internally set. And that has led to know, some unfortunate pain, and we feel it you know, as much as anyone. What can we do?

Well, I do not think we are gonna hedge here, you know, again, given the. Given our outlook that I think it is more likely if the Fed continues to hike into this economy and ignoring the effects on the commercial real estate universe in the credit markets and regional banks. I think credit conditions will continue to get tight, and, you know, I think I think that something is liable to break there. So that is kind of our near term view. I you know, I do not think that there is any appetite to hedge at this point. So the tools in our toolbox are to sell assets or reduce the dividend.

Know, I do not think we would preferentially take selling assets at a wide discount right now against the backdrop that we think is gonna get better. For a lot of reasons even though, you know, some are still bearish. So then, yeah, The source of funds is the dividend. And like I said, we still throw off a lot of cash flow. So yeah, I think the plan is to actively market. Actively monitor the swap market, you know, do a disposition here or there that makes sense, and not panic and throw our arms up and say, you know, well, we lost. We do not think we lost.

We think that, you know, this is a spot in time kind of had a bad quarter, you know, bad quarter or 2. But we also think the windshield is larger than the rear view mirror for a reason. So, you know, we are still optimistic and that will be that will be the plan. Thank you. Really appreciate you answering the question. You got it.

Operator: Reminder. If you would like to ask a question, please press star 1 to raise your hand. To withdraw a question, press star 1 again. Your next question comes from the line of Buck with Raymond James. Your line is now open. Please go ahead.

Buck Horne: Hey, guys. Good morning. Appreciate all the color so far. I kind of want to also follow-up on those October trends just to clarify a little bit further. And in terms of I. Correct me if I am wrong, I think you guys mentioned that your 4Q assumptions are basically that occupancy will stabilize around a 92.8. It looks like, you know, the occupancy trend through October has already trended through that number, you know, at least by 50 basis points and maybe trending lower. Correct me if that is incorrect.

But how do you intend to rebuild occupancy into the seasonally slower period And, you know, what kind of, you know, levers do you need to pull in order to stabilize that number?

Matthew Ryan McGraner: Yeah. I will start, and, Bonner, you can you can add to this. So October is better sequentially on, than September, obviously, from a from new leases. Occupancy, ending occupancy, down 50 basis points, but the trend and the renewal retention both are up. And so I think you know, I think my comment was that the fourth quarter portends 92.8% physical occupancy, and that would be 9. 91 point 8 financial occupancy. But I think we feel good about the conversion rates on the lease. On, on the lease trend. Going into the fourth quarter took a lot of pain. You know, in August and September. So I think we like the last few months.

I do not know if I have anything.

Bonner McDermett: Yeah. I think, you know, the prepared remarks, so the full quarter, you know, average financial occupancy, $92.08. You know, that is just up a little bit. Obviously, we have some work to do from the 09:30 number to fill that out. As we mentioned, you know, the portfolio today is about $94.5%, 94.6% leased. You know, there is a spread there. Right? that is forward-looking lease assumptions. There are some move outs. I think that in terms of what we are doing, so, closing the back door. Right?

I think we feel really good about, you know, retention, trying to trying to get back up to, you know, high fifties to 60% retention in Q4, really focused on just moving kind of the low payers there and the opportunity taking a little bit off in a lower demand season on some of the higher payers in that subset. And then in terms of the front door, I mean, we have been heavily focused, really, for the last 90 days on, you know, making sure, again, at every asset manager to turn out their market as part of 2027 budgeting.

Obviously, but also making sure that you know, we really get back to basics in terms of, you know, fundamentals as much as, you know, we have highlighted and discussed, the implementation and utilization of AI and you know, the chat function, right, the immediate response on an inbound call What I think we are recognizing and have recognized over the last you know, hundred and hundred and 20 days is that, you know, just getting a chat response. Right? You may get an instantaneous response that might not be the warmest touch. Right? it is it is kinda like, you know, every third political, you know, donation text you are getting right now. Right?

So we have to be thoughtful about you know, what that messaging is and making sure that it is followed up by a warm body in our office. So working, working on really the fundamentals on the front end to make sure that we can close. You know, we feel like the lead to lead to tour, tour to app conversion ratios are healthy. We have done, you know, some incremental things some special pricing on some units, you know., there is certainly more concession in some of our lower end. And that was I think, reflected in the public commentary. And then really just focusing on moving the needle.

I think that, you know, it is our goal certainly to finish some year at a much better clip than 98, but you know, starting from the base at $9.30, I think that we work up to, you know, probably peak occupancy around the end of the year. Is our goal. So that is that is what we are focused on. that is what our teams are focused on. You know, we also referenced a little bit of additional you know, ad spend marketing. Right? that is kind of the other side of the you know, concession and pricing. Right?

We have gotta make sure the shifting landscape where Google Search was, you know, the leading driver of so much traffic over the course of the last, you know, 15, 20 years. Right? that is really shifting a lot. Where, you know, some of our younger tenants are going to, you know, chat GBT and ask I want this, this, and that. And, this submarket of Phoenix. Right? We are having to kind of reevaluate really everything that we are doing and making sure that, you know, we are top notch. Our you know, our websites are AI friendly. Right? The photos on the website are attractive. We are capturing that exposure.

So there is there is a little bit of a shift that we are focused on in the marketing side as well. I think that we can certainly do better there, but we are we are focused really, you know, across the board on driving occupancy into what we will be a better year next year.

Matthew Ryan McGraner: We took revenue down $0.10. To Buck just to state it. Like, you know,, it is not like we are, like, you know, maintaining an equilibrium. So revenue guidance, as Paul bridged you from $2.45 at the midpoint to $2.22 at 10¢ in that number.

Buck Horne: Got it. Okay. that is helpful. Appreciate the color. And just for just on this Wi Fi expense, or added Wi Fi, which line item in same store expenses? Is that going into utilities? Or is that in the R&M expense line? Linda where. And, you know, how, I guess,, how much of the year over year increases in either of those lines driven by the WiFi rollout?

Bonner McDermett: Yeah. So it is in the R&M, and we are we are looking at it. As it as it continues to grow, I think it is now about 20% of the R&M spend for the year. it is it is getting to be significant and noisy. So it may be something that we look at as we go into 10 ks, annual audit season that we might wanna break out contract services because it is it is getting a lot of scrutiny. Right? We are we are continuing to do it. We think that there is a lot of value, and being able to provide, you know, 1 gig fiber for $65. that is fair value.

And so we you we have done it across a significant chunk of the portfolio, but there is still a lot of opportunity left. And so we will we will have some visibility there. But, again, it is it is something, you know, as we are ever rolling those contracts on, from an expense side, we are also rolling in tenants that are paying for it. So it is a, you know, net positive for the property and the P&L.

Buck Horne: Got you. So of that, roughly 20% year over year increase in R&M is like half of that driven by the Wi Fi.

Bonner McDermett: Yeah. So our revenue and new services line specifically is up about 37% year over year. So know, the full year is about 2.4 million. Of added you know, the significant majority of that is the bulk fiber.

Buck Horne: Got it. Very helpful. Thanks, guys. Appreciate it.

Matthew Ryan McGraner: Thanks, Buck.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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