NexPoint Residential Trust Inc Stock

Hello, everyone. Thank you for joining us, and welcome to the NexPoint Residential Trust Third Quarter 2026 Earnings Call.

I will now hand the conference over to Carley Musser with Communications and Corporate Affairs. Carley, please go ahead.

Thank you, Al. Good morning, everyone, and welcome to NexPoint 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; Matt 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 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 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, 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.

Thank you, Carley, and good morning, everyone. I'll 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, and then Matt will cover operations and market fundamentals looking forward.

I'll start with the headline. Q3 came in below expectations. Core FFO was $0.52 a share, $0.07 below consensus. We're lowering our full year core FFO midpoint to $2.22 from $2.45 and our same-store NOI midpoint to negative 4.3% and negative 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 were 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 $1,487, down 0.7%. 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 a onetime real estate tax refund at Residences at Glenview Reserve, which equates to a swing of about $854,000 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 $640,000 this quarter as we brought fiber online at about a dozen properties in Atlanta, Nashville, Phoenix and South Florida. Residents pay for those services, so most of that cost comes back to us. Amenity fees rose about $387,000 and in Las Vegas, the equivalent fees now sit in rent under all-in pricing. Net, the program cost roughly $100,000 more than last year, which is immaterial. And looking at the full program, including the smart connection fees residences pay, our amenity services brought in about $400,000 more than the cost this past quarter. It's 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 expect to drive traffic. Lastly, utilities rose 11.8%. Some of what was delivered 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'd rather put that money in front of prospects now even if it keeps expenses elevated for a quarter or 2.

Other spending didn't earn its keep and we're cutting it. Net of national real estate tax swing, expenses grew about 7.3%, strip out resident amenity services as well, and it's about 5.1%. Part of that is by design and part of it is noise in a seasonally heavy quarter, but it's more than this revenue environment supports over time. Matt will walk through the specific actions we're 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 -- were up just 40 basis points year-to-date, apologies.

Underneath that, the core cost base is holding. Year-to-date, insurance was down 16.3%, real estate taxes were down 0.7%, payroll down 0.6%, and property management fees down 1.6%. The pressure is concentrated in repairs and maintenance, up 16.4%, including fiber program, utilities, up 7.2% and marketing, up 39.4%. It's important to state clearly that the third quarter's negative 8.2% is not our run rate. It carries a prior year tax refund that won't 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, which we flagged since initial guidance. The step-down landed in September on schedule. Swaps tagged to about $717.5 million of debt at a fixed rate near 1.14%, reset or 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 KeyBank that runs through January 1 next year and the $100 million JPMorgan swap at 3.49% that runs 2030. Swap settlements contributed $5.2 million in the second quarter and $3.4 million in the third, and we expect about $0.6 million 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 $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 hasn't helped, the Fed raised rates in September to a range of 3.75% to 4% held last week, with 2 members voting for another hike. The 10-year treasury touched 5.3% early October and sits near 4.9% today. On maturities, our first mortgage maturity is October of 2028, and the rest of our mortgages run to 2031 and beyond. Total indebtedness was about $1.6 billion at quarter end.

On October 2, we acquired Midtown Crossing, a 228-unit, 1997 vintage community in Raleigh for $32 million or about $140,000 a unit. Our all-in cash basis, including $1.9 million of CapEx funding is about $152,600 a unit. We bought it from an REO lender book and the seller had already put about $3.1 million of capital into the property, so the upside is operational. Raleigh is a market we all know well. It's 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 Raleigh exposure from 625 to 853 units. We are starting at a lower occupancy and getting to 93% occupancy, takes about 27 net leases and in-place rents at about 10% below the Raleigh 2 to 4 star average, $1,325 versus $1,481. We underwrite to grow rents to $1,403 by month 36, which grows NOI from $1.44 million to $2.15 million by year 3, stabilizing north of a 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 hold.

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'll measure progress against our leverage targets. We're 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 buybacks. Disposition guidance stays at 0 to $200 million with $100 million midpoint. Each sale at private market prices also supports our NAV.

During the third quarter, we completed value-add initiatives on 708 units and 425 upgraded units at an average monthly premium of $42.54 and 21.1% return. The premium continues to run lower because the mix of targeted scope has shifted. Most of the quarter's work was lighter bespoke upgrades plus washer dryer installs at lower performing properties. These upgrades cost less, reduce vacancy time related to the work being completed and allow for a more targeted approach relative to individual competitive set at each property. Since inception, for properties currently in the portfolio, we've completed 11,010 interior upgrades, 5,302 kitchen and laundry packages and 11,520 tech packages. They've 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's down $8.43 from $46.76 last quarter, and I want to 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 NAV at midpoint is now 62%, up from 57%. We think the range is grounded. Walker & Dunlop's third quarter average cap rates in our markets range from 4.6% to 5.5% and UDR's recent joint venture with Apollo, valued portfolio averaging 39 years old at about 6% cap rate. Our range is at or above those markets and in line with the UDR mark on older products. At a price of $18.04, the stock trades about 53% below our midpoint and well below our low end of the range. Matt will cover how we're using the tools that have -- we have to help close that gap.

On the dividend, the Board declared a fourth quarter dividend of $0.53 per share payable December 31. Third quarter core FFO covered it almost 1x. With the swap repricing now in our run rate, fourth quarter core FFO at about $0.35 implied will fall short of it. In setting the fourth quarter dividend, the Board weighed a lot of moving pieces, including the macro backdrop and the Fed path. It will decide by its next meeting whether to reset the dividend at an appropriately covered level, and we'll announce the decision when it's made.

We're lowering full year core FFO guidance at a range of $2.17 to $2.27 per diluted share with 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 a midpoint of negative 4.3%. Here's a bridge from $2.45 to $2.22 in 5 pieces. Same-store revenue down $0.10. Vacancy is the largest piece at $0.08 and bad debt at $0.04 and concessions at $0.01, partly offset by $0.01 from each rent, fiber, revenue and other income. Same-store expense down $0.10. $0.07 is controllable, led by repairs and maintenance at $0.05. $0.03 is utility and real estate taxes, and we're seeing fewer appeal settlements. Interest expense, down $0.02 from additional clearing of borrowings, including financing of Midtown Crossing. Interest income, down $0.01 on a quicker repayment schedule on the DST loan than we had initially modeled. And lastly, corporate G&A roughly flat. About $0.09 of that is third quarter actuals and about $0.11 is a lower fourth quarter forecast. The rest is interest.

We will give 2027 guidance with 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 flows. Each 25 basis point move in SOFR is worth about $0.14 a share once the KeyBank swap ends. NOI is the swing factor, and that's 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 of $1.68, high end of $1.63 with a prior midpoint of $1.54. Core FFO per diluted share at a low end of $2.17; midpoint, $2.22; at high end, $2.27; and prior midpoint of $2.25. Acquisitions now range from $32 million to $200 million with $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'll turn it to Matt.

Thank you, Paul. On the revenue side, operations are still moving sideways, as you noted, and we're 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 $634,000, 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%. We ended the quarter about 140 basis points below that. The good news is that 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 3,650 units against 3,234 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. RealPage has the average discount on stabilized units at 11.1% in September, close to 6 weeks free. And it's reached to older buildings like ours, about 1/4 of units in 1990s 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 impacts 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 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. Tour application conversion was 39.3%, up from 34.2% a year ago and 41% in October. Self-guided tours were almost half of all tours, fewer 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 was about 21% on average household income of about $86,500. 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't be replicated overnight, but the trends in this bellwether Sunbelt 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 costs. 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're prioritizing occupancy first through the winter. We've reset renewal pricing and October retention of 57.5% is the early result. New lease pricing 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'd 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, and we think that's the right trade in a year this soft.

Regarding capital allocation, first, we'll pair Midtown Crossing with a couple of dispositions, as Paul mentioned, and are expected to retire the Midtown borrowings and the incremental amount thereafter creates buyback capacity. Second, we'll buy back stock with sale proceeds while we trade at a 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, and we're working the market to execute on 1 or 2 rifle shot dispos in assets 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, midterm elections and real estate fundamentals. By its first meeting in 2027, the Board will decide whether to reset the dividend to a level that's appropriately covered. The fourth quarter dividend of $0.53 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 discounted hard this summer, and we held rate a little too long into that tape. On expenses, we chose to spend this year -- chose to spend this year to win residents, and you'll see that for another quarter or 2. But we're not panicking. We're not going to chase occupancy at any price, sell assets into a weak bid or make a decision we regret when this cycle inevitably turns, which it will. We'll continue to grind through the supply, operate the properties well and protect their equity value. After all, the portfolio still throws off enormous cash flow.

On capital, we'll be methodical. We'll sell 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 size and timed on its own merits. As we go, we still believe this is a great business and 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 comes back to well-located workforce housing in Sunbelt job markets. And the real estate is worth far more than the stock. Our NAV midpoint $38.33 a share and the stock trades around $18. We believe our largest asset, Avant at Pembroke Pines alone is worth $8 to $9 per share, about half of our market cap today.

We'd now like to open the call up and take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Peter Abramowitz with Deutsche Bank.

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, it's been a very challenging year. So 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 can potentially get better in 2027? And how are you sort of thinking about that as you prepare for your budget process?

Yes. Peter, thanks for the question. I think the math gives us confidence. We're doing a little work about the supply coming out of the GFC, and it's almost the same story coming out of GFC that I think we're seeing coming out of this latest cycle. And what happened after that is we had pricing power for a number of years. And I think we see that same trend today. We've been probably a little bit too optimistic in 2026 as I think the rest of the Sunbelt peers have also. We also didn't forecast Iranian war, the AI trade becoming what it is today and then a lot of the other macro factors that I don't think will replicate in 2027.

So I think as we're not done with the budgets, but we're reviewing them now. And I think we see reasons for optimism just from the supply picture alone. We think that migration into the Sunbelt markets will continue. There's certainly still robust job growth in our markets. And so the macro backdrop for us is, I think, as good as it has been in 5 years going into next it's next year. And then 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 a helpful demand driver.

And then I also think affordability continues to be another demand driver for our portfolio that hasn't really mattered, and I think it will in 2027. Our units have -- we have great places. We have great assets and places to live, and we've amenitized the assets and now offer a great product at an affordable price. And I think we'll see that next year show up to our benefit.

Okay. I appreciate that, Matt. And then you mentioned the fiber optic rollout had somewhat of an impact on the expense mix in the quarter. But I think you said it should come back to you in the form of revenue in the future. Could you just sort of quantify how much the uplift could be? And how should we think about that from a timing perspective?

Yes. I think if you strip out the -- it's a net neutral effect on NOI because -- but if you strip out the expenses, I don't know, Bonner, what we said the expense was after 1.9%?

So the noise in terms of the rollout and we're rolling it out in several of our major markets. So the expense growth is offset, and it's actually captured in 2 revenue lines. So it's a little bit more challenging. It's in other revenue, and it's also in resident amenity fee income. So the net effect, and we spoke to it on the call, our resident amenity service platform provides a margin, I believe for the third quarter, it was $400,000 operating profit on those expenses. The noise of it is just getting through the volume of new lease charges that we're applying to the resident base.

So the typical structure is a 1 gig fiber program at about a $60 to $65 resident charge. So you're seeing that growth in both revenue and expense. There's 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.

All right. 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, put yourself in sort of a more conservative position? I'm just kind of curious how you're thinking about that.

Yes. Well, ultimately, again, it's Board decision management. We have a view. I think why not now is because the -- just literally the last kind of 30, 45 days have been incredibly volatile. You saw SOFR tick up 100 basis points, a 10-year up 116 basis points in 60 days and something like that. So something material. You got midterm elections today. And I think there's a lot of good views on the Board that studied this for a living and they appropriately, in my view, wanted to get through this period of time. On an annualized basis, the dividend is covered. It won't be in the fourth quarter on a 1 quarter spot in time. But I think that we'll have a clear view in the first of the year in January to make a better decision. We're already seeing with the CoreWeave's bond issues and all the AI trade and demand and that whole story play out. We're back -- the 10 year is off 40 basis points in a week.

So again, I think it goes back to where we're not panicking. And I think that if you look at the appropriate time to make that decision is when we have more information. And I think that that's why they're not saying, let's do something today. But we are focused on it. Like I said, the portfolio generates a tremendous amount of cash flow, and it's a tool that we'll use to bias time and not degrade the portfolio by selling assets at a discount that don't make sense in this environment. Because, again, that we think this is going to be a really good business still and 2027 is going to be better in 2026, at least for us.

Right. And so I guess that leads me into the next question. You mentioned, I think, Avant, a number of times, I believe you said you think it's worth $8 or $9 a share in the private market. So I'm just curious like what consideration have you given to exploring selling, especially some of those larger assets where there could be more liquidity and more demand in the private market, particularly to address either capital needs or bring down leverage. I'm just kind of curious if you've given consideration if that discount is so wide is that something that you're actively considering in terms of kind of addressing that discount near term?

Yes, 100%. I mean we're looking at every asset every day, getting BOVs from the Eastdil, the Newmark, the JLLs, the CBREs and trying to figure out what the assets are worth. I think right now, as we sit here today, spot cap rates are elevated because you have negative leverage across most value-add deals. But I think at the first of the year, we can rifle shot, as I said in my prepared remarks, a couple of deals where we've made a ton of money and generate enough cash flow to pay off that debt. It won't be Avant. That thing is a unicorn. So we'll keep that and operate it well. But I think the -- there's 2 or 3 deals of some size in markets that are doing well, that we're actively getting BOVs on and trailing processes that are already in the market.

For example, in Atlanta, there's a deal that's pretty similar to Terrell Mill. Terrell Mill we've owned forever and have made a bunch of money there and we can sell and generate a lot of cash and feel good about where that could possibly trade in the near term. So we're not worried about paying down this stub of debt on the facility. And then to the extent that we can generate excess cash, we'll buy the stock aggressively like we have in the past. What we're not doing is trying to do something weird like merge and do an all-stock deal or something down here because we protect the equity. I mean, keep in mind, we own 20% of the company as management and Board. So we're highly aligned to do the right thing.

Right. Okay. That's helpful. And then last one for me. On that point, I guess, could you speak to kind of interest in the private market at the portfolio level? I know it's something you've kind of talked about if you don't get the cost of capital and the equity performance you're looking for, it's something you'd consider. So just curious on your latest thoughts on that and any conversations or interest that you're feeling from potential parties?

Yes. I think we have to, again, give ourselves the grace of getting through this 50-year high of supply. I think we've largely done that. And I think once you see new lease growth inflect and you get blended lease growth that's 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 is saying the same thing. RealPage is saying the same thing, Witten saying the same thing, Parsons is saying the same thing. Burns is saying the same thing, then I think that that's when you would look to monetize, I think, a portfolio like ours that, again, it's hard to replicate and scale. I don't think we're too far off of that period. I think, again, call me optimistic or hopeful or whatever, but I think the math in our markets points to absorption and points to better lease pricing in '27 than '28. It was better in '26 than it was in '25.

So I think it will happen, and we want to give ourselves a few quarters to bring the buyers back to market. There's not enough depth in the market as I sit here today to recommend doing anything in scale, especially given the volatility in the macro backdrop. A Fed hiking into an economy that has really propped up on sort of one trade. And I think interest rates are likely to be potentially broken if we continue this path. So that's something else we're watching. If you get any more retracement back in the risk-free rate, then that will help our pricing in the private market and the public market. So I'd say we're again, not doing anything right now, but looking forward to the back half of 2027, if something is attractive, we'll consider it.

Your next question comes from the line of Michael Lewis with Truist Securities.

My first question is a clarifying question 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 won't carry through into the future. And like, 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?

Yes. I think that's right, and I'll hit both. The first is a little bit easier. So there's really 2 components that drive if you just look at the Q3 real estate tax number. So one is that pretty significant real estate tax refund we realized in Nashville last year, right? It was great news then. It's a terrible comp today. So if you exclude that, overall, I would say our real estate tax control has been really good. I think year-to-date, 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 full year core. There's about $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, a couple of others. We got since then, our trim notices for our Florida valuations as well. And so all of that has really informed what we think the full year expectation is for tax settlement. We're 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 drive some better outcomes on taxes.

But I think a couple of things we think are either slipping into Q1, particularly in Texas, right? We're 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's not a structurally higher tax outlook. If anything, we feel better about this year and next year's taxes.

And then in terms of the repairs and maintenance, so it kind of balances with what we're seeing with occupancy, right? We've talked about the amount of information we're collecting in terms of the NexPoint intelligence platform, the AI data points, the funnel, everything that we're gathering today is really informing. So when we are touring a prospect, we're surveying, we're getting that feedback. And some of -- I think that some of what we've seen that we need to be doing a little bit better is building hygiene maintenance, right? So we spent a little bit more heavily on contracted pressure washings, making sure that the landscaping is top-notch, right? As we compete more directly against some of these A- and new construction deals, we've got to make sure that our seasonal flowers are top notch, our buildings are fully maintained, right? We're not encountering cobwebs, things like that.

But I do think that as we look to push pricing, we took some of that feedback and spent a little bit more on repair and maintenance. It's largely building and improvements landscape. And it's kind of chunky in terms of the Q3 timing of it. I don't think that it's necessarily structural, but something that we're focused on resident and prospect satisfaction, and that goes to address those comments.

Okay. 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, maybe some seasonality there as well. But at one time, you had been talking about kind of a hockey stick same-store revenue recovery in '27. And I understand your comments about supply and such, but it seems like we should take from these results that there's no reason to expect that now. Is that fair?

Sorry, no reason to expect what, a hockey stick?

Yes. A sharp recovery in same-store revenue in '27.

Yes, sharp recovery. I guess, to what degree? I think we're going to be incrementally positive on the revenue side and these numbers. Like we're not at all pleased with the occupancy numbers and the new lease numbers, and we were pleased with the renewals. But yes, I think it's fair to say perhaps that 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 concessions start to creep up right as we were basically reporting in Q2 that the short term and the long end both rallied, and we saw the development community and the ownership community in our markets, particularly in the Sunbelt, starting to get really defensive.

So maybe you could say that we didn't anticipate that. I'm not sure that anyone did, but I don't think that's going to be the case in 2027. So I do think not putting a number on what revenue will be right now, but I don't see that happening again. If anything, I think I see the opposite. And we're very, very pleased with the job growth numbers in our markets, and that's to our benefit. And hopefully, we can start getting some of the supply-demand imbalance back in our favor, finally.

Okay. And then lastly for me, I just feel like this leads to the ask, and it's really kind of how did this happen kind of question. And what I mean is how are 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 $0.14 on an FFO number that's expected to be $2.22. And SOFR is already higher than what you used when you projected your interest expense in the supplemental and forecasted to go higher. So what do you -- what can you do now? It sounds like maybe some asset sales. And how do you manage leverage going forward now?

Yes. It's a good kind of like, I guess, armchair quarterback question when we -- the truth is we were focused on swapping 1/3 to 1/2 of the portfolio in February and March and didn't hit our targets. Perhaps we're penny-wise at the time, but we were ready to swap out a lot in the range of kind of 3.3% on the SOFR swap rate, which would be basically equilibrium on $0.53 dividend. So that's what happened. And then we weren't going to chase it along the way up and kept getting away from our target.

I don't think that we believe the short term is stronger than the market believes. And what I mean by that is rates have been negative for several years, and it's not showing up in the data yet. So we -- I think we have a lot of intelligent people around the company and around the firm, but we did miss a target that we internally set, and that has led to some unfortunate pain, and we feel it as much as anyone. What can we do? Well, I don't think we're going to hedge here, again, given our outlook that I think it's more likely that the Fed continues to hike into this economy and ignoring the effects on the commercial real estate universe and the credit markets and regional banks. I think credit conditions will continue to get tight. And I think that something is liable to break there.

So that's kind of our near-term view. I don't think that there's any appetite to hedge at this point. So the tools in our toolbox, our sell assets or reduce the dividend. I don't think we would preferentially take selling assets at a wide discount right now against the backdrop that we think is going to get better for a lot of reasons, even though some are still bearish. So then the source of funds is the dividend. And like I said, we still throw off a lot of cash flow. So I think the plan is to actively market -- actively monitor the swap market, do a disposition here or there that makes sense, and not panic and throw our arms up and say, well, we lost because we don't think we lost. We think that this is a spot in time kind of had a bad quarter, bad quarter or 2. But we also think the windshield is larger than the rearview mirror for a reason. So we're still optimistic, and that will be the plan.

[Operator Instructions] Your next question comes from the line of Buck Horne with Raymond James.

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 -- correct me if I'm wrong, I think you guys mentioned that your 4Q assumptions are basically that occupancy will stabilize around 92.8%. But it looks like the occupancy trend through October has already trended through that number, at least by 50 basis points and maybe trending lower, correct me if that's incorrect. But how do you intend to rebuild occupancy into the seasonally slower period? And what kind of levers do you need to pull in order to stabilize that number?

Yes, I'll start and Bonner, you can add to this. So October is better sequentially in September, obviously, from new leases, occupancy -- ending occupancy down 50 basis points, but the trend and the renewal retention both are up. And so I think our -- I think my comment was that the fourth quarter portends 92.8% physical occupancy and maybe 91.8% financial occupancy. But I think we feel good about the conversion rates on the lease trend going into the fourth quarter. It took a lot of pain in August and September. So I think we like the last few months.

I don't know, Bonner, if you have anything.

Yes. I think the prepared remarks, so the full quarter average financial occupancy 92.8%, that's up a little bit. Obviously, have some work to do from the 9/30 number to fill that out. As we mentioned, the portfolio today is about 94%, 94.5%, 94.6% leased. There's a spread there, right? That's the forward-looking lease assumptions. There are some move-outs. I think that in terms of what we're doing, so closing the back door, right, I think we feel really good about retention, trying to get back up to high 50s 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've been heavily focused really for the last 90 days on making sure every asset manager turn out to the market as part of 2027 budgeting, obviously, but also making sure that we really get back to basics in terms of fundamentals as much as we've highlighted and discussed the implementation and utilization of AI and the chat functions, right, the immediate response on an inbound call. What I think we're recognizing and have recognized over the last 120 days is that just getting a chat response, right, you may get an instantaneous response. That might not be the warmest touch, right? It's kind of like every political donation text you're getting right now, right?

So we have to be really thoughtful about what that messaging is and making sure that it's followed up by a warm body in our office. So working on really the fundamentals on the front end to make sure that we can close. We feel like the lead tour, tour to app conversion ratios are healthy. We've done some incremental things, some special pricing on some units. There's certainly more concession activity 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 our goal is certainly to finish the year at a much better clip than 92.8%, starting from the pace of 9/30, I think that we work up to probably peak occupancy around the end of the year is our goal. So that's what we're focused on. That's what our teams are focused on. We also referenced a little bit of additional ad spend, marketing, right? That's kind of the other side of the concession and pricing, right? We've got to make sure in the shifting landscape where Google Search was the leading driver of so much traffic over the course of the last 15, 20 years, right?

That's really shifting a lot where some of our younger tenants are going to ChatGPT and asking, I want this and that submarket of Phoenix, right? We're having to kind of reevaluate really everything that we're doing and making sure that we're top-notch, our websites are AI-friendly, right? The photos on the website are attractive. We're capturing that exposure. So there's a little bit of a shift that we're focused on in the marketing side as well. I think that we can certainly do better there. But we're focused really across the board on driving occupancy into what we think will be a better year next year.

We took revenue down $0.10, too, just to state it, like we -- it's not like we're like maintaining an equilibrium. So revenue guidance, as Paul bridged you from $2.45 at the midpoint to $2.22 at $0.10 in that number.

Got it. Okay. That's helpful. Appreciate the color. And just for clarification, just on this WiFi expense or added WiFi, which line item in same-store expenses? Is that going into utilities? Or is that in the R&M expense line? Kind of where -- and I guess, how much of the year-over-year increase is in either of those lines is driven by the WiFi rollout?

Yes. So it's in the R&M, and we're looking at it. As it continues to grow, I think it's now about 20% of the total R&M spend for the year. It's getting to be significant and noisy. So it may be something that we look at as we go into the 10-K annual audit season that we might want to break out contract services because it's getting a lot of scrutiny, right? We're continuing to do it. We think that there's a lot of value in being able to provide 1 gig fiber for $65 fair value. And so we we've done it across a significant chunk of the portfolio, but there's still a lot of opportunity left. And so we'll have some visibility there. But again, it's something as we're rolling those contracts on from an expense side, we're also rolling in tenants that are paying for it. So it is a net positive for the property in the P&L.

Got you. So of that roughly 20% year-over-year increase in R&M is like half of that driven by the WiFi?

Yes. So our resident amenity services line specifically is up about 37% year-over-year. So the full year is about $2.4 million of added. The significant majority of that is the bulk fiber.

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

Thank you. Hello everyone. Thank you for joining us and welcome to the NexPoint Residential Trust Q2 2026 earnings call. [Operator Instructions] I will now hand the conference over to Kristen Griffith, Investor Relations. Kristen, please go ahead.

Thank you. Good day everyone and welcome to NexPoint Residential Trust's conference call to review the company's results for the second quarter ended June 30th, 2026. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer, Matt 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 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 risk and other factors that could affect any forward-looking statement. 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 statement. This conference call 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.

Thank you, Kristen, and welcome everyone. We appreciate you joining us this morning. I'll take you through our second quarter results and the changes we're making for our full year outlook. And then Matt will cover the operating environment, our leasing trajectory, the technology platform, and how the portfolio is positioned. In April, we affirmed our full year guidance. This morning, we are lowering it to a core FFO midpoint of $2.45 per share, down $0.12 from $2.57. I'll explain what drove the change and what has and has not changed. In short, most of the reduction is from higher interest rate expense, reflecting an upward shift in the forward curve since our last update. A smaller portion reflects the slower same-store revenue rebound, which affects the full year.

Importantly, our operating trajectory going into Q3 continues to improve month by month. Given recent macro shifts and clear visibility into Q3 operating performance, we believe this is the right time to update our forecast. To 2026 results. Second quarter core FFO was $16.9 million or $0.66 per diluted share, a penny ahead of consensus. That compared to $18 million or $0.71 a year ago. FFO was $15.2 million or $0.60 per share, and AFFO was $19.7 million or $0.77 per share. Total annual NOI was $37.9 million across our 36 properties, essentially flat with last year. Net loss for the quarter was $8.6 million or $0.34 per diluted share, which includes $23.9 million of depreciation and amortization. That compares to a net loss of $7 million or $0.28 per share in the second quarter of 2025.

Total revenue was $64.6 million, up from $63.1 million a year ago as Sedona came online and into the numbers. On a same-store basis, 35 properties, which is about 98% of our units, total revenue was $62.4 million, down 0.6%, and same-store NOI was $36.9 million, down 2.9%. The end of period occupancy closed the quarter at 93.6%, up 30 basis points from a year ago, and average effective rent was $1,487, down 80 basis points. A point on the year before I get into guidance. It came in about where we expected on that. The company earned $0.68 in the first quarter and $0.66 in the second, which equates to $1.34 through June, each quarter a little ahead of the Street. The revision today is almost entirely about the back half, and it's driven mostly by interest expense as our swap protection rolls off, which I'll run through now.

Interest expense and hedging. We've mentioned since our initial guidance that 2026 carries a real interest expense headwind as certain swap positions roll off, and the step down lands in the second half. Q2 interest expense was $15.8 million versus $15.2 million a year ago. What's changed since April is the rate curve. The forward curve has moved higher, roughly 30 basis points in the third quarter and 72 basis points in the fourth relative to our assumptions. In practical terms, that's about $14.6 million fewer projected swap inflows over the rest of the year, or roughly $0.16 per share of additional interest expense. It's the single largest piece of today's revision. Full year 2026 interest expense is now projected at approximately $71.2 million, up from roughly $69 million discussed last quarter and $67 million in the original model.

One timing note, the Federal Reserve met last week and held its benchmark rate at 3.5% to 3.75%, with a few members dissenting in favor of a hike. Interest rate swaps currently fix the rate on $817.5 million, or approximately 51.5% of our floating rate mortgage debt, and we have full visibility into the maturity schedule. The bulk of that protection, approximately $717.5 million, at a weighted average fixed rate near 1.1392%, rolls off in September. We have the ability to layer in more protection and we'll do it when the risk-adjusted economics make sense. Second, on the affirmation. In April, we mentioned the offsets identified neutralized this headwind and we affirmed. The curve then moved against us more than we assumed, and in a handful of markets, revenue production came in softer than we modeled. Rather than lean on offsets to hold that number, we're resetting to a level we're confident we can deliver. I'll walk through the bridge in a minute.

Moving on to expense detail. The expense side is where we're picking up real ground. We're lowering our full year same-store expense growth outlook by 140 basis points to about 2.1% at the midpoint from 3.5% originally. It's broad-based. Every market in the portfolio is now guiding to lower expense growth than we assumed at the start of the year, led by real estate taxes, insurance, and continued payroll discipline from the centralized operating model Matt will describe. Our April insurance renewal, which came in down more than 30% year-over-year, is now fully in the run rate. Let me put some numbers on the quarter itself. Same-store operating expenses were up 2.4% year-over-year, and the mix was favorable where it counts most.

Real estate taxes were down 3.5%, insurance was down 11.7% on the April renewal, and payroll was down 1%, with property management fees and office operations each down about a percent. The pressure sat in two lines. Repairs and maintenance of 13.9% and marketing of 38.2% off a small base, where we've leaned into lead generation at properties below target occupancy. Utilities were up 6.1%. The repair and maintenance increase is concentrated rather than broad, and we treat that as episodic rather than a change in our underlying cost base. Net controllable held roughly in line. While our two largest non-controllables, real estate taxes and insurance, came down, which is what underpins the improved full year expense outlook.

One important note regarding the elevated R&M cost, we aggregate resident amenity services, including bulk fiber, into the total here. The resident amenity services subcategory drives 83% of growth and is concentrated in the four markets undergoing a fiber build-out: Atlanta, Nashville, Phoenix, and South Florida. We see a corresponding offset to these expense increases within the resident amenity fee subcategory of other income, which is a significant driver of the 29.2% other income growth for the quarter. A value-add update. During the second quarter, we completed 459 full and partial upgrades and leased 258 upgraded units at an average monthly rent premium of $189 and a 23% return. Since inception for properties currently in the portfolio, we've completed 10,474 full and partial interior upgrades, over 5,100 kitchen and laundry packages, and roughly 11,200 tech packages, generating average monthly rent increases of $152.50 and $43 per unit at returns of 20.7%, 63.7%, and 37.2%, respectively.

This is still one of the most reliable, capital-efficient sources of growth we have. Moving on to the dividend. For the second quarter, we declared a dividend of $0.53 per share, payable September 30th. Since inception, we've raised the dividend 157.3%. As of June 30th, total indebtedness was approximately $1.6 billion at an adjusted weighted average interest rate of approximately 3.58%. We held approximately $14.6 million of unrestricted cash and $118.9 million of undrawn capacity on the credit facility for a total available liquidity of approximately $133.5 million. We have no scheduled debt maturities until 2028, which consists of only a small $33 million fixed-rate loan. Net leverage is about 57% of our internal NAV estimate, and deleveraging over the medium term, funded mainly through disposition proceeds, remains a priority.

Our estimated net asset value at the quarter ended is $46.76 per diluted share at the midpoint, using a cap rate range of 5.25% to 5.75% across the portfolio. The range runs $40.35 at the high end and $53.16 at the low end. At a recent price of $25.91, the stock trades at more of a 40% discount to that midpoint. Even at the most conservative end of our range, it's a meaningful discount to estimated liquidation value. We think the gap between where the stock trades and what the real estate is worth is significant, and our capital recycling and buyback tools give us a way to close that.

2026 guidance revised. I'll now walk through the revised guidance by component. We're lowering full year 2026 core FFO guidance to a range of $2.35 to $2.54 per diluted share at a midpoint of $2.45, down from a prior midpoint of $2.57. We're lowering same-store NOI guidance to a range of -1.5% to -0.5% at a midpoint of -1.0% from a prior midpoint of -0.5%. The components of the bridge from $2.57 to $2.45 in five pieces are as follows. Interest expense down $0.16. Again, the forward curve move described before, about $14.6 million of fewer projected swap inflows, the largest single driver. Same-store revenue down $0.09. We're taking full year same-store revenue growth down about 90 basis points to roughly 0.2% at the midpoint. It's concentrated. Matt has the market detail, with Nashville accounting for most of the same-store NOI reduction.

Same-store expense up $0.06. The 140 basis point improvement I recently walked through for about 2.1%. Fourth component is interest income up $0.05, realized income from a bridge lending investment tied to a Waterford DST transaction, which Matt will put in context. And lastly, corporate G&A and other up $0.02, favorable G&A management. That nets a $0.12 reduction to $2.45. A brief word on where the same-store cut sits because it's concentrated rather than broad. Nashville is about 85% of the same-store NOI reduction. Softer revenue combined with the steepest same-store expense growth in the portfolio, near 15%. So there's little expense cushion there. Four markets are guiding to better same-store NOI than we assumed at the start of the year: South Florida, Atlanta, Phoenix, and Raleigh-Durham.

And Dallas is a good example of the expense discipline at work. Roughly $590,000 revenue reduction was almost entirely offset by about $505,000 of expense savings, so very little drop to NOI. This is a concentrated revision, not a portfolio-wide one. On where this puts us versus Street, consensus is about $2.51 with a few more recent estimates closer to $2.40 a share. Our new midpoint is in general agreement with external estimates. The first half is in the books ahead of plan. The revision is forward-looking, largely a reset to the back half. Our acquisition and disposition assumptions are unchanged at $0 to $200 million each, $100 million at the midpoint, reflecting continued capital recycling within guidance. And with that, let me turn it over to Matt.

All right. Thank you, Paul. I'll start with the backdrop because the fundamental setup for our portfolio keeps improving. Starting with supply, national deliveries peaked near 700,000 units in 2024. Starts are off roughly 70% from the peak, and deliveries this year are tracking to the lowest level in more than a decade. And in our Sunbelt submarkets, the drop-off is steeper still. Two-thirds of our submarkets have less than 2% active annual inventory growth, and more than half have fewer than 500 units under development today. The first half bore that out. Our submarkets absorbed almost 6,000 units in the second quarter against 3,146 units of new supply, net absorption of a positive 2,852 units. And that follows a positive 1,307 in the first quarter.

The remaining 2026 supply is real and concentrated. The most meaningful pressure for us is in North Charlotte, South Las Vegas, and the southern portion of Orange County and Orlando. Still, the supply cliff remains intact and the backdrop continues to improve, we think leading to a clean inflection approaching in late 2026 and into 2027. On demand, the structural case hasn't changed and the affordability channel has only gotten more extreme. John Burns has the premium to own versus rent at 44% against the 17% long-run average. Zelman has the entry-level payment gap at its widest since 1984, and move-outs to buy a home were 8.7% this quarter, down from 10.9% a year ago.

Here's the part I'd underline. On 135 million households, every 50 basis point decline in homeownership rate creates 675,000 renter households, two years of normal absorption from a channel that requires no population growth at all. And on the geography, Zelman's own work has national household growth running at near 70 basis points annually through the end of the decade. Our markets run at roughly twice that. And per Witten Advisors, job growth, population, and domestic migration continue to favor the Sunbelt for the balance of the decade. Slower national household formation is a real headwind to the national number. It is not the same input as the one that drives our markets.

On to leasing. The leasing cadence is the real story this quarter. Across 1,360 new leases, our new lease tradeout was -5%, and across 1,684 renewals, we were positive 1.9%. For a blended tradeout of -1.16%, roughly 75 basis points better than the first quarter. The month-to-month tells a more encouraging story. Blended tradeouts went from -1.7% in April to -1.2% in May to -50 basis points in June. And it turned positive at about 30 basis points in July. New lease tradeouts, the hardest line, improved from -5.4% in April to -2.3% in July, roughly 310 basis points, while renewals held above 2%. That is the first positive blended print since early 2025 for us. It is just one month but encouraging nonetheless.

Raleigh was our only market with positive new lease tradeouts in the quarter, and the laggards on the new lease line, Orlando, Charlotte, Dallas, and Nashville, are the same markets carrying the most remaining supply. On the occupancy and revenue front, the same-store portfolio closed at 93.6% physical occupancy, up 30 basis points year-over-year and flat sequentially with leased at roughly 95%. Retention was 55.9% and turnover improved to 44.1% from 46.5%. Same-store total revenue was $62.4 million, down 60 basis points year-over-year. The number I'd point you to is the trajectory in that comparison. We went from a -2.2% year-over-year in the first quarter to just -60 basis points in the second, a 160 basis point improvement in a year-over-year comp in a single quarter.

Effective rent was down 80 basis points, a much shallower decline than the new lease line alone would suggest, and that is occupancy and retention discipline doing its job. On bad debt, 60 basis points of gross potential rent against 1.02% in the first quarter of last year, a roughly 40% improvement and a fraction of where we ran before centralization rebuilt our screening process. Rent-to-income ratios remain 20% across the portfolio, a very healthy margin. On to concessions. Two different measures to discuss here. Utilization, the share of new leases taking a month free, we cut that roughly in half from 55.6% in the first quarter to 27.7% in the second quarter. And average weeks free fell from 2.2 weeks to 1.1 weeks.

South Florida drove most of that, going from 87.6% utilization to just 4.8% utilization in the second quarter. On cost, concession dollars as a percentage of gross potential rent, we ran at about 1% for the quarter, still slightly above our forecast, and use was heaviest in Tampa, Orlando, Nashville, and Dallas. A third of the portfolio has no active concession offering today, and roughly half are offering selective pricing only on aged vacants and specific floor plans. We project utilization falls another 50% by year-end. On to our technology platform. A lot of what you're seeing in the quarter, especially on the expense side, comes out of the technology work we laid out during Nareit REITweek in June.

We run a two-layer model. Property operations go through BH Management and their Funnel Leasing platform. At the advisor level, we're building NexPoint Intelligence. That's deliberate. Self-managed peers have to spend across every layer at once, while our model captures a disproportionate share of that benefit at a fraction of the capital. In the quarter, the platform converted 24,703 leads into 1,321 applications and 1,226 move-ins, a 5.3% lead-to-application rate, and a 34.6% tour-to-application rate, both improved from the first quarter. Guided touring keeps scaling. 26.2% of tours in the quarter were self-guided, and that's up from 18.7% in the first quarter, and that's after-hours demand we otherwise would lose.

Quick word on Sedona Mountain, the 321-unit community in North Las Vegas that we bought in December of last year for $73.25 million. The occupancy of the property closed at 92.2% for the quarter, up 430 basis points from the first quarter, and NOI is beating budget by almost 5%. Expenses are 12.2% under forecast. Roof, exterior paint, smart rent, and amenity work are complete, and we're still targeting and on track to generate a 7.2% NOI CAGR through 2029, taking a high-5 cap rate purchase to a 7.5% to an 8% stabilized yield on cost. On the transaction market and capital allocation, institutional volume remains well below last year and cap rates have remained sticky, and the bid-ask remains wide, with most participants pointing to 2027 for a clear recovery and more transaction volume.

That said, we watched well-located Sunbelt assets trade materially tighter than our own implied cap rate, which reinforces the NAV gap Paul described. Our capital allocation priorities are straightforward. Our job is to close the value gap through operating execution into 2027, recycling capital, and buying back stock. One item on earnings composition. Our revised guidance includes about $0.05 of realized interest income from a bridge lending investment tied to a Waterford DST transaction sourced through our advisor's platform. It's a discrete realized deployment of balance sheet capacity earning an accretive market return. We're carrying it as realized income rather than baked into our forward estimate, and we'll report it as it happens.

In closing, the first half beat our plan. Same-store revenue improved 160 basis points in its year-over-year comp between the first and second quarters. Blended lease tradeouts went from a -1.7% in April to a positive 30 basis points in July. Pricing is stable, retention is up, and expenses are coming in better across every market, and supply is rolling over fastest in the markets where we've been most pressured. That's what makes the setup compelling. 2026, we absorb the rate repricing and the last of the supply. 2027, we get to the supply cliff and the leasing earn-in. The earn-in is not a forecast. It's math on leases we've already signed. We're moving into the best supply-demand backdrop in five years, and the renter by necessity cohort is only expanding as affordability stays extreme. The fundamental recovery is more certain today than it has been in recent memory. I want to thank everyone here at NexPoint and BH for their hard work. With that, Operator, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Peter Abramowitz with Deutsche Bank. Your line is open. Please go ahead.

I just want to go back to Matt. I think you had some comments about the improvements in the operating environment. I think you used the term, you know, sort of expecting a clean inflection in the second half of the year and into 2027. I guess just wondering how to interpret that. What do you consider a sort of a clean inflection as you described it? Is it, you know, positive new lease rates or otherwise, just help us frame how you're thinking about that and how it kind of shapes you're thinking about the operating environment into next year?

Yes, I was referring to the positive new lease rates. You know, our revisions to the guidance are concentrated really in four assets, four or five assets, that make up about $2.2 million of gross potential rent revisions. And really those markets were just not as strong as we originally thought. And so as we look forward in the new guidance and what it implies for new leases, slightly negative in the third quarter and then modeling slightly positive in the fourth quarter. And that's the quarter that I think we feel the best about of the year, and that kind of clean inflection is the positive new lease pricing that's implied in that guidance.

Okay, that makes sense. And then I think your average occupancy was 93.6% for the entire quarter. I know in your May REIT update, I think you were running around 94% at the end of April and the end of May. So just wondering, I know there can be differences between average occupancy and month end and quarter end. But did you have a little bit of occupancy kind of give back as pricing was starting to ramp or continuing to ramp throughout June? And I guess what was the update on occupancy in July as well?

Yes, in terms of the strategy we had, we were deliberate in trying to hold rates, you know, on the new lease front. And so, you know, we lost a little bit of, you know, call it 30, 40 basis points, you know, was to try to hold pricing as much as we could, which bore out, you know, sequentially month by month, the new lease pricing did improve as we just reported. Bonner, do you have it? Yes.

And just a little bit of clarification. So Peter, the occupancy numbers we report in the supplement are as of point in time. So that 93.6% is a 6/30 physical end date. So the average financial occupancy for the quarter was about 93.8%. You're right, when we were at Nareit early June, we were 94.8% more flat physical. I think you know, looking at where we thought we had some better pricing, we were a little bit more aggressive, both on new lease pricing and renewals. I think that you know, certain number of these assets that Matt's talking to, we thought we had a little bit more pricing power than was borne out and that ultimately eroded, call it 40 bps of occupancy between the first week in June toward the end of the month.

Rolling into July, I think in the operational update we provide in the supplement, you'll see the leasing funnel is working. We're generating pretty high lead volume. We think it's a very healthy seasonal time. And the inflection to a positive blend on rates, we're prioritizing pricing a bit. We're trying to push pricing and we're, you know, okay. I mean, certainly would love to be a little bit healthier on occupancy, but you know, running kind of mid-93s and getting to that inflection point in new lease rates is more of a focus today.

All right, that's all for me. Thanks for the time.

Thanks, Peter. There are no further questions at this time. I will now turn the call back to the management team for closing remarks.

Yes, thank you for everyone's participation today and we look forward to speaking after Q3. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust Q1 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead.

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, 2026. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer; Matt 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 nxrp.nextpoint.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, 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.

Thank you, Kristen, and welcome to everyone joining us this morning. We appreciate your time. I'll cover our Q1 2026 financial results and then walk through a refresher on our full year outlook. Matt will then discuss the operating environment, our technology platform and AI strategy as well as portfolio positioning. Q1 2026 results are as follows: Net loss for the first quarter was $6.8 million or $0.27 per diluted share on total revenue of $63.5 million. This compares to a net loss of $6.9 million or $0.27 per diluted share in Q1 2025 on total revenue of $63.2 million.

Total NOI was $37.6 million across 36 properties, including Sedona and Lone Mountain, which we acquired last December, this compares to $37.7 million on 35 properties for Q1 2025. On a same-store basis across our legacy -- 35 legacy properties and 12,984 units, total income was $61.4 million, down 2.2% year-over-year. Total operating expenses declined 1.6% to $24.8 million resulting in same-store NOI of $36.7 million, a 2.7% decrease and an NOI margin of 59.8%, and same-store occupancy closed the quarter at 93.6%. While the year-over-year comparison reflects the tail end of supply-driven pricing reset, our mostly trajectory is improving materially. And Matt will walk you through that cadence on the structural factors driving our confidence in the second half.

Reported Q1 core FFO of $17.3 million or $0.68 per diluted share, $0.03 better than consensus, compared to $0.75 per diluted share in Q1 2025. The year-over-year decline is primarily driven by interest expense, which I'll address now. We have always been transparent that 2026 carries a meaningful expense headwind as certain swap positions fall off. Q1 total interest expense was $15.4 million versus $14.4 million in Q1 with the swap benefit declining from $8.4 million to $5.5 million. Since we issued initial guidance in February, the forward store for curve has shifted 7 to 47 basis points higher across the remaining quarters of '26. This adds approximately $2.2 million or roughly $0.08 per diluted share of incremental interest expense versus our original assumptions.

Q1 came in essentially in line with our prior model. Q2 modestly higher, Q3 steps up as swap positions begin to expire, and Q4 reflects the full run rate impact. Full year '26 interest expense is now projected at $69.3 million versus $67.1 million in our in model. We do not attempt to forecast rates, we manage the risk. The same volatility that has moved the curve against us in recent weeks creates the entry points for our next swap execution. We have visibility into the maturity schedule, the optionality to execute forward starting hedges before September, and we will move when economics are compelling as we did with the $100 million GPM forward swap last April at 3.49% and we are not waiting for the September 1.

Interest rate swaps currently fixed the rate on $917.5 million or 62% of floating rate mortgage debt, we continue to evaluate opportunities to layer additional hedges and will act when risk-adjusted economics are compelling. Moving to expense detail. On the expense side, same-store operating expenses improved 1.6% year-over-year, payroll declined 4.3%, a direct output of centralized operating model and AI-enhanced leasing platform and Matt will discuss in detail.

Real estate tax decreased 11.2% and insurance declined 23.5% and partially offset by a 15.2% increase in repairs and maintenance, which included bulk fiber service contract costs offset by revenue gains and a 50.5% increase in marketing spend as we invested in lease-up velocity at properties below target occupancy. The R&M increase reflects 2 primary drivers. First, we accelerated deferred maintenance at several properties as part of a deliberate portfolio quality initiative. Second, we incurred elevated onetime costs associated with lender required CapEx at select Florida properties.

These are episodic expenses that position the affected units for improved performance and do not reflect a structural change in our cost base. Importantly, our expense outlook is steady relative to our original model. Operating expense is on track as is corporate G&A. On insurance specifically, we settled rates for our new policy renewal on April 1, achieving 13.3% reduction year-over-year better than the strongest end of our originally guided range of 0% to negative 10%.

Moving to value-add update. During the first quarter, NXRT completed 252 floor and partial upgrades leased 225 upgraded units, achieving an average monthly rent premium of $69 and a 19% ROI. Since inception, NXRT has completed over 10,100 full and partial interior upgrades across the portfolio, generating average monthly premiums of 13.3% and inception-to-date ROIs of 20.7%. In addition, we have completed 5,027 kitchen and laundry appliance upgrades and 11,199 tech packages, generating ROIs of 63.5% and 37.2%, respectively.

For Q1, we declared a dividend of $0.53 per share paid March 31, 2026. Since inception, we have increased our dividend 157.3%. We remain fully committed to current distribution level, and our core FFO guidance midpoint coverage stands at approximately 1.21x and we expect coverage to improve as revenue trends strengthen through peak season into 2027. On the balance sheet and liquidity. On January 30, 2026, the company entered into a 55% LTV million mortgage loan secured by Sedona at Lone Mountain with Newmark.

The loan matures on February 1, 2033, with all principal due at maturity and bears interest rate based on 30-day average silver plus a margin of 1.23%. As of March 31, 2026, total indebtedness was approximately $1.6 billion at an adjusted weighted average interest rate of 3.3% and with $18.5 million of unrestricted cash and $143 million of undrawn capacity on our credit facility, providing approximately $161.5 million of available liquidity.

We have no scheduled debt maturities until 2028 when our $33.8 million 4.24% fixed-rate loan matures at residences at West Place. That loan should be easily refinanced with a new agency see when the time comes.

NAV per share. Our estimated net asset value per quarter, at quarter end is $47.70 per diluted share at the midpoint using a blended cap rate of 5.5% across the portfolio. The range spans $40.56 at a 5.75% cap rate to $54.74 at 5.25% and based on approximately 25.6 million diluted shares outstanding, the closing stock price as of yesterday at $26.36 represents a 44.7% discount to point NAV. Even at the most conservative end of our range, stock trades at a 27% discount to estimated liquidation value. We believe the disconnect between public market pricing and the underlying real estate value is significant, and the capital recycling initiatives we will discuss providing a path to validating these values through third-party transactions.

2026 guidance reaffirmed, we are reaffirming our full year 2026 core FFO guidance range of $2.42 to $2.71 per diluted share as well as our same-store NOI range of negative 0.5% at the midpoint. Two months ago, we issued initial guidance. Since then, we have absorbed 2 distinct headwinds and realize meaningful offsets that, in aggregate, fully neutralize the pressure. On the headwind side. a 7 to 47 basis point shift in the forward silver curve adds approximately $0.08 per share of incremental interest expense and a slightly lower than model Q1 leasing environment.

On the offset side, a stronger insurance renewal, expense discipline and strategic fee income from our adviser private capital platform, which Matt will address in a moment, together fully absorb those pressures. Our core FFO and same-store guidance range is unchanged. We're also reaffirming our same-store submetric ranges for the year. To reiterate, our full year targets, we see the range are as follows: Same-store rental income growth of 0% to positive 1.9% with a midpoint of 0.9%. Same-store revenue growth of positive 0.1% to positive 2% with a midpoint of 1.1%. Same-store expense growth of positive 2.8% to positive 4.2% with a midpoint of 3.5%. And lastly, our same-store NOI growth of negative 2.5% to positive 1.5% and with a midpoint of negative 0.5%. With that financial overview, let me turn it over to Matt.

Thank you, Paul. Let me start with the macro backdrop because the structural setup for our portfolio has become increasingly compelling. And even the largest real estate investors in the world are now publicly validating the thesis we have been articulating. Last week, John Gray described real estate as a sleeping giant at Blackstone and signaled conviction that an acceleration is approaching particularly around sectors with favorable supply-demand fundamentals.

Reinforcing this point, they highlighted the collapse of new supply will be very supportive of fundamentals over time across major sectors, including multifamily where industry forecasts call for deliveries this year to be at their lowest level in 12 years. That's the headline that multifamily deliveries in 2026 will be at their lowest level since 2014. That is precisely the supply backdrop we are operating in, and it is the primary structural driver of our confidence in the second half of the year and into 2027.

Let me put some numbers around it. National multifamily deliveries peaked near 700,000 units in 2024 and are declining sharply. New construction starts have fallen 70% from their peak and units under construction nationally had declined 29% from their Q1 2024 high of 760,000 units. By Q4 of this year, net deliveries are projected to fall to roughly 69,000 units nationally, the lowest level in a decade.

In our Sunbelt markets, this deceleration is even more pronounced. In NXRT specific submarkets, the demand picture is compelling. Q1 net absorption was positive 1,307 units against supply of 2,426 units with total demand of 3,733 units. For the full year, our submarkets are projected to see 10,158 units of supply against 10,239 units of demand, effectively a balanced market with demand now outpacing the remaining supply wave.

On the demand side, homeownership remains increasingly out of reach. Today, average monthly mortgage payments run 36.7% above average multifamily rent nationally. Move-outs to purchase a home fell to 7.9% for the quarter, down from 10.6% a year ago. The longer-term demographic picture remains favorable as I covered last quarter. The bottom line here, while near-term fundamentals are weaker than initially expected in select markets, the structural setup is improving quarter-by-quarter. The supply cliff, the construction starts collapse, the demand supply convergence, these are all intact and accelerating.

The recovery is asymmetric rather than synchronize with roughly 35% of our NOI already at or near equilibrium and another 44% reaching that threshold through the balance of the year. We expect fundamentals to stabilize and then accelerate as the back half of 2026 unfolds.

On to operating performance. Let me walk through the leasing cadence because the monthly trajectory tells the story. Across 1,388 new leases signed in Q1, our new lease rate out was a negative 6.6% or $97 per unit decrease. On 1,500 renewal transactions, we achieved positive 2.3% or $33 per unit increase. The blended rate across 2,916 total transactions was negative 1.9%. The monthly progression is what matters.

New lease trade-outs improved from negative 7% in January to negative 5.6% in March. Blended trade-offs narrowed from negative 1.9% in January to negative 1.7% in March. And the momentum has continued into April. New lease trade-outs have improved to approximately negative 4% a month to date a 300 basis point improvement from January to April. Blended trade-outs approximately negative 1.2%. At the market level, Las Vegas renewals led the portfolio at positive 12.2% or $164 per unit increase.

Raleigh renewals grew 2.2% with new lease trade-outs at a negative 3.8% and the shallowest decline in the portfolio. Dallas even generated $181 renew at a positive 1.9%. On the occupancy front, the same-store portfolio closed Q1 at 93.6% fiscal occupancy up from 92.6% at the start of the quarter and 92.7% at the end of Q4. April month-to-date has improved to 93.9% and our lease percentage reached 95.9%, the highest since Q3 of 2025.

Per apartment IQ data, our portfolio is outperforming market comps by 136 basis points in occupancy, which validates both our pricing discipline and the effectiveness of our central leasing program. Resident turnover was 44.4%, essentially flat sequentially, but down from 46.3% a year ago. Resident retention improved to 55.6% with March reaching 57.2%. Same-store total income was $61.4 million, down 2.2% year-over-year. Rental revenue declined 3.1%, partially offset by a 39% increase in other income, driven primarily by resident amenity fee programs, which added $469,000 of incremental revenue versus the prior year.

The standout within revenue is bad debt. We achieved 55 basis points of gross potential rent in Q1, down 45.7% year-over-year from 1.02% of GPR. This is a structural improvement driven by AI enhanced screening and centralized credit evaluation, not a 1-quarter anomaly. On to concessions, let me address concessions directly because I know this is in the front of mind of -- for our investors. First, the context. Our portfolio level concession rate is 1.9% of gross potential rent. Per apartment, the competitive set in our submarkets is running 5.7%. That is a 380 basis point advantage, and it reflects a deliberate operating philosophy. We compete on occupancy through operational execution and technology not through concession givebacks. Our revenue per available unit exceeded comps by 3.77% in Q1.

Second, the concentration. Total concessions were approximately $1.15 million in the quarter up from $271,000 in Q1 of 2025. However, a 39% of the year-over-year increase, or $342,000 was driven by a single asset of one timer lines where a concentrated competitive supply wave entered the submarket in Q4 of 2025. Concessions were deployed proactively to the fill occupancy and market position, and that strategy has worked. We closed Q1 at 94.1% occupancy at Penbrook and have continued to build, reaching 94.9% quarter-to-date.

Concessions at Pembrook have already been reduced from 1 month free to a $500 incentive which is a 75% reduction. Excluding Avon, the portfolio concession increase was approximately $535,000 or roughly 2x the prior year. Elevated, but a fundamentally different story than the headline. Third and most importantly, the forward trajectory. Our full year 2026 operating forecast projects cushion utilization declined 75% and from Q1 levels by the second half of the year. Q1 again ran at 2% of GPR, Q2 at 1% of GPR, Q3 at 50 basis points in Q4 of 40 basis points. Simultaneously, financial occupancy improves from 92.8% in Q1 to 94% in Q2, and 94.1% in Q3. 6 of our 10 markets showed improving concession environments sequentially in Q1 versus Q4 of 2025. Those are Atlanta, Las Vegas, Nashville, Orlando, Raleigh and South Florida. Even the 4 markets still facing supply-driven pressure, the rate of deterioration has stopped.

As 1 month free concessions roll off, we realized an approximately 8% pop in effective rents without raising prices. This embedded tailwind begins to materialize through the balance of the year as supply deliveries decelerate and seasonal demand strengthens. We believe Q1 was the trough for concession deployment in this cycle.

Let me spend a few minutes on the technology platform, as Paul alluded to, because Q1 results are a direct product of the investments we have been making. We are deploying a 2-layer architecture model for technology. Layer one is property operations, BH Management and their funnel leasing AI CRM platform handling day-to-day leasing, maintenance and resident services under their centralized operating model. Layer 2 is what we are building at the adviser level. NexPoint Intelligence and asset management platform that drives better decisions at the portfolio, market and unit level. We are literally building agents per property across the portfolio to enhance predictive analytics.

This architecture is delivering. Self-managed peers investing in AI must spend across both layers simultaneously. Our model delivers a disproportionate share of the AI impact at a fraction of the capital outlay. The management's funnel AI platform gives us the property operations layer as a managed service, and we focus our investment on the intelligence layer for the highest value judgment happen. We will provide the full AI product road map and financial impact thesis at REIT Week in early June.

Q1 results from the platform, our AI-powered leasing platform processed $31,882 a leads and converted them into 1,571 signed leases during the quarter, a 4.9% lead-to-lease conversion rate versus the industry benchmark of 3.2%. The year-over-year, leads were up 26% and applications were up 34% with move-ins up 53%. Our total application conversion hit 36.8% for the quarter, the best of the 4 quarters since we launched our new AI-enabled CRM system.

So aditoring technology enabled 24.7 of our leases to be executed after business hours, demand that would have been lost entirely without technology-enabled engagement. We hosted nearly 800 self-guided tours during the quarter and expect to surpass 1,000 per quarter as we move into peak leasing season. 59% of self-guided visitors submit a lease application and extraordinary conversion rate that speaks to the quality of the funnel.

A 4.3% payroll reduction, the 45.7% improvement in bad debt, the 136 basis point occupancy advantage over comps and concessions at point GPR versus 5.7% for the comps. These are all outputs of the centralized data-driven model.

Turning to Sedona Lone Mountain as a quick update on our latest acquisition. As a reminder, we acquired this 321-unit community in North Las Vegas in December for $73.25 million. Occupancy closed Q1 at 87.9% and as of April 28, the property is approximately 90.3% with a projected 30-day trend of 92.2%. The rent roll cleanup and operating recovery is ahead of our underwriting and tracking well ahead of budget. Q1 rental income beat budget by 6.7% or approximately $88,000 driven by lower-than-expected bad debt write-offs.

Total expenses be budgeted by 13.4% or $71,000. All in, NOI is leading budget by 13.4% or $130,000 through Q1. We continue to target a 7.2% NOI CAGR through 2029 and taking this asset from a high 5 cap acquisition to a 7.5% stabilized yield.

On to the transaction market, capital recycling and other earnings opportunities. For Walker & Dunlop. Q1 2026 institutional multifamily sales volume was $15.1 billion across 213 deals at a weighted average cap rate of 5.9% and $260,000 per unit. Full year 2025 volume reached $161.6 billion, up 9.1% year-over-year. Institutional capital is returning selectively with institutions and REITs comprising 36.6% of multifamily acquisitions in 2025, the highest share since 2019.

Related to our capital recycling and transaction activity, I wanted to address proactively one element of our potential earnings growth that Paul touched on. The role of strategic fee and interest income generated through our advisers DST platform. Some context. Our adviser NexPoint is one of the largest sponsors of Delaware Statutory Trust in the United States, distributing through the NexPoint Securities broker-dealer network.

Since 2017, NexPoint has sponsored over $4 billion of DSTs across a variety of property types, including core and core+ multifamily. The DST market itself reached a record of $8.4 billion of equity raised in 2025, a 49% year-over-year and multifamily is the largest category within it. Each DST transaction generates fee opportunities for sponsors financing, acquisition, asset management fees and creates lending and bridge capital opportunities where our balance sheet partners needed.

Looking forward, we meaningfully -- a meaningful potential for additional activity of this type within NXRT. The DST platform is active, the multifamily category within it continues to grow and in NXRT's balance sheet positioning is well suited to participate selectively. While we are not embedding additional transactions in our 2026 guidance, we believe the platform represents a credible source of income earnings optionality, potentially in the range of $0.10 to $0.20 of core FFO over the next 12 months under favorable conditions, balanced against our risk-adjusted return discipline and capital availability.

More broadly, this reflects a deliberate strategy to diversify NXRT's earnings streams. Larger peers like Prologis, Welltower, Realty Income, into, Equinix of all built private capital platforms in response to capital markets dynamics publicly where public equity costs can be prohibited. NXRT through its external adviser possesses the core infrastructure to pursue a similar appropriately scaled strategy. We will be outlining about our vision at this at NARI in early June.

Let me close with this. We are entering the most favorable supply backdrop in over a decade. Again, Blackstone is calling multifamily of sleeping giant. New construction starts are down 70% from the peak. Deliveries are projected at their lowest level in 12 years, and demand is absorbing the remaining supply wave in our submarkets. The setup is asymmetric. 2026 absorbs the swap repricing in the supply tail. 2027 captures the supply cliff and earn-in to put numbers around that earn-in.

If new lease growth returns 2% by Q4 of this year, consistent with the deliveries cliff, the carryover earning alone delivers 150 to 200 basis points of 2027 same-store revenue growth before a single new 2027 leases signed. We're not providing 2027 guidance today, obviously, but the structural drivers are clear and they compound in our favor.

Against that backdrop, our operating platform is performing. Bad debt is at a multiyear low, payroll is declining, insurance renewed significantly better than expected. Leasing conversion rates are at record levels, concessions at 1.9% of gross potential rent versus 5.7% for the competitive set, occupancy is building again, 93.9% in April and rising.

Potential for DST transactions generate incremental fee and interest income to diversify our earnings streams, but the operating thesis still stands on its own. The monthly trajectory is encouraging. New lease trade-outs improved 300 basis points from January to April, and we're entering the peak leasing season with strong conversion metrics, declining supply and really tepid expectations.

Indeed, the trends and trajectories give us reason for optimism. We appreciate everyone continued hard work here at NexPoint and BH, and with that, we'll turn the call over to the operator for questions.

[Operator Instructions] There are no questions at this time -- sorry, we do have a question from Michael Lewis with Truist Securities.

My first question, I wanted to ask, you talked about it a little bit, this 200 basis point difference between the occupied and lease percentages I was just wondering if there's any opportunity to narrow that. And likewise, the resident retention in the mid-50% range looks like it was going up the last couple of months. do you see upside there through operational efficiencies as well.

Yes, thanks Michael. Yes, we definitely see an opportunity to continue to drive renewals and also retention particularly as you get to the summer months, folks don't want to move in our Southeastern southeastern markets. So that's always been a core focus and any incremental improvement there, just obviously, it allows us to do a lease growth as the supply wave captures. Paul, I don't know if you have anything to add to the first point.

Yes. I think on that spread, I mean, here we are in April, right? The start of kind of peak leasing season, the properties are looking great, traffic flows. I think in the highlight section, you can kind of see last year traffic patterns, right? This is where we -- our demand funnel is the widest getting out these percentage higher -- that helps us with pricing power, right? Fewer units available. We're able to push pricing dynamics a little bit more, try to continue to narrow that gap on the new lease pricing side. So that's the focus, pushing as Matt alluded to, going into the back half of the year, continuing to hopefully start to inflect positively on rates. So the more leases we can sign, I think the better pricing dynamics we have.

And then you talked about the core portfolio like it was essentially in line. You kept the full year same-store guidance. But occupancy was up quite a bit. In almost all the markets, Vegas was up a lot sequentially. I was wondering if the occupancy increase surprised you at all? And is it fair that 1Q kind of ran in line with your expectations? Or are you running a little bit ahead to start the year? How would you kind of frame that? .

I think Q1 to me and Bonner, you can give your thoughts. But to me, Q1 felt better. I wouldn't say we hit our -- in fact, we missed -- I think we missed our NOI budget by $0.25 million or $300,000, but it did feel better from a demand perspective in that we saw the rent rolls continue to firm. We saw trends build, and we didn't particularly give up that much or at least give up that much relative to the prior quarters.

And so I personally was pleased with -- and as you can tell from my prepared remarks, I think it's firming out there, and I'm pleased with the trajectory and the trends and occupancy. Bonner, if you have anything to add to that?

Yes, I think, look, on our aggressive forecast internally. I think we put the squeeze 10, 20 basis points higher in occupancy. It is improving, and that's structurally where we're looking to go in the peak leasing season, I would say that the major wins and Matt described in the call, the ability to squeeze that debt back down to 50 basis points. I mean that that's lateral in. And I think that we utilize a software technology called 2 dots. We're getting to a point now where we can get to a credit screening approval on app in a 15-minute interaction and being able to close those leads same day, same interaction where some of our prospects may be applying here and across the street, that time to decision is really important to us.

So that's helping some of the occupancy of the operating platform that we're building is really helping. So I would say we're happy with occupancy. We'd love to continue to build it. we described a little bit of an uptick in concession utilization, hoping to see that moderate. But overall, revenue expectations within $0.01 of kind of our optimistic goal for the quarter.

And then lastly for me, this seems like the most interesting question. I don't know exactly how to frame it or if you can answer it. But -- so the interest expense is going to be higher because rates are higher. It sounds like the offset is the fee income that you talked about. Is there anything -- you said you're going to give more details at a -- is there anything more to say about how that's kind of offsetting this year? What you need to -- what you're investing or what you're earning or what exactly you're going to be doing to earn, I think you said $0.10 to $0.20 over the next 12 months. Is there any more detail you could share on that? .

Yes, happy to. So the one thing we know is that we're going to be wrong on the curve. It's bouncing around. It has bounced around. And I think unfortunately, for us, the sell side tends to model max rate pain and we get fundamentals out there possibly. So that's the backdrop. As our as the NexPoint platform, we manage about $20 billion or so across a variety of property types and have built out broker-dealer and infrastructure across those property types. .

And that allows NXRT to utilize that broker-dealer infrastructure. And what I mean by that is NXRT would sponsor the DST program. And so basically utilizing the balance sheet, we could be a lender to the transaction and make a spread above our credit line, you have 300 to 400 basis point spread there. The sponsor typically takes acquisition fees. We could be 1% to 2% of the gross purchase price of the deal.

So you can estimate that fee income to be typically $1 million to $2.5 million per transaction. And so it adds up. And given the fact that we -- I think we've been an aligned shareholder here since inception when we took public with fee deferrals, fee waivers, extraordinary side-by-side alignment and ownership. This is just another tool in our toolkit to help earnings and diversify earnings. And so we think it's the right thing to do for the business.

And look, I hope is we don't need it. The curve comes our way. We're able to swap appropriately and opportunistically and I just add this extra earnings layer on top of it. So we see it as a good thing. You bet.

Your next question comes from Buck Horne with Raymond James.

I was just wondering if you could give us a little bit more detail on the real estate taxes line. And I guess, what were the good guys and kind of how that year-over-year comps are looking as you peer into the back half in terms of appraisals or potential recoveries? Or just kind of what's going on with taxes this quarter and the outlook for the remainder of the year.

Yes, I'll be happy to help you that. So Q1, we were still fighting last year's taxes, right? We've got a couple of wins on the board. I think, in particular, a Dallas County. DFW had a number of favorable protests from last year roll into the Q1 booking. In terms of kind of the overall, I would say, we've been working with our tax consultants, right? We've gotten kind of initial values, notices in May in Texas and a couple of other of our municipalities and overall, I think our outlook is pretty stable. Valuations are down. There's less ammunition, there's less sales, that are really pushing kind of the equalniform story for us.

So we believe in access should be favorable this year to the last couple. I think we've got in our numbers roughly 4.1% year-over-year growth at the midpoint with some savings in the Q1 bookings. So we're going to continue to shoot to outperform that work to do there. Some of those flights roll into the next year. But overall, the outlook is kind of in the 3% to 4% range, and we booked, I think, 3 or 4 settlements in Q1 to help that quarterly number.

And just on the repairs and maintenance expenses, you mentioned you pulled forward some deferred CapEx, is that trend going to continue into the second quarter? When does that kind of deferred CapEx spending or that maintenance spend start to normalize? .

Yes. I think there were a few things that were a little bit noisy. Again, it's 1 quarter. Some of that is seasonal. Some of that is lender-driven on the 2024, '25. We think R&M broadly stabilizes. And when you look at the component parts of R&M that we report One of the things that's in there is that service contract revenue, it probably deserves some better specification outside that. That includes our bulk fiber contract billing. So it looks a little bit outsized, but there is a revenue offset there. So Q1, I would say, we got hit by a couple of kind of onetime things, a few of the deferred maintenance items Matt mentioned. But I think the outlook for the year generally is pretty favorable, again, kind of inflation level of R&M growth. And then we're certainly working to outperform.

Congrats good job.

Thanks, Bob.

And there are no further questions at this time.

All right. Thanks for everyone's participation and look forward to speaking seeing everyone at NAREIT in June. Have a good day. .

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust Q4 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Kristen Griffith, Investor Relations. Kristen, please go ahead.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust's conference call to review the company's results for the fourth quarter ended December 31, 2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer; Matt 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 nxrt.nexpoint.com. Before 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 session of these in GAP 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.

Thanks, Kristen, and welcome everyone joining us this morning. We appreciate your time. I'll kick off the call and cover our Q4 and full year results and highlights, update our NAV calculation and then provide initial 2026 guidance. I'll then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance and details on the portfolio. Results for Q4 are as follows: Net loss for the fourth quarter was a loss of $10.3 million or $0.41 per diluted share on total revenue of $62.1 million as compared to a net loss of $26.9 million or $1.06 per diluted share in the same period in 2024 on total revenue of $63.8 million.

For the fourth quarter, NOI was $37.1 million on 35 properties compared to $38.9 million on 35 properties for the fourth quarter of 2024, a 4.7% decrease in NOI. For the fourth quarter, same-store rental income decreased 2.8% and same-store occupancy closed at 92.7%. This, coupled with an increase in same-store expenses of $0.11, led to a decrease in same-store NOI of 4.8% as compared to Q4 2024. We reported Q4 core FFO of $16.5 million or $0.65 per diluted share compared to $0.68 per diluted share in Q4 '24. During 2025, NXRT repurchased 223,109 shares for a weighted average price of $34.29 per share, which is approximately 29% discount to the midpoint of our Q4 25 NAV to be discussed here shortly.

We continue to execute our value business plan by completing 388 full and partial renovations during the quarter and leased 275 renovated units, achieving an average monthly rent premium of $74 and a 22.2% ROI. Since inception, NXT has completed installation of 9,856 full and partial upgrades, 4,979 kitchen and laundry appliances and 11,199 tech packages resulting in $158, $50 and $43 average monthly rental increases per unit and 20.8%, 63.7% and 37.2% ROI, respectively. Results for the full year 2025 rolls. Net loss for the year ended December 31 was $32 million or a loss of $1.26 per diluted share which included a $95.8 million of depreciation and amortization expense. This compared to net income of $1.1 million or income of $0.04 per diluted share for the full year '24, which included a gain on sale of real estate of $54.2 million and a $97.8 million of depreciation and amortization expense.

As a quick reminder, the company sold our 2 remaining Houston assets as well as Radbourne Lake in Charlotte in '24. For the year, NOI was $151.7 million on 35 properties as compared to $157 million on 35 properties for the same period in 2024 or a decrease of 3.4%. For the year, same-store rental income decreased 1.3% and same-store occupancy closed at 92.7%. This, coupled with a slight increase in same-store expenses of 0.1% led to a decrease in same-store NOI of 1.6% as compared to the full year in '24. We reported core FFO in 2025 of $71.3 million or $2.79 per diluted share compared to $2.79 per diluted share for 2024. Since inception of the business in 2015, NXRT has generated 8.54% compounded annual growth rate in our core FFO.

Moving to the NAV per share. Based on our current estimate of cap rates in our markets, unchanged at 5.25% to 5.75% and our 2026 NOI guidance, we are recording a NAV share range as follows: $41.43 on the low end, $85. 72 on the high end with a $48.57 at the midpoint. Next, our dividend update. For the fourth quarter, we paid a dividend of $0.53 per share on December 31. Since inception, we have increased our dividend 157.3%. For 2025, our dividend was 1.35x covered by Core FFO with a payout ratio of 73.8% of core FFO. Now our capital markets, balance sheet, leverage and liquidity. On July 11, 2025, the company entered into a $200 million revolving credit facility with JPMorgan Chase Bank and the lenders party there to from time to time. The credit facility may be increased by up to an additional $200 million if the lenders agreed to increase their commitments.

The new facility improves pricing by 15 basis points across all leveraged tiers to term SOFR plus 150 to 225 basis points. The credit facility will mature on July 30, 2028, unless the company exercises its option to extend for a 1-year term. NXRT has $13.7 million of unrestricted cash and $108 million of available undrawn capacity on our unsecured corporate credit facility, giving the company $121.7 million of available liquidity as we head into 2026. We have no scheduled debt maturities until 2028. Over time, we will look to reduce leverage, credit facility leverage, in particular, through a disposition and recycling of long-held lower-growth assets where we have the ability to harvest gains and put capital back in to work into more productive strategies and investments.

As of December 31, 2025, we had total indebtedness of $1.6 billion at an adjusted weighted average interest rate at 3.28%. Interest rate swap agreements effectively fixed the interest rate on $0.9 billion or 62% of our $1.5 billion of floating rate mortgage debt outstanding. As we have done historically, we will continue to evaluate the credit markets for opportunities to hedge or restructure our debt to best position our assets and the portfolio for future growth while maintaining the highly liquid low friction optionality afforded to us through the use of floating rate agency mortgage financing arrangements. Full year 2026 guidance. For 2026, we are issuing the guidance as follows: rental income on the low end, 0%, with a midpoint of 0.9% in the high end of 1.9%. Total revenue low end of 0.1% with a midpoint of 1.1% at a high end of 2%. Total expenses, low end of 4.2%, midpoint 3.5%, high-end 2.8%. The same-store NOI, low end, negative 2.5%, midpoint negative 0.5% and the high end of 1.5%.

Earnings per diluted share, low end, negative $1.54 and midpoint negative $1.40 and the high end negative $1.26. And lastly, core FFO per diluted share, low end, $2.42 a midpoint $2.57 and at high end $2.71. Matt will go into detail on our same-store operating assumptions with his prepared remarks and the largest driver from our 25 actuals to 26 midpoint guidance is interest expense. And again, Matt will provide details on our thoughts regarding upside on the operational front and our same-store operating assumptions.

And with that, I'll turn it over to Matt for commentary on the portfolio.

Thank you, Paul. Let me start by diving a bit deeper into our fourth quarter same-store operational results. Same-store average effective rents post the year at $1,489 per unit per month, down 10 basis points year-over-year. Six of our 10 same-store markets generated positive year-over-year growth in effective rents with Tampa leading the way at 3.1% followed by Las Vegas, South Florida and Charlotte at 2.1% and 1.6% and 1.3%, respectively. On the occupancy front, the same-store portfolio closed the year at 92.7%, down 195 basis points year-over-year. South Florida took the poll position at 94.5% with Phoenix, Charlotte, [indiscernible] Raleigh rounding out the top 4 markets with at least 93% occupancy as of the year-end.

We saw noteworthy occupancy improvement in Phoenix, in particular, billing to 94.5% as the team maintained heavy focus on defense to combat the heavy delivery of new units over the past several quarters. Renewal conversions were 57.4% for the quarter and 54.25% for the full year, with 2026 retention being starting off strong with January over 50% in February month-to-date is 51.6%. March is projected to finish around 56%. Revenue for the year of 5 of our 10 same-store markets delivered positive revenue growth with South Florida, Atlanta and Raleigh each growing at least 1%. Tampa and Charlotte rounded out the growth markets. Bad debt continued to trend down, finishing the year at 80 basis points of GPR, a 42% improvement year-over-year, demonstrating both the health of our tenant demographic as well as the efficacy of the centralized screening techniques we have employed to strengthen our portfolio post COVID.

Tampa, Raleigh and Atlanta saw particular improvements to bad debt with each producing losses by more than half the prior year total. Concession utilization has increased from 38 basis points as a percentage of gross potential written in 2024, up to 69 basis points for the full year 2025. The most noteworthy increase clearly seen within our Phoenix market at 1.4% of GPR as our value-add assets were made to contend with the significant market level occupancy acquisition strategies for merchant builders throughout the year. Phoenix, Orlando, South Florida and Atlanta each saw a need for increased concessions with 1.1%, 0.47%, 0.4% and 0.36% increase in utilization, respectively.

Overall, same-store revenues were down 1% year-over-year and turning to the expense side. With limited catalysts for revenue growth in 2025, the team paid particular attention to expense management and we're pleased to report a full year decline of 10 basis points to same-store operating expenses. Advances in AI and our strategic focus on its development to streamline workflows across both our resident and property staff experience enabled us to achieve a 3.7% year-over-year decrease in total payroll costs and an 80 basis point decline in office operations expense.

We see this trend continuing, and I'll have more detail later on this in my prepared remarks. Thoughtful asset management, zero-based budgeting and our sharp focus on turn management costs -- turn cost management and material contract negotiation kept the lid on repair and maintenance expense inflation growing by just 2.5% for the year. Other favorable results were realized through our real estate tax and insurance strategies, up 1.8% and down 12% for the year, respectively. Our full year same-store NOI margin was a stable 60.8% while our year-over-year same-store portfolio finished down 1.6%, as Paul mentioned. Notable same-store and high-growth markets for the year were South Florida, Charlotte and Nashville at 1.4%, 1% and 90 basis points, respectively. On December 11, 2025, NXT purchased loan Mountain in Las Vegas, Nevada for $73.25 million, management identified an opportunistic high-growth acquisition in a long-term market.

The strategy involves deploying accretive value-add capital to normalize economic occupancy and expand operating margins through targeted demand generation, interior and amenity enhancements, lifestyle upgrades and disciplined execution ultimately driving asset appreciation and outsized returns. Recent scale developments have driven significant expansion, job growth in residential revitalization in North Las Vegas, which is now the Las Vegas Valley most prominent industrial market. Over 15 million square feet of industrial space is currently under construction or planned supporting the creation of 8,000 new jobs in the market. And as a reminder, we intend to improve economic occupancy by approximately 900 basis points over 4 years while grading 182 units and installing smart home technology throughout the community, driving a 7.2% NOI CAGR through 2029.

Now turning to 2026 guidance. As Paul said, we were guiding between 2.5% decline and a 1.5% increase in same-store NOI growth for 2026, with the midpoint projecting a 50 basis points reduction year-over-year. Our 2026 guidance includes the following assumptions: a 90 basis point net income growth at the midpoint, forecasting 93.4% and to 94.1% financial occupancy with peak occupancy model for Q3 with a more normal seasonal demand and performance expectations for the year, a negative 30 basis point earn-out from lease trade-outs in a gain to lease in version in 2025, a positive 1.2% market rent growth in 2025 with roughly 40% realized this year, predominantly in the second half of the year. a positive 40 basis point top line growth attributable to ROI CapEx spending as detailed further hereafter. Flat economic occupancy at 91.8% at the midpoint, 30 basis points lower vacancy cost at the midpoint, 93.7% versus 93.4% for the prior year.

We're stabilizing bad debt approximately 80 basis points with a range of 70 basis points to 90 basis points, down more than 75% and from peak pandemic era payment behavior. And then flattish concession utilization at 71 basis points CPR heavily weighted in the first half of the year. We're assuming 1.1% total revenue growth at the midpoint, driven by modest rental income growth expectations I just went over and mid-single-digit other income growth.

Turning to expense guidance. We're assuming 6.4 controllable expense growth at the midpoint. 80% growth is attributable to bulk increased WiFi contract costs that have a direct revenue offset. We're assuming down 1% R&M and turn cost growth with turnover in interior R&M is expected to decrease $375,000 or 8.4% due to effective cost management and an increased volume of renovations in 2026. We're assuming 2% labor growth, the continuation of our rollout of AI technology and centralization of operations contribute to modest labor growth. We see optimism in outperforming our midpoint as we further implement Agentic AI strategies and maintenance body across our markets. We're assuming a 7.4% growth in advertising and marketing expense and just a 10 basis point growth in G&A expense.

We're assuming total expense growth of 3.5% at midpoint, which is a 4.5% increase in the utility expense line item a 2.1% insurance premium reduction, assuming a 0% to 10% renewal on April 1 of this year. But for that, our team, including Paul here, we're recently meeting with the markets in both London and New York and we're optimistic we'll achieve another favorable outcome for the program with this 2026 renewal.

On the real estate tax expense growth side, we're assuming a positive 4.4% growth real estate taxes make up 31% of the 3.9% total expense increase at the midpoint and are expecting the band of real estate taxes to increase from 2% to 8% across the portfolio. And of course, we will protest and litigate outsized value assessments vigorously throughout the year. On the value-add side, we continue to be an internal growth business at our core. And to that end, our guidance includes the following assumptions regarding our value-add programs, which remain aligned with our historical 15% to 20% ROI targets. We expect to accelerate value-add CapEx deployment toward the back half and into 2027 as our submarkets see net demand and occupancy pricing power improves for landlords.

We're assuming approximately 300 full interior upgrades at an average cost of $16,500 per unit and generating a $240 average monthly premium. We're assuming approximately 400 partial interior upgrades at an average cost of $3,500 per unit, generating a $70 average monthly premium. These partial upgrades include varying bespoke additions such as new stainless steel appliances, hard service countertops, updated tub enclosures and private yards, among other aspects. These partial bespoke rehab initiatives are strategically tailored by property to drive rate growth where we see opportunities among competing properties. Blended ROI expectations here are the low to mid-20s. And if market conditions allow, we have identified another 1,500 bespoke upgrades across the portfolio with double-digit ROIs. Finally, we're also planning to install 680 washer dryer installs at an average cost of $1,200 per unit, generating a $54 monthly average premium or 54% return on investment.

Now turning to summarize the -- our outlook for the 2026 year. Basically, we like what we own. We believe affordable residential assets in well-located suburbs and the top job growth and net migration markets in the country will outpace demand over the near term. Our markets are business friendly with the continued and persistent tailwind of factors pointing towards Sunbelt growth. You name it, we have it, taxes, weather, business climate, jobs, investment in physical and digital infrastructure. Indeed, many signs for growth we're already pointing to the Sunbelt, and we believe still are. In underpinning our guidance for the year is cautious optimism. We think the Sunbelt multifamily market is approaching its long-awaited inflection point.

After absorbing the largest supply of ways since the 1980s, completions with completions peaking at almost 700,000 units in 2024, a 54% increase from 2021 baseline completions. We are optimistic that new lease growth is set to turn positive across most undented markets than the second half of this year with sharp acceleration into 2027. Reasons for our belief in include persistent structural demand, the cost to own a home is 3x more than a rent apartment in our markets. a 60% decline in new market rate deliveries from the peak and construction starts running approximately 70% below their 2022 peak, locking in a multiyear supply trough. Weighting each NXRT market by unit exposure, the portfolio level to jobs new construction unit ratio bottomed at approximately 1.5 jobs to one unit of new delivery in mid-2025 and our entire portfolio is projected to cross back above the historically significant ratio of 4 jobs to one unit by Q1 of 2027.

However, the recovery is highly asymmetric. Roughly 35% of our portfolio, South Florida, Las Vegas and Atlanta is already at or approaching equilibrium, while 44%, including Phoenix and DFW won't reach that threshold until 2026. But for example, South Florida or 21% of our NOI as an adjusted BLS nonfarm payroll divided by the CoStar and Yardi delivery ratio of 7.5 jobs to 1 unit, well above the equilibrium. Atlanta or 12.5% of NOI just crossed back over 5:1. And given that supply is now relatively muted over the near term, the key variable is weather Sun job growth and debt migration can maintain its recent pace. If you can, the supply cliff now baked into every NXRT markets pipeline creates the conditions for a sharp and synchronized recovery in the second half of 2026.

Another reason for optimism is the demographic profile of our renter population, we do believe in AI and they will have a near-term chilling effect over entry-level white-collar jobs. But today, the NXRT average renter is largely blue collar, 38 years old with a household income of $90,000 per year, not really the AI bulls eye. Furthermore, advances in health and wellness are adding longevity of the population, creating somewhat of a demographic backstop to demand. The 65-plus percent population -- 65-plus population is growing at 3% to 5% across NXRT markets and Harvard JCHS projects the senior renter population to double from 5.8 million households to 12.2 million households by 2030. While obviously a senior housing tailwind, we are starting to see sizable signs of this trend in our own results. So in closing and through the last few -- the last few years have indeed been difficult, we're optimistic that new inflection will happen in the Sun Belt this year for the vast majority of our portfolio.

In the meantime, we will continue to do all that we can to utilize technology to become more efficient, drive value-add programs and ultimately drive value for our tenants and our shareholders. That's all I have for prepared remarks based to our teams here at NexPoint and BH for continuing to execute. And with that, we'll turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Omotayo Okusanya with Deutsche Bank.

First question around the refurbishment and remodeling. I think you mentioned that in 2026, you're going to do about 400 of those I mean you do like 600 washer dryer installation. So that's like 1,000 altogether versus, I think in 2025, you did about 1,800 total volume. Just kind of curious why you kind of have the drop, especially as you're talking about it could do another 1,500 if market conditions allow.

Yes, it's Matt. Maybe I didn't come across or you misheard the category. So the plan is to do 300 full upgrades across the portfolio and additional 400 partials and then roughly -- yes, and so I think that was the delta, but we're ending up basically at the same place of about 1,700 units. And then as we're if what we believe will happen, happens, then we'll be able to drive those incremental bespoke upgrades that I mentioned that can't reach up to 1,500 additional units. .

That's awesome and helpful. And then in regards to the interest rate swap, again, a few years ago, you guys kind of successfully negotiated some of these swaps and kind of came out ahead with some lower rates. Just kind of curious as you kind of think about '26, how you kind of see that playing out this time around, especially when again, you do kind of see rates have been coming down at least to start the year.

Yes. Great question, Tayo. This is Paul. So yes, we look at '26 and what the swap market is pricing a 3-, 5-, 7-year swap and it just isn't taking in what we fully expect on the rate cut side. If you look at the current [indiscernible], the dispersion is extremely interesting. You've deeply divided committee with 175 basis points of actual spread with mirroring at the bottom end at [indiscernible] and you have a few multiple hawks that your pricing in 0 rate cuts this year. You have 3 decenters this past meeting.

So it's a really deeply divided dot plot, which is affecting swap markets and not really pricing what we truly believe will be at the end of the year with rate cuts. So we're holding tight right now on putting and layering in additional swaps. But again, this can change in a moment's notice. So it's one daily recheck and refresh of those rates to see if they're hitting what we believe to be kind of to 3 rate cuts for the year. And we're -- I'm a little more bullish too on that, too. So it's just a constant refresh and remodel of our models and when we want to layer in additional swaps for the year to layer in behind the ones that are burning off here in Q3, Q4 this year.

Your next question comes from the line of Buck Horne with Raymond James.

Just wondering if you could give us any updates on either January and/or February trends since quarter end in terms of new renewal, blended lease rates, just occupancy. Any additional color on how early spring leasing has gone?

Yes, it's Matt. The January new leases were down 7%. -- renewals were 1.6 for a blended minus 2.6 or 2.7 or $40 trade out. February is better and getting better and firming. The new leases were down 5.7%, and renewals were up a positive 1.7% for a blended negative 1.8% and again, we're seeing pretty positive trends on the renewal side, too, so on the trend.

Got you. Got you. Appreciate the color there. And then I think secondly, my other question was on CapEx and maybe potential CapEx spending for the upcoming year. It looks like the trend in both kind of the recurring and nonrecurring maintenance CapEx numbers still trending above normal or above trend line historically. What were some of the key drivers for that this year? And then how are you thinking about total CapEx spending for this coming year?

Yes. On the maintenance side, I'll kick that to Bonner, but some of the outsized things that we're doing are the bulk WiFi on the resident amenity side. which again has a direct offset. So that's kind of elevated the numbers. But again, the net effect of that is minimal on the on the income statement. Bonner, do you have anything to add on the maintenance side? .

Yes. So our 2026 outlook and relative to '25, you see 2025, we had a little bit of a pickup in interior rehab spending. We had less of the exterior and common area this year post refinancing the portfolio at a $2.2 million. There were some more major projects there. So I think outside the Sedona acquisition, there is about $1 million of exterior work to do there. The capitalized rehab should be pretty stable year-over-year. And I think that same for the capitalized maintenance, the recurring and nonrecurring, we're certainly looking to control those expenses, understand that's roughly $30 million for the full year 2015. I think that we've seen some price easing we're certainly being thoughtful about that as a team.

And as Matt has mentioned, we kind of have a strategic approach here where pricing power is going to dictate the volume of renovation all for the year. So if we can get trade-outs that justify the spend, we'll see a little bit higher spend probably more in line with 2025. But if we're not getting to the trade-offs that we need and the ROIs that we want, we may look to skinny that down a bit.

Your next question comes from the line of Michael Lewis with Truist Securities.

Maybe this question kind of logically follows after talking about CapEx. When we subtract CapEx from your AFFO calc, it looks like the dividend isn't covered. I know you recently raised the dividend. This is always a tough -- I realize it's a board decision. It's a hard question to answer. But as you look forward to '26, I mean, do you think the dividend is covered by cash flow? And maybe just kind of remind us of what the dividend policy is?

Yes. The dividend is covered by cash flow and its target ratio of 65% to 75% of core FFO.

Okay. Okay. And then I wanted to ask, you gave a lot of great data about supply and demand really detailed. The occupancy for 4Q was a little lower than we expected. I was wondering if it was lower than you expected and how you're kind of managing pricing versus occupancy right now where we are before we kind of get to that inflection whenever it comes?

Yes, it's a great question, Michael. We -- it is lower than we expected, but it was somewhat intentional. So concession utilization was increased over the fourth quarter and into January, it's abating somewhat in February. But we're reluctant to utilize more than 1 month of concessions on -- particularly when we believe pricing power will significantly increase over the year. It also didn't look to lock in a negative 12-month earn in and cannibalize what we believe is an inflection year.

We truly believe that on a deal-by-deal basis, largely for the vast majority of our portfolio and not jumping up and down, happy with 92.7%. But the good news is our first quarter guidance is a 93%. So I think we're on track to hit that and hopefully, we'll capture some of this inflection.

Your next question comes from the line of Linda Tsai with Jefferies.

In terms of your comment on the senior renter population doubling by 2030 and that you're seeing sizable signs of this trend in your markets. Can you delved into this comment more? And then would you start to amenitize your properties any differently based on an aging population?

Yes. Again, great question. We're seeing it because our average age is picking up, and we're just getting anecdotally from the sites, especially in the Sunbelt particularly in Florida for resident amenities that cater more to the senior housing population. It's something that we've I guess, taking notice of as Welltower and the others catch up into a really good bid and believe in the -- this demographic backstop, as I mentioned in my prepared remarks, we do believe this trend, we think AI is going to be positive for GDP growth ultimately and have people when they live longer and make more money, they want to invest in their health and entertainment.

And so we are actively looking to resource our portfolio designed to cater to health and wellness and entertainment. And I think that those things will produce a wider demand funnel than what we've historically been used to and catering to blue collars. And so there's no reason in our portfolio, why we can attract in Richardson Texas [indiscernible] located somewhere outside of Dallas, some empty nesters that want to be closer to their kids, they go to SMU, for example. So I think that, that trend will continue particularly in the Sunbelt, particularly in our markets and just follow the same net migration trends as we've seen over the last 5 years.

Are you seeing you rent your income from the older population increasing?

Yes, indeed. And that's adding to our both our age and our average household demographics. When we started this company 11, 12 years ago, our average renter was 28 years old and made $60,000 a year. So we're increasingly catering, I think, to a purpose-driven renter and it makes sense. The aging population, they want less yard when they want more amenities. They don't want to deal with maintenance themselves. And they want to travel. So we like that trend. We're going to play into it. And I think we have the portfolio to take advantage of it.

And then just one guidance question. It doesn't seem like your guidance incorporates buybacks. Are you still considering buybacks in '26?

Yes, we are. We'll always consider them. I think that we -- the Sedona deal was important because we like the ability to take that cap rate from a 5.7% going into a 7.5%, and that was a one-off opportunity. And those opportunities we'll always do. But in the meantime, I think if we do it at a stock price sub-30 and a 6.6% implied cap rate, and we stay here for a while. I think you'll see us buy back some star. That being said, I mean I really do believe that this year is the year that we will inflect and I think stock prices we'll follow that upwards in the second half of the year. .

That concludes our question-and-answer session. I will now turn the call back over to management team for closing remarks.

Thank you for all your time this morning. I appreciate everyone's again, time and attention and look forward to speaking to you next quarter.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Kristen Griffith, Investor Relations. You may begin.

Thank you. Good day, everyone, and welcome to NexPoint Residential Trust conference call to review the company's results for the third quarter ended September 30, 2025. On the call today are Paul Bridges, Executive Vice President and Chief Financial Officer; Matt 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 nxrt.nextpoint.com.

Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meanings 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, and expertise 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, 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.

Thank you, Kristen, and welcome, everyone, joining us this morning. We appreciate your time. I'll kick off the call and cover our Q3 results, updated NAV and guidance outlook for the year. I will then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance.

Results for Q3 are as follows: Net loss for the third quarter was $7.8 million or a loss of $0.31 per diluted share on total revenues of $62.8 million the $7.8 million net loss for the quarter compares to a net loss of $8.9 million or a $0.35 loss per diluted share for the same period in 2024 on total revenue of $64.1 million.

For the third quarter of 2025, NOI was $38.8 million on 35 properties compared to $38.1 million for the third quarter of 2024 on 36 properties. For the quarter, same-store rent and occupancy decreased 0.3% and 1.3%, respectively, This, coupled with the decrease in same-store revenues of 0.6% and same-store expenses of 6.2% led to an increase in same-store NOI of 3.5% as compared to Q3 2024.

As compared to Q2 2025, rents for Q3 2025 on the same-store portfolio were down 0.2% or $3. We reported Q3 core FFO of $17.7 million or $0.70 per diluted share compared to $0.69 per diluted share in Q3 2024. During the third quarter, for the properties in the portfolio, we completed 365 full and partial upgrades, lease 297 upgraded units, achieving an average monthly rent premium of $72 and a 20.1% return on investment.

Since inception, NXRT has completed installation of 9,478 full and partial upgrades, 4,925 kitchen and laundry appliances and 11,389 tech packages resulting in $161, $50 and $43 average monthly rental increase per unit and 20.8%, 64% and 37.2% return on investment, respectively. NXRT paid a third quarter dividend of $0.51 per share of common stock on September 30, 2025.

For Q3, our dividend was 1.37x covered by core FFO with a 73.2% payout ratio of core FFO. On October 27, 2025, the company's Board approved a quarterly dividend of $0.53 per share a 3.9% increase from the previous dividend per share payable on December 31, 2025, to stockholders of record on December 15, 2025.

Since inception, NXRT has increased the dividend per share by 157.3%. Turning to the details of our updated NAV estimate. Based on our current estimate of cap rates in our market and forward NOI, we are reporting a NAV range per share as follows: $43.40 on the low end, $56.24 on the high end and $49.82 at the midpoint.

These are based on average cap rates ranging from 5.25% in the low end and 5.75% in the high end, which remains stable quarter-over-quarter. Turning to full year 2025 guidance. NXRT is reaffirming guidance midpoints for loss per diluted share, core FFO per diluted share, same-store rental income, same-store total revenues same-store total expenses and same-store NOI and tightening guidance ranges for acquisitions and dispositions.

Loss per share core fulfill ranges are as follows: loss per diluted share of negative $1.22 at the high end negative $1.40 at the low end with a midpoint of negative $1.31 and for core FFO per diluted share, $2.84 at the high end, $2.66 at the low end with affirming the midpoint of $2.75.

This completes my prepared remarks. So I'll now turn it over to Matt for commentary on the portfolio.

Thank you, Paul. Let me start by going over our third quarter same-store operational results. Same-store total revenue was down 60 basis points, albeit with 5 of our 10 markets, averaging at least 1% growth, with Atlanta and South Florida leading the way at a positive 2.8% each.

We are also pleased to report continued moderation in expense growth for the quarter. Third quarter same-store operating expenses were down an impressive 6.3% year-over-year. payroll and R&M declined 7.5% and 6.1%, respectively, with year-over-year in total controllable expenses down a meaningful 6%.

Insurance was also favorable by 19%, driven by the team's efforts here and market improvement on the property casualty side. Real estate taxes also decreased 8.7% due to favorable protest outcomes, most notably in our Nashville portfolio. Third quarter same-store NOI growth continues to improve in our markets with the portfolio averaging a positive 3.5%, a marketable improvement from down 1.1% last quarter.

Seven of our 10 markets achieved year-over-year NOI growth of at least 2.5% or greater with Nashville and Atlanta leading the way at 26% and 7.8% growth, respectively. Our Q3 same-store NOI margin registered a healthy 62.2%. The portfolio experienced improved revenue growth also in Q3 with 5 out of our 10 markets achieving growth of at least 1% or better.

Our top 5 markets were Atlanta and South Florida at 2.8%, Tampa at 2.4%, Raleigh at 2.1% and Charlotte at 1%. Renewal conversions for eligible tenants were 63.6% for the quarter, with all 10 markets executing positive renewal rate growth of at least 75 basis points or better. 646 renewals were signed during the quarter at an average of 1.81%.

On the occupancy front, the portfolio registered a 93.6% occupancy as of the close of the quarter, market competition from lease-up assets on down the spectrum remain our biggest challenge, but clearer skies are forming ahead. As of this morning, our portfolio is 93.6% occupied and 95.8% leased with a healthy trend -- 60-day trend of 92%.

Even though we saw elevated pressures to occupancy and concession utilization, top line rent beat our internal forecast by 20 basis points for the quarter and bad debt continues to stabilize with a meaningful 32% year-over-year improvement for the quarter. Again, on expenses, they continue to moderate and finish the quarter down 6.4%.

Payroll declined 7.6% this quarter and continues to trend downward as we implement centralized teams and AI technology. Our centralized platforms for renewals, screening, call centers, alongside AI applications deployed across various aspects of the resident experience are all driving greater efficiency and enabling reductions in on-site staffing, particularly within the leasing offices.

As mentioned previously, we're now focused on optimizing our maintenance operations to drive similar efficiencies across our markets. Insurance, real estate taxes, R&M and G&A were the other categories that saw meaningful year-over-year improvement for the quarter with all categories improving at least 6% or more. Now turning to our updated view on supply. We believe we're close to the end of a record national new multifamily supply cycle.

[ CoStar ] annual net deliveries having peaked at 695,000 units in the trailing 12-month period ending in Q3 2024 and Q4 2024. This compares to annual net delivery delivered units of 351,000 on average in the prior 5 years that prior 5 years being Q3 '14 through Q3 '19 and 282,000 units on average since 2001.

CoStar forecast net deliveries reached 697,000 units in 2024 and expected to be 508,000 units in 2025 before falling significantly year-over-year in 2026 by 49% in 2027 by an additional 20%. A critical Q3 for deliveries followed by a steeper drop off. For Q3 of 2025, deliveries are 17% down quarter-over-quarter and is the last quarter with more than 100,000 units delivered.

An increased expectation for 3Q 25 deliveries is followed by a significant drop off to Q4 2025 deliveries that is now forecasted at just 69,000 units down 52% year-over-year and 41% quarter-over-quarter. This ushers in the start of a lengthy period where deliveries are expected to be below the long run average and more bullish long-term forecast versus prior years.

2027 and 2028 delivery forecasts have also fallen. CoStar now expects 2027 deliveries of 234 units that compares to forecast from December of last year of 283,000 units and 231,000 units for 2028 that compares to prior forecast of 308,000 units.

That's down 27%. On the whole, cautious optimism best fits our rental market outlook. Looking better in place is still challenged, but we have come to the time where market fundamentals are coalescing to support a more bullish outlook for multifamily. We expect the rental market will take the lion's share of new household formation and outperform the for-sale market in the near term.

While some markets still have supply issues, particularly in our fast-growing Sun Belt markets, demand is still there. We're absorbing units at a very strong clip right now, and part of that is due to the affordability challenge in the for-sale market. It's about twice as expensive on a monthly basis to own a home as it is to rent the average apartment in the U.S.

During the quarter, the team re-underwrote each of our assets as if we were to buy them new today with a particular view on the submarket competition for lease-ups. We try to estimate based on historical lease-up trends where in each of our submarkets that have supply pressures would indeed stabilize. We define submarket stabilization as 92% occupied with new construction deals being at least 70% leased.

Our analysis showed that 5 of our 10 markets should stabilize in the first quarter 6 of the 10 in the second and 8 of the 10 in the third quarter of next year with all markets stabilizing by year-end. Indeed, this could happen sooner as NXRT markets are littered with major job and corporate relocation announcements almost daily across finance, technology, defense, logistics, manufacturing and research.

Billions of capital and thousands of jobs across names such as Align Data Centers, Alliance Bernstein, Apple, Bell, Textron, Fujifilm, Goldman, Intel, Microsoft, Oracle, TSMC, Wells Fargo have all hit our markets in the past 6 months alone. Again, more reason for cautious optimism.

On the transaction front, buyer sentiment for multifamily purchasing continues to improve in Q3 according to CBRE and our own experiences, Institutional investor allocations to real estate are expected to tick up to 10.8% in 2026 according to institutional real estate allocations monitor. Firms like Blackstone remain bullish on commercial real estate investments given muted supply growth and lower cost of capital in the form of lower rates and tightening spreads.

Indeed, Blackstone, in particular believes we're now approaching a steeper point in the price recovery, and we share that view. We continue to actively monitor the sales market for opportunities and stay close to any movements on cap rates in our markets. Many investors remain sidelined but we see opportunity to return to the market as fundamentals improve.

We're expecting to recycle capital in the next couple of quarters against this transaction backdrop and excited to announce that NXRT has been awarded the opportunity to acquire a 321-unit multifamily community in the high-growth suburbs in Northern Las Vegas. This asset features a unit mix focused on 2- and 3-bedroom floor plans ideal for young families and roommate situations.

Recent large-scale developments have driven significant expansion, job growth in residential revitalization in North Las Vegas which is now the Las Vegas Valley's most prominent industrial market. Nearby over 15 million square feet of industrial space is currently under construction or planned supporting the creation of approximately 8,000 jobs in this submarket alone.

We have evaluated this asset to be structurally sound, well located and prime for value-add execution that is the best we have underwritten all year. We believe the asset has potential to generate a 7% same-store NOI CAGR over the next 5 years. Our plan will be to acquire the asset in late Q4, utilizing available capacity on the facility.

And then we expect to execute 1 or more sales transactions in the first half of 2026, utilizing tax-efficient 1031 reverse exchange mechanics thereby initiating our capital recycling growth strategies as we head into 2026. We expect this strategy to modestly be accretive for 2026, while yielding stronger core FFO growth throughout the 2027 to 2030 period.

Capital recycling to generate growth is our primary external objective, selling mature assets with limited potential into newer growth, nicer and higher-growth assets within our familiar market geographies. Transforming the portfolio and unlocking gains for tax-efficient capital recycling and high conviction assets to grow NOI at an outsized rate is consistent with the company's extra execution.

We expect to continue scouring the market for the best opportunities, but we will absolutely prioritize stock buybacks as well in the low 30s over the near term. To summarize and reiterate a couple of points. On the macro outlook, we see the market signaling a steeper recovery ahead.

On operations, revenue is moderating, but at a decelerating pace, and we continue to demonstrate strong expense control driven by R&M, labor and insurance. We have stabilized bad debt and view that the financial health of our [ Tinet ] demographic is quite strong and resilient to market pressures. We have full conviction we can hit our same-store guidance expectations, and we are positioned for improved performance heading into 2026.

On the balance sheet, we're cognizant of the swap maturity overhang on our earnings forecast and we continue to monitor that daily for opportunities. We expect to act in replacing the swap book over the near term and certainty before any expirations. And on our path to growth, we see green lights ahead as it relates to our capital recycling strategy. Good deals are available. We are confident in our ability to underwrite, capitalize and execute on them. And our team will be heavily focused on doing just that heading into 2026 as well as, again, importantly, buying back stock in the low 30s.

In closing, in the near term, we will continue to prioritize a balanced approach, driving occupancy, maintaining disciplined risk strategies, managing controllable expenses to support steady NOI growth while we look to accelerate our capital recycling strategy and portfolio transformation to drive external growth as conditions on the field are set to improve.

Looking ahead, we are confident in the long-term fundamentals of our Sunbelt position workforce housing assets which we will -- which we see to be well positioned to outperform other geographies given our favorable trends in population migration, job creation and wage growth.

That's all I have for prepared remarks. I appreciate our team's work here at NexPoint and BH for continuing to execute. And that concludes our prepared remarks. So at this time, I'll turn it back over to the operator and open up the call for questions.

[Operator Instructions] Your first question comes from the line of Omotayo Okusanya with Deutsche Bank.

On the operating expense side, again, things look like they're going really well. Could you just talk a little bit about if that is going to be sustainable on a going-forward basis. And I just asked that in the context of full year guidance where the midpoint of guidance suggests that FFO growth in FFO in fourth quarter will be $0.61 versus your current $0.70 run rate, which is being helped by better than expected expense control?

Yes. I think the -- there's a couple of categories, [ trials ] this back. We think that we'll have continued improvement in sustainability on the noncontrollable side with insurance. We also feel good about the real estate tax protests that are going on and see potential upside in that number.

On the payroll and R&M side, we're -- we don't see anything changing materially and expect that to be consistent as well for what it implies for core, I think we're cautiously optimistic that we're -- that we'll exceed expectations as usual. And that's -- we're doing everything we can to beat on the expense side in the face of the supply pressures.

I don't know, Bonner, if you have anything to add to that.

Yes. I would just add, I think on the real estate taxes, we received one pretty significant settlement that's kind of onetime in Q3. So that's not necessarily the run rate for taxes there, but it does -- if you'll remember, Nashville is on a 4-year revaluation cycle. So we fight this battle every 4 years that occurred last year.

We've been in the process of litigating them as we've got court dates on a couple of the other deals, but we don't expect to see any dramatic shift there. So some of the real estate tax savings that you see in the quarter is more onetime to the nature.

But I agree with Matt, particularly on payroll and repair and maintenance expenses, those are heavy focuses for us controlling. So I do think that we can continue at least through the first quarter on the payroll run rate we've made strategic initiatives to centralize a lot of the operations. So most of that activity on the P&L hit kind of April 1 and going forward.

Got you. Can you quantify that onetime benefit in 3Q? How much that was?

Yes. The total there was $820,000.

Okay. That's helpful. Then my second question is, again, yourself your soft disclosed NAV. Again, you guys -- whether you're at the low end or the high end, depending on the cap rate you're using, I mean the stock has been persistently trading at this kind of huge discount to NAV. And I guess when you guys look at that over a long-term period, if that gap is not necessarily made up over time.

How do you kind of think about kind of what next for NXRT and how you try to create shareholder value? If you just kind of get a sign of perpetual large discount NAV granted a lot of the sector is already trading that way. So this is not unique to you, but just curious how you're thinking about that.

Yes. Look, we've been very clear since we became public in 2015 that we view the company as a growth company. But we -- I mean we also have the company set up to transact as well with floating rate debt. Our goal is to hit $170 million of NOI by 2027. It's that simple. And the terminal value at the in our mind, will always be there.

We think that the portfolio is hard to replace and scale we think we have the best job best exposure to the highest job growth markets. And we have -- we believe that if the discount isn't closed, then we'll close it. We own 16.5% of the company. We're highly aligned to do so. And what we absolutely know is that even in a muted transaction environment, there's still a bid for multifamily.

The transaction market is still kind of a 5 cap market and especially for assets like ours. So while the public markets are discounting multifamily stocks. We think that, that will change dramatically in 2026 as new lease pricing in flex, I think that's going to be the catalyst of it. I see that happening in the second quarter probably of 2026.

And I think our stock will start to perform into that bid of new lease growth. But if it doesn't, we're confident that there is a terminal value and a bid for the company. We know that for sure. So we'd like to continue to grow the earnings stream and think we can -- but if not, there's a bit there.

Your next question comes from the line of Buck Horne with Raymond James.

You guys give out the splits on new lease rates, renewals and the blend for the quarter?

No, we did it a supplement, but we'll update it for you. The new -- for the quarter, new leases were down 4.06% or $5 renewals were up 1.94% or 29 almost $30. That's a blended negative 44 basis points.

Got it. Appreciate that. And then by the way October?

October is kind of trending the same way. right New leases were down 3.78% or $54, Renewals were up about 70 basis points or $10 for a blended down 1%.

Perfect. You are [indiscernible] to my next question. I appreciate that. Up ahead of you, man. I also touch a little bit on the CapEx spend, just kind of the maintenance CapEx, both recurring, non-recurring in added to about $9 million in the quarter. Do you see that starting to taper off anytime soon? Or is that kind of the run rate that you expect the portfolio to be on for at least a few more quarters.

Yes. I mean I think it's a little bit elevated and the reasons for that is because we haven't been able to recycle as much of the portfolios we typically do. So there is a little bit of more maintenance CapEx going into it. Bonner, do you have anything to add to that?

Yes. I'd also say if you're referencing Page 22 of the supplement, you'll see the interior spend is up particularly in the third quarter, that's up, but it's also up on a smaller dollar improvement. So our market upgrade program, where we're not doing the full enchilada premium upgrades with hard surface counters and things like that. We're focused more on kind of that -- on average, it was about $4,000 upgrade. So to some units that we touched in the past or needed some help to be competitive.

We're spending about $4,000. We're getting a $70 premium -- so it's not quite the historical run rate for spend on interiors, but we're still getting to that kind of 20% annual return. So we think that, that may see short-term low pricing is under pressure. And then we I think we referenced this on the last call, the large refinancings that we did with Freddie Mac, we got new property condition assessments.

Those kind of dictated some larger nonrecurring CapEx spends, milling and paving of drive lines, some siding repairs, some roofs. We're also doing -- we're redoing a pool in Raleigh. So we've got some, I would say, larger projects this year. I think we're more focused on streamline that spend going into next year.

And those are more onetime in nature anyway, so it should moderate.

Perfect. Great color. I appreciate that. And again, congrats on a great job on controlling the expenses in this environment, a lot of progress there. I think I want to go back to Omotayo's question about capital allocation and just thinking about the NAV discount.

But I guess, the question really is, why go after a new asset in Vegas at this point when you could buy the existing portfolio probably at an equal or better kind of combined NOI yield and growth rate going forward? Just kind of what's the -- help us walk through the rationale of why buy an asset right now where you can buy the existing portfolio?

Yes, I think -- I don't think they're mutually exclusive. I think we can do both. As I said, I think over the near term until we close on this deal, we're going to aggressively buy back stock given where the capital is. But our view also is -- we do need to show some external growth in terms of capital recycling. We're not going to be net acquirers, so to speak. So we're not going to just go out and buy willy-nilly.

The difference with this deal is, given the situation of the asset, it's basically going in almost a 6 cap that we believe we can drive to a 7.5% or an 8% cap over the course of our 3-year value-add campaign. And those opportunities don't really exist on a large scale. This is a very precision-based investment.

And I don't think it cannibalizes anything we're doing on a stock buyback program. Our free cash full yield is still strong. And I mean, I meant what I said when we're trying to hit $170 million of NOI in 2027 by the end of that year. I think that that's possible. And if we do that and we apply the terminal cap rate, I think we'll all be very happy.

Appreciate it.

This concludes today's question-and-answer session. I would now like to turn it back over to the management team for closing remarks.

Thank you very much for everyone's participation today and look forward to speaking to you all live in December [indiscernible] Thanks again.

This concludes today's call. You may now disconnect.