NexPoint Residential Trust, Inc.
Q3 2017 Earnings Call Transcript

Published: 1 Nov 2017

[Operator:]

Good day and welcome to the NexPoint Residential Trust Inc., Third Quarter 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Marilynn Meek. Please go ahead.

[Marilynn Meek:]

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. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer and Matt McGraner, Executive Vice President and Chief Investment Officer. As a reminder this call is being webcast through the company's website site at www.nexpointliving.com. Additionally, a copy of the company's third quarter 2017 supplemental information is available for your review on the Investor Relations section of the company's website. Before we begin, I would like to remind everyone this conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs. Forward-looking statements can also be identified by words such as expect, anticipate, intent, and similar expressions and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding expected property acquisitions and dispositions and NexPoint's strategy and guidance for financial results for the full year 2017. They are not guarantees of future results and are subject to risks, uncertainties, assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent Annual Report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward-looking statements. Except as required by law, NexPoint does not undertake any obligation to publicly update or revise any forward-looking statements. The conference call also includes analysis of funds from operations or FFO, core funds from operations or Core FFO, adjusted funds from operations or AFFO, and net operating income or NOI all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to and not a substitute for net income loss, computed in accordance with GAAP. For a more complete discussion of FFO, Core FFO, AFFO, and NOI see the company's earnings release that we filed earlier today. I would now like to turn the call over to Brian Mitts. Please go ahead Brian.

[Brian Mitts:]

Thank you Marilynn and welcome everyone to the NexPoint 2017 third quarter conference call. I'm Brian Mitts, Chief Financial Officer, joined with by Matt McGraner, our Chief Investment Officer. I'll kick-off our prepared remarks by reviewing highlights from the third quarter, go through our third quarter results, and I'll turn it over to Matt for detailed discussion of portfolio, Q3 activity in our markets. Before I do that let me kind of take a step back and maybe talk about the business a little bit. We've been public now about two and a half years, little bit more and I think we -- on these earnings calls, we spent a lot of time in -- details the quarter that we just left and talking about the next quarter -- the next year. So, we thought maybe it might make some sense to take a step back and look at the last two and a half years, kind of what we've achieved here in put this quarter and future quarters in this in context. So, moving on to some of those highlights. We first took the company public in April 2015, since then we've grown the market value by approximately $200 million which is done organically as we haven't raised any equity, either at IPO or since. We've actually done the opposite. We instituted a share repurchase plan, as we were trading at times what we felt was significantly below our NAV. We tried to be very transparent about how we think about NAV and where we put that. We bought back a total through the third quarter of 2017, 308,313 shares. So, we've been actively using that buyback plan. When we first did the spinoff and went public, we had our NAV at the midpoint of $15.35. Today, as we disclosed in our supplement this morning, we believe our NAV to be at the midpoint $27.88, that's a $12.53 increase in NAV combined with the $2.12 dividend we paid out since we went public, that's approximately 95% return in the past 30 months, so we're pretty proud of that. Our shareholders have received a 90% -- partially 90% return through yesterday since we first went public, that's the share price increase plus dividends. So, we think that's a very strong performance. Again, during this period, we raised no equity, we brought back stock. We've largely delevered the balance sheet when we first went public, other than temporary increases for strategic purposes as we did reverse 1031 exchanges, utilizing a bridge facility. We recycled capital and decreased [ph] acquisitions and as of yesterday we raised our dividend 21.4%, since going public. So, we think these are really good results and we think it's a positive for a company of our size and given our structure. The way we've achieved these results and we think we've continued that in this year, in this quarter and hope these going forward is it consistently achieved peer group leading same-store NOI growth each quarter. We've achieved our value-add program, consistently achieving returns on investments of 21% on investments in interior rehabs producing 1% rent growth on new leases from rehab units. We've utilized the [Indiscernible] of the disposition strategy, this achieved average levered IRRs of 40% plus and equity multiples on investment capital of 2.25 times our invested capital on dispositions to-date. We tax efficiently recycle capital in the higher quality and better located replacement assets. And we prudently manage our balance sheet and interest rate exposure through September 30th, 96% of our long-term debt achieving equivalent fixed rate of 3.34% on our debt -- on the long-term debt, while continuing to have the benefits of flexibility provided by floating-rate debt, which we think is important as we do dispositions that were not already value through yield maintenance or the defeasance cost. So, we believe we're well-positioned for the road ahead. Common theme that we've heard on some of the earnings call from other multifamily REITs this quarter and this has been case for a while, the challenging supply outlook in many markets, aggressive rent concessions and rent deceleration. Because of our focus on affordable workforce, housing in major sunbelt markets where we think job growth in household formations are strongest, we were able to focus on very different things. Supply challenges as we deal -- we think with the opposite which is lack of supply of affordable housing and that's highlighted by a recent report from Freddie Mac and I think Matt's going to talk about that in detail in his remarks. We were focused on acquiring older assets and upgrading through our value-add program. We think the results show that strategy has worked very well. It has achieved higher same-store NOI growth than the most of our peer group in each quarter. We think the results over the past three years speak for themselves. We think there are a lot of good things ahead. Matt will touch now the tailwinds we see in our markets and sub-markets in his prepared remarks. So, with that, let's kind of jump back into the current quarter and get through some of the highlights. As compared to last quarter, we think the activity in this quarter created much less noise than we have last quarter. First thing start-off, not really highlight, but something that should be mentioned. I think all the other multifamily REITs have been talking about this on their calls. As everyone knows, we had some pretty devastating hurricanes roll through this year in Texas, Florida, Puerto Rico, and caused pretty massive destruction in all those areas. Unfortunately, many of our multifamily peers have reported that they had some significant damage to some of the properties to the point that impacted their earnings. Fortunately for us, despite earning units in South Texas, Houston markets, Florida markets, we sought very minimal damage, which was approximately $40,000. So, unfortunate situation, but for us it turned out to not to be material. The second item this quarter was the disposition of Regatta Bay, 240 unit asset in Houston. We originally purchased this in November of 2014 for $18.2 million. That's kind of rate we saw oil prices started to decline in the Houston and the energy sector in general started experiencing some pretty significant headwinds. Despite this, this asset historically performed well for us. It wasn't located in energy quarter, we talked about this on prior calls that it was in the southeastern part of city more around the petrochemical area and did quite well. As a result we sold the asset this July for $28.2 million, $10 million gain, which equated to a levered IRR of 43% and 1.9 times multiple on our invested capital. The third item was the disposition of four property portfolio in Atlanta that we refer to as the North Atlanta value-add portfolio or NAVA. So, 11 of our units in the northern part of Atlanta -- we originally purchased this in October 2014 for $66.2 million. We sold it as a portfolio in September of 2017, just last month for $116 million, approximately $50 million gain, which equates to levered IRR of 47% and a 2.9 times multiple on our invested capital. Four, we continue to recycle capital, although we didn't make any acquisitions in the quarter. We did finalize a large Rockledge acquisition on June 30th, last day of Q2. And we made acquisition in the first part of this quarter in October, which I'll talk about in a second. But we continue to recycle the proceeds from dispositions into higher quality better located assets like Rockledge and the Atera asset that I'll talk about in a minute. We continue to utilize 1031 exchanges for tax efficiency both forward and reverse exchanges and we utilized the KeyBank Ridge facility and cash on hand as well as the proceeds of dispositions to fund these acquisitions. And Matt will talk more about the Atera asset and our acquisition strategy in his comments. We also used proceeds of sales to pay down part of our key bridge facility that we used at the end of the second quarter to fund the Rockledge acquisitions as well as the buyout of the BH interest, the joint venture interest that we had. We used $46 million proceeds, paid that down to approximately $8.6 million as of the end of the quarter. The sixth item is we continue to utilize our share repurchase program. The stocks have been under pressure this quarter. So, we are actively in the market buying where we thought the prices made sense given where we thought our NAV was. So, we repurchased 58,157 shares during the quarter at an average price of $23.27. Since inception as mentioned, we've repurchased 308,313 shares at an average price of $19.27. So, we think that's very accretive use of capital. Seventh item, this was post quarter end, but worth mentioning. The Board yesterday agreed to increase the dividend. We increased to $0.03 from $0.22 per share per quarter to $0.25 per share per quarter, which represents a 13.6% increase and a 21.4% increase from the original dividend we had when we went public. The last item is mentioned also subsequent to quarter end was the acquisition of Atera property. It’s a 380-unit property in Dallas, purchased it for $59.2 million, and Matt will give you little more details on that in his remarks. So, let me move to the third quarter results. We think it was another really great quarter, in line with what we've been doing last two and a half years. Total revenues for the third quarter 2017 were $37.1 million as compared to $31.1 million in the same quarter of 2016. Net income to common shareholders was $54.1 million versus $8.8 million in the third quarter 2016, the differential largely driven by the gain on sale of assets. FFO was $6.8 million for the third quarter of 2017 or $0.32 per share -- diluted share versus $6.9 million in the third quarter of 2016, which is also $0.32 per share. Core FFO was $7.9 million for the third quarter 2017, which is $0.37 per diluted share versus $7.5 million or $0.35 per share for third quarter 2016. AFFO was $9 million for the quarter, which is $0.42 per diluted share versus $8.1 million or $0.38 for the prior year. NOI, $19.5 million versus $17.1 million for the prior year. As far as same-store numbers or same-store rents increased 6.5% for the quarter versus last year same quarter. Same-store occupancy was flat at 94.4% for both quarters. Same-store revenue was $25.8 million in the third quarter 2017 versus $24.1 million for the third quarter 2016, represented 7.1% increase. Same-store expenses were $12 million for the third quarter 2017 versus $11.5 million for the third quarter 2016, which is an increase of 4.7%, which continues to be driven primarily by real estate taxes. Our same-store NOI for third quarter 2017 was $13.8 million versus $12.6 million for the third quarter 2016; representing a 9.3% same-store NOI increase, which we believe to be the highest among the peer group. Rehabs for the third quarter 2017, we completed partial or full rehabs on 422 units. To-date on the portfolio that we still own, we completed 4,029 upgrades. Rehab cost per unit is approximately $5,115. We've seen an average of 10.9% increase in rents on post rehab units. And our return on investment has been 20.7% on the 4,029 units that we rehabbed in this portfolio. So, in our opinion another great quarter. Same-store NOI growth and value-add storage; we feel are very much intact and continue to perform very well. So, let me turn over to Matt, with his comments on the portfolio and our markets and then we'll come back, talk about our guidance for the remainder of the year, and turn it over for questions.

[Matt McGraner:]

Thanks Brian. Unpack the value-add results real quickly here. And as Brian mentioned, we completed full and partial renovations on 422 units on average cost of $4,000 per unit. We received $79 increase on net capital for a quarter average of 23.5% of ROI. Including the latest Rockledge and Atera acquisitions, we now have an updated pipeline of another 3,800 full and partial interior rehabs to complete over the remaining next eight quarters. In addition to interior rehabs, we would like to expand the scope of existing value-add opportunities to include additional residents, amenities and other improvements. Some of these programs include a valley trash pick-up that we've talked about on previous calls; the cost is about $14 per month to implement. We had a $25 per unit premium on that in the stabilized NOI margin of 44%. We recently introduced technology packages with Nest Learning Thermostats, Bluetooth shower speakers, and smart Bluetooth locks, and the cost is about $500 a unit to implement those and we get a $35 per month increase on that for an 84% return on investment. We've been implementing this for a couple of years, but I want to mention it here again, constructing private yards in our garden style communities, cost varies, but we typically get $50 to $75 per month, an increase in an average of 50% ROI on net capital. We're also participating in the Freddie Mac Green Advantage program, yet another innovative initiative from Freddie, designed to promote investment and improve the sustainability of affordable housing through investments in water and energy infrastructure. We've escrowed approximately $4.2 million to finance these improvements in 20 of our properties, which will be completed by the summer of 2019. This is important, we believe these improvements will reduce water and sewer cost at each property by at least 15% through the replacement shower heads, updated plumbing fixtures, toilets, and other modern energy efficient upgrades. Not to mention, we were also -- or not to be lost, we also received a discount on our interest expense by 10 basis points for these 20 assets. Unpacking the same-store NOI, as Brian mentioned, we had 9.3% growth in the quarter. Revenues accelerated 50 basis points sequentially from last quarter up to 7.1%. The increase in expenses from last quarter moderated to just 4.7%. And then by market, Dallas, we achieved 9.7% NOI growth, Atlanta, 12.3%, Nashville 9.4%, Charlotte 10.3%, Phoenix 10.6%, DC Metro 23.9% at the one asset and then our Florida average is 4%, largely driven by real estate taxes and insurance rolling over in June. On the leasing front, we had a very strong quarter as well. We achieved rent growth on new leases during the quarter of approximately 4%, each of Atlanta, Nashville, Charlotte, and Orlando had new lease growth of 5% or better. South Florida led that at 6.5%, Orlando is next at 6.1%, Nashville 5.4% and Dallas/Fort Worth at 5.2%. On the renewal front also very strong quarter, we had 4.4% overall increases across the portfolio, achieved the highest in Nashville 6.4%, in seven of our nine remaining markets as far averages of at least 4% as well. On the turnover and occupancy front, reducing turnover increasing portfolio occupancy rise was a particular focus during the quarter, which led to the strong revenue gains we saw. Our renewal retention increased sequentially month-over-month during the quarter, averaging 49. -- 47.9% in July, 48% in August, 49.4% in September and as we enter the winter months we're going to continue to focus on this aspect of our leasing platform. To give an update on Houston, we think it's important as Brian mentioned to unpack the pre and post Harvey results. We summed up the hurricane-related activity pretty well with our properly suffering relatively immaterial damage from the storm. First of all, great thanks to the BH team down there over the past three months for their hard work and dedication; it's not been an easy time serving our tenants. I wanted to quickly thank them. And to give everyone a sense of how the storm impacted our portfolio on the leasing front, we too have seen a fairly dramatic improvement on the occupancy front. Pre, post Harvey occupancy has improved approximately 480 basis points to 94.2% occupied and were approximately 96% leased today. Like many operators in the aftermath of the storm, we froze new leases and renewals during the month of September, in the first two weeks of October, over the last couple of weeks as we move into market equilibrium, our rental rates for the new leases are flat. And for some properties positive as opposed to negative prior the storm and renewals were also flat to up modestly across our portfolio. The newer Class A product surrounding two of our assets in the interior loop, Old Farm and Stone Creek has seen dramatic increases in their lease up velocity as well. As a result of the concessions offered by the merchant builders in the surrounding areas, [Indiscernible] has been reduced to one month, down from 3 months free before the storm. In all, we expect a near-term kind of Q4 topline revenue impact to be approximately $150,000 to $200,000 of positive. To continue updating on our capital recycling activities, as Brian mentioned, we sold the NAVA portfolio. We sold that portfolio on September 29th. That completed the disposition of the asset and in doing so, closing out the reverse 1031 exchange, originally initiated when we purchased Rockledge for $113.5 million in June. We sold the portfolio at 5, 6 nominal cap rate 5.1 economic and generated $160 million of gross proceeds, $46 million of which as Brian mentioned, we paid on our short-term debt. The investment yield that total levered IRR approximately 47% and 2.8% multiple on invested capital. Our original initial in $25 million investment -- equity investment into the NAVA portfolio now recycled into Rockledge is yielding -- today in Rockledge a cash-on-cash return north of 20%, albeit in the asset in superior location with a dramatically lower leverage profile. Subsequent to the quarter, we used $14.1 million of gain from the sale of the NAVA portfolio to initiate a forward 1031 Exchange as to purchase the Atera Apartment Community for $59.2 million at a 5.2% going in year one cap rate -- full economic cap rate. Built in 1995, Atera consists of 380 apartment units, upon 17 acres of land located at the Northwest intersection of the Dallas Tollway in Cedar Springs. This is less than a quarter-mile from Highland Park and its neighborhood Whole Foods grocery store. The purchase price to the [Indiscernible] was approximately $80 per square foot and the site features the potential optionality to increase the earnings density for high rise development in the future, which increases the intrinsic land value potential of the asset. We capitalized the asset with a $29.5 million of Freddie Mac floating rate first mortgages LIBOR plus 1.48 and expect to source additional equity funding from the proceeds of the sale of Timberglen, which will be structured as reversed 1031 exchange. So, on Timberglen, we recently ran a full marking process for the sale. We had 45 stores, we received 20 offers on the asset, we awarded the deal last week to sophisticated buyer who had a 100,000 -- won a contract at $30 million, it's a 5.4% nominal cap rate, we expected to close in January of next year. At $30 million sale price, the sale would yield approximate returns to -- and [Indiscernible] the investors of 48% levered IRR and 2.75 times multiple invested capital. In addition, the sale will generate a really sufficient enough to retire the $8.6 million left on the KeyBank Ridge facility. These are all examples -- prime examples rather of our continued plan to efficiently recycle capital and successfully recycle the capital into well-located covered land assets in our core markets, Atera is a great example of that. Some of the highlights here, as we mentioned during last quarter's call, we've included a page in our sub, which details the most significant transaction and highlights of the quarter. In addition, obviously, the same-store NOI growth being a healthy 9.3%, we elected to highlight our acquisition and disposition activities just mentioned Hurricane-related progress and the Board's approval of the 13.6% increase in the dividend. The double-digit increase in the quarterly dividends notable in our minds because it demonstrates healthy earnings growth. We've always been and believe and will continue to be and believe a total return story, but we do recognize its showing consistent growth in the dividend is yet another way we can -- a way in which we can return capital to our shareholders. Last year, our Board set a target payout ratio of 60% to 65% of our Core FFO. This dividend increase represents a payout ratio on our estimated annualized Q4 2017 run rate of core FFO of 63% to 65%, and it's closer to approximately 53% to 57% of our preliminary Core FFO estimates for 2018. And as Brian mentioned, in an environment in which REIT management teams longer term lease, heavy CapEx, property types, are discussing subdued NOI growth increased supply pressures, cost of demising walls and tenant bankruptcies which were narrow or extent amongst our peer group, the defensive posture amidst merchant builders offering 1 to three months free lease of billing, we're focused on continue to do what we do best. We continue to believe there is dearth of quality of affordable housing in our markets as evidenced by Freddie Mac recent study. We're under-supplied as a nation by 400,000 units on an annual basis. And of that number -- must in the 11% of that they included affordable. So, we're focused on -- and continue to provide these relatively affordable housing to our tenant base while delivering outside return to our investors. We believe this is a strong investment thesis in any market cycle, but particularly during this operating environment. Lastly, I want to thank our team members at NexPoint and BH for hard work and execution. There were a lot of challenges during the quarter to deal with, particularly in Houston and Florida and the storms and our teams did a great job meeting those head on. So, appreciate it again. And that's all I have for prepared remarks.

[Brian Mitts:]

Thanks Matt. Let me quickly go through before we turnover for questions. We're updating and revising our guidance as we go into the final quarter to tighten our ranges and for most part, we're increasing guidance. So, for revenue, we are guiding towards $143.5 million on the low end, $145 million on the high end and mid-point of $144.250 million as compared to prior midpoint $144 million, so increasing our midpoint there slightly net income $56 million on the low end, $56.6 million on high end, for mid-point $56.2 million, approximately $2.2 million increase over our prior midpoint. NOI, we are estimating at $75.9 million in the low end, $77.25 million in the high end, for mid-point at $76.5 million, which is slightly higher than our prior mid-point at $76.25 million. Core FFO per share on a diluted basis we estimate $1.15 per share on the low-end, $1.20 on the high end for midpoint of approximately $1.17, which is a penny higher than prior guidance. Core FFO per diluted share $1.37 in the low-end, $1.47 on the high end, for a midpoint of $1.43, a $0.03 increase over prior guidance. AFFO per share on a diluted basis $1.63 in the low end, $1.68 in the high-end for midpoint of approximately $1.65, which is the same as prior quarter. Acquisitions and dispositions, we -- other than what we announced here, we don't anticipate any further activity, so $197.2 million on acquisition side and $228.1 million on the disposition side for the year. So, with that, that concludes our prepared remarks. So, at this time I'll turn it to the operator for questions.

[Operator:]

Thank you. [Operator Instructions] And we'll now take our first question from Rob Stevenson with Janney.

[Robert Stevenson:]

Good morning guys. Is there anything non-recurring earnings wise that you guys are expecting to hit in the fourth quarter?

[Brian Mitts:]

Plus or minus?

[Matt McGraner:]

No, I mean in the third quarter, as we mentioned, the hurricane damage was very minimal. So, that's the only thing that really had out there, there is nothing in the fourth quarter.

[Robert Stevenson:]

Okay. And then any markets today where you -- where you aren't seeing the redevelopment returns that you want to see and have either halted activities or decided not to start on certain projects?

[Matt McGraner:]

We started -- we halted the DC assets, stop growing a while back and have recently restarted as we've been getting tremendous gains, so that's an example where we kind of monitored the situation and acted accordingly. We're getting lower ROIs on the Parc500 CityView asset in West Palm Beach, that allow the 12%, that's been largely a labor and materials issues just on the topline. We're still getting the $100 rental increases, but that's kind of the lowest that we've seen. Otherwise the quarter was very, very strong. I mean throughout the -- Atlanta we averaged 34.6%, Dallas 24.2%, Houston 22%, Nashville 31.7%, Orlando 29%, Tampa 29%, so you can see we're still getting the types of returns that we are used to.

[Brian Mitts:]

One thing that we'll definitely do is monitor as far as the Florida, Texas markets and you could probably expect an increase in labor, just given what's going on with the rebuilding. So, we'll make sure that we're monitoring that and acting appropriately.

[Robert Stevenson:]

Okay. And then how are you guys thinking about asset concentrations these days with the Dallas and Atlanta representing -- continuing to represent such a large portion of portfolio? I mean would you guys have any problem with the vast majority of the next $200 million of portfolio additions are in those two markets or are you guys all are being equal, like -- more or likely to take deals in other markets, its similar return thresholds?

[Matt McGraner:]

I think the latter. Yes I think we're pretty full and happy with. We love the markets in Dallas and Atlanta, they are incredibly strong. But we recognize that just having 50% of our NOI in those two markets, we need to expand out. So, we're concentrating on doing more in Charlotte, Nashville, in South Florida, so that's -- I think that's where you see us continue to look.

[Brian Mitts:]

And when you see with our last two acquisitions, which were in Dallas and Atlanta, is they really swaps. So, we didn't actually increase our exposure, we just swapped out what we think were deals that were kind of all the way through the program and inferior to what we swapped into.

[Robert Stevenson:]

I mean, when you take a look at Dallas -- the market of Dallas and Atlanta and the deals that come across your desk, is there anything going on in those markets that would suggest that returns would be higher there on deals that you see over the next year than your other markets that would prevent you from diversifying?

[Matt McGraner:]

Yes, I mean there's certainly a lot betters [ph] in the tent, both in Atlanta and Nashville, excuse me in Dallas, having 20 offers on Timberglen, for example, -- is a prime example of just the amount of value-add activity. And same goes with Atlanta, but I think what you've also seen with respect to the two acquisitions that we recently completed is us continuing to allocate capital where we think the market is less efficient, i.e., that $20 million to $50 million equity check, Atera was one example of $30 million equity check in Rockledge was in close to $50 million or so. There's is not a lot of people that -- they can write those checks in order to -- want to for the value-add asset and can close like we can and have liquidity to do so. And so we will continue to focus on that size, but in the single asset, the $25 million to $30 million deal, it's really, really competitive in those two markets.

[Robert Stevenson:]

Okay. Thanks guys. Appreciate it.

[Matt McGraner:]

Thanks Rob.

[Operator:]

[Operator Instructions] And we'll now take our next question from Craig Kucera with FBR Capital Markets.

[Craig Kucera:]

Hey, good morning guys. Appreciate the color on Atera and I sort of garnered from the commentary that there's value-add. But is that sort of your typical property where you are going to be able to take out about 60% of the units and do a value-add over the next few years?

[Brian Mitts:]

Yes, albeit at a lower cost per unit. We're probably in a do more partial upgrades there than would be a typical heavier value-add, so spending anywhere from $1,500 to $3,00] still getting the same type of returns on the capital, but it's a newer build in that type of dealings, doesn't have the same type of all appliances, so it will be a lighter touch.

[Matt McGraner:]

But still a lot of opportunity.

[Craig Kucera:]

And your stock is trading nicely today, but clearly, we're not too sincerely far from $23.27, when can you be back in the market, buying stock if you decided the right time and price?

[Brian Mitts:]

48 hours.

[Craig Kucera:]

Got it. And as far as your dispositions, I appreciate the color on the sale of Timberglen, but I wasn't sure if I missed something on Southpoint Reserve, do you anticipate getting that sold in the first quarter or kind of where we are in the marketing process there?

[Brian Mitts:]

Yes. We're still marketing it. Albeit, we're continuing to grow NOI, I mean this quarter alone it was 23% better than the third quarter last year. So, we're not going to give it away. And we've been achieving that double-digit increases in NOI. So, we'll make a decision over the next kind of couple months to the extent we can continue to achieve those returns and will probably potentially hold it and take it back it out in the spring.

[Craig Kucera:]

Got it. And when you think about selling these assets, I know a big part of the strategy has been recycling capital, but I think you have a longer term goal of maybe some deleveraging. Does that -- are we at a point where that enters into the conversation or do you still think that you're going to be recycling capital to a large extent in the new assets, I mean B assets?

[Brian Mitts:]

Yes, I think we're focused now on incrementally deleveraging. What you're seeing over the last two quarters, there's a lot of activity, but realty stuff that we planned and announced back in May and June. So, now we have a clear -- having that behind us, having executed and done everything we said we were going to do on time and on the numbers that we put out, I think now we have the ability to delever, which we've been doing and then we will with the sale of Timberglen doing incrementally more.

[Matt McGraner:]

Yes Craig, it's hard to kind of see through the activity, but when we do these deals where we do reverse 1031, we're using for exactly the kind of get to the -- from the buy to sale, but what we're doing on at the property levels, putting less debt on the property that we buy versus what we just sold. So, over time is the noise of kind of having the higher leverage through the first facility participate, you'll start to see that leverage come down. So, on a run rate basis, it should be lower each quarter going forward.

[Craig Kucera:]

Got it. And one last one from me, I'll jump back in the queue. Just want to circle back on your commentary on how you're focusing on renewals. How do you think about what every, say 1% increase in renewal does to your savings and if you've gone from 47% to 49% over a couple of months, kind of how far do you think you can -- retake it?

[Matt McGraner:]

I think it's one of the biggest opportunities that we have. We made a point in the third quarter to along with BH to focus on showing the back door, if you will, -- making sure that we can renew our residence, because it's not only time now factor where you can continue to get rent and you don't have to clean the carpet, turn the unit and incur that expense, it's also days vacant. There's a number of kind of later term impacts to the financials. And so I think it's extremely important, particularly at this point of cycle, although we're getting healthier increases, I think -- most of our peers, we still have a dramatic opportunity, I think three to five percentage points more in the ability to renew our current residents and keep them happy and still get 4%, 5%, 6% renewal rates. It's getting tougher and tougher to move in general. And so if we can keep them here all the better. But it's one largest opportunity I think on the topline that we have to the positive.

[Craig Kucera:]

Okay. Thank you.

[Operator:]

And we'll now take our next question from John Massocca with Ladenburg Thalmann.

[John Massocca:]

Good morning gentlemen.

[Matt McGraner:]

Hi John.

[Brian Mitts:]

Hey John.

[John Massocca:]

So, It kind of looks to kind of expanding the portfolio or altering the portfolio, given how competitive the class B market is particularly in places like Dallas and Atlanta and that you mentioned before your exposure there is pretty high and would you look more to buying assets in newer markets or would you just look to like up the concentration in some existing markets that you're less exposed to like in Nashville or South Florida?

[Matt McGraner:]

Yes, primarily the latter. So, I think our concentration of markets where we're already located. We don't really have any new markets on our radar that are actionable today, but we are doing a lot of work in these, Nashville, Atlanta -- Nashville, Charlotte, South Florida, this type of markets where remaining opportunities, concentrate and try to expand there.

[Brian Mitts:]

Yes, keep in mind, if you roll back 12 months, we've increased our exposure on Houston quite a bit, notwithstanding that the sale we had in July, the three of our last five acquisitions were in the Houston market. So, that's not a new market for us, but the one we increased pretty significantly.

[John Massocca:]

Yes, makes sense. And then kind of with the current portfolio and also the Houston asset that's not in the same-store portfolio, would you look at kind of your tax increases, is that something you think you can moderate both for the same-store portfolio, I know, Houston you talked when you purchased that asset, that there might be some way to claw back some of those tax increases. How successful have you been with that?

[Matt McGraner:]

We're still -- I guess the short answer is, we're still working on it, particularly, in Tarrant County in Dallas, that's been the most aggressive municipality or county that we've dealt with, but we're actively in either litigation or negotiation for settlements on lower values. So, we're still working on it. We think that we have resolution for most of the fourth quarter and then Houston in the same regard; we're still working on that. Houston is going to be little [low], we'll see how that plays out given the hurricane-related issues and see how the county's deal with that, but to be determined, but right now we think we're still on track for what we have previously discussed.

[John Massocca:]

Makes sense. And then lastly, kind of more on the balance sheet, I know you guys talked about deleveraging in the context of capital recycling, but when you look at your decision to either buy back stock or possibly utilize retained earnings to delever, how do you go about that process given the leverage kind of what's the impetus to buy back stock versus maybe take some money off the line?

[Matt McGraner:]

I'll start with that, I think the way we look at stock buybacks is where we think NAV is versus where the stock's trading and if it's a meaningful discount, I think that's a very accretive use of capital, it's pretty simple calculation. As far as debt side, I think in our growth as a company, it's not terribly unusual for a company our size doing more highly levered and some of our larger peers. So, although we have a longer term plan to get leverage down, it's not our primary concern on a day-to-day basis and not as actionable frankly as the stock trades down and we have ability to buyback and view to what we think NAV and the true value is, we think that's a better use of capital over the course of our buyback which is been about 18 months -- not quite 18 months, we spent $5 million. So, it's not -- what are you going to do with $5 million plus leverage and [Indiscernible] move the needle. I think the actions of buying stock back and talking about the earnings calls and during meetings is significant. It shows a willingness to do it in a discipline to allocate capital accordingly, but $5 million is moving the needle regardless of what you do, but -- that's kind of how we think about it at least. Do you have anything to add?

[Brian Mitts:]

Yes, I just would add that we generated enormous amount of free cash flow on a relative basis and quite of that were delevered, but we're not keen and don't think of the great capital allocation decision to pay down 3.3% debt, it doesn't -- that's pretty good accretive use of capital for the comment, which we're a large owner and that's the way we think about every capital allocation decision. How does it affect -- how does it affect our NAV? How does it affect our shareholders and obviously, how can we get the stock price as high as possible?

[Matt McGraner:]

And one last thing I'd add. In my earlier comments I mentioned that since we've been public we've grown the NAV to approximately 95%. So, part of our plan all along was to grow into that leverage and again notwithstanding the fact when we take out these bridge lines to fund the gap between the buy and a sale, by and large we delevered the balance sheet quite a bit.

[John Massocca:]

Makes sense. All right. That's it from me. Thanks very much.

[Matt McGraner:]

Thanks John.

[Brian Mitts:]

Thank you.

[Operator:]

And it appears there are no further questions in the queue at this time. And I'd like to turn the conference back to Mr. Brian Mitts for any additional or closing remarks.

[Brian Mitts:]

Yes, thank you. Just to wrap-up kind of recap, again 9% plus same-store NOI growth, what we think is very strong. It's not like an unusual quarter for us. So, that story continues to be impact. We continue to see strong returns from our investments in upgraded units. So, we think that's driving value and very strong. We like where we sit, notwithstanding these conversations we've had about deleveraging, where we are at the balance sheet and from Matt's point, we have a very low cost of capital and net debt, which we've achieved through the swaps, while still maintaining the flexibility that we get from the floating rate debt. So we like that. We think the results we're achieving on dispositions proves the story overall -- the value creation story. And I think when we first came to market and probably still today there is a large contingent to C and B assets is not very desirable, but we produced a ton of value in those for the company and also shareholders. And also the spend that we continue to focus on NAV and hope to achieve similar results into the future. So, with that, thank you to everyone who attended or will listen in the future and we'll see many of you at NAREIT here in few weeks, which we are hosting here in Dallas and then this time in February for the year-end call. Thank you, everyone.

[Operator:]

And ladies and gentlemen that concludes today's conference call. We thank you for your participation.