NexPoint Residential Trust Q3 2026 Earning Call - NEXPOINT RESIDENTIAL TRUST INC

Hello, everyone. Thank you for joining us in a welcome to the Next Point Residential Trust third quarter 2026 earnings call. I will now hand the conference over to Carly Musser with Communications and Corporate Affairs. Carly, please go ahead. Thank you, Al. Good morning, everyone, and welcome to Next Point Residential Trust conference call to review the company's results for the third quarter ended September 30 of 2026. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer, Matt McGrainer, Executive vice president and chief investment officer, and Bonner McDermott, 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 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 statement and are encouraged to review the company's most recent annual report on Form 10-K and the company other filings with the SEC for more complete discussion of risks and other factors that could affect any forward looking statement. The statements made during this conference call speak only of today's date and except as required by law, NSRP 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-GAP financial measure, 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, Carly, and good morning, everyone. I'll walk through our third quarter and year-to-date same-store results, expenses, interests, the midtown crossing acquisition, the balance sheet, NAS, the dividend, and changes to our full-year outlook, including how we think about 2027. Then Matt will cover operation and market fundamentals looking forward. I'll start with the headlines. 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 and 45 cents, and our same-store NOI midpoint, to negative 4.3 percent and negative 1 percent. Third quarter core FPO was 13.4 million, or 52 cents per diluted share, compared to 70 cents a year ago. FFO was 11.7 million, of 46 cents a share, and AFFO was 16.2 million, for 63 cents. Net loss is $11.5 million or $0.45 per diluted share, including $23.2 million in depreciation amortization. That compares to a net loss of $7.8 million or 31 cents a share a year ago. Total revenue was $64.5 up from $62.8 with Sedona in the numbers. Total NOI was $36.6 million across our 36 properties. On a same-store basis, 35 properties in about 98% of our units, revenue was down 70 basis points. are up 11.2 percent 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 dollars down 0.7 percent year today core fo is 1.87 cents a share against 2.14 last year expenses drove most of quarters and a wide decline about 2.7 million of the 3.2 million three specific items explain the decrease first nashville real estate taxes last year's third quarter carry a one-time real estate tax refund at residences at glenview reserve which equates to a swing of about 854 000 and does not reoccur excluding nashvill real estate tax is worth less than one percent 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 that 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 costs roughly 100 000 more than last year which is immaterial and looking at the full program including the smart connection fees residents pay our amenities services brought in about 400 400 000 more than they cost this past quarter but then that contributes to ny not a cost center third controllable expenses usually a reliable strength for us ran higher through the quarter interior and turnover repairs were up 14.9 exterior and amenity repairs 13.8 and landscaping 13.7 marketing was up more than 30 percent in office operations 14.2 percent as properties below target occupancy spent to drive traffic lastly utilities rose 11.8 percent some of what was deliberate choice given how soft this year is then we pulled a lot of work for 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 dryers we'd rather put that money in front of prospects now even if it keeps expenses elevated for a quarter or two other spending didn't earn its keep and we're cutting it net of national real estate tax swing expenses grew about 7.3 percent strip out resident amenity services as well as it as well and it's about 5.1 part of that is by design and part is 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 percent on our april renewal moving on to your today same store a single a single quarter can carry a lot of noise so the nine month view is the better read on the run rate on the portfolio year-to-date same-star revenue was down 1.2 percent expenses were up 3.9 percent and noi was down 4.6 percent to 109.3 million that 3.8 percent includes fiber rollout from the marketing to put in front of prospects excluding resident amenity services year-today same-store expenses were 1.6 percent normalizing for last year's land view tax refund as well thanks to our expenses we're just 40 basis points a year today we're up just 40 basis once your day apologies underneath that the core cost-based holding year-to-date insurance was down 16.3 percent real estate taxes were down 0.7 percent payroll down 0.6 percent and property management fees down 1.6 the pressure is is concentrated in repairs and maintenance, up 16.4%, including FIRA 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 runway. It carries a prior year tax refund that won't reoccur, a FIRO rollout that pays for itself upon penetration and expense work we choose to pull forward. Our fourth quarter guidance implies staying store NOI down about 3.3%, better than year-to-date case and well under half of the third quarter decline now interest expense which we play 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 research schedule 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's 92.5 million with key bank that runs through january 1st next year and the 100 million jp morgan swap at 3.49 that runs 2030. swap settlements contributed 5.2 million in the second quarter and 3.4 million in a third and we expect about 0.6 million in fourth third report interest expense was 18.1 million up from 15.8 million in second quarter full year interest expense down projected at about 71.8 billion close to 71.2 billion we discussed in august our adjusted weighted average interest rate was 4.75 percent in quarter rent against 3.58 percent of june 30th the rate backdrop hasn't helped the fed raised rates in september to a range of 3.75 to 4.4 percent held last week with two members voting for another hike the 10-year treasury touched 5.3 percent early october and sits near 4.9 percent today on maturities our first mortgage maturity is uh october of 2028 and the rest of our mortgage just run to 2031 and beyond total indebtedness was about 1.6 billion quarter ends on october 2nd we acquired midtown crossing a 228 unit 1997 vintage community in raleigh for 32 million for about 140 000 a unit our all-in cash basis including 1.9 million in capex funding is about 152 600 a unit we bought it from an audio 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 percent with the smallest new lease decline in the portfolio at negative 0.9 percent midtown takes our raleige 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 set about 10 below the raleigh two to four star average one thousand three hundred twenty five dollars versus one thousand four hundred eighty one dollars render right to grow rents to one thousand 403 by month 36 which grows ny from 1.44 million to 2.15 million by year three stabilizing north of a seven percent cap rate on returns we projected seven percent in a wide kegger a mid-teens levered irr and a 2.1 times multiple uninvested capital over a seven-year hold balance sheet leveraging 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 two the proceeds are expected to retire the borrowings we use for midtown which keeps that trade roughly levered neutral, and any incremental amount creates capacity for buyback. This position guidance stays at zero to 200 million with 100 million Bitcoin. Each sale at private market prices also supports our NAV. During the third quarter, we completed value-add initiatives of 708 units and at least 425 upgraded units at an average monthly premium of $42.54 and a 21.1% return. The premium continues to run lower because the NIST's targeted scope has shifted. Most of the quarter, employers work with 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 sets at each property since inception uh four properties currently in the portfolio we've completed 11 000 intent interior upgrades 5 302 kitchen and laundry packages and 11 520 tech packages they've earned average monthly premiums 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 ny expectations and other balance sheet changes net leverage on our admin point is now 62 percent up from 57 percent we think the range is grounded welfare and dunlap's third quarter average cap rates in our markets range from 4.6 to 5.5 percent and udr's recent joint venture with apollo valued portfolio averaging 39 years old at about six percent cap rate our range sits at or above those markets and in line with the udr mark on older products at a price of 1804 the stock trades about 53 53 below our midpoint and well below our low end of the range matt will cover how we're using the tools to have we have to help close that gap on the dividends the board declared a fourth quarter dividend of 53 cents per share payable december 31st third quarter 4ffo covered in almost one times with the swap repricing now in our run rate fourth quarter 4ffo at about 35 cents implied we'll 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 the next meeting whether to reset the dividend at an appropriately covered level and we'll announce that decision when it's made we're We're lowering full-year core refill guidance at a range of $2.17 to $2,27 per diluted share, with a midpoint of $222, down from $225. Same-store NOI guidance moved to a range of a negative 5.1% to negative 3.6%, with a midpoint at negative 4.3%. Here's the bridge from $245 to $225 in five pieces. Same-star revenue, down $0.10. Vacancy is the largest piece at $0,08, than bad debt at $0.04 and concessions at a penny, partly offset by a penny from each rent, fiber, and revenue and other income. Same store expense, down $0,10. $07 is controllable, led by repairs and maintenance at $5, $0 3 utility and real estate taxes, and we're seeing fewer appeal settlements. Interest expense, $2 from additional cluttering of borrowings, including the financing of midtown crossing. Interested income, down a penny. On a quicker repayment schedule on the dst loan that we had initially modeled and lastly corporate gna brought this live about nine cents of that is third quarter actuals and about 11 cents with a lower fourth quarter forecast the rest is interest we'll get 2027 guidance and fourth quarter results but the pieces are visible today financing line is visible in the contractual obligations table in our supplement and it moves with sofr because most of our debt now flows each 25 basis point move in sofa is worth about 14 cents a share once the key bank swap ends noi is the swing factor and that's our operating plan our sense work and disposition program are built to move here's a whole set of revised ranges earning loss per diluted share on the low end one dollar seventy two cents midpoint a dollar sixty eight high end of dollar sixty three the prior midpoint is above fifty four core ffo per dilute share at a low end of two dollars and seventeen cents mid point two dollars and 22 cents the high end two dollars and 27 cents and prior midpoint of two dollars and 45 cents acquisitions now range from 32 million to 200 million with 116 million midpoint that includes midtown crossing which closed october 2nd dispositions remain zero to 200 million with 100 million midpoints and with that i'll turn to matt thank you thank you paul on the revenue side operations are still moving sideways as you noted 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. Occupancies 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 tradeouts went from negative 3.3% in July to negative 6% in September, and concessations 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 our same store portfolio is 94.6% leased today, and we expect fiscal 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 sub markets 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 that as interest rates moved up this summer and into the fall developers accelerated the depth of their concessions modestly fewer properties are offering concessations but the ones that do are offering the most in 15 years your page has the average discount on stabilized units at 11.1 percent in september close to six weeks free and it's reached the older buildings like bars about a quarter of units in 1990s vintage buildings now offer concessional up from 18 percent three years ago Positives for the quarter were, there were many. Renewals were a bright spot for the Quarter. Every market posted positive renewal growth, and outside of Las Vegas, where all in pricing inflates the comparison, Raleigh led at 4.2%, and Phoenix followed at 3.5%, both encouraging signs. In October, we lowered renewal increases on purpose to protect occupancy, and retention rose to 57.5% from 54.9% in September. We also saw same store blended lease tradeouts rise quarter over quarter by 100 basis points and reach basically equilibrium for the quarter, another positive sign. Conversion improved. Tour to 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. was 80 basis points across of gross potential revenue flat with last year rent to income across the portfolio is about 21 on average household income of about eighty six thousand five hundred dollars atlanta's operations are stabilizing and provide a useful road map you know i grew five percent there with vacancy loss down 43 and concessions down 50 from last year regional fundamentals can't be replicated overnight but the trends in the in the in this bell weather sunbelt market are encouraging for the remainder of our portfolio insurance as paul said savings suck and other income grew 29 most of the fiber fees that offset the new amenity cost in october lease occupancy was 95 95.3 percent against 92.3 physical and that gap is signed leases we expect to move up move in over the coming weeks today we are at 94.6 lease. 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 sub-market 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 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 uh thereafter creates buyback capacity second we'll buy back stock with sale pros proceeds while we trade at roughly seven percent north of a seven percent implied cap rate on our noi guidance october 26 our board authorized up to $150 million of repurchases over the next two years. Our disposition guidance is $0 to $200 million. We're working the market to execute on one or two rifle shot dispos and 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 had 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 53 cents already declared and payable by December 31st 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 to win residents, and you'll see that for another quarter or two. 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'd 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 one or two at a time when the price reflects private market value and put the proceeds to work in order, fund midtown, reduce debt, and buy back stock at a discount. Each sale is sized and timed on its own merits. That's because 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 said to be the lightest year of the cycle. Once the lease-up backlog clears, price and power comes back to well-located workforce housing and Sunbelt job markets. And the real estate's worth far more than the stock. Our NAV midpoint, $38.33 a share, and the stock trades around $18. We believe our largest asset, a bond 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? We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 2 to raise the hand. Press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. your first question comes from the line of peter abramowitz with deutsche bank your line is now open please go ahead yeah thanks for taking the question and i appreciate all the color and the prepared remarks um just wanted to ask i guess as you kind of approach year end and do your 2027 budgeting process um you know it's been a very challenging year so uh you know as you kind of look across your markets and your footprint not only from a supply demand perspective but also an operational perspective um you you know what kind of gives you confidence that that things can potentially get better in 2027 um and how are you sort of thinking about that as you prepare for your budget process um yeah hey peter thanks for the question um i think i think the math gives us confidence um you know we're doing a little work about uh the supply uh coming out of the gfc and um you Know it's it's almost um it's Almost the same story coming out at GFC that i think we're seeing you know coming out Of out of this latest cycle and what happened after that is we had pricing power for a number of years and um you know i think i think we see that same um that same trend today um you we've we've been uh probably a little bit too optimistic in 2026 as as i think the rest of the um you now the sunbelt peers have also um we also didn't um you forecast uh the 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 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. certainly still robust job growth in our markets. And so, you know, the macro backdrop for us is, I think, as good as it has been in five years going into next year. And then, you know, hopefully the units and the markets will be absorbed. I think the midterm elections will maybe portend some new net international immigration, which will be a helpful demand driver. And then I also think affordability continues to be another, you know, demand driver for our portfolio that hasn't really mattered. And I think it will. I think it will in 2027. You know, our units have, you know, we have great places. We have great assets 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 missing the quarter. But I think you said, you know, it should come back to you in the form of revenue in the future. Could you just sort of quantify, you you know, how much the uplift could be and how should we think about that from a timing perspective? Yeah. I think if you strip out the – it's a net neutral effect on NOI because, you know – but if you trip out the expenses, I don't know, Bonner, what did we say the expense was after 1.9%? yeah 1.9 so so the noise in terms of you know the rollout and you know we're rolling it out in several of our major markets so the the expense growth is offset and it's actually captured in two revenue lines so it's a little bit more challenging it's in other other revenue and it's also in um resident amenities fee income so that the net effect and that we spoke to it on call you know our resident mini service platform provides a margin i believe for the third quarter of some you know 400 000 operating profit on on those expenses um the the noise of it is just getting through you know the volume of you know new um new new lease charges that we're you know applying for the resident base so the typical structure is a one gig fiber program at about a 60 to 65 you know resident charge um so you're seeing that you're seen that growth in both revenue and expense uh there's some noise in the same store year-over-year comparison because of that but ultimately you know a resident amenity service package does drive revenue growth and and then a Y 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 and just kind of curious how you're thinking about that. Yeah, well, ultimately, again, it's board decision management. You know, we have a view. I think why not now is because, you know, just literally the last kind of 30, 45 days have been incredibly volatile. You know you saw SOFR take up 100 basis points, a 10-year up, you now 116 basis points in 60 days or something like that. So it's something material. You got midterm elections today, and I think there's a lot of good views on the board that study this for a living, and they appropriately, in my view, wanted to get through this period of time. On an annualized basis, the dividends covered won't be in the fourth quarter on a one-quarter spot in time but um you know i think that we'll have a clearer view in the first of the year in january to make a better decision we're already seeing you know with the core we bond you know issues and all the ai trade and demand and and you know that whole story you know play out we're back you know the 10 years off 40 basis points in a week so um yeah again i think it goes back to 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 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 buy us time and not degrade the portfolio by selling assets at a discount that don't make sense in this environment. Because again, we think this is going to be a really good business still, and 2027 is going be better than 2026, at least for us. Right. And so I guess that leads me into the next question. You mentioned, I think, Yvonne, at Pembroke Pines, I believe you said you think it's worth $8 or $9 a share in the the private market. So I'm just curious, like, you know, what consideration have you given to exploring selling, especially some of those larger assets where, you Know, there could be more liquidity and more demand in the private Market, particularly to address, you Know, either capital needs or bring down leverage, you Know, just kind of curious if you've given consideration if that discount is so wide You know, is that something that you're actively considering in terms of kind of addressing that discount near term? Yeah, 100%. I mean, we're looking at every asset every day, you know, getting BOVs from the East Dills, the New Marks, the JLLs, the CBREs, and trying to figure out, you Know, what the assets are worth. I think right now, as we sit here today, spot cap rates are elevated because you have, you know, negative leverage across most value-add deals. Yeah, but I think at the first of the year, we can rifle shot, as I said in my prepared remarks, a couple deals where we've made a ton of money, you know, and generate enough cash flow to pay off that debt. It won't be a bond. You know, that thing is, you Know, a unicorn, so we'll keep, you Know, we'll Keep that and, you Know, operate it well. But I think there's two or three 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 Mills, we've owned forever and have made a bunch of money there and 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 now doing is trying to do something weird like merge, do an off-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, you know, we're highly aligned to do the right thing. Right. Okay. That's helpful. And then last one for me, you Know, on that point, I guess, could you speak to kind of interest in the private market, you Now, for the at the portfolio level, I know it's something you've, you've kind of talked about, if you don't get the cost of capital, and, you the equity performance you're looking for it's something you'd consider so just curious on your latest thoughts on that uh and you know any any conversations or uh interest that you're feeling from potential parties yeah i think i think we have to um you know again give ourselves the grace of getting through this 50-year high of of supply um i think they've largely done that And I think once you see, you know, new lease growth inflect and you get blended lease growth that's positive sequentially for a few quarters, not even a few, just maybe one or two, enough to where the breadth is across the market and everyone's saying the same thing. RealPage is saying the samething, Witten is saying sametthing, Parsons is saying same thing, Burns is saying that same thing then I think that that's when you would look, you To monetize, I think, a portfolio like ours that, again, is 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 and the macro backdrop, a Fed hiking into an economy that is 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'll help our pricing in the private market and the public market. So, yeah, I'd say we're, again, not doing anything right now, but looking forward to the back half of the 2027. If something, you know, is attractive, we'll consider it. All right. That's all for me. I appreciate the filler and thank you for the time. You got it, Peter. You covered a lot. Appreciate you. Your next question comes from the line of Michael Lewis with Truist Securities. Your line is now open. Please go ahead. MICHAEL LEWIS, TRUEST SECURITIES, Thank you. 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 likewise, it sounded like the repairs and maintenance might not carry through more than a quarter or two either. Am I characterizing that right, that expenses should ease, or are they structurally higher now? Yeah, I think that's right, and I'll hit both. The first is a little easier. So there's really two components that drive that 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, you know, our real estate tax control has been really good. I think year to date, you're excluding that our real state taxes are about 1% growth year over year. In terms of the full year outlook, you, know, there is a little bit of an impact, I think Paul mentioned and kind of the you know the bridge to a full year core there's about four cents that i would say we were in august a little bit more optimistic for settlement of some appeals right dallas county tarrant county uh in texas a couple 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 that the full year expectation is for you know tax settlement we're you know um historically very aggressive in terms of you know fighting the counties with with kind of the you know the softness in the market we feel like we have even more ammunition to go and really you know drive some better outcomes on taxes but i think a couple things we think are either you know slipping into q1 particularly in texas right we're not getting to settlement as quickly as we would like you know there could be a little bit of upside maybe in the higher end of our range but i think that you know we took down a couple a couple of refund expectations in the q4 that probably moves into q1 so it's not not a structurally higher you know tax outlook if anything we feel better about you know this year and next year's taxes and then in terms of the repairs and maintenance so you know it kind of balances with what we're seeing with occupancy right we've talked about you know the amount of information we're collecting in terms of you know, the next one intelligence platform, the AI data points, the funnel you know everything everything that we're gathering today is really informing so when we you know are touring a prospect we're you know we're surveying we're getting that feedback and some of I think that some of what we've seen you know that we need to be doing a little bit better is you know building building hygiene maintenance right so we've spent a little bit more heavily on you know contracted pressure washings making sure that you know the landscaping is top notch right as we compete more directly against some of these you know a minus 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 not encountering you know cobwebs things like that but i do think that you know as we look to push pricing uh we took some of that feedback and you know spend spent a little bit more on repair and maintenance you know it's largely you know building and improvements landscape uh and it's kind of you know chunky in terms of the q3 timing of it i don't think that it's it's not necessarily structural um but something that you know we're focused on you know resident resident and prospect satisfaction and that goes to address those those comments okay thanks and then you know what should we read into the october portfolio trends right so the the blended rent spread was 20 bits lower than in 3q occupancy fell 50 or 60 bits in the the month um you know maybe some seasonality there as well but you know 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 you know it seems like we should take from these results that there's you know no reason to expect that now is that fair sorry no reason to expect what a hockey stick yeah you know a sharp recovery in same-store revenue in 27. um yeah a sharp recovery i i guess to to what degree i think i think we're um you know we're going to be incrementally uh positive on um on you know on the revenue side and these numbers like we're not at all pleased with um the occupancy numbers and the new lease numbers and um you know we were pleased with renewals but um yeah i think i i think it's it's fair to say um perhaps that you know the um the analyst community was was right but maybe for the wrong reasons and what i mean by that is um the um the increase in interest rates that we saw over the last 60 days we did feel deal concessions start to creep up right as we were basically recording in Q2, the short term and the long end both rallied, and we saw the development community and the ownership community in our markets, particularly in Sunbelt, start starting to get really defensive. maybe you could say that, you know, 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, you know what revenue will be right now, but I, I don'T, I DON'T see that happening again. If anything, I say, I think I see the opposite and, you KNOW, we're very, very pleased with the job growth numbers in our markets. And, you Know, that's, that'S to our benefit and, And, you know, hopefully we can start getting some of the, you know, some of supply, demand and balance back in our favor, finally. Okay, thanks. And then lastly, for me, I just feel like this needs to be asked, and it's really kind of a, you know how did this happen kind of question. And what I mean is, you know, 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 14 cents. an SFO number that's, you know, expected to be 222, and SOFR is already higher than what you used when you projected your interest expense in the supplemental, and it's forecasted to go higher. So, you Know, what can you do now? You know, it sounds like maybe some asset sales, and, you know, how do you manage leverage, you know, going forward now? Yeah. Yeah, it's a good kind of like, you know, I guess, you armchair quarterback question when we the truth is, is we were focused on swapping a third to half of the portfolio in February and March and didn't hit our targets. Perhaps we're, you know, a penny wise at the time, but we were ready to swap out a lot in the range of, you know, kind of 3.3 on the SOFR swap rate, which would be basically equilibrium on, you know, our 53 cent dividend. So, you know, that's what happened. And then we weren't going to chase it, you know, along the along the way, you know, up and kept getting away from 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, you have been negative for several years and that's not showing up in the data yet. So 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 if 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 are sell assets or reduce the dividend. You know, I don't think we would preferentially take selling assets at a wide discount right now against a backdrop that we think is going to get better for a lot of reasons, even though, you know, some are still bearish. So then, you know that the source of funds is the dividend, And like I said, we still throw off a lot of cash flow. So, yeah, I think the plan is to actively market, actively monitor the swap market, you know, do a disposition here or there that makes sense and not panic and throw our arms up and say, you know what, we lost. So we don't think we lost, we think that, you know, this is a spot in time, you know, kind of had a bad quarter, you know, back quarter or two. But, you know, we also think the windshield is larger than the rear-view mirror for a reason. So, you Know, we're still optimistic. And that'll be the plan. Thank you. Really appreciate you answering the question. You got it. Reminder, if you would like to ask a question, please press star 1 to raise your hand. To withdraw a question press star one again. Your next question comes from the line of Buck Horn with Raymond James. Your line is now open. Please go ahead. Hey, guys. Good morning. Appreciate all the color so far. I kind of want to also follow up on those October trends just to clarify a little bit further. And in terms of, correct me if I'm wrong, I think you guys mentioned that your 4Q assumptions are basically that occupancy will stabilize around a 92.8. But it looks like, you know, the occupancy trend through October has already trended through that number, you know at least by 50 basis points. And maybe it's trending lower. Correct me if that's incorrect. But how do you intend to rebuild occupancy into the seasonally slower period? And you know what kind of, you now levers do you need to pull in order to stabilize that number? Yeah, I'll start, and Bonner, you can add to this. So October is better sequentially on 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, you know, I think my comment was that the fourth quarter portends 91, 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, you Know, in August and September. so i think i think we like the last few months i don't know if you have anything yeah i think you know that's prepared to mark so the the full the full quarter you know average financial occupancy 92a you know this is up a little bit obviously you know have have some work to do from the 9 30 number to fill that out as we mentioned you know the portfolio today is about 94 94.55 94.6 lease um you know there's a spread there right that's the forward-looking least assumptions there are you know some move outs i think that you know in terms of what we're doing so you know closing the back door right um i think we feel really good about you know retention trying to try to get back up to you know high 50s to 60 you know attention to q4 uh really focused on you know just moving kind of the low payers there and the opportunity um taking a little bit off in a lower demand season on some of the higher payers in that that you know subset and then in terms of you know the front door uh i mean we've been we've had heavily focused really for the last uh 90 days on you know making sure you know every asset manager and general market is part of you know 2027 budgeting obviously but but also making sure that you really get back to basics in terms of you know fundamentals as much as you know we've we've highlighted and discussed you know the implementation and utilization of ai and you know the chat functions right the you know immediate response on an inbound call um what i think we're recognizing and recognized over the last you know 120 days is that you know just getting a chat response right you may get an instantaneous response that might not be the warmest touch right it's kind of like you know every every political you know donation text you're getting right now right so we have to be really thoughtful about you know what that messaging is and making sure that it's followed up by a warm body in our office um so working you know working on really the fundamentals on the front end to make sure that we can close and we feel like the the lead to lead to tour tour to app conversion ratios are healthy um we've done you know some incremental things some some special pricing on some units you know there's certainly more concession activity in some of our lower end um and that was i think reflected in the public commentary um and then you know really just focusing on moving the needle i think that you know it's our goal certainly to finish the year at a much better cliff than 92.8 but you know starting from the the base of 930, I think that we work up to, you know, 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, you know, we also referenced a little bit of additional, you know, ad spend marketing, right, that's, that kind of the other other side of the, you know, concession and pricing, right? We've got to make sure in the shifting landscape where, you know, Google search was, you know, the leading driver of so much traffic over the course of the last, you know, 15, 20 years, right, that's really shifting a lot, where, you know, some of our younger, younger tenants are going to, you know, chat GBT and asking, you know, I want this, this, and that, and, you know, this sub market Phoenix, right? We're having to kind of reevaluate really everything that we're doing and making sure that, you know, we're top notch, our, you know, our websites are AI friendly, right. The photos on the website are, you know 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 uh i think that we can certainly do better there but um we're focused really you know across the board on driving occupancy into what we think will be a better year next year we took we took uh revenue down 10 cents to buck just just to state it like we you know it's not like we're like um you know maintaining an equilibrium so so revenue guidance as paul bridged you from 245 at the midpoint to 222 had 10 cents in that number got it okay that's helpful appreciate the color um and just for um clarification just on this wi-fi expense um or added wi-Fi which line item in in same star expenses is that going into utilities or is that in the r m expense line kind of where and you know how i guess how much of the year of your increases in either of those lines is driven by the wi-fi rollout yeah so it's in the r m and we're we're looking at it as it as it continues to grow i think it's now about 20 of the total r m spend for the year it's going to be significant and noisy so it may be something that we look at as we go into you know 10k uh annual audit season that we might want to break out contract services because it's it's getting a lot of scrutiny right we'll continue to do it we think that there's a lot of value and being able to provide you know one gig fiber for 65 bucks we think of fair value and so we you know we've done it across um you know a significant chunk of the portfolio but there's still a lot opportunity left and so we'll have some visibility there um but but again it's something you know as we're as we rolling those contracts on uh from an expense side we're also you know rolling in tenants that are paying for it so it is a you know net positive for the property and the p l gotcha so of that you know roughly 20 year-over-year increase in r m is is like half of that driven by the wi-fi yeah so our resident services line specifically is up about 37 year over year so you know the full year full year is about 2.4 million of added you know there's the significant majority of that is the bulk fiber got it okay very helpful thanks guys appreciate it thanks buck there are no further questions at this time this concludes today's call thank you for attending you may now disconnect Thank you.