NexPoint Residential Q3 2026 Earnings Call Transcript

NexPoint Residential (NYSE:NXRT) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

NexPoint Residential Trust reported Q3 results below expectations with Core FFO at $0.52 per share, $0.07 below consensus, leading to a lowered full-year guidance for Core FFO and same-store NOI.

The company highlighted increased expenses as a significant factor in the NOI decline, driven by Nashville real estate taxes, resident amenity services, and higher controllable costs.

A strategic acquisition of Midtown Crossing was completed, with plans to pair it with asset dispositions to manage leverage.

Interest expenses increased due to rolled-off swaps and higher rates, impacting financial metrics, while the board is considering adjustments to the dividend amid macroeconomic volatility.

Management remains optimistic about 2027, expecting improved market conditions, and emphasized strategic expenses to attract residents and maintain property competitiveness.

Full Transcript

OPERATOR

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

Carli Musser (Communications and Corporate Affairs)

Thank you, Al. Good morning, everyone, and welcome to the 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 McGregor, 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.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations, assumptions, and beliefs.

Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company’s most recent annual report on Form 10-K and the company’s other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements. The statements made during this conference call speak only as of today’s date and, except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements.

This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, 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.

Matt McGraner (Real Estate)

Thank you, Paul. On the revenue side, operations are still moving sideways as he 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. 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 to 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 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 six weeks free. And it’s reached the older buildings like ours: about a quarter of units in 1990s-vintage buildings now offer concessions, up from 18% three years ago. 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 trade-outs rise quarter over quarter by 100 basis points and reach basically equilibrium for the quarter — another positive sign.

Conversion improved: 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 of gross potential revenue, flat with last year. Rent-to-income across the portfolio is about 21% on average household income of about $86,500. Atlanta’s operations are stabilizing and provide a useful roadmap.

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 are up and other income grew 29%. Most of the fiber fees offset the new amenity cost. In October, leased was 95.3% against 92.3% physical, and that gap is signed leases. We expect move-ins 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 expect to retire the Midtown borrowings; any incremental amount thereafter creates buyback capacity. Second, we’ll buy back stock with sale proceeds while we trade at roughly north of a 7% implied cap rate on our NOI guidance. On October 26th, 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 on 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 31st, is not affected.

In closing, operations remained challenged in Q3 as we digested 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 our 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 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’s worth far more than the stock. Our NAV midpoint 33 at 38 point, or $38.33 a share, and the stock trades around 18 bucks. 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.

OPERATOR

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one 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 Abramowicz with Deutsche Bank.

Your line is now open. Please go ahead.

Peter Abramowicz (Analyst at Deutsche Bank)

Yeah, thanks for taking the question and I appreciate all the color in the prepared remarks. Just wanted to ask, I guess as you kind of approach year-end and do your 2027 budgeting process, you know, it’s been a very challenging. So, you know, as you kind of look across your markets and your footprint, not only from a supply-demand perspective, but also an operational perspective, you know, 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?

Matt McGraner (Real Estate)

Yeah, hey Peter, thanks for the question. I think the math gives us confidence. We were doing a little work about the supply coming out of the GFC and, you know, 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. You know, we’ve been probably a little bit too optimistic in 2026, as I think the rest of the, you know, the Sun Belt peers have also.

We also didn’t forecast Iranian war, the AI trade becoming what it is today, and then, you know, a lot of the other macro factors that I don’t think will replicate in 2027. So I think, you know, as we’re not done with the budgets, but we’re reviewing them now, and I think we see, you know, reasons for optimism just from the supply picture alone. We think that migration into the Sunbelt markets will continue. You know, there’s 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, you know, the midterm elections will maybe portend some new net international immigration, which will be, you know, 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.

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.

Peter Abramowicz (Analyst at Deutsche Bank)

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

Matt McGraner (Real Estate)

Yeah, I think if you strip out the—it’s a net neutral effect on NOI, because if you strip out the expenses— I don’t know, Vaughn, what do we say the expense was at?

Vaughn

Yeah, 1.9%.

Matt McGraner (Real Estate)

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 that 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 revenue and it’s also in resident amenity fee income. So the net effect, and we spoke to it on the call, you know, our resident amenity service platform provides a margin; I believe for the third quarter it was a, you know, $400,000 operating profit on those expenses.

The noise of it is just getting through, you know, the volume of, you know, 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. So you’re seeing that, 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.

Peter Abramowicz (Analyst at Deutsche Bank)

All right, I appreciate that. And then a question on the dividend. You know, I think you said you may revisit that, you know, next quarter, but I guess, just curious, kind of why not, why not reduce it now? You know, put yourself in sort of a more conservative position and just kind of curious how you’re, how you’re thinking about that.

Matt McGraner (Real Estate)

Yeah, well, ultimately, again, it’s a 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 saw SOFR tick up 100 basis points, the 10-year up 116 basis points in 60 days or 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 study this for a living, and they appropriately, in my view, wanted to get through this, you know, this period of time.

You know, on an annualized basis, the dividend’s covered. You know, it won’t be in the fourth quarter on a one-quarter spot in time. But, 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 that whole story, you know, play out. We’re back, you know, the 10-year is off 40 basis points in a week. So yeah, again, I think it goes back to we’re not panicking.

And I think that if you look at, you know, the appropriate time to make that decision is when we have more information. And I think that that’s why they’re not saying, you know, let’s do something today, but that 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, you know, degrade the portfolio by selling assets at a discount that don’t make sense in this environment because, again, you know, we think that this is going to be a really good business still and 2027 is going to be better than 2026, at least for us.

Peter Abramowicz (Analyst at Deutsche Bank)

Right. And so I guess that leads me into the next question. You know, you mentioned, I think, Yvonne at Pembroke Pines, you, I believe you said you think it’s worth eight or nine dollars a share in 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, 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?

Matt McGraner (Real Estate)

Yeah, 100%. I mean we’re looking at every asset every day, you know, getting BOVs from Eastdil, Newmark, JLL, CBRE, 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 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 and generate enough cash flow to pay off that debt.

It won’t be a bond, that thing is a unicorn. So we’ll keep that, operate it well. But I think there’s two or three deals of some size and 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 can sell it and generate a lot of cash and feel good about, you know, where that could possibly trade in the near term. So we’re not worried about, you know, paying down this stub of debt on the facility. And then, you know, to the extent that we can generate excess cash, we’ll buy the stock aggressively like we have in the past.

And what we’re not doing is trying to do something, you know, weird like merge, you know, doing an all-stock deal or something, you know, down here because we protect the equity. I mean, keep in mind we own 20% of the company as management and board. So, you know, we’re highly aligned to do the right thing.

Peter Abramowicz (Analyst at Deutsche Bank)

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 know, 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, you know, the equity performance you’re looking for, it’s something you’d consider. So just curious on your latest thoughts on that and, you know, any conversations or interest that you’re feeling from potential parties.

Matt McGraner (Real Estate)

Yeah, I think we have to, you know, 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, 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 same thing.

Witten’s 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 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, you know, sort of one trade.

And, you know, I think interest rates are likely to be, you know, potentially broken, you know, if we continue this path. So that’s something else we’re watching. You know, you get any more retracement back in the risk-free rate, then that’ll help our pricing in the private market and 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.

Peter Abramowicz (Analyst at Deutsche Bank)

All right, that’s all for me. I appreciate the filler and thank you for the time.

Matt McGraner (Real Estate)

You got it, Peter. You covered a lot. Appreciate you.

OPERATOR

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

Michael Lewis (Analyst at Truist 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?

Brian Mitts, CPA (Chief Financial Officer)

Yeah, I think that that’s right. And I’ll hit both. The first is a little bit easier. So, you know, there’s really two 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 the 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 know, excluding that, our real estate 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, in kind of the, you know, the bridge to full-year core, there’s about 4 cents 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 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, you know, tax settlement.

We’re historically very aggressive in terms of, you know, fighting the counties. With kind of the, you know, 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, 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 of refund expectations in 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, you know, everything that we’re gathering today is really informing. So when we, you know, are touring a prospect, we’re surveying, we’re getting that feedback. And 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, 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 A, A-minus and new construction deals, we’ve got to make sure that, you know, our seasonal flowers are top notch, our buildings are fully maintained. Right. We’re not encountering, you know, cobwebs, things like that. So I do think that, you know, as we look to push pricing, we took some of that feedback and, you know, spent a little bit more on repair and maintenance.

You know, it’s largely building improvements, landscape, and it’s kind of, you know, chunky in terms of the Q3 timing of it. I don’t think that it’s necessarily structural, but something that, you know, we’re focused on: resident and prospect satisfaction. And that goes to address those comments.

Michael Lewis (Analyst at Truist Securities)

Okay, thanks. And then, you know, what should we read into the October portfolio trends? Right. So the blended rent spread was 20 bps lower than in 3Q, occupancy fell 60 bps in the month. 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, 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?

Matt McGraner (Real Estate)

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

Michael Lewis (Analyst at Truist Securities)

Yeah, you know, a sharp recovery in same-store revenue in 27.

Matt McGraner (Real Estate)

Yeah, a sharp recovery, I guess. To what degree? I think we’re going to be incrementally positive on the revenue side and these numbers. We’re not at all pleased with the occupancy numbers and the new lease numbers, and we were pleased with renewals. But yeah, I think it’s fair to say perhaps that the analyst community was right but maybe for the wrong reasons. 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, then 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. 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. Hopefully we can start getting some of the supply-demand imbalance back in our favor finally. Yeah, it’s a good kind of, you know, armchair quarterback question. The truth 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 were 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 a 53-cent dividend. So that’s what happened, and then we weren’t going to chase it along the way up, and it 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 rents have been negative for several years, and that’s not showing up in the data yet. 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, I think it’s more likely if the Fed continues to hike into this economy and ignores the effects on the commercial real estate universe and the credit markets and regional banks, credit conditions will continue to get tight and something is liable to break there. That’s 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.

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 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 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. We don’t think we lost. We think that this is a spot in time. Kind of had a bad quarter, you know, bad quarter or two. But we also think the windshield is larger than the rearview mirror for a reason. So we’re still optimistic, and that’ll be the plan.

You got it.

OPERATOR

Reminder, if you would like to ask a question, please press star one 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.

Buck Horn (Analyst at Raymond James)

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. 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?

Matt McGraner (Real Estate)

Yeah, I’ll start, and Bonner, you can add to this. October is better sequentially on September, obviously, from new leases. Ending occupancy down 50 basis points, but the trend and the renewal retention both are up. 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. We took a lot of pain in August and September, so I think we like the last few months.

But I don’t know if you have anything.

Bonner McDermett (Senior Vice President – Asset & Investment Management)

Yeah, I think that’s in the prepared remarks. So the full quarter average financial occupancy, 92.8 — that’s up a little bit. Obviously we have some work to do from the 9/30 number to fill that out. As we mentioned, the portfolio today is about 94… 94.55946 leased. There’s a spread there, right. That’s the forward-looking leased assumptions — there are some move-outs. In terms of what we’re doing: closing the back door. 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, we’ve been heavily focused really for the last 90 days on making sure every asset manager has been 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 — 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, you may get an instantaneous response; that might not be the warmest touch. It’s kind of like every political donation text you’re getting right now. 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 the fundamentals on the front end to make sure that we can close, and we feel like the lead-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. It’s our goal certainly to finish the year at a much better cliff than 92.8, but starting from the base at 9/30, I think we work up to probably peak occupancy around the end of the year — that’s 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. 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, that’s really shifting a lot, where some of our younger tenants are going to ChatGPT and asking, “I want this, this, this, and that in this submarket, Phoenix.”

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, 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.

Matt McGraner (Real Estate)

We took revenue down 10 cents too, Buck, just to state it. It’s not like we’re maintaining an equilibrium. So revenue guidance, as Paul bridged you from 2.45 at the midpoint to 2.22, had 10 cents in that number.

Buck Horn (Analyst at Raymond James)

Got it. Okay, that’s helpful. Appreciate the color. And just for clarification, just on this Wi-Fi expense or added Wi-Fi: which line item in same-store expenses is that going into — utilities, or is that in the R&M expense line? And how much of the year-over-year increases in either of those lines is driven by the Wi-Fi rollout?

Brian Mitts, CPA (Chief Financial Officer)

Yeah, 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 10-K annual audit season — we might want to break out contract services because it’s getting a lot of scrutiny. We’re continuing to do it. We think that there’s a lot of value in being able to provide one-gig fiber for 65 bucks; we think that’s fair value. We’ve done it across a significant chunk of the portfolio, but there’s still a lot of opportunity left, and so we’ll add some business. But again, 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 and the P&L.

Buck Horn (Analyst at Raymond James)

Gotcha. So of that roughly 20% year-over-year increase in R&M, is like half of that driven by the Wi-Fi?

Brian Mitts, CPA (Chief Financial Officer)

Yeah. So our resident services line specifically is up about 37% year over year. For the full year, it’s about $2.4 million of added — the significant majority of that is the bulk fiber.

Buck Horn (Analyst at Raymond James)

Got it. Okay. Very helpful. Thanks, guys. Appreciate it.

Matt McGraner (Real Estate)

Thanks, Bob.

OPERATOR

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

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