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NexPoint Residential Trust Inc  (NYSE:NXRT)
Q4 2018 Earnings Conference Call
Feb. 19, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the NexPoint Residential Trust Incorporated Fourth Quarter 2018 Conference Call. Today's conference is being recorded. At this time, I'd now like to turn today's call over to Ms. Jackie Graham. Please go ahead, mam.

Jackie Graham -- Investor Relations

Thank you. Good day, everyone and welcome to NexPoint Residential Trust's conference call to review the company's results for the fourth quarter and full year ended December 31st. 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 at www.nexpointliving.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. Forward-looking statements can often be identified by words such as expect, anticipate, intend and similar expressions and variations or negatives of these words. These forward-looking statements include but are not limited to statements regarding NXRT's strategy and guidance for financial results for the fourth quarter and full year 2019, expected acquisitions and dispositions, the expected redevelopment of unit, the projected average rent, change in rent and return on investment after redevelopment and planned green improvements.

They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Listeners should not to 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, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements.

This 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 was filed earlier today.

I would now like to turn the call over to Brian Mitts. Please go ahead, Brian.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Thank you, Jackie. I'd like to welcome everyone to the NXRT 2018 fourth quarter conference call. Today we'll discuss highlights for 2018, present our results of 2018, issue guidance for 2019 and discuss the portfolio markets and what we see ahead in 2019 for NXRT. I'm Brian Mitts Chief Financial Officer, and I'm joined by Matt McGraner, Executive Vice President and Chief Investment Officer.

We reported another very solid year with year-to-date same store NOI increase of 7.4% as compared to the same period in 2017. Same store revenue increase of 4.3%, core FFO for 2018 of $1.62, which is $0.21 higher than 2017 or a 15% increase. Total revenues for 2018 were up slightly 1.6% versus 2017, and NOI increased 4.7%. We continue to execute our business plan by renovating 1,432 units during the year, achievement of 25% ROI. We acquired three properties in 2018 for a total purchase price of $131 million and dispose of one property for $30 million for a net increase in 2018 of $101 million. We completed our first ever equity issuance, selling 2.7 million shares at a public offering price of $33 per share in November. Using the proceeds to delever by paying down our corporate revolver and full (ph) which we gear on to fund the acquisitions in Q3. Subsequent to the end of the year we executed two significant transactions. We completed an acquisition of a portfolio of three assets located in Phoenix on January 28 for $132.1 million with 656 units, adding approximately four new units to our renovation pipeline. We also executed a $75 million corporate revolver with a syndicate of banks led by SunTrust and Raymond James. We drew down $52.5 million merely (ph) on the new revolver to fund the purchase of the -- portion of the purchase price of the Phoenix acquisitions.

So with that, let me take you through some of the additional highlights and details of activity in 2018. For acquisitions as mentioned, we acquired three properties for $131 million is located one in Dallas and two in Nashville. Two, three or adjacent existing properties, which we are running together to gain efficiencies. On rehabs as mentioned we completed 1,432 units achieving an ROI of 25%, reception to-date within the current portfolio we've completed 5,661 units, and average cost of $4,909 per unit. With those renovations we've achieved an average rent growth of 10.6% or $93 per unit, we have achieved an ROI of 22.7 -- which helped fuel our NOI and core FFO increases.

For the remainder for 2019 and into 2020, we have ample pipeline for renovations, assuming no further acquisitions. On NAV per share, we updated our cap rates and NOI growth in revising our NOI range on the slide that we include in our supplement every quarter. The NAV is as follows, $38.94 in the high-end, $31.23 on the low end for a midpoint of $35.09, which compares to a midpoint of $33.54 last quarter of 4.6% increase. For dividends, we increased our dividend in 2018 by 10% to reflect the growth in core FFO. So it's our first dividend after going public in April of 2015 increased our dividend 3 times by a total of $0.069 per share or 33.5% increase, keeping in line with our goal to maintain approximately 65% payout ratio on core FFO.

On the green improvement program that we've been talking about the last few quarters, we continue to implement that. We're doing it in conjunction with Freddie Mac. And we replaced plumbing fixtures at 6,930 units since implementing the plan. So far we completed upgrades for 17 of the 28 planned properties saving an estimated 170 million gallons of water, $1.4 million in utility costs, which equates to $17 per unit, and 33% reduction in our water bill.

On share buybacks after aggressively buying back shares in Q1 and Q2, we had no repurchases for the remainder of the year as our stock has traded at or near our premium since then. Our disposition front as mentioned we disposed off one property during the year in early January, so we're net acquirers for the year, which we continue that trend in 2019 with the three acquisitions in January and we think that makes sense given that our stock is trading in at a premium.

And to go through the results for Q4 and year-to-date, total revenues for Q4 2018 were $39.4 million as compared to $34.9 in Q4 '17, so 12.9% increase. Net income was negative $4.8 million or negative $0.21 per share versus minus $4.3 million for 2017 Q4 or negative $0.21 per share. NOI for Q4 of 2018 was $21.3 million versus $19.3 million in the same period in 2017 or 10.4% increase.

Core FFO was $9.2 million for the quarter or $0.41 per share versus $8.5 million in Q4 '17 or $0.40 per share. Q4 same store results across 31 properties comprising 11,091 units, same store NOI was $18.7 million for Q4 of '18 versus $18.4 million for Q4 of '17 which is a 1.2% increase, which was driven exclusively by higher taxes which have been appealed and we'll discuss those later in the call in detail.

For 2018, our total revenues were $146.6 million versus $144.2 million in 2017 for a 1.6% increase. Net income was negative $1.6 million or negative $0.08 per share versus a gain of $56.4 million in 2017 or $2.49 per share. NOI was $80.2 million versus $76.6 million in 2017 or an increase of 4.7%. Core FFO was $35.1 million or $1.62 per share versus $30.1 million in 2017 or $1.41 per share, which represented a 15% increase over 2017.

For year-to-date same store, we had 29 properties in the pool comprising 10,123 units. Occupancy for 2018 was 94.5% versus 93.9% in 2017 or 60 basis point increase. Same store rents increased 4.1% equating to total same store revenue in 2018 of $123.6 million versus $118.5 million in 2017 for a 4.3% increase. Same store expenses in 2018 -- $55.7 million versus $55.2 million or 0.8% increase. Same store NOI was $67.9 million in 2018 versus $63.2 million for 2017 or a 7.4% increase.

Let me move to 2019 guidance which we issue as follows. Net income per share on the low end is negative $0.76, on the high end $0.66 with a midpoint of negative $0.71. Core FFO per share on the low end, $1.82 per share, on the high end $1.91, to the midpoint of $1.87 per share, representing a 15% increase over 2018 at the midpoint.

Same store rental revenue, we're guiding to 4% on the low end, 5% on the high end, the midpoint of 4.5%. Same store revenues, total revenues 4.5% on low end, 5.5% of the high end, with a midpoint of 5%. Same store expenses, 3.3% on the low end, 4.3% on the high end, with a midpoint of 3.8%, which leaves us to same store NOI guidance on the low end of 5%, 7% on the high end with a midpoint of 6%.

Before I turn the call over to Matt, I'll discuss the market, the portfolio and the trends we expect in 2019. I'll discuss real estate taxes in a little more detail.

Real state taxes as everyone probably knows represents our single largest expense item is also expense we had the least control over. Having said that we aggressively can test each assessment and litigate where necessary. We currently have seven outstanding appeals and process. Matt will discuss in more detail in his remarks, we haven't made any adjustments in 2018 for the expected results for these appeals mostly because they're guesses despite prior history that we have in appealing these and we like to take a conservative approach to taxes, particularly things that we don't control. This is a consistent policy implemented throughout the history of the company. However, I want to stress that we do continue to always try to find ways to save on whatever expense whether control or non-control certainly in the tax front where we do -- aggressively can test these and litigate where necessary.

So with that let me turn the call over to Matt to talk about mortgage portfolios and trends.

Matt McGraner -- Chief Investment Officer & Executive Vice President

Thanks, Brian. We are pleased to report another strong year in 2018 as Brian mentioned, finishing the year with 7.4% same-store NOI growth. Our NOI margin improved year-over-year by over 150 basis points to 54.9%. And he also mentioned average rents increased 4.1% with total revenues up 4.3%, and then notwithstanding a material real estate tax increases which I'm going to talk in a minute. Eight out of our 10 markets grew NOI by at least 6.6%. For example, our Texas markets in Dallas and Houston combined grew 7.4%. Atlanta's NOI grew 6.9%. Our Nashville portfolio's NOI grew 7.5%, Phoenix grew 9.4%, and our Florida portfolio combined average NOI growth for 2018 was 7.8%.

Our leasing activity for the fourth quarter and year also remained strong even while placing a greater emphasis on driving occupancy in Q4, which as Brian mentioned improved 60 basis points on the same store pool. We achieved strong effective new lease growth during the quarter with new leases of 3% on average. Our best markets were Tampa, Orlando, West Palm, Atlanta and Phoenix all achieving new lease growth of at least 3.9% or better. Renewal growth to outpace new leases during the quarter at 4.8% and improved 90 basis points from a year ago with seven out of our 10 markets driving rents higher by 4.3% or more. Retention for the quarter in the year was steady at 53%, which for the year was up 200 basis points on the same-store pool year-over-year.

As I mentioned, the key focus of ours in Q4 this year as oppose to years passed was driving occupancy into the new year has set us up for even stronger renewal and new lease growth in the first half of 2019. We improved occupancy 60 basis points in the same-store pool alone and have already started seeing the benefit. January new lease growth was 5.8% and renewal growth was 4.2%. January same-store NOI per -- 6.5%. Midway through February, we're achieving 6.3% new lease growth on a 175 new leases signed, and 4.9% on 300 renewals.

Now turning to the transaction activity before guidance. As a reminder, we acquired 1,084 units last year increasing our presence in our core markets of Dallas and Nashville. Late August, we acquired Cedar Pointe in Nashville, again adjacent to Beechwood for $26.5 million. Recall our plan here is to upgrade approximately 110 units over the next three years and achieve an average annual rent growth of 12.3%. So roughly the five months that we've owned the asset, we are beating our underwritten NOI budget by 14%.

In late September we acquired Brandywine I and II in the Brentwood submarket of Nashville for approximately $80 million. Recall our plan here is upgrade 230 units over the next three years, achieving an average annual rental increase of 12.5%. We are beating our underwritten NOI budget here by 8.5%.

Also in late September we acquired Crestmont Reserve directly adjacent to Versailles in Dallas for $24.7 million. Our plan here is to upgrade approximately 138 units over the next three years and achieve an annual -- average annual rent growth of 11%. We're beating this budget, our underwritten NOI budget here by 12.6%.

Discussing the recent Phoenix acquisition on January the 28th, we acquired three well located assets in Phoenix totaling 656 units for $132 million. This acquisition brought our Phoenix portfolios to 1,855 units or approximately 14% of our total portfolio. We acquired these three assets at a combined 5.3% year one economic cap rate and believe we can grow NOI on these assets at an annual growth rate of 6.5% through 2021 by implementing the management and CapEx value add programs on 400 units over the next two to three years.

Finally, a few comments on our guidance. The 2019 guidance on revenue assumes the following rehabs, which largely mirror the 2018 numbers, (inaudible) predominantly over the first three quarters of 2019. We plan to conduct 1,175 full upgrade and reach an average ROI of approximately 22%. We plan on upgrading 330 partially units or spending 330 partial upgrades at an average ROI of 27%.

We also plan to install washer and dryer sets on at least 1,100 units in 2019 with average ROI's ranging between approximately 35% and 45%. Also importantly our guidance does not include any potential settlements of real estate taxes on these seven assets in DFW in Houston that we elected to litigate throughout the course of 2019 as Brian mentioned. And we were booking a partial approval advantageous settlement offers on these seven material tax increases in Q4 and after delays by the municipality of several conferences into 2019 most of which haven't even occurred yet elected to book the full amount of these accruals and pursue litigation therefore allowing for potential higher recoveries for 2018 and 2019 consistent with what we've achieved in years past to the exercise of litigation. Based on our experience for a better chance of recovery of 2018 taxes and probably more importantly precedent for 2019 we felt it was proper to keep fighting and ultimately expect to reap a greater positive benefit once these tax appeals are either litigated to finality and or settlement conferences actually take place. We expect resolution of these appeals in April through September of this year.

Now to acquisition guidance, it assumes $150 million to $250 million. That's inclusive of the Phoenix 3 acquisitions completed in January and we are actively pursuing assets in Florida, Charlotte and Nashville. Our disposition guidance of $75 million to $250 million assumes capital recycling and renovated assets in DFW, Southpoint in D.C. and potentially the Pointe at the Foothills in Phoenix, all of which would occur most likely in the second half of 2019.

As Brian mentioned, our same-store guidance range is 5% on the low end, 7% on the high-end with 6.6% at the midpoint midpoint, and that's double the Green Street apartment coverage universal average of 3%. We expect our strongest markets for NOI growth in 2018 to be Nashville, Florida, Atlanta and Phoenix.

So in closing I'll just reiterate that we expect another strong year of demand for our value-add affordable housing product, the rent delta between class A and B rent in our markets remains historically wide just over 27% and while we're pleased with 2018, 7.4% NOI growth, we still have a favorable outlook for 2019. We're pleased with the 1,000 plus unit addition to our rehab pipeline. As a result for the acquisitions we've made over the last six months and then we'll obviously work hard to improve these numbers. We're also pleased with the 5% to 7% and 15.4% guidance to same-store NOI and FFO respectively, both of which appear to be among the highest of our smaller and larger peers.

And lastly as always I want to spend great thanks to our teams and NexPoint BH for continuing to execute. That's all I have for prepared remarks.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Thanks, Matt. We'll turn it over now for any questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question will be from Omotayo Okusanya with Jefferies.

Omotayo Okusanya -- Jefferies -- Analyst

Hi, good morning, gentlemen, how are you?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Good morning.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Good. How are you?

Omotayo Okusanya -- Jefferies -- Analyst

Good. A couple from me. First of all, the property taxes. I understand your comments about appealing those taxes, but I'm just curious, I mean it was such a big jump in 4Q that the (inaudible). I'm just curious what they were doing to make the numbers jump so much and what you could potentially appeal. Was it just increase in the actual tax rate, was it actually increasing what they thought the value of the building was, and kind of how does the appeal process works on that?

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Yes, maybe we take a second to kind of go through that process, and keep in mind it differs between the different municipalities. But in general we receive an assessment, at some point of year it's different across different places, but at some point we receive an assessment. Many times we think that the assessment is too high or outrageously too high. So we try to guide into something based on our past experience based on the information we get from the consultants in the various markets to come up with a more realistic yet conservative assessment and a tax from that point.

So we're constantly throughout the year tweaking accruals and thinking about this process. And then as we go through the process, if we don't get a favorable reassessment on appeal, we'll go to the next step. And typically you see that completed by the end of the year, particularly in Texas. As Matt mentioned, a lot of this has been delayed and pushed into 2019 and in most cases we don't even have anything on the calendar as of now.

So instead of -- and really for GAAP you have no basis to not book the full accrual at the end of the year. Instead of having all this settle like we anticipated it got pushed out, so we ended up booking the whole accrual, we didn't attempt to make any estimates as to future recoveries just because it's such an unknown quantity, we thought it was more prudent to just book up the full accrual in the fourth quarter. That's why you saw such a big increase in Q4, we thought we would --

Omotayo Okusanya -- Jefferies -- Analyst

But that's just for seven assets, right, it just seems such a large increase just across seven asset.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Well, that's the process in general. The seven assets continue to be litigated. But as we go throughout the year, you continue to get more and more assessments for different municipalities, and it's not on the same calendar everywhere, there is -- some do it at the end of the year. So you don't know what you're accruing for and we start accruing for the '19 year in this case as we get those assessments.

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes, I'll add two things to that real quickly. So the settlement conferences and these are DFW in largely Tarrant and Dallas County. We are supposed to have settlement conferences or their voice to us in November and December and those have again been pushing into 2019. I think four of which are this week, like two, I think three of them are actually on Thursday.

So what we didn't want to do is what got (inaudible) more in trouble, couple of years ago if you recall in trying to smooth out throughout the year tax increases to address the same store NOI numbers. Instead we just -- what we thought was appropriate thing was take it all for the appropriate year. Now I do think there is opportunity in 2019 to recapture some of these refunds, and it's anywhere in our estimation from 250,000 on the low end to it could be upwards of 600,000. So, we do think that we'll have an opportunity and ultimately some success at achieving refunds. But this is the prudent approach in our view.

Omotayo Okusanya -- Jefferies -- Analyst

Got you. Okay, that's helpful. Then let me just kind of move on to my next question. The Freddie debt on the Phoenix portfolio, one, what interest rate is on that debt? And then two, why that approach to kind of put additional debt rather than just dealing -- the dispositions to kind of fund that?

Matt McGraner -- Chief Investment Officer & Executive Vice President

They were set up -- the answer to the first question is 132 over the one month, Freddie floating rate as we've traditionally done, and then they were all set up as reversed 1031s to facilitate capital recycling. So we still have that ability and plan on using it also with -- to the extent you will see (inaudible) be filed with our K, we'll have that too as well. So I think it's not permanent surge in leverage, it's just a temporary capital recycling that we've done over the course of the last four years.

Omotayo Okusanya -- Jefferies -- Analyst

Got you. And the average duration of that debt is how long of the Freddie debt?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Seven years.

Omotayo T Okusanya -- Jefferies -- Analyst

Seven years. Alright, I'll get off the line and let the next person ask questions. Thank you.

Operator

Our next question will be from Buck Horne with Raymond James.

Buck Horne -- Raymond James -- Analyst

Hey, thanks, good morning. I guess as you address the property tax issue there, I'm just kind of a little more curious, I mean, what exactly was the timing situation with regards to when you understood that the property tax bills coming in were going to require this full catch up on the approval?

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Late November, early December, into this year we -- a little more color, we actually got three -- so they're still seven out there and we had 10 as of the end of the year. Three were settled, we ended up booking those in Q4 of 18. So it's a fluid ongoing process, but that's the kind of the timing as we started to realize that these settlement conferences that happened in Q4. And also keep in mind each time you talk in terms of percentages you're comparing it to something and in this case Q4 of 2017, which is a little bit different situation. So, the increases is dramatic as it seems at 4% to 6%, it's just a bad comparison point.

Buck Horne -- Raymond James -- Analyst

And you guys feel like you've adequately -- have a -- what was the assumption for property tax increase into 2019 guidance?

Matt McGraner -- Chief Investment Officer & Executive Vice President

6% on the same-store. Yes, I think we're being conservative on the property tax guidance for 2019, certainly and what I'd also say to add to Brian's comment was that a lot of these deals especially if they're in the same county are being wrapped together. So they will settle -- they may not settle two at the same time as the third and they may like say, OK, we won't settle these at this price unless you take this one as well. And then you couple that with the fact that we haven't even had some of these settlement conferences. So, sort of the fluid process into 2019 that we're dealing with especially in Texas.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Buck stepping back a little bit out of the kind of details and taxes, for the year we had same-store NOI growth of 7.4%. We had strong results across the board, core FFOs up 15%. So it's unfortunate that the tax piece is unpredictable, hard to estimate and one of the downsides of having lot of portfolio located in these quite low tax states is that they get very, very aggressive on property taxes, that's where a lot of the revenue comes from. So we have to protect ourselves and be very aggressive, and instead of taking the easy route and just taking what was on the table, we thought we could get more and we can push it. But that pushes into 2019, which we're not baking this into our guidance because we just don't know. But there is a situation where in the first quarter, second quarter, we get pretty favorable results and this hits our '19 numbers in a positive way.

Buck Horne -- Raymond James -- Analyst

Okay, that's very helpful. One last quick one, I also noticed a big surge in maintenance CapEx, and specifically kind of the non-recurring maintenance CapEx is kind of double or more than double last year. So I wonder if you could help highlight what happened on the CapEx side, and what kind of level of maintenance CapEx you're budgeting for this year?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes, so the surge is I think largely offset by the income that we're getting as a benefit of what we refer to as a resident amenity service. So that's -- things like valet trash, security alarms that have a correspond solar screens that have a corresponding benefit on the income side. So while -- I think 15% or so for '19 over '18 where we are seeing a corresponding double-digit increase in revenue on that CapEx, so it'a an ROI item.

In terms of the repair -- the ongoing recurring CapEx, which I think that's your question, excluding resident amenity services, that's about $860 a unit, so call it $10 million on the same store pool.

Buck Horne -- Raymond James -- Analyst

Okay. All right, great. Thank you.

Operator

Thank you. Our question will be from John Massocca from Ladenburg Thalmann.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

Matt McGraner -- Chief Investment Officer & Executive Vice President

Good morning, John.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Hey, John.

John Massocca -- Ladenburg Thalmann -- Analyst

As you look out into the -- give you break from the taxes here. As you look out in the pipeline of potential rehabs, are you kind of seeing opportunities to maybe do additional rehabs in kind of more of the legacy assets. I know you traditionally have in rehabs the entire amount of units outstanding in a property you purchased, is that maybe where some of the smaller partial upgrades and kind of appliance additions are going?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes, the partial upgrade program is a huge opportunity and it's largely (inaudible). What we've been doing after we've gone through and renovated the full 5,000 units suite of upgrades, kind of on the second generation we'll add a back splash or upgrade the appliance and that we would consider that a partial. And it's a lower dollar amount spend and a lower dollar amount increase, but the ROIs are phenomenal. So that's an opportunity that exists I think in about 3,000 units in the portfolio, 2,000 to 3000 units.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. That's about 30% of portfolio you'd say then can be these kind of smaller dollar amounts?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes.

John Massocca -- Ladenburg Thalmann -- Analyst

And then, specifically with Southpoint, I mean, have you seen any increase in reverse increase given the Amazon announcement moving to Northern Virginia and has affected pricing at all. I know it's one of the assets you've kind of put up there as disposition, potential disposition candidate?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes, we have, the answer is yes. And yes, we've seen some increased interest just generally after National Multi Housing Conference and reverse inquiries. And it's one that we will sell this year for sure, given that everything has transpired with Amazon, although it's not in Arlington per se, it's still drafting off of the news. And one of the reasons why we lowered the cap rate range modestly by 10 basis points that we do expect to transact with that kind of $23 million to $24 million range this year.

John Massocca -- Ladenburg Thalmann -- Analyst

And then kind of going back to the taxes and maybe other side of things, I mean, are there any outside of kind of DFW in Houston. I know you had been optimistic about giving some kind of positive assessments on appeal and some of the other municipalities, is some of that still outstanding or did some of that hit in 4Q and just get completely wiped out by what was going on in DFW in Houston in the accruals and all that?

Matt McGraner -- Chief Investment Officer & Executive Vice President

So I think the two opportunities are -- we haven't been able to quantify yet, but are in Marietta in Atlanta because we got hit pretty hard there last year. And then Nashville, I think will have a good comp set up for the same store pool going into 2019 because those don't reassess every year. So we're drafting off of kind of a stable tax number and think that will help bring Nashville same store NOI numbers to the top of the heap this year. So those are I think the two opportunities outside of the potential for positive tax appeals in DFW.

John Massocca -- Ladenburg Thalmann -- Analyst

Understood. That's it from me. Thanks very much.

Matt McGraner -- Chief Investment Officer & Executive Vice President

Thanks.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Thank you.

Operator

Our next question will be from (inaudible).

Unidentified Participant -- -- Analyst

Good morning and thank you. Looking at the acquisition in Phoenix, the amount of money that you plan to spend on value-added roughly twice the average that you spent so far, and I'm wondering if that means that the rental is more complex and therefore will take longer and your occupancy will be more affected to the downside because of that.

Matt McGraner -- Chief Investment Officer & Executive Vice President

I don't think so. Merrill (ph). I think that the reason they've gone up modestly I think is because, number one, you have some inflation, right, in labor and materials, but the assets that we've acquired recently are largely larger units. So larger units just require more capital and so the spend is a little bit more, but the ROI's are our correspondingly the same or roughly the same. And then the occupancy is -- we just do these on-turns, we don't see any hiccup there, we're still doing them two, three weeks in-house as units naturally turns. So we plan to continue to drive and maintain our occupancy goals in 2019.

Unidentified Participant -- -- Analyst

Great. Thank you.

Operator

(Operator Instructions) And our next question will be from Tayo Okusanya with Jefferies.

Omotayo T Okusanya -- Jefferies -- Analyst

Hi. Another quick one just around acquisitions and on the guidance range that you provided. When I kind of think about acquisitions, could you just talk a little bit about this year, how you generally expect to fund acquisitions and based on that funding strategy whether transactions you expect them to be accretive right off the gate is the accretion going to be more driven by the value-add work you do over time, and how do you balance again your capital allocation to acquisitions relative to your need to possibly delever?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes. So I think the acquisitions that we're targeting, first of all the acquisitions that we've done in the last six months as you heard I went through Cedar, Brandywine, Crestmont and how we're doing compared to our NOI budgets and those are surprise to the upside quite potently, and we're pleased with that. So we think those will be accretive, not to same store, but certainly going forward especially because in a way they were funded with equity, 2 to 3 equity raise. The acquisitions that we've done -- that we did in January, we're hopeful that they'll be accretive year one, but we're certainly underwriting them to be accretive in year two or once they undergo full year renovations. Like I said, we think we can grow that NOI 6% to 9% a year.

And then balancing, what we've always done is take a look -- taking a look at deals that we've liked and run through the model, the corporate model of how would -- how do we best finance it. Do we (inaudible) do we raise equity, do we hit the ATM, do we do a combination of both. And you can be sure that that exercise occurs for a $20 million deal or $100 million deal. And so I think what we'll see this year is, it just depends on where we are in terms of our stock price and what the bid on the private market is if we're lucky to continue to have a good bid here we'll look to delever and maintain leverage and then delever. We can still do the same thing with selling assets. An upside to our core FFO guidance would be if we didn't have to sell assets. But nonetheless it is currency to use, we can sell anything at any time right now for far more than what we -- where we're trading on implied cap rate basis.

So, I guess the long answer or the short answer from a long winded answer is that we're looking at all the tools in the toolbox, and do you think that we'll hit that acquisition guidance this year.

Omotayo T Okusanya -- Jefferies -- Analyst

That's helpful. Just to go back to real estate taxes for quick second, I think again, you mentioned this idea that -- the successful appeal you may get and about $0.5 million back or so, but again, even if I kind of back that out of your same store 4Q '18 versus 4Q '17, you still get a fairly large kind of 30% quarter-over-quarter increase. And I guess when I think about that relative to your 6% forecast for next year, I'm just trying to understand the differences and why real estate taxes would not go up even more than 6% next year.

Matt McGraner -- Chief Investment Officer & Executive Vice President

Because we sell -- part of the benefit last year are the comp levers, since we had a lower tax number last year because we got some of the settlements that have been kicked out of February and April this year we settled Q4 last year. So that was -- that's part of the benefit, I think are the issue. One of the benefits though hopefully is at least from our consultants and lawyers perspective is that we can toggle '18 and '19 together. So we can say, all right, we'll give a little bit more up in '18, which we have certainly obviously from all these questions and -- but we can lock in lower number of 90 much lower than hopefully 6% increase. So that's the horse trade that we'll look to make, and we think it's possible, we've already done it on several assets (inaudible), and we'll continue to try. But I think that -- I think that's the opportunity.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

And again Tayo with that horse trade 18 is a pretty strong number. So, we thought that's definitely worth the quote cost here because we saw a very good quarter, and this is all accrual based. In the end, we think that our tax numbers are pretty strong because we don't just take the assessments, we don't just settle out a convenience for an easier path. We look to truly maximize our bottom line.

Omotayo Okusanya -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Our next question will be from Jim Lykins with D.A. Davidson.

James Lykins -- D.A. Davidson -- Analyst

Hey, good morning guys.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Hey, Jim.

James Lykins -- D.A. Davidson -- Analyst

So back to -- Good morning. So, back to the Phoenix portfolio, first of all, I apologize, I missed this, but how many value add units are there?

Matt McGraner -- Chief Investment Officer & Executive Vice President

400.

James Lykins -- D.A. Davidson -- Analyst

400?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes.

James Lykins -- D.A. Davidson -- Analyst

Okay. And any additional commentary on that transaction. Anything you can tell us about maybe occupancy, average rents, what the vantage is, how you will be leveraging efficiencies?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes. Great questions. Average vantage is two assets were built in '95, one was built in '94, they're all large units, some have 9 foot ceilings, two of them have 9 foot ceilings, the other one has 8.5, extremely well located, I guess they're larger units and they're smaller size, so you can run occupancy pretty heavy and push rents there. The average rent I think across the three of them are a little bit higher than our Phoenix average at about $1,200 a unit. Yes, they're also in more affluent areas than our other deals. So, we think it's a great potential replacement -- for replacement assets for kind of Pointe at the Foothills when you're selling not a lower quality location, but certainly a deal where we harvested gains and made some money. So that was the theory, stuff that we've done in the last three or four years.

James Lykins -- D.A. Davidson -- Analyst

Okay. And for value-added, you mentioned the number of full and partial upgrades, should we be thinking about that weighted equally each quarter. What will be a good run rate to use?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Yes, I think this year, we're always trying at 400 a quarter. I think 350 to 400 a quarter is still a good number.

James Lykins -- D.A. Davidson -- Analyst

Okay. And as you look across the portfolio right now, how long do you think it's sustainable to stay north of the 20% ROI's on value add?

Matt McGraner -- Chief Investment Officer & Executive Vice President

Certainly through this year and then through next year. I think we ended the prepared remarks by saying the demand is still there and the gap between A and B is still 27%. I mean that's our story, has been forever, and will continue to be, we're not going to start buying new deals or see properties, we just think that these space will continue to exhibit this nice little window affordability with the ability to drive outsized returns by delivering CapEx solutions. I think that story is going to continue as long as there is a need for affordable nice low located housing in the United States certainly in our markets.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

And Jim for 2018 in our ROI for renovations was 25%, so they were pretty -- coming to '19 of 20% number. Yes, we think 22% or so for this year is very achievable.

James Lykins -- D.A. Davidson -- Analyst

Okay, thanks guys.

Matt McGraner -- Chief Investment Officer & Executive Vice President

Thanks, Jim.

Operator

Thank you. I'm showing no further questions in the queue at this time.

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Alright, we'll wrap it up. Thank you to everybody for participating.

Duration: 48 minutes

Call participants:

Jackie Graham -- Investor Relations

Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President

Matt McGraner -- Chief Investment Officer & Executive Vice President

Omotayo Okusanya -- Jefferies -- Analyst

Omotayo T Okusanya -- Jefferies -- Analyst

Buck Horne -- Raymond James -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Unidentified Participant -- -- Analyst

James Lykins -- D.A. Davidson -- Analyst

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