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NexPoint Residential Trust Inc (NXRT 2.49%)
Q1Â 2020 Earnings Call
May 8, 2020, 11:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the Nexpoint Residential Trust, Inc. First Quarter 2020 Conference Call. [Operator Instructions]
Now at this time, I would like to turn the conference over to Jackie Graham. Please go ahead.
Jackie Graham -- Investor Relation
Thank you. Good day, everyone, and welcome to NexPoint Residential Trust's conference call to review the company's results for the first quarter ended March 31. 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 for the second quarter and full year 2020, NXRT's net asset value and its related components and assumptions, planned value-add programs, including the projected average rent, change in rent return on investment, expected acquisitions and dispositions and the COVID-19 crisis. They are not guarantees of future results and are subject to risks, uncertainties, assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. 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'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 concluded 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. First, I want to welcome everyone to our earnings call here for the first quarter 2020. Obviously, we'll discuss the highlights of Q1. We think it's a really strong quarter. However, I suspect most people are more interested in what's happened past the quarter-end. So obviously we'll spend some time on what we've done in light of the COVID-19 issue and the impact it's had on us and what we see going forward based on that. So before I start, we're going to I think throughout our commentary, we'll touch on two major themes that has kind of been the underpinning of our entire strategy. One is the benefit and resiliency of the workforce housing segment that we focus on and the second is the benefits of our markets in specific geographies. We think both of those are a very strong asset that we have, particularly in this unprecedented time we find ourselves in.
Let me start with some highlights from Q1 other than the COVID situation. We reported net loss for the quarter sorry, net gain, net income for the quarter of $28 million or $1.08 per diluted share, which compared to a net loss of $4.4 million or negative $0.19 per diluted share in the first quarter of 2019. We reported same-store NOI increase to $17.8 million or a 5.6% increase compared to last quarter or first quarter of 2019. And we're reporting a Q1 2020 Core FFO of $13.6 million or $0.53 per diluted share, which is generally in line with our guidance as well as consensus, which is an increase of 15% as compared to same period in 2019. During the quarter, we sold three properties for total gross proceeds of $86.5 million, and net proceeds after debt repayment closing costs of $43.4 million. On the transaction, we realized a 34.2% IRR and a 3.98 times multiple on invested capital.
Total revenue for Q1 was $52.6 million and total NOI was $30 million, which was an increase of 27% and 27% year-over-year, respectively, which reflects the large net acquisition activity we had in 2019. NOI margins for the quarter of 57% which were in line with same period last year of 57%. We continue to execute the value-add business plan by completing four and 12 full and partial renovations during the quarter with 215 of the upgraded units being leased, achieving an average monthly rent premium of $115 and a 23.6% return on the investments during the quarter. Assumption to date across the portfolio as of March 31, we completed 6,914 full and partial upgrades, achieving an average monthly rent premium of $102 and a return on investment of 24.6%. Additionally, to date, we've completed Smart Home technology installs in 8,880 units across 23 properties, and we completed 195 washer and dryer installs in the first quarter of 2020, all of which is included in the 412 full and partial we had for the quarter. Before, we saw the COVID outbreak hit, we utilized the ATM to raise gross proceeds of $28 million at an average price of $50 per share and used the net proceeds to pay down our revolver. And then just a few short weeks later, we used our repurchase program to buy approximately 1.6 million shares of stock, and that's through yesterday, at an average repurchase price of $27.07 per share. We ended the quarter with almost $85 million of free cash available on the balance sheet.
Given the precedented disruption we've seen in the economy over what is certainly an unprecedented short period of time, cap rates and values have become pretty difficult to judge. Nevertheless, we're updating our NAV based on our revised outlook of cap rates and NOI. Given the precedented disruption we've seen in the economy over what is certainly an unprecedented short period of time, cap rates and values have become pretty difficult to judge. Nevertheless, we're updating our NAV based on our revised outlook of cap rates and NOI. For the first quarter, we paid a dividend of 31 cents $0.3125 per share on 31st March to shareholders of record as of March 16. On Monday, our Board declared a dividend per share of $0.3125 payable on June 30 to shareholders of record on June 15. Today, our dividend is 1.68 times covered by our core FFO or a payout ratio of 60% of our core FFO.
Just some brief comments on our COVID-19 response before I turn it over to Matt to give much more detail on this. Q1 started off very strong for us and I think the sector in general. But then, obviously, as we came into March things changed pretty dramatically. Our markets, like I think most of the markets around the country went into a lockdown, a shelter in place, safe-at-home lockdown. We saw unprecedented downward movements in equity markets, interest rates, the real estate market, just really pretty much everything in a very short period of time and saw record unemployment claims over a six- to eight-week period. So with all of this, we obviously took drastic actions, as did everyone. And we've previously disclosed these in some of our press releases. But just a summary is we, through our property manager, BH, implemented new safety protocols for residents and employees. We rolled out payment plans for employees sorry, residents that can verify true hardship, and Matt will give some details on those. We increased communications with our residents with a goal of making sure we were out in front of any nonpayment issues, just to make sure we were maximizing collections or helping residents that had a true need. We immediately drew the available capacity on our credit facility just to make sure we had plenty of liquidity in the balance sheet. And then we increased our stock repurchase plan and immediately began to use that, discussed a little bit earlier.
And finally, before I turn it over to Matt, we've previously disclosed this in a press release on April 16, but we estimated that the expanded unemployment benefits provided by the CARES Act provides, on average, about 92% of our residents' prior income if they've been laid off. Additionally, we estimated 19% of our residents were eligible for 100% of the stimulus provided under the CARES Act. And as Matt goes through the April and the May details around rent collections, we think that those two things have certainly helped us maintain given all things considered, a pretty strong collection across April and May. Just a quick highlight of the Q1 results. Total revenue is $52.6 million for the quarter versus $41.5 million, Q1 of 2019, a 27% increase. NOI was $30 million versus $23.6 million, also a 27% increase. Core FFO was $13.6 million or $0.53 per diluted share compared to $11 million or $0.46 per diluted share or a15% increase. Same-store pool of 25 properties and 9,521 units. Same-store rental income increased 5.8%. That was driven by a 90 basis endpoint 90 basis point increase in occupancy from 93.6% to 94.5% as well as a 2.9% increase in effective rents, which drove a same-store NOI increase of 5.6% from $16.9 million last year to $17.8 million for this year. As far as guidance, I think it's pretty obvious there's a lot of uncertainty in the marketplace, so we are formally withdrawing guidance, I think, in line with the entire sector and our peers. However, we've done a lot of work and analysis around our rent rolls, what we see in our markets. And so Matt's run some stress scenarios that have produced what we think are some pretty compelling, relatively speaking, strong core FFO numbers. So he's going to go into some detail on that, but we are formally withdrawing our guidance for the year.
With that, let me turn it over to Matt and get into some of the details around what we've seen since the COVID outbreak.
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Thanks, Brian. So I'm not going to spend a ton of time on Q1 results, but they were strong, as Brian mentioned, growing same-store NOI by 5.6%. We saw strength across the entire portfolio during the first quarter, as usual, with six out of our 10 markets growing NOI by 5.5%, including strength in Houston, Nashville, Charlotte, Phoenix, Orlando and Tampa. Notable same-store NOI growth markets for the first quarter were Phoenix and Tampa at 15.7% and 14.3%, respectively. On the Q1 operational front, leasing activity and revenue growth were relatively strong at blended new lease and renewal growth rates of 1.6% and 3.5% overall for the portfolio, with our top markets being Tampa, South Florida, Phoenix and Atlanta, posting 3% or better rent growth. Overall occupancy for the portfolio improved 90 basis points year-over-year and finished Q1 for us at a historically high 94.2%. First quarter rent collections were in line with historical norms at 99.2% of billed rent.
On the Q1 operational front, leasing activity and revenue growth were relatively strong at blended new lease and renewal growth rates of 1.6% and 3.5% overall for the portfolio, with our top markets being Tampa, South Florida, Phoenix and Atlanta, posting 3% or better rent growth. Overall occupancy for the portfolio improved 90 basis points year-over-year and finished Q1 for us at a historically high 94.2%. First quarter rent collections were in line with historical norms at 99.2% of billed rent. Our preliminary data for May, as of the close of business yesterday is as follows: Physical occupancy today sits at 94% with 30 and 60-day trends at 93.4% and 91.7%, respectively. Rent collections so far this month totaled 87%, up 4% from the same time last month. So far in May, we have signed a total of 151 leases at a blended rate of 0.47% increase. We expect renewal retention for May to increase or remain north of 60%. For our Q2 rehab pipeline, our new base case is to complete 225 upgrades, almost exclusively full upgrades, as we're temporarily halting partials and incremental additions. We have turned and expect to continue to turn classic units that make financial sense to rehab to full upgrade status. For April, we completed 87 upgrades, and at least 56 of these for a 15.3% rental premium and ROIs of approximately 20%. For May, we are scheduled to still complete 63 upgrades, and in June, our base case assumes we renovate 75 units, slightly better than May.
There is reason to believe that we could do as many as 275 units in total for the second quarter under a more bullish reopening scenario. On the bearish side, we think we'll do 185 upgrades, assuming an additional 35 in June. For the rest of my prepared remarks, I'd like to walk you through our health view of the apartment market and some stress tests, as Brian mentioned, we have conducted on our markets to portfolio line. Here's some observations. Number one, to be sure, we expect a challenging leasing and operating environment over the near term, but we also have a health view on a range of worst-case scenarios, which I'll unpack in a moment. Second, from a macro view, our view is we are fortunate to have constructed a portfolio of high-quality yet affordable residential assets located in the Sunbelt. All of our markets, as Brian said, have reopened already or in the process of reopening by the end of May. This means economic activity in our markets will resume earlier than most of the apartment REIT universe and perhaps will be more immune to underlying government regulations that may be enacted to curtail a landlord's ability to collect rent and satisfy our own economic obligations.
Furthermore, our view is that, number one, pre-COVID, the net beneficiaries of outward migration from gateway and coastal markets are the lower-tax, warm or temperate business climates of Texas, Florida, Georgia, North Carolina, Tennessee and Arizona. And number two, affordable housing will always be in demand. Our belief is that COVID does not reverse these trends but may, in fact, accelerate them, making NXRT's portfolio even more relevant to investors who are trying to get access to positive demographic flows and asset pricing power in an otherwise near-term deflationary environment. As I said, we stressed our portfolio's resiliency using the GFC as a baseline and added a few more draconian assumptions to provide a downside-case scenario to certain operational metrics. Given NXRT's stock performance since the accelerated sell-off in February and March underperformed some even some hotel REITs that own assets that literally closed and have negative EBITDA, we wanted to provide some color on our underlying tenant base and the resiliency of our apartment portfolio. We have conducted a deep dive on the portfolio, literally asset by asset, submarket by submarket, down to each tenant's income, job history, current status and stressed the portfolio. The results were encouraging. We finished 2019 with 57 basis points of bad debt expense to roughly $900,000 portfoliowide. Going deal by deal, we've stressed bad debt over eightfold increased bad debt over eightfold for the year to 4% of revenues or nearly $7.5 million, which is 100 basis points wider than Green Street estimates for the year and 250 basis points wide of the GFC trough.
We were particularly gruesome on Las Vegas, Orlando and Nashville for their hospitality and leisure exposure, and Houston, as it relates to the energy sector, even though our portfolio's underlying tenant base has the following exposure to COVID's "hardest hit" sectors. In Houston, we identified just 51 residents within our portfolio that have direct exposure to the broad oil and gas industry or 4.31% of our rent roll. In Orlando, we identified 200 residents with exposure to hospitality and service industry or 17% of our Orlando rent roll. In Las Vegas, just 6.4% of our resident base or 74 residents have direct exposure to the strip. Given the information related to approved payment plans within our portfolio, BH's operating history that goes back to 1993 on its B and C assets dating back to the GFC, we feel this is a stressed and hopefully too draconian approach to delinquency and bad debt, particularly given collection activity to date and not forgetting that our average rent roll pre-COVID of rent to income ratio in our portfolio was approximately 24%. On the revenue side, we also assume rates to go modestly negative in April through September and flat for the remainder of the year. Physical occupancy is assumed to be 92.9%. Collectively, following these stress scenarios, economic occupancy would decline to 88.7% for the year, implying revenue reductions off of our prior projected market rent of almost $20 million.
On the expense side, we have seen approximately $1.2 million in savings and controllable expenses through April. This scenario, we have applied these trends across the portfolio. In this scenario, we're also keeping noncontrollable flat with our prior assumptions, which if you'd remember, included a 9.25% real estate tax increase from 2019. All told, these draconian assumptions still yield, amazingly, a positive Core FFO comp compared to 2019 of approximately $2.01 per share. On the NAV slide, we have applied Green Street's revised assumptions that they put out on April 19 on the broader apartment sector in their coverage universe, in which, by the way, they believe, as we do, that Class B communities will modestly outperform Class A communities. They are cutting NOI for 2020 by 150 basis points, wider than Green Street does in their assumptions, an increase in cap rates, particularly in Houston and Las Vegas, but we still arrive at a midpoint NAV of $38.47 per share at midpoint, implying we trade at a 25% discount today. So importantly, I just want to thank our teams at BH and NexPoint for all the hard work during this difficult period.
I turn it back over to Brian, and look forward to answering your questions.
Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President
Yes. I appreciate it, Matt. Let's go ahead and turn it over to questions.
Questions and Answers:
Operator
[Operator Instructions] We will hear first from Buck Horne with Raymond James.
Buck Horne -- Raymond James -- Analyst
Thanks, good morning guys, Congratulations on the encouraging results so far. Let's start with I think one of your differentiations in your strategies in your approach to renewals and pricing, knowing that it seems like some of your incoming demand is still holding up, how do you want to approach how are you seeing renewals in terms of what you're asking for going out to whether it's June, July or August? How do you want to handle that pricing strategy? How do you think that will moderate going forward?
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes. We've seen I think as you've seen and mentioned, most of the part of the universe has just taken a broad approach of not increasing any rates, just keeping everyone flat. Our view, given our price point of roughly $1,000 is that we can still grow rents, particularly when there's demand in our markets. So we've taken a site-by-site approach, halted it sort of in April but have resumed that approach, depending upon the trend at the site, the health of the resident base. So obviously, in Las Vegas and Orlando and Houston, we're taking a different approach. But markets where their is underlying strength, such as a Phoenix and a Tampa, we're still trying to modestly increase rents, 2% to 4%, while maintaining our resident retention that we think is going to at close to 60% for certainly for May and possibly in June. We've run scenarios where we think we can have a mid-60s to almost 70% retention ratio. So it's not a one-size-fits-all approach, and it really is site by site.
Buck Horne -- Raymond James -- Analyst
Okay, great. And maybe drill down on or at least put a little extra color on these markets where you think there are whether it's hospitality or oil and gas, you' were talking about Phoenix, Orlando, Houston, Nashville, where there could be some greater degree of sensitivity. Were you able to discern any major differential and rent collection patterns in those markets where employment may have been disproportionately impacted? How are the more diversified markets holding up versus these toward insensitive markets?
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes. No, great question. We have, something we focused on dramatically. So bear with me, but I'll give you some a lot of detail. April collections, the "worst-performing" markets were Las Vegas at 90%, Orlando at 90.4%, Houston at 91.2%. And then well, that's really it. So those kind of three were kind of low 90s. With payment plans and payments made through today, all of those are kind of 92% to 94%, so they are we are seeing an increase.
In May, as Brian mentioned, as we've stated, the collections have been really good. But those same markets, Houston today is at 86%, which is, by the way up dramatically from the same time in April by almost 5%. Orlando, 83.4%; Vegas right at 80%; and Nashville is doing a little bit better at 85%. So those are kind of where the collections stood for April and May, and they were those were the weakest. The strongest were Phoenix, Tampa, Atlanta, DFW. Really, every other market is good, so it's helpful to have diversity, as you know.
Buck Horne -- Raymond James -- Analyst
Great, thank you. I'll get back in the queue. Thank you, guys.
Operator
We'll now hear from Alex Kubicek with Baird.
Alex Kubicek -- Baird -- Analyst
Good morning, guys. Real helpful color on your exposure to those hospitality and oil industry markets. Do you believe there could be some attractively repriced opportunities that drop out of the Vegases and Orlandos of the world with assumed cap rates rising? Feels like if the pain there is really temporary, it could be an opportune time to acquire some things on sale. Just kind of curious what you guys are thinking.
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes, I think it's too early, I think, just for the transaction market to crack. I don't think there's going to be a ton of opportunities in the near-term just because there's not a ton of force sellers and the maturity wall is not that great this year. And then even if there is, there's been a constructive pattern by the agencies to deal with whether it's forbearance or loan extension. So I don't think there's going to necessarily be any forced selling. There will be weak owners. But in these markets, we've tried to pick the best locations and most of the weak owners own inferior kind of submarket tertiary more tertiary assets.
Yes, I don't see a big on-sale apartment transaction market that will appear this year. I just I don't see it with the liquidity in the space, at least for value-add assets. I do think that some of the new lease-up deals that are in supply markets, in our markets, they're coming out of the ground that you can't get as much traffic in and will be somewhat challenged and have concessions and negative rent rolls, but it's not going to be our focus.
I do think, coming out of this, affordable housing is going to be more relevant than ever. I think when you look at all the deflation in the real estate market, you got to try to pick your points on where you can find demand and pricing power. And with unemployment where it is, sure you need jobs to create positive apartment supply, but there won't be any new supply at least for a while. And affordable housing, in our view, is still going to be demand. Particularly on the lower density side. We think that single-family rental and garden-style, affordable housing will be net beneficiaries here.
Alex Kubicek -- Baird -- Analyst
That's helpful. And then just one more quick one for me. Curious how you guys rank stock repurchasing versus other capital deployment options? Obviously, you guys were active as of late. But just curious if your methodology is going to be as the stock continues to trade at a material discount to you guys published NAV.
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes. I mean, we've always been supporters of the stock, particularly at a massive discount. I think if you look at our history of acquiring our stock, we've made money for us and our shareholders. We're not going to raise capital or deploy capital to pay down 2.5%, 3% debt. It doesn't mature for quite some time, so not that interested in doing that. And then when we are active in our stock, it's at during the first quarter and in early April, we were trading at an implied cap rate, even to a stressed NOI number, north of 6.5%.
So we don't think we'll see that again as things normalize, and we know our portfolio and adore it. So I think that's going to be a continued focus of ours versus going out in the transaction market. Putting aside, if there is some great opportunity, we'll always look at it. But we do rank the buyback up there pretty high.
Alex Kubicek -- Baird -- Analyst
All right, thanks for the time.
Operator
And now we'll hear from Peter Abramowitz with Jefferies.
Peter Abramowitz -- Jefferies -- Analyst
Hi, yes. Just wanted to ask about your thoughts on the increased unemployment claims that's set to expire at the end of July. So there's some legislation about potentially extending that. Just wanted to know if you have any thoughts on the potential outcomes and different collections depending on what happens there.
Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President
It seems like the government has been pretty accommodating around things like this, trying to pump stimulus into the economy. And I think unemployment benefits, given the massive number of unemployed newly unemployed that we've seen in the last two months, it seems to make sense that, that's a good use of what physical stimulus they're going to pump into the economy. I mean we could be totally wrong, but it seems like they would extend that if we haven't seen a massive reopening of the economy, which seems like it's going to be slower. I mean, certainly, in our markets they've been front or first movers, but there's still a lot of markets in states that are very large and represent a lot of the economy that had said that they're not going to reopen in the near term. So I would think that they'd do extend that.
Peter Abramowitz -- Jefferies -- Analyst
That's helpful. Thank you.
Operator
We'll hear from Gaurav Mehta with National Securities.
Gaurav Mehta -- National Securities -- Analyst
Yeah. Hi thanks. Following up on employment, do you guys have I guess an idea of what percentage of your residents are unemployed and dependent on unemployment payments to meet their rent?
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes. So I guess going back to Peter's question and then I'd answer yours. This is Matt. We it's not that these aren't C apartments. And so the rent roll is, on-average, household income is $55,000 to $60,000 a year for an average rent of $1,000. Just about 900 people requested out of almost north of 14,000 units requested a payment plan for financial hardship, which is a little less than kind of 7%. So maybe half of those folks lost their job. We have we're currently in the numbers, but it's not like 10%, 20%, 30%, 40%, 50% of our tenant base lost their job. Again, it's at kind of 7% that just requested payment plans, so I think that our view is probably half of those may be undergoing some sort of unemployment.
Gaurav Mehta -- National Securities -- Analyst
Okay. And I guess you guys talked about rent cash collections being better than what you guys saw in April. Can you provide some color on, I guess, what's driving that, and what do you see what are you seeing from your tenant base?
Matthew McGraner -- Chief Investment Officer & Executive Vice President
My personal view is because the states are reopening and folks feel better about their jobs. And I think that that's the #1 driver, and I think that's the driver of the equity investors look at various models and reopenings to anticipate when the economy is going to open up and consumer spending, discretionary or nondiscretionary, is going to resume. And I think that's why you're seeing the numbers increase, personally. Yes, sure, it's going to help if people did get stimulus checks, and they'd feel a little bit better about themselves. But by and large, I think it's our markets that are reopening. I mean, you're starting to see in Dallas more traffic again in some of our other markets, not just foot traffic, but actual people on the road. So it's encouraging, and I think it's good signs for our markets.
Gaurav Mehta -- National Securities -- Analyst
Okay. And lastly, you talked about continuing some of the full upgrades and further renovations. Are you still underwriting similar returns that you're adding pre-COVID on the full upgrade or has your underwriting changed?
Matthew McGraner -- Chief Investment Officer & Executive Vice President
It's the same. Like I said, in April, we actually got a pretty sizable increase in rent. Sometimes, we're 10% to 12%. We got 15% increases in rents, and the place was still 20% to 25% ROI. So we still feel that those that demand is there, particularly in markets that can absorb it and are open and are performing well like our South Florida deals and Phoenix as two examples. So we see those continue. And when they don't, we're not going to pursue them. But for right now, we think that's still a good use of capital.
Gaurav Mehta -- National Securities -- Analyst
Okay, thank you.
Operator
[Operator Instructions] We'll now take a question from Michael Lewis with SunTrust.
Michael Lewis -- SunTrust -- Analyst
Great, thank you. As you talked about, you have really good execution on the equity you issued and repurchased. You've got a nice cash balance now and loan date maturities. I just wanted to ask how you're thinking about your liquidity and leverage, particularly if we're headed for a prolonged economic downturn. Do you think you carry you'll be carrying a high cash balance elevated for a while here? It looks like you don't have anything other than the line really maturing until 2024. It might be early to get on to that, but just trying to balance balance sheet management into the downturn.
Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President
Yes. I think that we until there's more clarity and certainty, definitely, we'll keep higher liquidity. As Matt said before, we're not as concerned about the leverage as I think others may be. And just given where our cost of capital has historically been versus where our debt is and given the longer-term maturities, we want to be cautious about raising a lot of capital at some rate to pay it down when we're kind of at 3% all in. And clearly, we're not in an environment where there's going to be a lot of equity raised. So I think we'll maintain a higher liquidity than normal. We'll be very cautious about spending new capital, whether it's on rehabs, new acquisitions or on stock repurchases.
Matthew McGraner -- Chief Investment Officer & Executive Vice President
I'll just add to that, our free cash flow profile is pretty compelling even under the down $20 million, 4% bad debt scenario that I described. You're still juicing out north of $2 a share, a core FFO number, which supports, in fact, a dividend increase that based on our 65% target payout ratio versus maybe some people that have to cut their dividends, for example. So we feel pretty good about the cash position, the free cash flow profile, but we'll be as Brian said, we'll be smart about it.
Michael Lewis -- SunTrust -- Analyst
Okay. And then you gave some detail on the surprisingly low oil exposure, your tenants in Houston and talked a little bit about the hospitality sector in some of those high-tourism markets. Do you know how many of your renters work in restaurants, retail, hospitality, kind of those high-risk jobs overall for the portfolio? And then I was also wondering, this might be harder to answer, if you know how many of your tenants are working from home or working out of their apartment now.
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes, the former, yes, we have we've gone through the whole portfolio and sort of categorized what we think the exposure is to retail and hospitality and service, and those three buckets add up to about 15% of the rent. And but that retail can include a pharmacist at CVS. So it's not great data, but it is a metric for you.
The work from home, we haven't surveyed folks on that point, but we are I've seen some REITs or questions for other management teams talk about, is this an opportunity to create a WeWork or something at an apartment complex. We already started that trend last year with some of our new acquisitions. And so that could be an opportunity, but anecdotally I'm sure it's happening, but we just don't have the figures.
Michael Lewis -- SunTrust -- Analyst
That's still helpful. That's where I was going with the question. And then just lastly for me, I wanted to ask about property taxes, right? So real estate values might be down, but I think governments are going to be in need of some money after all of this. I don't know if it's too early, but do you have any sense of kind of how that battle over taxes might go? I guess with maybe the risk for all real estate, so kind of curious to get your thoughts.
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes, I'm very passionate about this topic because Tarrant and Dallas County have been ruthless in their approach to landlords, 30%, 40% increase in property taxes year-over-year. My view is it's hard for a municipality in accounting to impose a moratorium on evictions and still, at the same time, argue that value should be going up or billed rates should be going up when you can't enforce underlying collections, which is income. So I think that there's going to be arguments against that. Our tax analysis experts "experts" think that nothing materially goes up, but that we probably won't get any necessarily relief out of this either. So I'm not sure that's a great answer, but that's all I can think of.
Michael Lewis -- SunTrust -- Analyst
That sounds about right.
Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President
Yes. I'd say that it's not baked into any of our assumptions that we're going to get massive tax relief on the property tax side.
Operator
Now moving to a question from James Villard with Ladenburg Thalmann.
James Villard -- Ladenburg Thalmann -- Analyst
Good morning, guys. It's got to be a little too early for this one, but in your stress test so far, have you put any thought into the idea that the jobs in, say, Houston and Las Vegas might not return post this pandemic?
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes. We when you stress bad debt to a global financial crisis plus-plus in Vegas, which we did, an economic occupancy in the mid-80s, which we did, which was in the trough in the global financial crisis. So we took in Vegas. So we took Vegas down 85%. Our view is that's somewhat draconian but maybe perhaps appropriate. And even in those scenarios, we're north of $2 a share a core.
Houston is a much more diversified economy than Vegas. So we feel a little bit better about Houston, particularly at our price point. And quite frankly, the performance of our largest assets there now are some of the best in the portfolio. But that the Houston assets don't concern us as much as it might other folks.
James Villard -- Ladenburg Thalmann -- Analyst
Is there any lag I mean, I guess, with oil and gas layoffs, it would be more, I guess in my estimates, more of a kind of a lag to the compared to the hospitality industry. Do you have any lag built into your models on that one?
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Yes. Yes, we take I mean, we take Houston and Vegas for that matter, and just beat them up all year. I mean, just relentlessly until like yes, I mean there's no letting up until first quarter of 2021.
James Villard -- Ladenburg Thalmann -- Analyst
Okay, that's all from me. Thanks. Thanks for the color.
Operator
[Operator Instructions] And with no additional questions in our queue, I'll turn the call back to your host for closing remarks.
Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President
Yes, thank you. Nothing further from us other than to say that obviously things are moving quickly, and we will continue to communicate relevant information as it happens. And then we've got the virtual May REIT coming up here in a few weeks where we've already got meetings scheduled with some of you, and look forward to talking to investors directly on whatever topics they have. So thank you for your time.
Operator
[Operator Closing Remarks]
Duration: 47 minutes
Call participants:
Jackie Graham -- Investor Relation
Brian Mitts -- Chief Financial Officer, Treasurer, Executive Vice President
Matthew McGraner -- Chief Investment Officer & Executive Vice President
Buck Horne -- Raymond James -- Analyst
Alex Kubicek -- Baird -- Analyst
Peter Abramowitz -- Jefferies -- Analyst
Gaurav Mehta -- National Securities -- Analyst
Michael Lewis -- SunTrust -- Analyst
James Villard -- Ladenburg Thalmann -- Analyst
