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Nexpoint Residential Trust Inc (NXRT) Q3 2021 Earnings Call Transcript

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NXRT earnings call for the period ending September 30, 2021.

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Nexpoint Residential Trust Inc (NXRT -1.95%)
Q3 2021 Earnings Call
Nov 2, 2021, 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, Inc. Third Quarter Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Jackie Graham. Please go ahead.

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Jackie Graham -- Director of Investor Relations and Capital Markets

Thank you. Good day, everyone and welcome to NexPoint Residential Trust conference call to review the Company's results for the third quarter ended September 30, 2021. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer; Matt McGraner, Executive Vice President and Chief Investment Officer; and Bonner McDermett, Vice President, Asset 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 our efforts 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 the 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 measure, 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 and Executive Vice President of Finance

Thank you, Jackie and welcome, everyone for joining us this morning. Appreciate your time. I'm Brian Mitts. I'm joined by Matt McGraner for our prepared remarks. I'll kick off the call with some commentary on the quarter and year and cover our results, wrap up with guidance, which we are again revising upward. I'll then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and we -- revised guidance and NAV upward.

With net migration continuing to our core Sunbelt markets and continued shortage of high quality, affordable housing, NXRT continues to enjoy enormous pricing power, with new lease rates increasing 23.8% for the quarter and renewal rates increasing 10.5% for the quarter across the portfolio. Net migration into our markets continues pretty much updated, which continues to track cap, once cap rates to historic lows in our markets as reflected in our revised NAV calculations. We continue to find attractive deals despite competitive acquisition market and have acquired three assets this year. The current environment also allows us to sell assets that have been fully renovated at a premium and recycle that capital into new value-add products where we can achieve higher rates of return move out of slower growth assets.

Yesterday, we closed on the sale of two assets and Nashville achieving a combined IRR of 36.1% and a multiple on invested capital of 3.55 times. As we discussed before, our growth prospects were not dependent on acquisitions. We continue to achieve significant returns from our value-add strategy where we can move cap rates 75 basis points to 130 basis points over three to five years from acquisition, which makes us less sensitive to absolute cap rate levels. Down growing [Phonetic] and widening shortage of affordable housing in US, which is more acute in our Sunbelt markets as new household formation outpaces new housing deliveries gives us plenty of runway to continue implementing our value add strategy across the portfolio and on new acquisitions.

The increase in net migration coupled with the shortage of housing throughout our portfolio to achieve all-time high occupancies and sets us up to continue to aggressively push rates for the remainder of the year and into 2022 while still maintaining high occupancies. Net loss for the second quarter was $5.4 million or negative $0.21 per diluted share on total revenues of $56.4 million compared to $29.6 million or $1.19 per diluted share in 2020 on total revenues of $31 million. For the quarter, same store rent increased 6.8% and same store occupancy was up 40 basis points at 95.4%. This coupled with an increase in same store expenses of 5.2% led to an increase in same store NOI of $1.9 million or 6.6% as compared to Q3 2020. Reported Q3 core FFO of $16.4 million or $0.65 per diluted share compared to $0.53 per diluted share in Q3 2020 or an increase of 22.6%.

And the last [Phonetic] nine months ended September 30 was $15.7 million or minus $0.62 per diluted share as compared to a $48.2 million gain or $1.91 per diluted share in the same period in 2020. For the year, same store NOI has increased $2 million or 2.4% as compared to 2020. Year-to-date, we reported core FFO of $44.7 million or $1.78 per diluted share compared to $1.64 per diluted share for the same period in 2020 or an increase of 8.5%. We continue to execute our value add business plan by completing 290 full and partial renovations during the quarter and reached 349 renovated units achieving an average monthly rent premium of $172, a 21.2% return on investment during the quarter.

And today [Phonetic] in the current portfolio is at 930 which completed 5,979 full and partial upgrades, 4,554 kitchen upgrades and washer dryer instalments and 10,134 technology packages installations, achieving an average monthly rent premium of $134, $47 and $43 respectively and return on investment at 21.5%, 72.7% and 35% respectively. Based on our current estimate, cap rates in our markets and forward NOI, we're reporting an NAV per share range as follows, $75.03 on the low end, $86.22 in the high end and $80.62 at the midpoint. These are based on average cap rates ranging from 3.5% on the low end to 3.8% on the high end. In the third quarter, we paid a dividend of $34.125 per share on September 30. The Board declared a dividend per share of $0.38 per share payable on December 31, representing a 11.4% increase over the prior dividend. Since inception, we've increased our dividend 84.5%.

Year-to-date, our dividend was 1.74 times covered by core FFO for the payout ratio of 58% at core FFO. For 2021, you're revising guidance upwards as follows, core FFO per diluted share, $2.36 on the low end, $2.41 on the high end for midpoint of $2.38. Same store revenue 4.7% in the low end, 5.1% in the high end, 4.9% on the low end, same store expenses, 5.4% on the low end, 4.6% in the high end, 5% in the midpoint. For same store NOI, 4.4% on the low end, 5.6% at the high end, 5.5% on the midpoint. That's up from 4% from the prior guidance and our core FFO is up $0.03 from $2.35 per share previously. If we achieve our midpoint of 2021 core FFO guidance represent 8.2% increase over a 2020 core FFO of $1.93 per share.

So with that, I'll turn it over to Matt.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Thanks, Brian. As those of used -- followed our Company, our goal is to consistently generate high single to low-double-digit growth and our same store NOI, core FFO and annual dividend. And as Brian mentioned, we're pleased to announce our sixth consecutive increase our annual dividend as well as material increases in both same store NOI core FFO. NXRT continues to benefit from our market and asset selection as well as on the ground operational performance.

Population inflows into our Sunbelt communities continue to -- continue to accelerate with net migration from California and New York dominating our leasing applications, year-to-date, continuing to increased 20% year-over-year. Low migration outflows from our markets and consistent resident retention also explain the material strength in occupancy. Our Q3 same store occupancy ended at 95.4%. That's 37 basis points from a year ago. And as of November 1, our portfolio is 95.1% occupied, 96.8% leased, with a 93.5% trend. Renewal retention for the quarter was 58.4% and accelerated throughout the quarter with July being 55% and ending at September at 62%. These historically high occupancies and trends are driving material rent increases in revenue growth across all of our Sunbelt markets, our same store revenue growth for example exceeded 3.2% and six out of our 10 markets in Q3 with every market experiencing positive rental revenue growth.

In addition, both new leasing and renewal spreads remain elevated. New leases ended the quarter at robust 24%. That's almost 10% higher than last quarter. Renewals finished at a positive 10.5%. For Q3, blended rental growth of just under 16%. Here are the numbers by month, which demonstrate another acceleration throughout the quarter and into October. July new leases were up 23.2% with renewals being 8.4% with a four blended increase of 14.2%. August new leases were up 24.1% with renewals being 10.1% for a blended increase of 15.4%. And September new leases were up 24.4% with renewals being 13.5% for a blended increase of almost 18%. Q3 new lease continues to be strongest in Atlanta, Tampa, Orlando, South Florida, Phoenix and Las Vegas, with each of those markets clearing at least 25% new lease growth. Every market in the portfolio is up at least 14%.

So far in October, new leases are up 26.9% with renewals being 15% for a blended increase of over 21% on roughly 1,000 leases. On the transaction front, yesterday, we completed the sale of Beechwood and Cedar, generating $49 million of net proceeds. As a reminder, these dispositions generated roughly 80 basis point positive cap rate, are funded and completed our reverse 10/31 [Phonetic] into two new Charlotte acquisitions, Creekside at Matthews and The Verandas at Lake Norman. Both of these replacement assets are performing ahead of our expectations and already being in Q3 NOI budgets by over 10%.

On September 10, as Brian mentioned, we closed the previously announced Six Forks transaction and RTP [Phonetic] for $74.8 million at a year one economic cap rate of 4.1%. In addition to generating a cap rate, we also upgraded our portfolio's location and quality with these transaction. We recycled capital out of Nashville submarket with 56,000 in annual median income average within a one mile radius of the assets and then to Charlotte and Raleigh sub markets with the 118,000 annual median income within a one mile radius of these assets.

As you might have noticed, we updated our cap rate range as Brian mentioned to be 3.5% to 3.8% from 4% to 4.3% last quarter. We continue to see aggressive capital, compressed cap rates as demand for quality and affordable housing assets in our markets has never been stronger. During Q3 '21, we ourselves under many deals in our target markets and finished at bridesmaid [Phonetic] on several that went multiple rounds and ultimately -- ultimately culminated in a sealed bid process. During these processes, pricing often moved 20% from initial broker guidance and in some cases pricing win at sub 3 cap rate land. We witnessed the same process as a seller of Beachwood and Cedar, which culminated into a sealed bid ourselves and ultimately sold for a tax adjusted 3.5 cap rate.

Given the underlying growth and fundamentals of Class B, multifamily in Sunbelt markets coupled with how resilient these assets perform during the pandemic, we don't see as an investor appetite abating anytime soon. On the redevelopment front, we completed 290 total rehabs in Q3 to so far in October, we started a 132 and completed 42. We're budgeted to complete an additional 253 full and partial upgrades as well as 141 washer and dryer installs during the quarter. We stand ready to complete these upgrades that we'll adjust the number lower to the extent we retain more tenants at elevated pricing during the winter months. This will allow some of the supply chain issues to abate, which are there but aren't detriment -- are detrimentally material at the moment, at least for us as they relate to delays and appliance deliveries and paint sourcing, both of which we can navigate over that -- over the near term.

As Brian mentioned, we're pleased to announce another meaningful increase in core FFO to midpoint of $2.38 a share. This guidance improvement is largely driven by revenue growth and expense savings and not acquisitions as was the case for prior quarter. Our portfolio's revenue component has been well documented here, but wanted to briefly provide an update regarding property taxes. We've now received preliminary value -- for all assets and are presently appealing or filing suit on 24 of the 41 property values largely concentrated in our Florida, Georgia and North Carolina, Tennessee and Texas markets. We've seen some favorable value nurses issued and protest settled year-to-date and are continuing to aggressively pursue further tax expense reduction on the open protest properties.

Our improved full year 2021 same store NOI guidance forecast incorporates all known reductions, refunds and settlements booked to-date. We're still mildly optimistic about realizing further reductions in the fourth quarter and early -- and into early 2022.

In closing, I wanted to address questions routinely being asked by our investors regarding how long we can generate this degree of revenue growth. As those of you that follow us know, our goal is to provide an affordable but upgraded housing experience that post renovation can still be at a price point comfortably underneath and excess housing option in our markets, which mainly is a new guard in our single family rental. To-date as delta is still as material as it has ever been, we resumed -- we routinely analyzed Class A effective rent data from Axiometrics and RealPage as well as SFR rents reported by the public REITS and our own internal SFR platform. NXRT's Q3 effective whole dollar portfolio rent is $1,183.

In our markets Akcea's [Phonetic] Class A average rent is $1684, an Invitation Homes is $1,974. That leaves roughly a $500 and $800 per month effective rent differential, respectively between our upgraded products in these next best options. We believe this headroom in rents will continue to provide a tailwind for our Company's revenue growth over the near and intermediate term.

That's all I have for prepared remarks. Thanks to our teams here at NexPoint and BH [Phonetic] for continuing to execute. Back to you, Brian.

Brian Mitts -- Chief Financial Officer, Treasurer and Executive Vice President of Finance

Yeah. Thank you. We'll turn it over for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question is from Amanda Sweitzer with Baird.

Amanda Sweitzer -- Robert W. Baird -- Analyst

Thanks. Good morning. Can you provide an update on where you currently stand with loss to lease in the portfolio?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah. So, hey, Amanda, it's Matt. So we are currently, two quick questions -- roughly at $824,000 across the portfolio for the year.

Amanda Sweitzer -- Robert W. Baird -- Analyst

Absolute dollars. Just the GAAP.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah. That's right.

Amanda Sweitzer -- Robert W. Baird -- Analyst

Okay. That's helpful. And then as you think about same store growth into next year, where do you stand and resolve income of those prior casualty events and when do you expect those units to be fully online and no longer impacting same store growth.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I think for us, we're expecting to have cutters be up and running during the first probably toward the end of the first quarter. And then along that same timeframe from a -- from the ice storm, the Houston assets and the Dallas assets should be -- should be hitting in the first quarter as well. So kind of Q2, everything should be back in the full.

Amanda Sweitzer -- Robert W. Baird -- Analyst

Okay. That's helpful. And then last one for me, you did talk in the press release about how you continue to evaluate the portfolio for additional capital recycling opportunities, can you talk about the potential magnitude of that recycling activity and potential locations you're considering for sale of that?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I think -- I don't know if we said on the call that definitely an investor one on ones is that are probably next calling of the portfolio will occur in Houston, our three assets in Houston, specifically old farm, instead increase or probably the first two that would get -- the thinking there is, Houston has been a market that is sort of underperformed, the rest of our core markets, both on the revenue side and then the -- the tax assessors and municipalities are very aggressive in terms of raising tax. So you're going to get the worst of both worlds. And then, we want to continue to overweight markets that have robust growth and lower property taxes and other non-controllable. So those markets for us right now are in North Carolina, Charlotte and Research Triangle which we're spending a lot of time there in especially exports and then Phoenix is another market has probably performed as well as any for us with robust leasing growth and then obviously, they have the -- the statutory limit on property tax increases. So that's helpful there. So, I would say, we continue to focus on those two markets.

Amanda Sweitzer -- Robert W. Baird -- Analyst

Thanks. I appreciate the time.

Matt McGraner -- Chief Investment Officer and Executive Vice President

You're welcome.

Operator

[Operator Instructions] We'll take our next question from Gaurav Mehta with National Securities.

Gaurav Mehta -- National Securities -- Analyst

Yeah. Thanks. Good morning. First question I have is on cost of material, I'm wondering if you could comment on what you're seeing as far as the cost of materials and if that's impacting your returns on redevelopment at all.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah. For us, the cost of materials is really probably focused in two areas, appliances and pain. We're seeing the most increase and it's not necessarily an increase that we can pass along. It's just -- just really getting access to the prices and good, which is about 8 to 10 weeks behind schedule. And I think in terms of that's timing -- and in terms of cost roughly 15% to 20% more, but again work we've been able to pass that on for the upgraded products and to the rents.

Gaurav Mehta -- National Securities -- Analyst

Great. And second question I have maybe big picture on the macro side, I was wondering what your view is on sustainability of the mid three cap rates, even we have tightening of monetary policy in 2022.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I mean, I think you kind of said it in the NAV table discussion, but we don't see investor appetite abating. And then just a wallet share cash and capital out there for assets, notwithstanding inflationary pressures. Most of the world is in a negative interest rate environment and we just think that the -- that those issues, coupled with -- coupled with the cash, how well the growth is in these assets, double digit increases, the ability to pass along inflation reset on a monthly base for rent. And in particularly how well these assets performed specifically guard and affordable B assets in Sunbelt performed during sort of the worst of times over the past 18 months with, had some bad debt issues and collection issues, but generally performed well and were occupied, people paid rent and the revenue didn't turn materially negative. So I think investors from all aspects, from all capital allocation perspectives are too excited of that and we're seeing poor in space right now.

Gaurav Mehta -- National Securities -- Analyst

Okay. Thank you. That's all I had.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Thank you.

Operator

We'll take our next question from Buck Horne with Raymond James.

Buck Horne -- Raymond James -- Analyst

Hey, good morning, guys. Curious, these new lease pricing power you guys are generating is just almost unprecedented right now. Certainly incomes in wages across the economy seems to be improving quite a bit, but I don't know if they're keeping up with 24%, 25% new lease rate increases. So I wonder if you could provide some context around where your rent to income ratios stand or your new applicants who are coming in, maybe what the -- what kind of income are those out of state applications bringing with them, how sustainable are these levels of rent increases given the credit quality of the applications.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah. I think our portfolio average is roughly, I think 26% as it sits today, Buck and that's been -- it's usually been I think for us 23% to 25%. So it's a little bit I think elevated, it doesn't really tell the whole story though, because as I mentioned, from the capital recycling of the assets, our median household income is going up with the location upgrades. So, yeah, $118,000 for the Charlotte and RTP deal versus $55,000 for the Nashville deal. So we've been upgrading our kind of demographic and our job quality throughout the -- throughout the past three or four years. And I just harking it back to just the headroom in rents between what the options are. So again, like, our rates are $1,200, new garden is $1,700 and then SFR far as $2,000. I just think will have the ability, once we get, I think at $100 coin flip between us and next best option I get worried, but $500, $800 respectively. And those -- it's not like solid Class A in SFR are doing the same thing, I mean you see, record increases in both of those property types as well. So I think it's sustainable over the -- certainly over the near term, because there's just not going to be enough supply versus the demand for affordable housing.

Buck Horne -- Raymond James -- Analyst

Great. That's great color. Thank you. Thank you for that. With the certainly improved cost of capital, with how you're underwriting new deals. How are you thinking about where your current leverage target stand? And as you're continuing to pursue new acquisitions, do you think about over equitizing some of those new deals to bring the total leverage down?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah. I think so. I guess the dispositions are going to be -- are probably the highest near term currency, to the extent that we funded acquisitions, the Houston assets for example, because I think that there's going to be a at least a net-net cap rate are, especially if you look at out through year one or year two in a new acquisition, just given the drag in taxes in revenue growth in Houston. And then as we've said from our -- from our NAV table, we think we're relatively cheap right now in the private market values and transaction activity.

And so, we're not necessarily looking to raise a bunch of equity here. Again we don't see that this is going to stop anytime soon. So -- to the extent we found a new deal, we probably add less leverage on the replacement -- replacement assets and an over-equitize it that way instead of issuing equity, but comfortable with where our swaps are, with where all-in interest rate are and where we're hedged over the next 4.5, 5 years. Brian, do you have to anything add to that?

Brian Mitts -- Chief Financial Officer, Treasurer and Executive Vice President of Finance

Yeah, perfect.

Buck Horne -- Raymond James -- Analyst

Perfect. All right, thanks guys. Appreciate it.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Thanks, Buck.

Operator

We'll take our next question from Tayo Okusanya with Credit Suisse.

Tayo Okusanya -- Credit Suisse -- Analyst

Hi. Yes. Good morning, guys. Congrats on the great quarter. First question, could you just talk a little about Vegas, Atlanta and Charlotte specifically kind of negative year-over-year and quarter-over-quarter occupancy trends? And what may be happening in those two particular markets just kind of given how strong everything else was?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, you bet. So Vegas is primarily related to one asset, that's Bloom in which there is -- there are a little bit more concentrated late payers. So when you saw the kind of uncertainty in the eviction moratoriums, they stopped and started again and stopped in July and August. I think that property in particular was hit hardest with this gifts [Phonetic] and so that's, that's primarily a driver about occupancy. Since then we've upgraded a ton of units there, made a decision to go ahead and upgrade them all. And are achieving new leases in the 20%, 25% range there. So that's going to, I think work itself out to be a net positive. Atlanta, kind of the same story with The Preserve at Terrell Mill concentrated issues, again because the eviction moratorium was on off and on again and then off again.

So, I had the same -- had the same issue there. We cleared out a lot of the skips and late payers and of upgraded units there and again, same story 30% plus new lease growth at that asset. And then bi way, and those two assets, we've also received a ton of rental assistance that, that has made a way that will make their way through -- through the income statement through the year.

Finally, Charlotte, primarily related to Timber Creek. So, again -- one asset there. Same story had some skips plus or some bad or not bad debt, but some units down there do to casualty. So those are all kind of the three, I guess problem children, if you will, in those -- in those markets that cause. I think overall relatively minor issues, but not anything that we're worried about long-term.

Tayo Okusanya -- Credit Suisse -- Analyst

Great. Okay, that's helpful. Then the second question, I mean, then just from someone's prior comments, the spreads on the new leases and the renewals are pretty eye-popping. I'm assuming the benefits from the tech packet upgrades and the unit upgrades are built into those numbers. And if they are -- is there will be can just kind of separate the benefits from those big rank jumps you get when you've done that versus just kind of standard kind of rent increases for renewals and new leases.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I mean you're talking about ex kind of value add.

Tayo Okusanya -- Credit Suisse -- Analyst

16% all in, as you mentioned before kind of ex all the value add. If we just kind of really looking at, the "similar unit" what would that number be?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I think the best indicators are your renewal rate, perhaps, which is 10%, 12%, 15%, but then again, like if we didn't upgrade as many units, we signed probably, I'd say probably 500 actually./

Brian Mitts -- Chief Financial Officer, Treasurer and Executive Vice President of Finance

I think are 90 units.

Matt McGraner -- Chief Investment Officer and Executive Vice President

With 390 new leases. And then for Q3 or excuse me 390 upgrades, 349 upgrades for Q3, but we signed 1459 new leases during the quarter at 23.81% for an average increase of $225. So I guess backing out the premium, you're probably still in the mid to high teens, but that's something we can -- we can definitely call and get for you following this call.

Tayo Okusanya -- Credit Suisse -- Analyst

Irrespective of the numbers still, this is a -- this is pretty aggressive increase, it's pretty impressive that there wasn't any kind of bigger impacts on occupancy. So, well done.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Appreciate it.

Operator

We'll take our next question from Michael Lewis with Truist Securities.

Michael Lewis -- Truist Securities -- Analyst

Thank you. I want to follow up on the cap rate discussion a little bit. So the disposition cap rate, the two Nashville bills. I think I missed it, did you say that was a 401 cap?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Those were 3.54% tax adjusted cap rate.

Michael Lewis -- Truist Securities -- Analyst

Okay. And that's on, is that on forward 12 month NOI or is that in place.

Matt McGraner -- Chief Investment Officer and Executive Vice President

In place T3, T12, T3 over T12.

Michael Lewis -- Truist Securities -- Analyst

Okay. So assuming that there is any loss to lease, that's an even lower forward cap rate. Okay. I was -- I was going to say if I was comparing apples to apples with the cap rates you're using for your NAV analysis, but I assume when you calculate your NAV, you're capping forward 12-month NOI as well or is that in place like the cap rate you just get.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, it's forward, but it's nominal. So it's sort of net-net neutral. So the nominal cap rates we -- are the cap rates that we quote for the NAV table are nominal cap rates and our tax adjusted or capex adjusted. The cap rates that we just quoted 3.54 [Phonetic] for Nashville are tax adjusted and are post capex.

Michael Lewis -- Truist Securities -- Analyst

Okay, that's helpful. And I wanted to ask about the royalty acquisition. I assume that's probably a market that you wouldn't mind growing in maybe thoughts on looking to do more there. And I'm also wondering other target markets. How many -- how many markets are kind of in your -- in your pipeline here that you would -- that you kind of survey and are poking around?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I mean, Raleigh turns the biggest focus for us. Right now, we're spending a lot of time, effort, energy, money and resources in that market. The latest research we've seen and being on the ground there. There's over 10,000 jobs over the next 12 months with an average median income of $150 or more and only 3 -- plus or minus 3,000 units of new stock delivered. So that's an incredible dynamic that just doesn't exist in most places, promise capital there or capital is also seeing the same things, we are. So it's just a tough market to enter.

Other than that, frankly, there's not a ton of new places or new markets that we're -- that we're focused on, we've studied Salt Lake City, a little bit in the Mountain West region. Probably not going to spend a ton of time there, but other than Raleigh where we are spending time and Salt Lake could be interesting later and later in the future where we're really happy with our core markets.

Michael Lewis -- Truist Securities -- Analyst

Okay, great. And then just lastly for me, following up on an earlier question about the leverage and look to ask like -- like the leverage did come down a little bit this quarter. But you've got, I think -- you ended the quarter I think with $275 million drawn on the credit facility, it sounds like maybe you reduce some sale proceeds to pay that down a little bit, but how do you kind of think about, sometimes, you run a little bit tight on the facility, how do you think about what it might be worth to you to free up a little bit of dry powder, thoughts on the way you use that facility or how you might do some permanent funding and bring that balance down, I don't know.

Matt McGraner -- Chief Investment Officer and Executive Vice President

I'll start and I'll let Brian finish. I think for us. We -- the, I think we -- well, first of all, we just paid 50 [Phonetic] EBIT down yesterday. So balance is a little bit lower from our dispositions. But you're right, we do run generally drawn in high on the revolver and then utilize the portfolio is currency. We started to do that when we issued a little bit of stock on the ATM. But then -- but didn't realize the market environment, where we were and stops. Because we just saw pricing that was going to run incredibly far, we still believe that. So we're not in a mad dash to issue equity and pay down 2.5% debt right now when our growth rates are increasing. So I think that the current thinking is if we -- if we can reach a position where our new NAV table is, then we -- we might utilize the ATM to delever, otherwise it's going to be disposed.

Michael Lewis -- Truist Securities -- Analyst

Yeah, thanks a lot, Matt. Yeah. Probably. No, I was done, go to the next question.

Operator

We'll take our next question from Rob Stevenson with Janney.

Rob Stevenson -- Janney Montgomery Scott -- Analyst

Good morning, guys. The guidance had same store expense growth coming down from 5.6% down to a midpoint of 5% now, is this just timing of year-over-year comps? Are you really starting to see any material relief in the expense increases on the big items like taxes, people and insurance as we move into 2022?

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I think, Rob, it's largely taxes we -- we utilized a pretty good reversal in the second half of the year in Houston taxes. I think it's almost $2.5 million. So we think that Houston optimistic on some Tarrant County assets and Dallas and Atlanta. I think those are -- those are the main drivers.

Rob Stevenson -- Janney Montgomery Scott -- Analyst

Okay. And so as we start thinking ahead, I mean is it likely to be in the sort of high-4s is where the same-store expense growth is likely to be given the current market environment and the inflationary pressures across the board.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Yeah, I mean I think we're -- I think we're optimistic, it can come in lower, but it wouldn't be -- I don't think it would be largely driven by a big number in repair and maintenance savings or payroll. I think it is largely tax. driven.

Rob Stevenson -- Janney Montgomery Scott -- Analyst

Okay, thanks guys. Appreciate it.

Matt McGraner -- Chief Investment Officer and Executive Vice President

Thanks, Rob.

Operator

[Operator Instructions]I'm showing we have no more questions in the queue at this time. That concludes today's question-and-answer session. Speakers, at this time, I will turn the conference back over to you for any additional or closing remarks.

Brian Mitts -- Chief Financial Officer, Treasurer and Executive Vice President of Finance

Yeah, appreciate everyone's time. We'll talk after year end. Thank you.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Jackie Graham -- Director of Investor Relations and Capital Markets

Brian Mitts -- Chief Financial Officer, Treasurer and Executive Vice President of Finance

Matt McGraner -- Chief Investment Officer and Executive Vice President

Amanda Sweitzer -- Robert W. Baird -- Analyst

Gaurav Mehta -- National Securities -- Analyst

Buck Horne -- Raymond James -- Analyst

Tayo Okusanya -- Credit Suisse -- Analyst

Michael Lewis -- Truist Securities -- Analyst

Rob Stevenson -- Janney Montgomery Scott -- Analyst

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