Earnings Call Transcript - NXRT Q1 2021

Operator, Operator

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, 2021. 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 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. Forward-looking statements can often be identified by words such as expect, anticipate, estimate, may, should, intend and similar expressions and variations or negatives of before. These forward-looking statements include, but are not limited to, statements regarding NXRT's business and industry in general, and NXRT's updated guidance for financial results for the full year 2021 and the related assumptions, including the effects of tornado damage by Cutter's point, expected acquisitions and dispositions shares outstanding and real estate taxes and NXRT's net asset value and the related components and assumptions include including estimated value-add expenditures debt payments outstanding debt and shares outstanding. Guidance for the second quarter of 2021 and the related assumptions, planned value-add programs, including projected average rent, rent change and return on investment expected return to service of units and expected acquisitions and those decisions. They are not guarantees of future results, and forward-looking statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements, including the ultimate geographic spread, duration and severity of the COVID-19 pandemic and the effectiveness of actions taken or actions that may be taken despite the governmental authorities to contain the outbreak or create its impact as well as those described in greater detail in our filings with the Securities and Exchange Commission. Particularly with those specifically described in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's most recent annual report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements. The statements made during this conference call speak only as of today's date, and except as required by law, NXRT does not take 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; net operating income or NOI and net debt, all of which are non-GAAP financial measures of performance or total debt. These non-GAAP measures should be used as a supplement to and not a substitute for, net income, loss and total debt computed in accordance with GAAP. For a more complete discussion of FFO, core FFO, AFFO NOI and net debt via 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, CFO

Thank you, Jackie. I'll begin with the highlights for the quarter, cover results and guidance, and then I'll pass it on to Matt for his insights on the quarter and outlook, after which we will move to the Q&A session. Let's start with the Q1 highlights. Our net income for the first quarter stood at negative $6.9 million, or negative $0.27 per diluted share, in contrast to $28 million, or $1.08 per diluted share, during the same period in 2020. Same-store NOI saw a decrease of $100,000, equating to a drop of 30 basis points compared to 2020. Our Q1 core FFO was $14.1 million, or $0.56 per diluted share, reflecting a 6.9% increase relative to the same quarter in 2020. Total revenue for Q1 reached $51.8 million, with total NOI coming in at $29.6 million, both showing a decline of 1.5% and 1.3%, respectively, from 2020. Q1 2021's NOI margins were at 57.1%, a slight rise from the 57% margin in the same period last year. We have continued to implement our value-add business strategy, completing 285 full and partial renovations in the quarter, yielding an average monthly rent premium of $163 from 421 upgraded units, resulting in a 20.7% ROI for the quarter. To date, we've undertaken 5,543 full and partial upgrades, including 4,364 kitchen upgrades and washer-dryer installations, along with 9,422 technology package installations, leading to average rent premiums of $129, $48, and $44, respectively, and ROI rates of 21.5%, 74.1%, and 33.3%. Given the current cap rates and our NOI, our NAV per share is estimated between $45.07 and $55.31, with a midpoint of $50.19, based on cap rates from 4.5% to 4.8%. This updated NAV shows a 30% year-over-year increase from a midpoint of $38.47 as of March 31, 2020. For the first quarter, we declared a dividend of $0.34125 per share on March 31 to shareholders of record as of March 15. The Board has also announced a dividend of $0.34125 payable on June 30 to shareholders recorded on June 15. Since we started, we have raised our dividend by 66%, and year-to-date, the dividend has been covered 1.65 times by core FFO, resulting in a payout ratio of 61%. Now, for some overarching comments about the business, Matt will provide more comprehensive details later. Despite exceptional challenges in 2020, NXRT navigated through the pandemic quite successfully. We believe that the impact of COVID has further validated the strength of our strategy, market selections, capital allocation strategy, and value-add approach, especially our focus on affordable housing in the Sunbelt markets and the resilience of our tenant base. The net migration into our Sunbelt markets, which has been positive for over a decade, has accelerated due to COVID, as shown in a recent census report. This has caused cap rates to reach historic lows in our areas. With rising population and job numbers in these markets, competition for quality assets has naturally intensified. Since going public, NXRT has established a capital cost advantage over many competitors, enabling us to bid effectively for top assets. Furthermore, our value-add strategy allows us to shift cap rates by 75 to 150 basis points within 3 to 5 years post-acquisition, making us less vulnerable to changes in absolute cap rate levels. The ongoing affordable housing shortage in the U.S., particularly severe in our Sunbelt markets, continues to worsen, with new household formation exceeding housing supply. This presents ample opportunity for us to further execute our value-add strategy across both our existing portfolio and new acquisitions. The combination of increased net migration and housing scarcity has led our portfolio to reach record high occupancy rates and positions us well to raise rates for the remainder of the year while sustaining these high occupancy levels. Given the demand for our renovated units, we anticipate being able to replace nonpaying tenants with new ones, if necessary. The current market conditions also allow us to sell fully renovated assets at a premium, which might underperform relative to other properties in our portfolio, thereby allowing us to reinvest that capital into new value-add opportunities. Regarding collections, since the pandemic began, our tenants have received $1.1 million in government assistance that we have used to cover rent. As of March 31, we have been approved for an additional $615,000 in governmental assistance, awaiting receipt. Furthermore, we have applied for an extra $356,000 in governmental assistance, which we expect to be approved, potentially adding another $1.1 million to our collections in the near future. Let me move to our results for the first quarter. Total revenues were $51.8 million for the first quarter of 2021 compared to $52.6 million for 2020, which is a decrease of 1.5%. Net income declined to negative $6.9 million compared to $28 million in 2020. Core FFO was $14.1 million or $0.56 per diluted share, which is a $0.03 increase over 2020 and represents a 6.9% increase on a per share basis. For our same-store properties, which encompass 13,564 units across 35 properties, the same-store rent increased by 2.2%. Our occupancy for the first quarter of 2021 was 95.3% compared to 94.2% in 2020, indicating a 110 basis point increase. Same-store NOI was $28.3 million in 2021 compared to $28.4 million in 2020, representing a 30 basis point decrease. Before we go to guidance for the remainder of the year, I want to provide a quick note on our same-store results in comparison to Q1 2020. At various times during the first quarter of 2021, we had up to 93 units across multiple properties that were unavailable due to casualty. These units were affected by the winter storm in Texas during mid-February, which is a rare event. Under our convention for identifying same-store properties, we do not exclude individual units that were operational in one period but nonoperational in another period due to a casualty event, as we would with an entire property that is nonoperational due to casualty. For example, Cutter's was completely destroyed by a tornado and has been removed from the same-store pool entirely. If we had excluded these 93 units from the first quarter 2020 results, the period-over-period same-store NOI for Q1 2021 would have shown a 38 basis point increase over Q1 2020 instead of a 30 basis point decrease. However, to maintain consistency, we display our same-store NOI with the results of 93 units included in the Q1 2020 same-store results. Now, let's discuss guidance for the remainder of 2021. We are revising guidance as follows: core FFO per diluted share is projected to be $2.21 on the low end and $2.37 on the high end, with a midpoint of $2.29 per share, reflecting a $0.04 increase at the midpoint. Same-store revenues are expected to increase by 4.3% on the low end, 5.4% on the high end, and 4.8% at the midpoint, which signifies a 30 basis point increase at the midpoint. Same-store expenses are unchanged from prior guidance at 7.7% on the low end, 5.5% on the high end, and 6.6% in the midpoint. Same-store NOI is anticipated to increase by 1.8% on the low end, 5.4% on the high end, with a 3.6% increase at the midpoint, representing a 60 basis point increase at the midpoint.

Matthew McGraner, CIO

Thanks, Brian. Let me start by reviewing our Q1 operational results. Although same-store NOI was essentially flat for the first quarter, due in large part to a double-digit increase in property taxes along with a peak operational comp, we're excited about the portfolio's performance and the positive trends we're experiencing as our Sunbelt markets hit their stride. Cash collections remain favorable to NOFHC comps with 99% of Q1 rents collected and 97.8% collected for April. While federal stimulus and local rental assistance programs that Brian just mentioned have helped, overall, demand for upgraded affordable housing in the Sunbelt continues to register at historical highs. Population inflows into our Sunbelt communities have never been stronger in the history of our company. Net migration from California and New York continue to dominate our leasing applications, accounting for over 25% of our new leases signed during the first quarter, with total out-of-market applications accounting for over half of new lease applications. Low migration outflows from our markets and consistent resident retention also explains strong operational performance during the quarter. Operationally, our communities are experiencing all-time highs in occupancy, as Brian mentioned. Our Q1 same-store occupancy ended at 95.3%. And as of April 26, yesterday, the portfolio is 95.6% occupied, 98% leased with a 93% trend. These historically strong occupancies and trends are allowing us to materially increase rents in most of our markets. Same-store revenue growth, for example, exceeded 2.5% in 7 out of our 10 markets in Q1, with virtually every market experiencing positive rental growth. On the leasing front, new leases ended the quarter at a positive 3.9%. Renewals finished at a positive 2.2% for Q1 blended rental growth of 3%. Q1 new lease growth was strongest in Atlanta, Tampa, South Florida, Phoenix, and Las Vegas, with each market growing rents by at least 5%. Renewals were also positive for the quarter in every market, even in Houston and Orlando. April so far has been even stronger. April to date, we signed over 550 new leases with an average rental increase of 11% and with 7 markets bumping rents by 10% or more. Turning to the transaction front for us, Q1 was relatively quiet. But the market for our product type continues to be historically strong. Here are a few examples of marketed deals we participated in during the quarter, none of which hit. We've been on a deal called Paragon at Kierland, a 2000 vintage value-add in prime Scottsdale location. Guidance registered a $360,000 a unit and roughly a 3% nominal cap rate on in-place numbers. Obviously, we missed that one. We bid on Discovery on Broad, a 2001 vintage value-add deal in Durham, North Carolina, guidance was at 4.25% nominal cap rate on in-place numbers. The property was split up significantly over guidance. Finally, we bid on a deal called City Center on Seventh, a 2013 vintage asset within one mile of our Avon at Pember Pines guidance came in at $210 million or $300,000 unit versus our fully loaded value-add basis of $233,000 units at a van. This guidance represented roughly a 4% year 1 economic cap rate. These examples illustrate to us what an attractive buy Fairways at San Marcos was for us late last year. Since closing that deal, NOI is beating budget by over 16%. Q1 new leases were up 7.8% in April month-to-date are a very healthy 16.7%. Turning to the full year 2021 guidance, we are pleased to announce a $0.04 increase in core FFO at the midpoint of $2.29 per share, reflecting a 30 basis point increase in total revenue to 4.8%. The primary drivers of this increase were lower vacancy losses due to higher occupancy demand and our renewed ability to charge fees and generate ancillary income. On the expense side, we are experiencing modest decreases in both controllable and noncontrollable expenses while maintaining a healthy property tax budget for the rest of the year. Currently, we don't have visibility on 2021 real estate tax values for 16 assets, so we are keeping a conservative budget for those properties. Therefore, with these adjustments, along with a favorable comparison in the second half of 2021, and, most importantly, strong operational performance trends across our portfolio, we are raising the low end and midpoint of same-store NOI guidance to 1.8% and 3.6%, respectively.

Brian Mitts, CFO

Yes. Just quickly before we move to Q&A, I believe my commentary and Matt's have highlighted the strength of the Sunbelt and the value-add and affordable housing opportunities. Interestingly, COVID seems to have accelerated many of the trends we were already observing. We frequently discuss net migration in our calls and investor presentations, and all of this is coming to fruition, providing us with a very favorable platform for growth in the upcoming years. So with that, let's move on to the questions.

Amanda Sweitzer, Analyst

On your comments on your value-add program, kind of what levels of increases are you seeing in terms of renovation costs? And is that impacting your projected ROIs at all today?

Matthew McGraner, CIO

Amanda, it's Matt. No, we're still seeing the 20-plus percent ROIs. In fact, the Q3, Q4, and even the first quarter have remained at that 21% or higher level. Any increases due to labor and/or cost of materials. I know there's been a lot of talk about lumber, et cetera. But list of our sourcing in terms of materials is done in both through BH and their capacity to get discounted pricing and then any additional costs we've been able to pass on to the tenants.

Amanda Sweitzer, Analyst

That's helpful. Good to hear. And then what were the drivers of miscellaneous income during the quarter? And can you talk about your decision to include it in NOI when I believe you've previously excluded it in the past?

Brian Mitts, CFO

Yes. And, so it's Brian. What was included in this quarter was business interruption insurance related to those down units I mentioned. And so we included in NOI to get more of an apples-to-apples comparison to last quarter. As I mentioned, we didn't pull in those units out. So we're still carrying the expense load and Q1 2021. Although, we did get a little bit of offset with the business interruption insurance. But still, it's a pretty big mismatch versus what the going rate for those units where the insurance company has their own for and us for calculating that. But that's what's included in there. And that's why we put it in ROI.

Amanda Sweitzer, Analyst

Yes. That makes sense and what I figured. And then last one for me. On the Tennessee Property Tax rate Susmit, I saw your note on valuations coming in a bit better than expected, but has the mill rate been announced yet? Or is that still an area of uncertainty?

Matthew McGraner, CIO

It's still an area of uncertainty, but there's a lot of forces pulling hopefully in our direction from an ownership perspective. So we're cautiously optimistic there, but nothing has been decided yet.

Amanda Sweitzer, Analyst

Okay. And then is that continued uncertainty delaying your planned dispositions outside Nashville? Are buyers waiting to see what those property tax increases will be?

Matthew McGraner, CIO

Yes, I think the millage rate is less of an issue compared to the tax values that were released last Friday. Now that we have more certainty about the values, we can have better clarity on pricing for our two planned dispositions, Beachwood and Cedar.

Rob Stevenson, Analyst

Just a follow-up, how whole is the business interruption insurance versus if you had them available and leased them at prevailing prices?

Brian Mitts, CFO

So it's about a $200,000 or so differential.

Rob Stevenson, Analyst

Okay. And then how quickly are you guys expecting to be able to get the 93 units down back into service? And were these already renovated units? Or is there an upgrade opportunity? Is there down as well?

Matthew McGraner, CIO

Yes, there's an upgrade opportunity for most of them because there was a pipe burst or some sort of issue with the interior. You might as well renovate the entire unit. We believe that by June or July, we should have all of them back in full operation.

Rob Stevenson, Analyst

Okay. And then last one for me. Anything in particular driving the sub 95% occupancy in Nashville and Las Vegas, given how hot those markets have been? Have you upgrades? Anything in particular asset or anything?

Matthew McGraner, CIO

Yes. There's one particular asset in Nashville that significantly increased occupancy, which was Brandywine. This improvement came after some amenity work we had to address during the storms in the first quarter. In Las Vegas, the situation is more of a one-time occurrence. Currently, our occupancy there is over 95%, making it one of our stronger markets. We're witnessing a migration from California, which has turned into a unique and positive development for us, contrary to what many expected.

John Petersen, Analyst

Great. On the property taxes, my first question is whether the first quarter results include your expectations for the property tax increase on the Nashville properties. Additionally, I was curious about the guidance, specifically if you can differentiate the impact of the four-year property tax increase in Nashville from a more typical property tax increase. What level of normalized operating expense growth are you anticipating for this year?

Matthew McGraner, CIO

Just for Nashville?

John Petersen, Analyst

Well, I guess I'm just looking at your guidance, was it like positive, like 5% to 7% ish, somewhere in that range. I'm trying to think if the 4-year increase wasn't happening in Tennessee this year, what would that number have been?

Matthew McGraner, CIO

Yes. I mean, taxes in the first quarter, for example, in Nashville jumped 77%. And so that didn't happen. We'd be looking at a very different, I think, overall portfolio, same-store reported number. The guidance does incorporate the changes to Nashville which we are already carrying a very healthy budget for. So there's some modest pickup. I think it's about $70,000 ish a quarter to where we budgeted taxes. The underlying kind of uncertainty on those 16 assets that I mentioned. We'll get clarity on, I think, 8 of those between now and the end of next quarter, which should help hopefully give us the ability to tighten that range even more. But overall, for our midpoint of 2021 guidance that's just been revised. We're still carrying an 11-plus percent increase year-over-year at the midpoint. So I still feel pretty good about where we're carrying it, and hopefully, our ability to realize some savings.

Brian Mitts, CFO

John, Matt alluded to it in his answer, but to directly answer your question, Q1 results don't reflect any assumptions that we've been making for guidance. So in other words, it was just what we knew at the time. So to Matt's point, you saw some pretty dramatic increases in taxes in some of the markets in Q1 that we think will decline in our guidance.

Jon Petersen, Analyst

So the OpEx increases are going to get higher from that property tax impact over the balance of the three quarters of the year. But I guess, the upward trend in NOI will be made up for by accelerating rental growth? That the right way to think about that?

Matthew McGraner, CIO

No, I believe the operational expense figures we report reflect the increases we anticipate. We don’t just guess; we consult with our tax advisors, who are quite conservative in their estimates. We push them to determine our projections, which is how we formulate our budgeted numbers for 2021 in Q4, even before having complete information. As the year progresses and our ability to litigate improves, we expect to see some savings. The upward guidance is primarily due to better occupancy rates and lower vacancy losses in Q1. Additionally, we are optimistic about achieving revenue goals throughout the year, targeting growth of about 3% to 4%, a figure we've historically achieved, especially considering the positive net migration trends we’ve mentioned.

Jon Petersen, Analyst

Yes, that's helpful. On the revenue side, how much more aggressive do you think you can be in increasing rents on renewals this year? Also, what was the tenant retention rate in your portfolio for the first quarter?

Matthew McGraner, CIO

I think the retention was 52%. We're being very aggressive. In April, I had to confirm with our team about the numbers because they exceeded 11%, reaching 20% in Florida. We're issuing renewal notices in strong markets experiencing migration from South Florida, Phoenix, and Atlanta. In some cases, tenants are seeing increases of 10% or 15%. This allows us to replace tenants with those willing to pay that or to renovate units and achieve an 11% to 12% increase in the new lease rate. I anticipate this trend will continue in May and June, especially when you see the activity in these communities, which is encouraging.

Jon Petersen, Analyst

Okay. And then just one more for me. I think you guys said 25% of your applications were coming from New York and California. And I think that's about 50% of your out-of-state applications. Can you remind us what those numbers were kind of pre pandemic, so we can kind of have a base level there?

Matthew McGraner, CIO

Yes. It's top of that. So pre-pandemic, at least in Q1 of 2020, California was 8%, 9%, now it's 19%. New York was 1%, 2%, now it's closer to 10%. So it's a doubling year-over-year.

Buck Horne, Analyst

Could you provide the bad debt accrual for the quarter as a percentage of gross revenue? With the additional support expected from government rental assistance, what is included in your guidance for future bad debt accrual? Is there potential for that to stabilize in the latter half of the year?

Matthew McGraner, CIO

Yes. It's Matt, Buck. Q1 bad debt was about $700,000 and then we have it normalizing to $350,000 in Q2, high $200,000 for the rest of the year for a total of about $1.6 million, which is about double what it should be. And in 2020, the whole year was 2.6%. So hopefully seeing that come down, but still healthy enough of a pro forma number within the guidance that might help us see some savings later on of the year.

Buck Horne, Analyst

Perfect. Very helpful. I wanted to also dig in a little bit on the new lease rates in the first quarter, just Houston, Orlando, the two that kind of jumped out is negative. I'm kind of curious about Orlando, in particular, given the strength of that market. But anything in particular in the new lease rates in those markets that's notable?

Matthew McGraner, CIO

Yes, there was one significant issue that we faced, which was related to Sable Palm, the Disney deal. The occupancy became a challenge in the latter half of the year. However, in the first quarter, we improved our occupancy there and observed a decrease in new lease rates of 3.5%. Renewals were up 50 basis points. Currently, occupancy has exceeded 94.5%. In April, Sable showed a positive change of 20 basis points, while renewals were up 60 basis points. Overall, the Orlando market has been performing well this month, with new leases increasing by 5.4% and renewals up by 60 basis points, indicating a solid recovery. Additionally, we have one larger asset in Houston affected by storm-related issues, Old Farm, which also made a recovery in April. The Houston market showed positive results with new leases up 1.6% and renewals up 1.2%.

Buck Horne, Analyst

Awesome. Very thorough. Just quickly, I was wondering about the tightness and competitiveness of the acquisition market. What is a realistic goal for acquisitions and dispositions for the rest of the year, and what do you think is achievable?

Matthew McGraner, CIO

We plan to complete a transaction in Beachwood this year. We have just finalized our business plan, and we anticipate significant profits there. Additionally, we intend to reinvest the proceeds. I believe that a $100 million acquisition target is realistic. However, larger deals or portfolio acquisitions remain challenging for many value-add leverage buyers, especially considering the cap rate. Therefore, we are cautiously optimistic about opportunities in North Carolina and Phoenix, where we can quickly identify $100 million deals and leverage our scale to secure attractive properties for our investors.

John Massocca, Analyst

I guess maybe building on the acquisition environment, how sensitive have cap rates and demand been to interest rate fluctuations and I guess, specifically, was there any change in kind of the broader market, and again, that showed acceleration in rates earlier this year? Or have they largely been more a function of kind of demand?

Matthew McGraner, CIO

Yes, I understand your point. We expected that the rise in interest rates would create opportunities for certain deals to fall through because of the leveraged nature of value-add buyers, but that hasn't happened. For instance, the Paragon deal we bid on in Scottsdale has a 3% in-place cap rate, which means that when you increase leverage, you're just about breaking even. This situation has left us puzzled. The market remains competitive, and while spreads are tightening as interest rates increase, we are still seeing offers for every value deal that is being marketed.

John Massocca, Analyst

Okay. Going back to the first question, how has your approach to rehab budgeting changed, if at all? Specifically, what has been the cost increase for rehab inputs? Alternatively, what is the current expectation for rental income from rehab projects?

Matthew McGraner, CIO

Yes, I don't focus on the actual cost as it has been relatively stable. The primary reason for any increase is that we are purchasing higher quality and larger unit deals. The average unit size is now 800 to 900 square feet compared to the previous 600 to 700 square feet, which naturally requires more materials. However, we have successfully been able to pass on these cost increases and achieve rental increases of 10% to 12%. The demand is strong, which is promising for us since we are fundamentally an internal growth company, and we have an additional 1,500 units planned for this year. We expect to achieve even more in the second and third quarters and deliver positive results.

John Massocca, Analyst

I guess, broadly, what has been the increase in kind of input costs?

Matthew McGraner, CIO

We have decided to pursue higher quality upgrades. Instead of using materials like vinyl countertops, we are opting for quartz. In some cases, we are including high-end appliances and stainless steel finishes. We are making these customized choices because we believe the demographic at these locations desires them and is willing to pay for them.

John Massocca, Analyst

Okay. And then one last detailed question. I know it's a much smaller number than tax. But where do we maybe sit in the insurance cycle? And could there be any impact to kind of insurance expense growth given some of the events this winter, particularly in Texas?

Matthew McGraner, CIO

Yes. So our renewal is March 1. So that basically got priced into our renewal, meaning the winter storm or is best that they could, given the information at the time. We continue to pull different levers like trying to take different risk verticals or horizontals within the stack. But it's certainly been a challenge over the last few years. There's been a lot of events, anything in the hurricane area gets a premium put on it. But as with taxes, we do a lot to manage that situation. And I think with our increasing bulk, we're able to get better pricing and otherwise would be the case if we're a smaller operator.

Michael Lewis, Analyst

I just had a quick question about what Brian mentioned regarding the units not being included in the same-store pool. You have about 93 units across several properties that are excluded in the first quarter. When you provide the full year same-store NOI guidance, will these units remain excluded for the entire year, or will they be added back as they come online? Do you anticipate this having a positive or negative impact? How should we approach this?

Brian Mitts, CFO

Michael, just real quick, just to clarify, we do include the 93 units in the same-store pool. Meaning there is... So as they sell back up then, that will be a to your SAAR growth. Correct. So it's a detractor for Q1 as we compare that to Q1 of 2020. Is the 93 units are in both. Unless we're talking about occupancy or something like that. But as far as results, it's still in that pool. We did get some of the business interruption insurance accrued for in the first quarter, but not all of it. And then we're still carrying all the costs of those properties.

Michael Lewis, Analyst

I understand. So it connects the 2.1% same-store revenue growth from the first quarter to reach the higher guidance range. This may be a small factor, but it will contribute to closing that gap. Actually, maybe I'll ask one more, which maybe you answered this mostly, you got asked a little bit about the new lease rates versus the renewals. I noticed, of course, the new lease rates are more than renewals in a lot of your markets. Is that largely a function of what's happened with the rehabs doing better? Or is there another dynamic there at play that's causing those new lease spreads to be better than the renewal spreads?

Matthew McGraner, CIO

I believe it relates to the upgrades, but more importantly, it highlights the net migration. We’re noticing increased demand and occupancy as people are moving into these markets where we have vacant units. Our revenue managers are indicating that we can aim for certain targets, and despite some stagnation, we are able to raise prices frequently due to the current market conditions. We are seeing a significant influx of residents, so I attribute this primarily to the net migration.

Operator, Operator

Our first question comes from Amanda Sweitzer, Baird.

Brian Mitts, CFO

Great. Well, thank you. I appreciate everybody's participation, and we'll talk next quarter.

Operator, Operator

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.