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Hi, guys –

This is going to be a really short write-up, because I think the opportunity is likely to be fleeting; more than willing to go into further detail in the Q&A!

NXRT is an apartment REIT that's a recent spin-off from the closed-end, NHF. Yeah, I know that doesn't make any sense and you've never heard of anything like that before. The elevator pitch is that they buy fixer-upper class B properties in the SouthEast at decent cap-rates and then get genormous incremental ROICs by actually fixing them up.

They're cheap, although not without risk, and really cheap if the strategy works. They reported $0.32 AFFO for the quarter just ended, and are guiding to end the year with run-rate AFFO of ~$1.50. Slap a 10x multiple on that – which is, again, really cheap – and you've got a ~25% total return in 6 months. Longer term, if the strategy works and people buy into the story, it could go a lot higher than that.

Why so cheap?

• Spin-off.

• General market dislocation.

• REITs and income investing blues in general.

• Small Cap.

• Unseasoned.

Downside is somewhat limited because they're trading for around invested capital; they claim they're worth more than that, due to being good buyers, the passage of time and the success of their value-added program.

At these prices, a capital raise is out. They claim to have their rehab program fully funded by cash on hand, and that they're seeing 9-10 properties they think they could get a 20% IRR on. Even without raising equity, it's possible that they could achieve some kind of growth through capital recycling.

The main risks are:

• 60% debt, which is high, and it's floating albeit capped at 6%

• Texas Exposure; this is almost all Dallas, which is thought (by people who own Dallas property!) to actually benefit from lower oil prices.

• Unseasoned

But down here, I'll take those risks. FWIW, management pegs NAV at $15-$19/share.

The reason the opportunity is likely to be fleeting is, well, they just conducted their first conference call. I recommend giving it a listen. I think it's impossible to do so without saying, “You know, I'm going to take a flier on this thing.”

Yours,

Bowd

Catalyst

The conference call they just conducted.