NexPoint Residential Trust, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. NexPoint is an externally managed REIT focused on value-add multifamily properties, primarily in the Southeastern and Southwestern United States. At quarter-end, its portfolio comprised 39 properties and 14,485 units, approximately 94.0% leased.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $69.8 million | $68.1 million | $208.6 million | $194.6 million |
| Operating income before real estate sale gains | $10.4 million | $11.0 million | $33.5 million | $20.8 million |
| Gain on real estate sales | $43.1 million | — | $43.1 million | — |
| Net income (loss) attributable to common stockholders | $33.7 million | $(0.6) million | $25.9 million | $(13.0) million |
| Diluted EPS | $1.28 | $(0.02) | $0.99 | $(0.51) |
| FFO per diluted share | $0.55 | $0.94 | $2.05 | $2.34 |
| Core FFO per diluted share | $0.65 | $0.84 | $2.14 | $2.38 |
| AFFO per diluted share | $0.76 | $0.93 | $2.45 | $2.65 |
Same-store NOI increased 8.0% in Q3 to $38.4 million and 9.5% for the first nine months to $107.9 million. Same-store Q3 rent per occupied unit was $1,529, up 3.1% year over year, while occupancy was 93.9% versus 94.0%. For the full portfolio, effective rent per occupied unit was $1,507; management attributed rent growth to its value-add program and market rent increases.
Net cash provided by operating activities was $81.8 million for the nine months, compared with $69.6 million in 2022. Investing activities provided $18.0 million, reflecting $69.4 million of net property-sale proceeds and $56.9 million of property additions; the prior-year period used $179.5 million, largely reflecting acquisitions. Financing activities used $101.7 million, including debt repayments and $32.9 million of common dividends. Cash, cash equivalents and restricted cash totaled $49.8 million at period-end, including $7.5 million of unrestricted cash.
Balance sheet, debt and liquidity
- Total assets were $2.18 billion and total liabilities were $1.66 billion at September 30, 2023. Stockholders’ equity was $513.8 million.
- Debt principal totaled approximately $1.62 billion: $1.46 billion on operating properties, $112.3 million on properties held for sale, and $41.0 million under the corporate credit facility. The facility had $309.0 million available and matures June 30, 2025.
- Mortgage debt’s weighted-average rate was 6.87%; management reported an adjusted rate of 3.64% after the effect of swaps. Swaps covered approximately $1.2 billion of floating-rate debt; rate caps covered approximately $1.4 billion. Management reported compliance with debt covenants.
- Scheduled principal maturities include $68.5 million in 2024 and $218.5 million in 2025, including the credit facility; amounts include debt on held-for-sale properties. Most operating-property principal is due thereafter, including $290.3 million in 2026.
- Management said available cash, expected operating cash flows and potential financing were expected to cover operations, scheduled debt service and dividends for the 12 months after September 30, 2023. It also cited higher rates and constrained commercial real estate credit as challenges to financing and asset sales.
Material changes, outlook and risks
- Q3 GAAP earnings were driven principally by the $43.1 million gain on the September sale of Silverbrook for $70.0 million. Excluding that sale gain, operating income was below the prior-year quarter. Rising financing costs also weighed on recurring measures: nine-month interest expense rose $14.0 million to $48.9 million, while FFO, Core FFO and AFFO per diluted share declined year over year.
- The company had four properties classified as held for sale at quarter-end. A buyer terminated the Old Farm and Stone Creek at Old Farm sale agreement and forfeited its deposit; the company recognized a $0.3 million gain. Subsequent to quarter-end, it signed a $49.0 million agreement to sell Timber Creek, with an expected closing before December 31, 2023.
- Seven properties had significant fire or water damage and were undergoing rehabilitation; 67 units were excluded from the portfolio unit count. The company reported $1.0 million of casualty losses for the nine months and received insurance proceeds, including business-interruption income. It recorded no real estate impairment charges.
- No formal earnings guidance was provided. The Board approved a subsequent quarterly dividend of $0.46242 per share, payable December 29, 2023. Dividends declared were $1.26 per share for the first nine months.
- Key risks include floating-rate debt and refinancing exposure, debt maturities, limited access to capital, property-market and operating risks, casualty-related repair costs, geographic concentration, and the ability to maintain REIT qualification. Management reported no material change to previously disclosed risk factors.
- Management said Highland-related lawsuits do not assert claims against the company or its assets and are not expected to materially affect it. An independent special committee reported no evidence that the company engaged in conduct that would expose it to liability in those matters. Separately, Senior VP-Investments and Asset Management Matt Goetz resigned effective November 9, 2023; the filing said the resignation did not result from a disagreement with the company.
Important facts for investors to verify
- Whether Timber Creek and the other held-for-sale properties close as expected, and the resulting proceeds, debt repayments and gains or losses.
- How floating-rate exposure, hedge expirations and 2024–2026 maturities affect interest expense and refinancing needs.
- Whether rent growth and same-store NOI can continue amid nearly flat occupancy and higher property operating costs.
- Recurring cash generation and dividend coverage: nine-month AFFO per diluted share was $2.45 versus $1.26 of dividends declared per share; AFFO is a non-GAAP measure and is not equivalent to cash available for distribution.
- The schedule and cost of restoring the 67 casualty-affected units, and the adequacy and timing of insurance recoveries.