NexPoint Residential Trust, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Figures are unaudited; dollar amounts are in U.S. dollars.
Business context
NexPoint is an externally managed REIT focused on value-add multifamily properties, primarily in the Southeastern and Southwestern United States. At June 30, 2021, its portfolio comprised 39 properties and 14,709 units, approximately 96.1% leased, with weighted average monthly effective rent of $1,159 per occupied unit. The company acquired two Charlotte-area properties on June 30, adding 504 units for a combined purchase price of $121.5 million.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $52.6 million | $50.7 million | $104.4 million | $103.3 million |
| Operating income before property-sale gains | $4.7 million | $1.7 million | $8.0 million | $3.2 million |
| Net income (loss) | $(3.4) million | $(9.3) million | $(10.3) million | $18.7 million |
| EPS, diluted | $(0.14) | $(0.38) | $(0.41) | $0.74 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $31.0 million | $25.9 million |
| FFO attributable to common stockholders | $16.5 million | $12.0 million | $30.3 million | $24.4 million |
| Core FFO attributable to common stockholders | $14.2 million | $14.5 million | $28.3 million | $28.1 million |
| AFFO attributable to common stockholders | $16.3 million | $16.1 million | $32.4 million | $31.4 million |
Same-store NOI was $28.7 million in Q2, up 0.6%, and $56.9 million for the first half, up 0.2%. Same-store rent growth and occupancy improved, but operating expenses rose faster, particularly real estate taxes and insurance. FFO, Core FFO, AFFO and NOI are non-GAAP measures; the filing cautions they are not substitutes for GAAP results or cash flows.
At June 30, total assets were $1.94 billion and stockholders’ equity was $407.3 million. Cash and cash equivalents were $26.5 million, with an additional $33.7 million of restricted cash. Debt carrying values included $1.19 billion of mortgages, $40.5 million of mortgage debt associated with properties held for sale, and $248.5 million under the credit facility. The company reported approximately $1.5 billion of total debt; adjusted weighted average interest rate was approximately 2.94%. The $250 million secured credit facility was fully drawn at quarter-end.
Cash flow from investing was $(139.8) million, primarily reflecting $122.0 million of acquisitions and $21.4 million of property additions. Financing provided $112.0 million, including net debt proceeds. Cash, cash equivalents and restricted cash increased by $3.2 million to $60.2 million. The quarterly dividend was $0.34125 per share; the board declared the same amount for Q3, payable September 30, 2021.
Material changes versus comparable periods
- Q2 revenue increased 3.7%; management attributed rental-income growth principally to a 4.5% increase in effective rent per occupied unit versus June 2020.
- First-half net results shifted from $18.7 million of income to a $10.3 million loss. The main comparison effect was the absence of $39.0 million in property-sale gains recorded in the first half of 2020; there were no property dispositions in the first half of 2021.
- First-half interest expense declined $1.4 million to $21.3 million. Lower debt interest was substantially offset by higher interest-rate-swap expense.
- Mortgage debt increased with acquisitions. On June 30, the company replaced its former $225 million revolver with a $250 million secured facility maturing June 30, 2024, with a possible one-year extension and potential additional commitments subject to lender agreement.
- Two properties, Beechwood Terrace and Cedar Pointe, were classified as held for sale, with $43.9 million of net real estate assets and $40.5 million of related mortgage debt reported separately.
Outlook, risks and unusual items
- Management said available cash, expected operating cash flows and potential financings should be sufficient for operations, scheduled debt service and dividends for the 12 months following June 30, 2021. No specific earnings or same-store growth guidance was provided.
- COVID-19 had not materially affected the business to date, but 3,630 residents were on pandemic-related payment plans for approximately $5.8 million of rent. The filing identifies potential collection, leasing, transaction and financing impacts as risks.
- Casualty events affected several properties. Winter Storm Uri and other claims contributed to reported casualty gains; damaged units remained out of service pending reconstruction. The filing reports 249 casualty-related down units across the portfolio.
- Interest-rate exposure remains relevant: approximately $1.2 billion of floating-rate mortgage debt was covered by swaps, and caps covered a further $428.8 million. The filing also discusses the transition away from LIBOR and the uncertainty around related contract changes.
- Real estate tax and insurance costs increased, and management cautioned that property reassessments and municipal budget pressures could raise taxes further. Other risks include substantial indebtedness, concentrated regional exposure, REIT qualification, and reliance on the external adviser and property manager.
- The adviser voluntarily waived $8.1 million of advisory and administrative fees in the first half; it is not contractually required to continue waiving fees on new assets. The advisory agreement was renewed for one year in February 2021.
- The filing states there were no material changes to previously disclosed risk factors, no material litigation identified, and no material impairment charges recorded.
Important facts for investors to verify
- Reconcile the filing’s ATM-share disclosures: the financial statements and Note 8 state that no shares were issued in the first half of 2021, while a sentence in MD&A’s liquidity discussion says 560,000 shares were issued during that period. Note 8 attributes the 560,000-share issuance to 2020.
- Track the proposed sales of Beechwood Terrace and Cedar Pointe, including closing timing, proceeds and repayment of their associated debt.
- Monitor rent-plan balances and collections, casualty reconstruction progress, and return-to-service timing for damaged units.
- Assess the $250 million credit facility’s full utilization, 2024 maturity, covenant terms, and refinancing needs alongside the debt maturity schedule, which includes $645.1 million due in 2024.
- Compare rental growth with same-store expense growth, particularly property taxes, insurance, repairs and maintenance, and evaluate whether dividend coverage remains sustainable.
- Review the assumptions and adjustments behind non-GAAP NOI, FFO, Core FFO and AFFO, as well as the continuation of adviser fee waivers.