NexPoint Residential Trust, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; financial statements are unaudited. NexPoint is an externally managed REIT focused on value-add multifamily properties, primarily in the Southeastern and Southwestern United States.
Business context and portfolio
At quarter-end, the portfolio comprised 40 properties and 15,032 apartment units, approximately 95.3% leased, with weighted-average monthly effective rent of $1,204 per occupied unit. The company acquired three North Carolina properties during the nine months for a combined $196.3 million, adding 827 units.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $56.4 million | $51.0 million | $160.7 million | $154.3 million |
| Operating income before property-sale gains | $5.6 million | $5.8 million | $13.5 million | $9.1 million |
| Net income (loss) | $(5.4) million | $29.6 million | $(15.7) million | $48.4 million |
| Net income (loss) per diluted share | $(0.21) | $1.19 | $(0.62) | $1.91 |
| Net cash provided by operating activities | Not presented quarterly | Not presented quarterly | $57.9 million | $46.5 million |
- Rental income increased 10.8% in Q3 and 4.2% for the nine months year over year. Management attributed growth primarily to higher effective rents, including value-add renovations and organic rent growth.
- Same-store NOI, a non-GAAP measure, rose 6.6% in Q3 and 2.4% for the nine months. Total NOI rose 14.8% in Q3 and 4.2% for the nine months.
- For the nine months, FFO was $46.5 million ($1.85 diluted per share), Core FFO was $44.7 million ($1.78 per share), and AFFO was $51.0 million ($2.03 per share). Each is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- Cash flow from investing was a $223.0 million use, mainly reflecting acquisitions and $32.7 million of additions to real estate. Financing provided $175.3 million. Cash, cash equivalents and restricted cash totaled $67.3 million at period-end, including $18.4 million unrestricted cash and $48.9 million restricted cash.
Debt, liquidity and distributions
Debt principal was approximately $1.55 billion at September 30, including $1.235 billion of operating-property mortgages, $40.7 million of mortgages on properties held for sale and $275 million under the corporate credit facility. Mortgage debt had a 1.77% weighted-average stated rate; the company reported a 2.93% adjusted mortgage rate after reflecting swaps. Approximately $1.2 billion of floating-rate mortgage debt was covered by swaps, and caps covered $412.2 million. Total liabilities were $1.595 billion.
The secured corporate credit facility included a $225 million revolving facility maturing June 2024 and term loans. At quarter-end, $50 million of term loans were due December 31, 2021. The company said it expected to use proceeds from sales of Beechwood Terrace and Cedar Pointe to repay them. Subsequent to quarter-end, those properties sold on November 1 for approximately $91.3 million, and the company paid down $50 million of term loans on November 3; no term-loan principal remained due December 31. Management stated that available cash, expected operating cash flow and potential financing would be sufficient for operations, scheduled debt service and dividends over the following 12 months.
The company declared a Q3 dividend of $0.34125 per share, paid September 30. On October 29, the board declared a subsequent quarterly dividend of $0.38 per share, payable December 30, 2021. Nine-month dividends declared were $1.02375 per share. The filing reports AFFO coverage of declared dividends of 1.98x for the nine months.
Changes, outlook, risks and unusual items
- GAAP results turned to losses in 2021, principally because 2020 included $30.2 million of Q3 property-sale gains and $69.2 million for the nine months; no property-sale gains were recorded in 2021 through September. Q3 2020 also included $5.0 million of casualty gains, versus none in Q3 2021.
- Same-store operating costs rose: nine-month real estate taxes and insurance increased 9.4%, with higher assessments and insurance costs cited. Q3 depreciation and amortization increased $3.9 million, largely from acquisitions and lease-asset amortization.
- Management said COVID-19 had not materially affected the company to date, while noting potential risks to rent collection, leasing, transactions and access to capital. Casualty events affected multiple properties; 81 units were excluded from same-store pools due to damage and reconstruction. The company recorded $2.4 million of casualty gains for the nine months and received insurance proceeds.
- Management reported no real estate impairment charges. It also reported no material litigation involving the company and no material change to previously disclosed risk factors. A bankruptcy-related lawsuit filed against the company’s sponsor and others does not assert claims relating to the company’s business or assets; management does not expect a material effect.
- Key risks include substantial indebtedness, floating-rate exposure, refinancing and capital-market access, geographic concentration, property and casualty risks, the LIBOR transition, and maintaining REIT qualification. The company reported compliance with debt covenants and effective disclosure controls. It identified a potential commitment of up to $4.0 million related to NLMF Holdco, LLC, of which approximately $0.2 million had been funded.
- The Adviser voluntarily waived $12.6 million of advisory and administrative fees during the nine months; it is not obligated to continue waiving fees on new assets. No specific earnings or operating guidance was provided.
Important facts for investors to verify
- Confirm debt balances, the impact of the post-quarter $50 million repayment, and upcoming mortgage maturities and refinancing needs.
- Track rent growth, occupancy and same-store expense trends, particularly property taxes, insurance and repairs.
- Assess the sustainability of dividend coverage using operating cash flow and the company’s defined non-GAAP measures, while accounting for capital spending and REIT distribution requirements.
- Review the remaining casualty-related repairs, unit availability and insurance recoveries, and the transition away from LIBOR in debt and derivatives.
- Monitor the Adviser’s future fee waivers and any funding obligations under the NLMF Holdco arrangements.