NexPoint Residential Trust, Inc. — FY 2021 Form 10-K
Reporting period: Year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report. NexPoint Residential Trust (NYSE: NXRT) is an externally managed REIT focused on value-add multifamily properties, primarily in the Southeastern and Southwestern United States.
Business context and portfolio
At year-end, the company owned 39 properties with 14,825 units across seven states. Management reported portfolio occupancy of approximately 94.3% and weighted average monthly effective rent of $1,261 per occupied unit. The same-store pool included 33 properties; its occupancy was 94.2% versus 93.9% in 2020.
During 2021, NXRT acquired four North Carolina properties for a combined $289.5 million (1,129 units) and sold two Tennessee properties for $91.3 million (510 units), recognizing a $46.2 million gain. It completed full or partial renovations on 1,264 units at an average cost of $8,922 per unit. Management reported average rent growth of 13.8% on renovated units that had been leased.
Financial and operating metrics
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Total revenue | $219.2 million | $204.8 million | +7.1% |
| Net income | $23.1 million | $44.2 million | -47.7% |
| Net income attributable to common stockholders | $23.0 million | $44.0 million | — |
| Net income per diluted share | $0.89 | $1.74 | — |
| Net operating income (NOI; non-GAAP) | $128.4 million | $118.4 million | +8.4% |
| Same-store NOI (non-GAAP) | $115.3 million | $109.3 million | +5.5% |
| FFO / Core FFO / AFFO attributable to common stockholders (non-GAAP) | $63.6 / $62.5 / $70.9 million | $57.2 / $55.5 / $62.4 million | +11.1% / +12.6% / +13.6% |
| Diluted FFO / Core FFO / AFFO per share (non-GAAP) | $2.47 / $2.43 / $2.75 | $2.27 / $2.20 / $2.47 | — |
| Cash provided by operating activities | $73.3 million | $57.2 million | +$16.0 million |
Revenue growth reflected acquisitions and rent gains. Same-store effective monthly rent increased 11.1% to $1,255. Net income declined mainly because real estate sale gains fell by $22.9 million and casualty gains fell by $3.3 million; depreciation and amortization increased by $4.5 million. Interest expense was nearly unchanged at $44.6 million.
Dividends declared totaled $1.404 per share for the year, or $36.2 million. The quarterly dividend was raised to $0.38 in the fourth quarter. Diluted AFFO coverage of dividends was 1.96x, a company-defined non-GAAP measure.
Debt and liquidity
At December 31, 2021, mortgage principal was approximately $1.281 billion and credit-facility principal was $280 million, or approximately $1.561 billion in total principal debt. The balance sheet reported debt net of financing costs of approximately $1.555 billion. Management reported a 1.96% weighted average interest rate on total debt, or 2.93% adjusted for swaps.
Approximately $1.5 billion of debt was variable-rate. Interest-rate swaps covered about $1.2 billion of floating-rate mortgage debt; caps covered a further $458.8 million, with a weighted average cap rate of 4.79%. The secured credit facility has $225 million of revolving commitments and a stated maturity of June 30, 2024, subject to a one-year extension option. Scheduled mortgage principal maturities include approximately $395 million in 2024 and $423 million in 2026.
Cash, cash equivalents and restricted cash totaled $88.7 million, including $49.5 million in cash and cash equivalents and $39.2 million in restricted cash. Management identified $11.9 million reserved for renovations and $27.4 million for lender escrows and security deposits. The company generated $73.3 million from operations, used $235.9 million in investing activities, and received $194.3 million from financing activities. Management stated it expected available cash, operating cash flows and potential financing to cover operations, scheduled debt service and dividends for the following 12 months.
Changes, outlook, and risks
- The company replaced its prior credit facility in June 2021 with a $250 million facility, later modified and increased; year-end principal outstanding was $280 million. It also issued 350,513 shares through its at-the-market program for $26.4 million gross proceeds.
- Management’s stated long-term leverage target is 40%–45% loan-to-value, compared with a typical 50%–60% target for new acquisitions. No specific earnings or revenue guidance was provided.
- After year-end, the company planned to offer to acquire two properties from advised Delaware statutory trusts for total consideration of $142.9 million, with closing expected in late Q1 or early Q2 2022. These were proposed transactions, not completed acquisitions as of the filing.
- Management said COVID-19 had not materially affected the company to date, while warning that future effects on rent collection, leasing, property values and access to capital remain uncertain. Other principal risks include concentrated regional exposure, real estate and acquisition risks, substantial debt, floating-rate exposure, refinancing and covenant risk, and the transition away from LIBOR.
- Winter Storm Uri caused property damage; 23 affected units remained excluded from the portfolio unit count at year-end and were expected to return after reconstruction in 2022. The filing reports no recorded real estate impairment at year-end.
- A lawsuit filed in connection with former affiliate Highland Capital’s bankruptcy names the Sponsor and James Dondero, among others, but does not assert claims relating to NXRT’s business, assets or operations. Management did not expect a material effect on NXRT.
- The company is externally managed and pays advisory, administrative and property-management fees to affiliates or related parties. The Adviser waived approximately $17.3 million of fees in 2021, but is not obligated to continue waiving fees on new assets. KPMG issued unqualified opinions on the financial statements and internal control; purchase-price allocation to land was identified as a critical audit matter.
Important facts for investors to verify
- Reconcile reported portfolio occupancy of approximately 94.3% with the property-summary table, which contains a different total occupancy figure; clarify the treatment of casualty-affected and down units.
- Review debt maturity and refinancing plans, especially the 2024 credit-facility maturity and large mortgage maturities in 2024 and 2026, as well as covenant headroom and the effect of higher rates.
- Assess whether rent growth and renovation returns are sustainable as operating costs—including property taxes, insurance and maintenance—rise.
- Confirm the status, consideration, funding and related-party terms of the proposed Adair and Estates acquisitions.
- Compare the dividend with recurring cash generation and capital needs; FFO, Core FFO and AFFO are non-GAAP measures and are not substitutes for operating cash flow.
- Monitor renovation execution, the 23 storm-damaged units, the LIBOR transition, and any developments in the Highland-related litigation or affiliate relationships.