NexPoint Residential Trust, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; financial statements are unaudited. The comparative 2015 results include the predecessor business before the March 31, 2015 spin-off, and the periods also reflect different acquisition activity, limiting comparability.
Business context
The company is an externally managed REIT focused on value-add multifamily properties, primarily in the Southeastern and Southwestern United States. At quarter-end it held interests in 42 properties with 13,155 apartment units; the portfolio was 94.5% leased, with weighted average monthly effective rent of $811 per occupied unit.
Financial and operating performance
- Revenue: $33.5 million, up 31.2% from $25.5 million. Rental income was $29.4 million; other income was $4.1 million.
- Profitability: Operating income was $5.5 million versus an operating loss of $1.9 million. Net income was $0.3 million, but the amount attributable to common stockholders was a $15,000 loss (reported EPS: $(0.00), rounded). Interest expense was $5.2 million.
- Property operations: NOI, a non-GAAP measure, was $17.7 million, up 34.1%; same-store NOI rose 13.9% to $12.9 million. Same-store revenue increased 9.5%. Management cited higher rents and occupancy, including a 5.8% rise in same-store effective rent per occupied unit and a 1.0% occupancy increase.
- Supplemental earnings measures: FFO attributable to common stockholders was $8.6 million ($0.41 per share) versus $5.0 million ($0.23) in 2015. AFFO was $8.9 million ($0.42 per share) versus $7.0 million ($0.33). These non-GAAP measures are not substitutes for GAAP earnings or cash flow.
- Cash flow: Operating activities provided $8.9 million, compared with $2.4 million. Investing activities used $1.8 million, versus $163.0 million, primarily reflecting the absence of comparable acquisition spending. Financing activities used $6.0 million, versus $179.8 million provided in 2015. Cash was $17.4 million; restricted cash was an additional $37.6 million.
- Balance sheet and debt: Total assets were $959.3 million and equity was $243.8 million. Debt principal totaled approximately $710.5 million, including a $29.0 million recourse bridge facility; most property mortgages are non-recourse. The weighted-average mortgage rate was 2.66%. Approximately $665.5 million of total debt was floating-rate, and interest-rate caps covered $577.6 million, generally capping rates at a weighted average 5.99%.
- Dividends: The company declared and paid $0.206 per common share during the quarter; cash dividends were $4.4 million. A further $0.206 quarterly dividend was declared May 9, payable June 30, 2016.
Material changes and unusual items
- Revenue growth reflected four additional properties versus the prior-year quarter, a fuller quarter of contribution from properties acquired in early 2015, and improved same-store rents and occupancy. The company reported 42 properties versus 38 at March 31, 2015.
- Total expenses increased to $28.0 million from $27.4 million. No acquisition costs were recorded in Q1 2016, compared with $1.9 million in Q1 2015. Depreciation and amortization declined to $9.6 million from $11.6 million, chiefly because of lower amortization of acquired lease intangibles.
- Five properties were classified as held for sale at March 31, with $107.6 million of net real estate and $86.3 million of related net mortgage debt on the balance sheet. Subsequent to quarter-end, Meridian sold on May 10 for approximately $17.3 million; its reported carrying value was $12.2 million and debt outstanding was $9.8 million.
- The company adopted debt-issuance-cost presentation guidance retrospectively, reclassifying approximately $6.2 million at December 31, 2015 from an asset to a deduction from debt; management reported no material effect on financial results.
Liquidity, outlook, and risks
Management said available cash, expected operating cash flow, and potential debt or equity financing should be sufficient for operations, scheduled debt service, and dividends for the 12 months following March 31, 2016. A key near-term funding obligation is the $29.0 million bridge facility, due August 4, 2016. The company was discussing conversion to a revolving facility and maturity extension with KeyBank; if unsuccessful, it expected to use property-sale proceeds, cash, refinancing proceeds, or new debt or equity. Management reported compliance with debt provisions at quarter-end.
The company had reserved approximately $20.1 million for its value-add program and spent $6.5 million on rehabilitation work during the quarter. It provided no specific earnings or operating guidance. Principal disclosed risks include refinancing and floating-rate exposure, access to capital, property-market conditions, execution of value-add plans and acquisitions, REIT qualification and required distributions, environmental and property liabilities, and related-party and external-management arrangements. Management reported no material litigation, no material change in previously disclosed risk factors, and effective disclosure controls; it also noted that controls cannot provide absolute assurance.
Important facts for investors to verify
- Progress and final terms of the bridge-facility extension or refinancing before its August 2016 maturity.
- Completion and net proceeds from the planned property dispositions, including Meridian, and use of proceeds to reduce debt or fund operations.
- Floating-rate debt exposure, cap coverage and expiration dates, and the effect of interest-rate changes on interest expense.
- Whether same-store rent, occupancy, and NOI growth persist after separating acquisition contributions and property-level cost increases.
- Cash available for dividends and capital spending, including the distinction between unrestricted cash and restricted reserves.
- REIT qualification, distribution requirements, and the company’s externally managed, related-party fee structure.