NexPoint Residential Trust, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparison is the same quarter of 2021. 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 14,825 apartments.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $60.8 million | $51.8 million; up 17.4% |
| Operating income | $5.7 million | $3.2 million |
| Net loss attributable to common stockholders | $4.7 million; loss per share $0.18 | $6.9 million; loss per share $0.27 |
| Net cash from operating activities | $8.7 million | $13.7 million |
| Cash, cash equivalents and restricted cash | $132.1 million at quarter-end | $88.7 million at year-end 2021 |
| Debt principal | $1.616 billion | $1.555 billion at year-end 2021, approximately |
| Same-store NOI (non-GAAP) | $33.2 million | $28.5 million; up 16.4% |
| FFO / Core FFO / AFFO per share (non-GAAP) | $0.74 / $0.78 / $0.87 | $0.55 / $0.56 / $0.64 |
Operating margin was approximately 9.3%, compared with 6.3% in Q1 2021. Rental income increased 17.8% to $59.3 million. Management attributed growth mainly to higher effective rents, including value-add renovations and market rent growth. Same-store effective monthly rent per occupied unit reached $1,310, up 15.4% year over year; same-store occupancy was 94.4%, down from 95.3%.
Total debt principal included $1.281 billion of property mortgages and $335 million drawn on the corporate credit facility. The mortgage weighted-average rate was 2.10% before swaps and 2.95% on an adjusted basis; the facility rate was 2.80%. The facility had $350 million available to borrow. Interest expense was $10.6 million, essentially unchanged year over year. Net cash used in investing was $10.5 million, including $9.1 million of real estate additions. Financing provided $45.2 million, principally from $55 million of credit-facility proceeds.
Material changes and notable items
- Revenue rose $9.0 million, while total expenses increased $6.6 million. Net loss narrowed by $2.2 million.
- Same-store NOI grew 16.4%; property operating expenses increased 9.5%, partly offset by lower real estate taxes and insurance.
- Cash from operations fell $5.1 million year over year. The quarter’s increase in cash balances was mainly supported by financing activity, including additional facility borrowing.
- The company issued 52,091 shares through its at-the-market program for $4.3 million gross proceeds. It declared dividends of $0.38 per share; $10.4 million was paid to common stockholders during the quarter.
- Seven properties had significant fire or flood damage; 49 units were excluded from portfolio and same-store counts while under reconstruction. The company recorded $1.0 million of casualty-related expenses in its NOI reconciliation and a $0.1 million casualty gain.
- After quarter-end, on April 1, the company acquired two properties for stated total consideration of $143.4 million, including assumed mortgage debt. The board also declared a $0.38-per-share dividend payable June 30, 2022.
Outlook, risks and contingencies
Management said cash on hand, expected operating cash flows and potential debt or equity financing should be sufficient for operations, scheduled debt service and dividend requirements for the 12 months following March 31, 2022. No earnings or operating guidance was provided. The company reported $14.1 million in renovation reserves and expects to continue value-add spending; it completed full or partial interior renovations on 531 units during the quarter.
Interest-rate exposure is significant: $1.5 billion of total debt was floating-rate, while swaps effectively fixed rates on $1.4 billion of notional debt and caps covered $458.8 million of floating-rate mortgages. Management highlighted potential increases in interest expense and refinancing risk, and was transitioning portions of debt from LIBOR to SOFR. Other stated risks include market and regional concentration, property operating and casualty risks, access to capital, REIT qualification, and the ability to sustain distributions. COVID-19 had not materially affected the company to date, according to management.
The company reported no material litigation involving its business or properties and no material environmental liabilities known to management. A potential funding commitment of up to $4.0 million relates to NLMF Holdco, LLC; approximately $0.3 million had been funded. A separate lawsuit connected to the Highland bankruptcy names the Sponsor and others, but not the company; management did not expect a material effect. Disclosure controls were reported effective, and no material change in internal control was reported.
Key facts for investors to verify
- Whether rent growth and occupancy can be sustained, particularly given same-store occupancy declined year over year.
- How casualty repairs, 49 unavailable units and related claims affect costs, rent collections and renovation plans.
- The company’s leverage, $335 million facility borrowing, 2024 facility maturity and substantial mortgage maturities in 2024 and 2026.
- Hedge coverage, upcoming swap expirations, LIBOR-to-SOFR transition effects and sensitivity to further rate increases.
- Whether operating cash generation supports capital spending and dividends, given lower year-over-year operating cash flow and REIT distribution requirements.
- Terms, financing and related-party aspects of the April 2022 acquisitions, and any subsequent changes to debt, liquidity or portfolio performance.