NexPoint Residential Trust, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Although the request identifies 2019 Q4, this filing reports full-year results and includes quarterly data. 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 40 properties with 14,724 units in eight states. Portfolio occupancy was 94.2%, and weighted-average effective monthly rent per occupied unit was $1,103.
- During 2019, NXRT acquired 11 properties (4,583 units; stated purchase prices totaling $876.7 million) and sold six properties (2,218 units; $289.9 million gross sales price).
- The strategy centers on acquiring and renovating Class B communities, growing rents and net operating income (NOI), and using leverage. Management targets reducing loan-to-value to 40–45% over time; this is a target, not a forecast or commitment.
Financial and operating performance
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Total revenue | $181.1 million | $146.6 million | Up 23.5% |
| Net income (loss) | $99.4 million | $(1.6) million | 2019 included $127.7 million gain on property sales |
| Operating income before property-sale gains | $14.9 million | $16.8 million | Down $1.9 million |
| NOI | $102.6 million | $80.2 million | Up 28.0%; non-GAAP measure |
| Same-store NOI | $66.0 million | $61.8 million | Up 6.7% for 25 properties |
| FFO attributable to common stockholders | $40.7 million; $1.66 diluted/share | $32.0 million; $1.48 diluted/share | Up 27.2% in total |
| Core FFO attributable to common stockholders | $47.6 million; $1.93 diluted/share | $35.1 million; $1.62 diluted/share | Up 35.6% in total |
| AFFO attributable to common stockholders | $54.2 million; $2.20 diluted/share | $40.8 million; $1.88 diluted/share | Up 33.0% in total |
| Cash provided by operating activities | $51.4 million | $41.7 million | Up $9.6 million |
| Dividends declared per common share | $1.138 | $1.025 | Fourth-quarter dividend increased to $0.3125/share |
Rental income was $177.2 million, up from $143.2 million. Management attributed growth to acquisitions and a 12.0% increase in portfolio effective rent per occupied unit. For the 25-property same-store pool, effective rent rose 3.6%, while occupancy eased to 94.5% from 94.8%. The 2019 GAAP net margin is not representative of recurring operations because of the large disposition gain; operating income before those gains was lower year over year.
Property renovations totaled $23.3 million in 2019. On renovated units leased since inception, management reported average rent growth of 11.0% and a 24.5% return on interior renovation capital; these are company-reported measures and are not GAAP returns.
Debt, liquidity and capital
- Year-end total debt was approximately $1.4 billion (net carrying value $1.403 billion), versus $838.0 million a year earlier. Total assets were $1.866 billion and stockholders’ equity was $426.2 million.
- Mortgage principal outstanding was approximately $1.194 billion, with a reported weighted-average rate of 3.34% (3.06% adjusted for swaps). The company also had $218.0 million outstanding on a floating-rate corporate credit facility, bearing rates of 3.69%–3.80% at year-end and maturing January 28, 2021; $7.0 million of the $225 million commitment remained unused.
- Of $1.1 billion in floating-rate mortgage debt, $975 million was covered by interest-rate swaps and $346.5 million by interest-rate caps. Management estimated a 0.25 percentage-point rate increase would add about $0.9 million to annual interest expense, after swap effects, before cap thresholds.
- Cash and cash equivalents were $25.7 million; restricted cash was $45.5 million, for combined cash and restricted cash of $71.2 million. The filing identifies $21.9 million reserved for planned renovations and $23.6 million for lender escrows and security deposits. These amounts should not be treated as entirely unrestricted liquidity.
- 2019 investing cash use was $553.1 million, largely reflecting acquisitions and capital improvements; financing provided $529.8 million. The company raised $69.9 million net through its at-the-market share program, issuing 1.565 million shares.
- Management stated available cash, expected operating cash flow and potential financing were sufficient for operations, scheduled debt service and dividends for the 12 months after year-end. This is management’s assessment, not a guarantee.
Material changes, outlook and risks
- The improvement in GAAP earnings mainly reflects property-sale gains: $127.7 million in 2019 versus $13.7 million in 2018. Revenue increased, but operating income before sale gains declined; interest expense rose $8.8 million to $37.4 million.
- Same-store NOI grew 6.7%, while most total NOI growth also reflected the expanded portfolio. Acquisition-related growth and same-store performance should therefore be assessed separately.
- A tornado severely damaged Cutter’s Point in October 2019. Operations ceased during reconstruction, estimated to finish in 2021. NXRT recorded $3.5 million of casualty losses after a $7.8 million property write-down and recognized $0.6 million of business-interruption insurance income. Management expected insured operating losses during reconstruction to be immaterial.
- Three properties were classified as held for sale at year-end. In January 2020, NXRT agreed to sell Woodbridge and Willow Grove for $63.0 million, subject to due diligence and customary closing conditions; completion was expected by March 31, 2020.
- Substantial debt, floating-rate exposure, refinancing needs and the $218 million credit-facility maturity in 2021 are important risks. The filing also highlights the planned transition away from LIBOR after 2021, geographic concentration, short-term leases, real-estate illiquidity, renovation execution, competition, and REIT qualification and distribution requirements.
- Highland Capital Management filed for Chapter 11 in October 2019. The filing says neither NXRT’s Adviser nor Sponsor was a party to the bankruptcy, but identifies potential conflicts and uncertainty in commercial relationships. NXRT is externally managed, pays related-party and property-management fees, and disclosed purchases of two 2019 properties from an Adviser affiliate.
- No numerical 2020 operating or earnings guidance is provided. The board declared a $0.3125-per-share quarterly dividend in February 2020. The Adviser’s one-year advisory agreement was renewed on February 17, 2020; the Adviser’s reported fee waivers are voluntary and may stop.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included acquisition fair-value allocations and impairment assessments. Management reported no material litigation and no off-balance-sheet arrangements.
Key facts for investors to verify
- Reconcile reported net income with recurring results, including the $127.7 million disposition gain, and review FFO, Core FFO and AFFO as non-GAAP measures rather than substitutes for cash flow.
- Confirm debt balances, covenant headroom, collateral and refinancing plans—especially the January 2021 credit-facility maturity and mortgage maturities shown in the debt schedule.
- Assess unrestricted liquidity after lender escrows, renovation reserves, near-term capital needs and distributions; distinguish cash from restricted cash.
- Track same-store rent growth, occupancy, operating costs and realized renovation returns, and separately monitor newly acquired communities and Cutter’s Point reconstruction and insurance recovery.
- Verify the closing and proceeds of the announced Woodbridge and Willow Grove sales, the disposition of the other held-for-sale property, and any tax consequences or 1031 exchange treatment.
- Review share dilution from the ATM program, dividend coverage, external-manager fee arrangements and conflicts, and any developments affecting Highland-related relationships or the LIBOR transition.