NexPoint Residential Trust, Inc. — 2015 Form 10-K
Business context and reporting period
Fiscal year ended December 31, 2015. NexPoint Residential Trust is an externally managed multifamily REIT focused on value-add properties, primarily in the Southeastern and Southwestern United States. It began operating as a separate public company after its March 31, 2015 spin-off from NexPoint Credit Strategies Fund; the 2015 and prior-year financial statements include predecessor operations, so annual comparisons are not fully like-for-like.
At year-end, the portfolio comprised 42 properties and 13,155 units across eight states, with 93.9% occupancy and average effective monthly rent of $803 per occupied unit. The company completed 10 acquisitions in 2015 for a stated purchase price of $277.4 million.
Financial and operating performance
- Revenue: $117.7 million for 2015, up from $43.2 million in 2014. Rental income was $103.8 million; other income was $13.9 million.
- Profitability: GAAP operating income was $7.5 million, but net loss was $11.0 million and net loss attributable to common stockholders was $10.8 million ($0.51 per share). Interest expense was $18.5 million; depreciation and amortization was $40.8 million.
- REIT performance measures: NOI was $60.4 million; FFO attributable to common stockholders was $25.6 million ($1.20 per share), and AFFO was $29.5 million ($1.38 per share). These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Cash flow: Operating activities provided $21.0 million; investing activities used $268.6 million; financing activities provided $251.1 million. Year-end unrestricted cash was $16.2 million. The filing also reports $46.9 million of restricted cash, including $24.5 million designated for renovations and $21.3 million in lender escrows.
- Debt and liquidity: Year-end debt was approximately $711.3 million: $682.3 million of mortgages and a $29.0 million recourse bridge facility. The weighted-average mortgage rate was 2.67%. Of $636.8 million of floating-rate mortgage debt, $577.9 million was covered by interest-rate caps; the filing states a weighted-average cap rate of 5.99%. The bridge facility bears interest at 4.00% plus one-month LIBOR and matures August 4, 2016.
- Dividends: The company declared $13.2 million, or $0.618 per share, for 2015. The Board declared a further $0.206-per-share dividend in March 2016.
Changes versus prior periods
- Revenue increased substantially, primarily because of portfolio expansion and a longer contribution period from properties acquired in 2014, alongside improved same-store performance. Net loss narrowed from $17.5 million in 2014 to $11.0 million in 2015; the comparisons also reflect different portfolio sizes and predecessor reporting.
- For the 25-property, 7,532-unit same-store pool, fourth-quarter 2015 occupancy was 94.2% versus 92.8% a year earlier; effective monthly rent per unit increased 5.5% to $793. Same-store rental income rose 7.6% and other income 24.6%.
- The company renovated 2,313 units during 2015 at an average cost of $4,814 per unit. For all renovated units leased by year-end, management reported average monthly rent growth of $93 (11.4%) and a 21.5% return on interior renovation capital.
Outlook, risks, contingencies, and unusual items
- No specific earnings or revenue guidance is provided. Management said available cash, expected operating cash flow, and potential financings should fund operations, scheduled debt service, and dividends for the 12 months following year-end.
- Management targets total indebtedness of approximately 60–65% of enterprise value, with a longer-term goal of 50–55%, and generally targets about 60% loan-to-value on new acquisitions. A revolving credit facility was under consideration for 2016; the company was discussing extension or conversion of the bridge facility and otherwise expected to repay it using cash, operations, or refinancing proceeds.
- Interest-rate exposure is material: the filing estimates that a 1.00 percentage-point increase in rates could raise annual interest expense by approximately $5.5 million, before considering the effect of caps or changes in financing strategy.
- Key risks include substantial leverage and refinancing needs, variable-rate debt, property-market and regional concentration, value-add execution and renovation costs, competition, short-term leases, joint-venture and related-party conflicts, reliance on the external adviser and property manager, and maintaining REIT qualification. The company owns substantially all properties through joint ventures with affiliates of its property manager, which also receives fees and has equity interests.
- On October 21, 2015, the company refinanced the Regatta Bay loan, paid an approximately $0.7 million prepayment penalty, and reported estimated annual interest savings of approximately $0.4 million at then-current LIBOR. The company also reported a roughly $0.2 million gain related to land taken by eminent domain.
- After year-end, the company reported being under contract to sell Mandarin Reserve, Park at Regency, and Meridian; their aggregate carrying value was $46.9 million. No material litigation was reported. Management reported effective disclosure controls; the filing did not include management’s internal-control assessment or auditor attestation under the applicable new-public-company transition relief.
Important facts for investors to verify
- Bridge-facility extension, refinancing, repayment, and subsequent debt maturities, including whether lender covenants remain satisfied.
- Unrestricted liquidity versus restricted cash, renovation spending progress, and cash available for dividends and debt service.
- Performance of same-store properties and realized renovation returns, including whether rent gains persist after costs and concessions.
- Floating-rate debt exposure, cap coverage and expiration dates, and sensitivity of interest expense to rate changes.
- Status and proceeds of the three proposed property sales, and the continuing economics, control rights, and related-party fees in property joint ventures.