NexPoint Residential Trust, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are against December 31, 2022. Amounts are in U.S. dollars. NexPoint is an externally managed REIT focused on value-add multifamily properties, primarily in the Southeastern and Southwestern United States.
Business context and operating performance
- Portfolio: 40 properties and 15,127 apartment units; approximately 94.0% leased at quarter-end. Weighted average monthly effective rent per occupied unit was $1,487, up from $1,310 a year earlier.
- Two properties, Old Farm and Stone Creek at Old Farm, were classified as held for sale. The company reported 107 units unavailable due to casualty damage.
- Rental income increased 13.9% to $67.5 million; total revenue increased 13.9% to $69.2 million. Management attributed rent growth primarily to its value-add program and organic market rent increases.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $69.2 million | $60.8 million |
| Operating income | $13.1 million | $5.7 million |
| Interest expense | $16.7 million | $10.6 million |
| Net loss attributable to common stockholders | $3.9 million; $0.15 per share | $4.7 million; $0.18 per share |
| Net cash provided by operating activities | $27.9 million | $8.7 million |
| Net cash used in investing activities | $16.5 million | $10.5 million |
| Net cash provided by (used in) financing activities | $(16.1) million | $45.2 million |
- Property NOI, a non-GAAP measure, rose 12.2% to $41.1 million; same-store NOI increased 9.4% to $37.8 million. Same-store revenue grew 11.1%, while same-store operating expenses rose 15.1%.
- FFO increased 1.6% to $19.3 million. Core FFO declined 7.9% to $18.6 million and AFFO declined 6.0% to $21.0 million. Diluted AFFO per share was $0.81 versus $0.85; the declared dividend was $0.42 per share, and AFFO dividend coverage was 1.92x versus 2.25x.
- Comprehensive loss was $21.1 million, compared with comprehensive income of $49.9 million in Q1 2022, principally reflecting a $17.2 million unrealized loss on interest-rate derivatives versus a $54.6 million gain a year earlier.
- At March 31, cash and cash equivalents were $14.1 million and restricted cash was $32.9 million. Total assets were $2.20 billion; total liabilities were $1.70 billion; stockholders’ equity was $488.0 million.
- Debt principal was approximately $1.68 billion, including $1.55 billion of operating-property mortgages, $68.2 million on held-for-sale properties and $57.0 million drawn on the corporate credit facility. Mortgage weighted-average interest was 6.24%; the company reported an adjusted rate of 3.51% after swaps. The facility limit is $350 million and matures June 30, 2025.
- Scheduled principal maturities include $68.2 million in 2024, $234.4 million in 2025 (including the credit facility), and $290.3 million in 2026. Operating cash flow exceeded investing and financing outflows, and cash, cash equivalents and restricted cash ended at $47.1 million, down $4.7 million during the quarter.
Material changes, outlook and risks
- Revenue and operating income improved, but higher borrowing costs materially offset the gains: interest expense rose $6.1 million, while interest on debt before derivative effects increased $17.5 million. The mortgage portfolio is predominantly floating-rate; swaps covered about 71% of floating-rate debt and caps covered approximately $1.4 billion.
- Capital improvements and value-add rehabilitation expenditures were $11.3 million, compared with $5.6 million a year earlier. The company reported approximately $7.0 million in renovation reserves.
- Management said available cash, expected operating cash flows and potential financing sources should fund operations, scheduled debt service and dividends for the 12 months after March 31, 2023. No specific earnings or operating guidance was provided. The board subsequently declared a $0.42-per-share dividend payable June 30, 2023.
- Nine properties had significant fire or water damage; the company recorded $0.8 million of casualty loss and $0.4 million of business-interruption income for the quarter. Insurance recovery, repair costs and the 107 unavailable units remain relevant operating considerations.
- Management cited inflation, rising interest rates, refinancing and capital-market access, regional concentration, real-estate ownership, and REIT qualification among key risks. The filing reported no material change to previously disclosed risk factors, no material litigation involving the company, and no impairment charges. Separate lawsuits involving the sponsor/former affiliate and others do not assert claims against the company or its assets; management did not expect a material effect.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How current rent growth, occupancy and same-store expense increases are trending after quarter-end, particularly taxes, insurance, repairs and payroll.
- Floating-rate exposure, hedge coverage and terms, the effects of reference-rate transition, and refinancing needs around the 2024–2026 maturities.
- Progress and expected timing of the two held-for-sale property sales, and the financial and operational impact of casualty repairs, insurance claims and unavailable units.
- Whether operating cash flow and AFFO sustain the $0.42 quarterly dividend; note that management’s 12-month liquidity statement depends partly on access to financing and operating assumptions.
- Non-GAAP measures and unusual items: NOI, FFO, Core FFO and AFFO are company-defined or supplemental measures and are not substitutes for GAAP results or cash available for distribution. The filing’s cash-flow comparison also reflects significant derivative settlements and working-capital timing.