NexPoint Residential Trust, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. This REIT owns and operates value-add multifamily properties, primarily in the Southeastern and Southwestern United States. The filing covers the quarter and six months ended June 30, 2022; financial amounts below are in millions unless otherwise noted. At quarter-end, the portfolio comprised 41 properties and 15,387 units, approximately 94.5% leased, with average effective monthly rent of $1,387 per occupied unit.
Key financial results
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Total revenue | $65.8; up 25.1% year over year | $126.6; up 21.3% |
| Operating income | $4.2; operating margin 6.4% | $9.9; operating margin 7.8% |
| Net loss attributable to common stockholders | $(7.8), or $(0.30) per share | $(12.5), or $(0.49) per share |
| Same-store NOI | $33.7; up 16.4% | $66.9; up 16.4% |
| FFO / Core FFO / AFFO per share | $0.69 / $0.79 / $0.89 | $1.43 / $1.58 / $1.76 |
NOI, FFO, Core FFO and AFFO are non-GAAP measures defined by the company and are not substitutes for GAAP earnings or operating cash flow.
- Cash flow: Six-month operating cash flow was $38.7, investing cash flow was $(165.4), and financing cash flow was $104.3. Cash, cash equivalents and restricted cash totaled $66.2 at period-end, including $20.5 of unrestricted cash.
- Debt and interest: Total debt principal was approximately $1.694 billion, including $1.359 billion of property mortgages and $335 million drawn on the corporate credit facility. Mortgage debt’s weighted-average rate was 3.29% (2.67% adjusted for swaps); total indebtedness’ weighted-average rate was 3.42%. The credit facility had $350 million of reported borrowing availability and matures June 30, 2024, subject to an extension option.
- Liquidity and maturities: Scheduled 2024 principal maturities total approximately $730 million, including $395 million of mortgage debt and the $335 million credit facility. Management said available cash, expected operating cash flow and potential financings should cover operations, scheduled debt service and dividends for the 12 months after June 30, 2022.
- Dividends: The company declared $0.38 per share for Q2, paid June 30, 2022, and subsequently declared another $0.38 per share, payable September 30, 2022.
Material changes versus the prior comparable period
- Q2 revenue rose $13.2, mainly reflecting higher rent and portfolio growth. Management reported a 23.6% increase in portfolio average effective rent versus June 2021. Same-store rent growth was strong, while same-store occupancy declined from 96.0% to 94.5%.
- Q2 net loss attributable to common stockholders widened to $7.8 from $3.4. Higher operating expenses and interest expense, and lower casualty gains, more than offset increased revenue. Interest expense rose $1.7 to $12.4.
- Six-month operating cash flow increased to $38.7 from $31.0, while investing outflows increased to $165.4 from $139.8, primarily reflecting acquisitions and investment activity.
- The company acquired The Adair and Estates on Maryland on April 1 for a combined purchase price of $143.4, financed in part with $78.3 of property mortgage debt and $2.6 of OP units.
- Debt costs increased as market rates rose: the weighted-average mortgage rate increased from 1.81% at December 31, 2021 to 3.29% at June 30, 2022.
Outlook, risks and unusual items
- No specific earnings or operating guidance was provided. Management expects to continue acquisitions and its value-add renovation program, subject to available capital and suitable opportunities. Renovation reserves were approximately $19.3; six-month rehab expenditures were $14.0.
- Interest-rate risk is material. Approximately $1.3 billion of floating-rate mortgage debt was covered by swaps, but the $335 million credit-facility balance was not swap-hedged. The company also reported caps covering $537.1 million of mortgage debt. Management estimated a 100-basis-point rate increase would add about $3.56 million to annual interest expense, after swap effects, based on period-end debt.
- Nine properties had significant fire or flood damage; 73 units were excluded from the portfolio unit count due to reconstruction. Management reported approximately $2.1 million of claims under the 2022 self-insurance program through June 30.
- Casualty-related expenses and recoveries affected comparisons: Q2 casualty gains fell to $0.2 from $2.4 in 2021. No real estate impairment or properties held for sale were reported at quarter-end.
- The Adviser voluntarily waived advisory and administrative fees of approximately $5.2 in Q2 and $10.1 for the six months. These waivers are permanent for the periods, but the Adviser is not obligated to continue waiving fees on new assets.
- Management cited inflation, rising interest rates, refinancing and capital-market access, regional property concentration, casualty exposure, and the possibility of weaker rent or occupancy as risks. It stated that there were no material changes to previously disclosed risk factors and no material company litigation known at quarter-end.
Important facts for investors to verify
- Confirm the timing and refinancing plan for the substantial 2024 debt maturities, including the corporate credit facility, and assess borrowing capacity and covenant headroom.
- Track rent growth against occupancy, operating-cost inflation, and same-store NOI, particularly given the year-over-year occupancy decline.
- Review the progress, costs, insurance recoveries and unit impact of casualty repairs, including the reported self-insurance claims.
- Assess how much future performance depends on discretionary fee waivers, acquisitions and continued access to debt or equity capital.
- Reconcile reported GAAP losses with non-GAAP FFO, Core FFO and AFFO, and consider whether dividends remain supported by cash generation and capital needs.