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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number 001-36663

 

NexPoint Residential Trust, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

47-1881359

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

300 Crescent Court, Suite 700, Dallas, Texas

(Address of Principal Executive Offices)

 

75201

 

(Zip Code)

(214) 276-6300

(Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

NXRT

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 02, 2024, the registrant had 25,674,313 shares of its common stock, par value $0.01 per share, outstanding.

 

 


 

NEXPOINT RESIDENTIAL TRUST, INC.

 

Form 10-Q

Quarter Ended March 31, 2024

INDEX

 

Page

Cautionary Statement Regarding Forward-Looking Statements

ii

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements

 

 

 

Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023

 

1

 

 

Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023

 

2

 

 

Consolidated Unaudited Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023

 

3

 

 

Consolidated Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

 

4

 

 

Notes to Consolidated Unaudited Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

 

Controls and Procedures

40

 

 

PART II—OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

41

Item 1A.

 

Risk Factors

41

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Securities

41

Item 3.

 

Defaults Upon Senior Securities

41

Item 4.

 

Mine Safety Disclosures

42

Item 5.

 

Other Information

42

Item 6.

 

Exhibits

 

43

Signatures

 

 

44

 

i


 

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, the performance of our properties and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this quarterly report are based on management’s current beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result” and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where our properties are located;
macroeconomic trends including inflation and high interest rates may adversely affect our financial condition and results of operations;
risks associated with the ownership of real estate;
limited ability to dispose of assets because of the relative illiquidity of real estate investments;
our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United States, which makes us more susceptible to adverse developments in those markets;
increased risks associated with our strategy of acquiring value-enhancement multifamily properties rather than more conservative investment strategies;
failure to succeed in new markets may have adverse consequences on our performance;
potential reforms to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”);
competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and impede our growth;
competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain rents;
the relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a result, cause a decline in our occupancy rates;
the risk that we may fail to consummate future property acquisitions;
failure of acquisitions to yield anticipated results;
risks associated with increases in interest rates and our ability to issue additional debt or equity securities in the future;
risks associated with selling apartment communities, which could limit our operational and financial flexibility;
contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire;
lack of or insufficient amounts of insurance;
the risk that our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient;
high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth;
high costs associated with the compliance with various accessibility, environmental, building and health and safety laws and regulations, such as the Americans with Disabilities Act of 1990 and the Fair Housing Act;
risks associated with limited warranties we may obtain when purchasing properties;

ii


 

exposure to decreases in market rents due to our short-term leases;
risks associated with operating through joint ventures and funds;
our dependence on information systems;
risks associated with breaches of our data security;
costs associated with being a public company, including compliance with securities laws;
the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting;
risks associated with our substantial current indebtedness and indebtedness we may incur in the future;
risks associated with derivatives or hedging activity;
risks associated with representations and warranties made by us in connection with sales of our properties may subject us to liability that could result in losses and could harm our operating results and, therefore, distributions we make to our stockholders;
loss of key personnel of NexPoint Advisors, L.P. (our “Sponsor”), NexPoint Real Estate Advisors, L.P. (our “Adviser”) and our property manager;
the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members of our Adviser’s management team or by our Sponsor or its affiliates;
risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);
our ability to change our major policies, operations and targeted investments without stockholder consent;
the substantial fees and expenses we pay to our Adviser and its affiliates;
risks associated with any potential internalization of our management functions;
conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;
the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and residents;
failure to maintain our status as a REIT;
failure of our operating partnership to be taxable as a partnership for U.S. federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status;
compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;
risks associated with our ownership of interests in taxable REIT subsidiaries ("TRSs");
the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”);
the risk that the Internal Revenue Service (the "IRS") may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain;
the risk that we may be subject to other tax liabilities that may reduce our cash flows and distributions on our shares;
the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;
risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter;
the ability of our board of directors to revoke our REIT qualification without stockholder approval;
recent and potential legislative or regulatory tax changes or other actions affecting REITs;
foreign investors may be subject to U.S. federal income tax or withholding tax distributions received from us or on proceeds and the disposition of our current common stock;
risks associated with the market for our common stock and the general volatility of the capital and credit markets;
failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels;
risks associated with limitations of liability for and our indemnification of our directors and officers;
the risk that legal proceedings we become involved in from time to time could adversely affect our business;

iii


 

the risk that acts of violence could decrease the value of our assets and have an adverse effect on our business and results of operations;
risks associated with the Highland Capital Management, L.P. bankruptcy, including related litigation and potential conflicts of interest; and
any other risks included under Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 27, 2024 or under Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this quarterly report. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

iv


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

March 31, 2024

 

 

December 31, 2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Operating Real Estate Investments

 

 

 

 

 

 

Land

 

$

359,819

 

 

$

359,819

 

Buildings and improvements

 

 

1,723,657

 

 

 

1,719,864

 

Construction in progress

 

 

6,861

 

 

 

8,322

 

Furniture, fixtures and equipment

 

 

185,257

 

 

 

180,435

 

Total Gross Operating Real Estate Investments

 

 

2,275,594

 

 

 

2,268,440

 

Accumulated depreciation and amortization

 

 

(435,410

)

 

 

(411,087

)

Total Net Operating Real Estate Investments

 

 

1,840,184

 

 

 

1,857,353

 

Real estate held for sale, net of accumulated depreciation of $14,478 and $31,871, respectively

 

 

40,090

 

 

 

110,747

 

Total Net Real Estate Investments

 

 

1,880,274

 

 

 

1,968,100

 

Cash and cash equivalents

 

 

37,234

 

 

 

12,367

 

Restricted cash

 

 

31,515

 

 

 

32,912

 

Accounts receivable, net

 

 

13,082

 

 

 

14,598

 

Prepaid and other assets

 

 

6,870

 

 

 

8,640

 

Fair value of interest rate swaps

 

 

73,711

 

 

 

71,028

 

TOTAL ASSETS

 

$

2,042,686

 

 

$

2,107,645

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Mortgages payable, net

 

$

1,454,101

 

 

$

1,453,787

 

Mortgages payable held for sale, net

 

 

35,204

 

 

 

88,044

 

Credit facility, net

 

 

 

 

 

23,243

 

Accounts payable and other accrued liabilities

 

 

14,121

 

 

 

17,140

 

Accrued real estate taxes payable

 

 

7,619

 

 

 

11,230

 

Accrued interest payable

 

 

9,077

 

 

 

9,399

 

Security deposit liability

 

 

3,060

 

 

 

3,159

 

Prepaid rents

 

 

1,643

 

 

 

1,773

 

Total Liabilities

 

 

1,524,825

 

 

 

1,607,775

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests in the Operating Partnership

 

 

5,082

 

 

 

5,246

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued

 

 

 

 

 

 

Common stock, $0.01 par value: 500,000,000 shares authorized; 25,774,730 and 25,674,313 shares issued and outstanding, respectively

 

 

257

 

 

 

256

 

Additional paid-in capital

 

 

414,243

 

 

 

413,010

 

Accumulated earnings less dividends

 

 

25,742

 

 

 

11,493

 

Accumulated other comprehensive income

 

 

72,537

 

 

 

69,865

 

Total Stockholders' Equity

 

 

512,779

 

 

 

494,624

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

2,042,686

 

 

$

2,107,645

 

 

See Notes to Consolidated Financial Statements

1


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenues

 

 

 

 

 

 

Rental income

 

$

65,598

 

 

$

67,537

 

Other income

 

 

1,979

 

 

 

1,690

 

Total revenues

 

 

67,577

 

 

 

69,227

 

Expenses

 

 

 

 

 

 

Property operating expenses

 

 

13,768

 

 

 

13,266

 

Real estate taxes and insurance

 

 

9,312

 

 

 

10,020

 

Property management fees (1)

 

 

1,958

 

 

 

2,027

 

Advisory and administrative fees (2)

 

 

1,743

 

 

 

1,889

 

Corporate general and administrative expenses

 

 

4,910

 

 

 

3,367

 

Property general and administrative expenses

 

 

2,281

 

 

 

2,270

 

Depreciation and amortization

 

 

24,323

 

 

 

23,266

 

Total expenses

 

 

58,295

 

 

 

56,105

 

Operating income before gain on sales of real estate

 

 

9,282

 

 

 

13,122

 

Gain on sales of real estate with related party

 

 

31,709

 

 

 

 

Operating income

 

 

40,991

 

 

 

13,122

 

Interest expense

 

 

(14,391

)

 

 

(16,739

)

Gain (loss) on extinguishment of debt and modification cost

 

 

(546

)

 

 

122

 

Casualty gain (loss)

 

 

199

 

 

 

(814

)

Equity in earnings of affiliate

 

 

38

 

 

 

 

Miscellaneous income

 

 

111

 

 

 

411

 

Net income (loss)

 

 

26,402

 

 

 

(3,898

)

Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership

 

 

104

 

 

 

(15

)

Net income (loss) attributable to common stockholders

 

$

26,298

 

 

$

(3,883

)

Other comprehensive income (loss)

 

 

 

 

 

 

Unrealized gains (losses) on interest rate derivatives

 

 

2,683

 

 

 

(17,206

)

Total comprehensive income (loss)

 

 

29,085

 

 

 

(21,104

)

Comprehensive income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership

 

 

115

 

 

 

(80

)

Comprehensive income (loss) attributable to common stockholders

 

$

28,970

 

 

$

(21,024

)

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

25,721

 

 

 

25,599

 

Weighted average common shares outstanding - diluted

 

 

26,354

 

 

 

25,599

 

 

 

 

 

 

 

 

Earnings (loss) per share - basic

 

$

1.02

 

 

$

(0.15

)

Earnings (loss) per share - diluted

 

$

1.00

 

 

$

(0.15

)

 

(1)
Fees incurred to an affiliate of the noncontrolling limited partner of the Company’s Operating Partnership (see Note 8).
(2)
Fees incurred to the Adviser (see Note 9).

 

See Notes to Consolidated Financial Statements

2


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(Unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Earnings

 

 

Accumulated Other

 

 

 

 

 

 

Number of
Shares

 

 

Par Value

 

 

Number of
Shares

 

 

Par Value

 

 

Paid-in
Capital

 

 

Less
Dividends

 

 

Comprehensive
Income (Loss)

 

 

Total

 

Balances, December 31, 2023

 

 

 

 

$

 

 

 

25,674,313

 

 

$

256

 

 

$

413,010

 

 

$

11,493

 

 

$

69,865

 

 

$

494,624

 

Net income attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,298

 

 

 

 

 

 

26,298

 

Vesting of stock-based compensation

 

 

 

 

 

 

 

 

100,417

 

 

 

1

 

 

 

1,233

 

 

 

 

 

 

 

 

 

1,234

 

Common stock dividends declared ($0.46242 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,280

)

 

 

 

 

 

(12,280

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,672

 

 

 

2,672

 

Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

231

 

 

 

 

 

 

231

 

Balances, March 31, 2024

 

 

 

 

$

 

 

 

25,774,730

 

 

$

257

 

 

$

414,243

 

 

$

25,742

 

 

$

72,537

 

 

$

512,779

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Earnings (Loss)

 

 

Accumulated Other

 

 

 

 

 

 

Number of
Shares

 

 

Par Value

 

 

Number of
Shares

 

 

Par Value

 

 

Paid-in
Capital

 

 

Less
Dividends

 

 

Comprehensive
Income (Loss)

 

 

Total

 

Balances, December 31, 2022

 

 

 

 

$

 

 

 

25,549,319

 

 

$

255

 

 

$

405,376

 

 

$

11,880

 

 

$

102,155

 

 

$

519,666

 

Net loss attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,883

)

 

 

 

 

 

(3,883

)

Vesting of stock-based compensation

 

 

 

 

 

 

 

 

108,404

 

 

 

1

 

 

 

471

 

 

 

 

 

 

 

 

 

472

 

Common stock dividends declared ($0.42 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,940

)

 

 

 

 

 

(10,940

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,141

)

 

 

(17,141

)

Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(141

)

 

 

 

 

 

(141

)

Balances, March 31, 2023

 

 

 

 

$

 

 

 

25,657,723

 

 

$

256

 

 

$

405,847

 

 

$

(3,084

)

 

$

85,014

 

 

$

488,033

 

 

See Notes to Consolidated Financial Statements

 

3


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

26,402

 

 

$

(3,898

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Gain on sales of real estate with related party

 

 

(31,709

)

 

 

 

Depreciation and amortization

 

 

24,323

 

 

 

23,266

 

Amortization/write-off of deferred financing costs

 

 

1,263

 

 

 

645

 

Change in fair value on derivative instruments included in interest expense

 

 

(13,533

)

 

 

(9,175

)

Net cash received on derivative settlements

 

 

14,007

 

 

 

9,871

 

Amortization/write-off of fair value adjustment of assumed debt

 

 

(26

)

 

 

(27

)

Provision for bad debts, net

 

 

1,172

 

 

 

2,325

 

Vesting of stock-based compensation

 

 

2,547

 

 

 

1,966

 

Insurance proceeds received for business interruption

 

 

538

 

 

 

 

Equity in earnings of affiliate

 

 

(38

)

 

 

 

Casualty gain (loss)

 

 

(107

)

 

 

202

 

Changes in operating assets and liabilities, net of effects of sales and acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

(1,363

)

 

 

(3,748

)

Prepaid and other assets

 

 

1,938

 

 

 

2,323

 

Operating liabilities

 

 

(2,116

)

 

 

2,750

 

Real estate taxes payable

 

 

(3,611

)

 

 

1,423

 

Net cash provided by operating activities

 

 

19,687

 

 

 

27,923

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Net proceeds from sales of real estate

 

 

102,704

 

 

 

 

Insurance proceeds received from casualty losses

 

 

1,032

 

 

 

1,494

 

Additions to real estate investments

 

 

(9,567

)

 

 

(17,999

)

Net cash provided by (used in) investing activities

 

 

94,169

 

 

 

(16,505

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Mortgage proceeds received

 

 

 

 

 

42,788

 

Mortgage payments

 

 

(52,958

)

 

 

(28,181

)

Credit facilities payments

 

 

(24,000

)

 

 

(17,500

)

Deferred financing costs received (paid)

 

 

 

 

 

61

 

Interest rate cap fees paid

 

 

(118

)

 

 

(215

)

Prepayment penalties on extinguished debt

 

 

(529

)

 

 

(285

)

Payments for taxes related to net share settlement of stock-based compensation

 

 

 

 

 

(1,494

)

Dividends paid to common stockholders

 

 

(12,733

)

 

 

(11,267

)

Distributions to redeemable noncontrolling interests in the Operating Partnership

 

 

(48

)

 

 

(49

)

Net cash used in financing activities

 

 

(90,386

)

 

 

(16,142

)

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

23,470

 

 

 

(4,724

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

45,279

 

 

 

51,799

 

Cash, cash equivalents and restricted cash, end of period

 

$

68,749

 

 

$

47,075

 

 

 

See Notes to Consolidated Financial Statements

4


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

Interest paid

 

$

27,555

 

 

$

24,071

 

Supplemental Disclosure of Noncash Activities

 

 

 

 

 

 

Issuance of operating partnership units for purchase of noncontrolling interests

 

 

 

 

 

415

 

Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP

 

 

231

 

 

 

(141

)

Capitalized construction costs included in accounts payable and other accrued liabilities

 

 

3,792

 

 

 

5,091

 

Change in fair value on derivative instruments designated as hedges

 

 

2,683

 

 

 

(17,206

)

Decrease in dividends payable upon vesting of restricted stock units

 

 

(453

)

 

 

(327

)

Write-off of assets due to casualty losses

 

 

 

 

 

1,751

 

Write-off of deferred financing costs

 

 

16

 

 

 

38

 

 

See Notes to Consolidated Financial Statements

5


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and Description of Business

NexPoint Residential Trust, Inc. (the “Company,” “we,” “our”) was incorporated in Maryland on September 19, 2014, and has elected to be taxed as a real estate investment trust (“REIT”) and the Company believes the current organization and method of operation will enable it to maintain its status as a REIT. The Company is focused on “value-add” multifamily investments primarily located in the Southeastern and Southwestern United States. Substantially all of the Company’s business is conducted through NexPoint Residential Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. The Company also consolidates certain variable interest entities ("VIEs") in accordance with Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification ("ASC") 810 Consolidation. The Company controls and consolidates the OP as a VIE. The Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiary (“TRS”). The OP owns approximately 99.9% of the Portfolio; the TRS owns approximately 0.1% of the Portfolio. The Company’s wholly owned subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of March 31, 2024, there were 26,053,988 common units in the OP (“OP Units”) outstanding, of which 25,951,154, or 99.6%, were owned by the Company and 102,834, or 0.4%, were owned by noncontrolling limited partners (see Note 8).

The Company is externally managed by NexPoint Real Estate Advisors, L.P. (the “Adviser”), through an agreement dated March 16, 2015, as amended, and renewed on February 26, 2024 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the Adviser. The Adviser conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have accounting employees while the Advisory Agreement is in effect. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Company’s board of directors (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor”).

The Company’s investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for its stockholders through targeted management and a value-add program. Consistent with the Company’s policy to acquire assets for both income and capital gain, the Company intends to hold at least majority interests in its properties for long-term appreciation and to engage in the business of directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States consistent with its investment objectives. Economic and market conditions may influence the Company to hold properties for different periods of time. From time to time, the Company may sell a property if, among other deciding factors, the sale would be in the best interest of its stockholders.

The Company may allocate up to 30% of the Portfolio to investments in real estate-related debt and securities with the potential for high current income or total returns. These allocations may include first and second mortgages and subordinated, bridge, mezzanine, construction and other loans, as well as debt securities related to or secured by multifamily real estate and common and preferred equity securities, which may include securities of other REITs or real estate companies.

2. Summary of Significant Accounting Policies

Readers of this Quarterly Report on Form 10-Q ("Quarterly Report") should refer to the audited financial statements and notes to consolidated financial statements of the Company for the year ended December 31, 2023, which are included in our Annual Report on Form 10-K ("2023 Annual Report"), filed with the United States Securities and Exchange Commission ("SEC") on February 27, 2024 and also available on our website (nxrt.nexpoint.com), since we have omitted from this Quarterly Report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to Note 2, Summary of Significant Accounting Policies, in the notes to consolidated financial statements in our 2023 Annual Report for further discussion of our significant accounting policies and estimates. Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this Quarterly Report or any other report or documents we file or furnish with the SEC.

Reclassification of Prior Year Activity on the Consolidated Statement of Cash Flows

Certain reclassifications have been made within the consolidated statements of cash flows to the changes in operating assets and liabilities, net of effects of sales and acquisitions for the three months ended March 31, 2023 to be comparative to the consolidated statement of cash flows for the three months ended March 31, 2024.

6


 

Impairment

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and record an impairment loss if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment. As of March 31, 2024, the Company has not recorded any impairment on its real estate assets.

Held for Sale

The Company periodically classifies real estate assets as held for sale when certain criteria are met in accordance with U.S. generally accepted accounting principles ("GAAP"). At that time, the Company presents the net real estate assets and the net debt associated with the real estate held for sale separately in its consolidated balance sheet, and the Company ceases recording depreciation and amortization expense related to that property. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. As of March 31, 2024 and December 31, 2023, there were two and three properties classified as held for sale, respectively. In addition to the net real estate and mortgages payable held for sale, the consolidated balance sheets also includes approximately $0.3 million and $0.8 million of accounts receivable and prepaid and other assets, and approximately $1.0 million and $4.9 million of accounts payable, real estate taxes payable, security deposits, prepaid rents, and other accrued liabilities related to assets held for sale as of March 31, 2024 and December 31, 2023, respectively.

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has taken the ASC 848 elections needed to allow for the hedged forecasted transactions to transition while not discontinuing the associated hedge accounting designations. Application of these hedged accounting expedients preserves the presentation of derivatives consistent with past presentation. The Company will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

 

In November 2023, the FASB issued ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires a public entity to disclose significant segment expenses and other segment items in interim and annual periods and expands the ASC 280 disclosure requirements for interim periods. The ASU also explicitly requires public entities with a single reportable segment to provide all segment disclosures under ASC 280, including the new disclosures under ASU 2023-07. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Management is currently evaluating this ASU to determine its impact on the Company's disclosures.

3. Real Estate Investments

Acquisitions

There were no acquisitions of real estate during the three months ended March 31, 2024 and 2023.

Dispositions

The Company sold one property and zero properties during the three months ended March 31, 2024 and 2023, respectively, as detailed in the table below (in thousands).

Property Name

 

Location

 

Date of Sale

 

Sales Price

 

 

Net Cash Proceeds (1)

 

 

Gain on Sale
of Real Estate

 

Old Farm

(2)

Houston, Texas

 

March 1, 2024

 

$

103,000

 

 

$

102,704

 

 

$

31,709

 

 

 

 

 

 

 

$

103,000

 

 

$

102,704

 

 

$

31,709

 

(1)
Represents sales price, net of closing costs.
(2)
Old Farm was sold to NexBank Capital, Inc. (“NexBank Capital”). A director and officer of the Company, who controls the Adviser, which externally manages the Company, also (i) is the beneficiary of a trust that indirectly owns 100% of the limited partnership interests in the parent of the Adviser and directly owns 100% of the general partnership interests in the parent of the Adviser and (ii) is a director of NexBank Capital. See Note 9.

7


 

NXRT Captive

On July 6, 2023, NexPoint Captive Insurance Company, Inc. (“NexPoint Captive”) was authorized to transact business in the State of Montana as a captive insurance company. NexPoint Captive began providing rental insurance coverage to NXRT properties and properties managed by affiliates of the Adviser on August 1, 2023. The OP purchased 100% ownership interest and has the power to direct the activities of NexPoint Captive. NexPoint Captive is required to maintain a cash reserve of $250,000 to fund potential claims, which is classified as restricted cash on the consolidated balance sheet. As of March 31, 2024 and December 31, 2023, the Company had approximately $0.3 million and $0.1 million accrued for case reserves, respectively. The Company consolidates NexPoint Captive in its consolidated financial statements.

 

Casualty Losses

 

The Company experienced certain casualty events during the three months ended March 31, 2024 and 2023. Certain casualty proceeds from insurance are recorded in casualty gains (loss) on the consolidated statements of operations and comprehensive income (loss) in relation to these events. Events that are considered to be small, standard and not extraordinary are recorded through property operating expense. Insurance proceeds received from casualty losses are recognized on the Company’s consolidated statements of cash flows as investing activities. The Company differentiates proceeds received from business interruption and casualty gains (losses) in accounting for the transactions. Business interruption proceeds are specifically insurance proceeds to recoup lost rents due to a qualifying event(s) (i.e., fires, floods, storms, water damage, etc.) as determined by the insurance policy and are reflected as operating cash flows in the accompanying consolidated statements of cash flows. Business interruption that has been accrued by the Company is presented in miscellaneous income in the accompanying consolidated statements of operations and comprehensive income (loss). Casualty gains (losses) are distinctly attributable to damage and subsequent write down of the property (loss), and the recoupment of funds from the insurance policy, as it relates to the damage. Such proceeds received from the damage to the property are accounted for as a gain to the Company, and potentially offset losses attributable to net write off of damaged assets. As of March 31, 2024 and December 31, 2023, there were 23 and 107 down units, respectively.

 

During three months ended March 31, 2024 and 2023, the Company recognized $0.2 million in casualty gain and $0.8 million in casualty loss, respectively, and $0.1 million and $0.4 million in business interruption proceeds on the consolidated statement of operations and comprehensive income (loss) due to casualty events, respectively.

 

8


 

4. Debt

Mortgage Debt

 

The following table contains summary information concerning the mortgage debt of the Company as of March 31, 2024 (dollars in thousands):

 

Operating Properties

 

Type

 

Term (months)

 

 

Outstanding
Principal

 

 

Interest Rate (1)

 

Maturity Date

Arbors on Forest Ridge

 

Floating

 

 

120

 

 

$

19,184

 

 

6.87%

 

12/1/2032

Cutter's Point

 

Floating

 

 

120

 

 

 

21,524

 

 

6.87%

 

12/1/2032

The Summit at Sabal Park

 

Floating

 

 

120

 

 

 

30,826

 

 

6.87%

 

12/1/2032

Courtney Cove

 

Floating

 

 

120

 

 

 

36,146

 

 

6.87%

 

12/1/2032

The Preserve at Terrell Mill

 

Floating

 

 

120

 

 

 

71,098

 

 

6.87%

 

12/1/2032

Versailles

 

Floating

 

 

120

 

 

 

40,247

 

 

6.87%

 

12/1/2032

Seasons 704 Apartments

 

Floating

 

 

120

 

 

 

33,132

 

 

6.87%

 

12/1/2032

Madera Point

 

Floating

 

 

120

 

 

 

34,457

 

 

6.87%

 

12/1/2032

Venue at 8651

 

Floating

 

 

120

 

 

 

18,690

 

 

6.87%

 

12/1/2032

The Venue on Camelback

 

Floating

 

 

120

 

 

 

42,788

 

 

7.50%

 

2/1/2033

Sabal Palm at Lake Buena Vista

 

Floating

 

 

84

 

 

 

42,100

 

 

6.74%

 

9/1/2025

Cornerstone

 

Floating

 

 

120

 

 

 

46,804

 

 

7.41%

 

12/1/2032

Parc500

 

Floating

 

 

120

 

 

 

29,416

 

 

6.87%

 

12/1/2032

Rockledge Apartments

 

Floating

 

 

120

 

 

 

93,129

 

 

6.87%

 

12/1/2032

Atera Apartments

 

Floating

 

 

120

 

 

 

46,198

 

 

6.87%

 

12/1/2032

Versailles II

 

Floating

 

 

84

 

 

 

12,061

 

 

6.62%

 

10/1/2025

Brandywine I & II

 

Floating

 

 

84

 

 

 

43,835

 

 

6.62%

 

10/1/2025

Bella Vista

 

Floating

 

 

84

 

 

 

29,040

 

 

6.76%

 

2/1/2026

The Enclave

 

Floating

 

 

84

 

 

 

25,322

 

 

6.76%

 

2/1/2026

The Heritage

 

Floating