NexPoint Residential Trust, Inc. [NXRT] Filings

10-Q 1 nxrt-20230630.htm 10-Q 10-Q

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 June 30, 2023


☐	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 July 27, 2023, 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 June 30, 2023

INDEX


			Page
Cautionary Statement Regarding Forward-Looking Statements			ii

	PART I—FINANCIAL INFORMATION

Item 1.		Financial Statements
		Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	1
		Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2023 and 2022	2
		Consolidated Unaudited Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	3
		Consolidated Unaudited Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	5
		Notes to Consolidated Unaudited Financial Statements	7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.		Controls and Procedures	53

	PART II—OTHER INFORMATION

Item 1.		Legal Proceedings	54
Item 1A.		Risk Factors	54
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.		Defaults Upon Senior Securities	54
Item 4.		Mine Safety Disclosures	55
Item 5.		Other Information	55
Item 6.		Exhibits	56
Signatures			57

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 rising interest rates may adversely affect our financial condition and results of operations;

•

risks associated with 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;

•

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 tenants;

•

failure to maintain our status as a REIT;

•

failure of our operating partnership to be taxable as a partnership for 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;

•

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 may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain;

•

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;

•

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;

•

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;

iii

•

risks associated with the Highland Capital Management, L.P. ("Highland") 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 24, 2023 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.

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	June 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Operating Real Estate Investments
Land	$	378,412		$	378,438
Buildings and improvements		1,773,090			1,760,782
Construction in progress		15,446			10,622
Furniture, fixtures, and equipment		172,728			152,529
Total Gross Operating Real Estate Investments		2,339,676			2,302,371
Accumulated depreciation and amortization		(396,250	)		(349,276	)
Total Net Operating Real Estate Investments		1,943,426			1,953,095
Real estate held for sale, net of accumulated depreciation of $22,017 and $22,017, respectively		90,065			89,457
Total Net Real Estate Investments		2,033,491			2,042,552
Cash and cash equivalents		10,056			16,762
Restricted cash		32,921			35,037
Accounts receivable, net		15,506			17,121
Prepaid and other assets		16,136			10,425
Fair value of interest rate swaps		99,364			103,440
TOTAL ASSETS	$	2,207,474		$	2,225,337

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable, net	$	1,542,781		$	1,526,828
Mortgages payable held for sale, net		68,064			68,016
Credit facility, net		55,694			72,644
Accounts payable and other accrued liabilities		15,667			12,325
Accrued real estate taxes payable		15,993			7,232
Accrued interest payable		9,478			7,946
Security deposit liability		3,242			3,200
Prepaid rents		2,121			1,849
Total Liabilities		1,713,040			1,700,040

Redeemable noncontrolling interests in the Operating Partnership		6,190			5,631

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; 25,674,313 and 25,549,319 shares issued and outstanding, respectively		256			255
Additional paid-in capital		408,119			405,376
Accumulated earnings (loss) less dividends		(18,225	)		11,880
Accumulated other comprehensive income		98,094			102,155
Total Stockholders' Equity		488,244			519,666
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,207,474		$	2,225,337

See Notes to Consolidated Financial Statements

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 June 30,						For the Six Months Ended June 30,
	2023			2022			2023			2022
Revenues
Rental income	$	67,810		$	64,152		$	135,347		$	123,449
Other income		1,759			1,614			3,449			3,103
Total revenues		69,569			65,766			138,796			126,552
Expenses
Property operating expenses		15,492			16,703			28,758			30,299
Real estate taxes and insurance		9,334			9,531			19,354			18,251
Property management fees (1)		2,031			1,912			4,058			3,669
Advisory and administrative fees (2)		1,927			1,868			3,816			3,711
Corporate general and administrative expenses		4,624			3,812			7,991			7,298
Property general and administrative expenses		2,242			2,193			4,512			4,199
Depreciation and amortization		23,872			25,548			47,138			49,266
Total expenses		59,522			61,567			115,627			116,693
Operating income		10,047			4,199			23,169			9,859
Interest expense		(14,524	)		(12,402	)		(31,263	)		(23,038	)
Gain on extinguishment of debt and modification costs		—			—			122			—
Casualty gains (loss)		(66	)		229			(880	)		357
Gain on forfeited deposits		250			—			250			—
Miscellaneous income		325			147			736			328
Net loss		(3,968	)		(7,827	)		(7,866	)		(12,494	)
Net loss attributable to redeemable noncontrolling interests in the Operating Partnership		(15	)		(30	)		(30	)		(44	)
Net loss attributable to common stockholders	$	(3,953	)	$	(7,797	)	$	(7,836	)	$	(12,450	)
Other comprehensive income (loss)
Unrealized gains (losses) on interest rate derivatives		13,130			17,357			(4,076	)		71,936
Total comprehensive income (loss)		9,162			9,530			(11,942	)		59,442
Comprehensive income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership		35			37			(45	)		187
Comprehensive income (loss) attributable to common stockholders	$	9,127		$	9,493		$	(11,897	)	$	59,255

Weighted average common shares outstanding - basic		25,667			25,672			25,633			25,646
Weighted average common shares outstanding - diluted		25,667			25,672			25,633			25,646

Loss per share - basic	$	(0.15	)	$	(0.30	)	$	(0.31	)	$	(0.49	)
Loss per share - diluted	$	(0.15	)	$	(0.30	)	$	(0.31	)	$	(0.49	)

(1)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the Company’s Operating Partnership (see Note 9).

(2)

Fees incurred to the Adviser (see Note 10).

See Notes to Consolidated Financial Statements

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(Unaudited)

Preferred Stock

Common Stock

Additional

Accumulated
Earnings (Loss)

Accumulated Other

Three Months ended June 30, 2023

NexPoint Residential Trust, Inc. [NXRT] Filings
10-Q	[2023-07-28]
10-Q	[2023-04-28]
10-K	[2023-02-24]
10-Q	[2022-10-26]
10-Q	[2022-08-02]
10-Q	[2022-04-28]
10-K	[2022-02-18]
10-Q	[2021-11-03]
10-Q	[2021-07-30]
10-Q	[2021-04-29]
10-K	[2021-02-22]
10-Q	[2020-10-28]
10-Q	[2020-08-05]
10-Q	[2020-05-08]
10-K	[2020-02-21]
10-Q	[2019-11-07]
10-Q	[2019-07-30]
10-Q	[2019-04-30]
10-K	[2019-02-19]
10-Q	[2018-11-02]
10-Q	[2018-07-31]
10-Q	[2018-05-01]
10-K	[2018-02-15]
10-Q	[2017-10-31]
10-Q	[2017-08-01]
10-Q	[2017-05-02]
10-K	[2017-03-15]
10-Q	[2016-11-10]
10-Q	[2016-08-11]
10-Q	[2016-05-11]
10-K	[2016-03-21]
10-Q	[2015-11-16]
10-Q	[2015-08-14]
10-Q	[2015-05-15]