NexPoint Residential Trust, Inc. [NXRT] Filings

10-Q 1 nxrt-20240630.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, 2024


☐	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 August 1, 2024, the registrant had 25,403,537 shares of its common stock, par value $0.01 per share, outstanding.

NEXPOINT RESIDENTIAL TRUST, INC.

Form 10-Q

Quarter Ended June 30, 2024

INDEX


			Page
Cautionary Statement Regarding Forward-Looking Statements			ii

	PART I—FINANCIAL INFORMATION

Item 1.		Financial Statements
		Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	1
		Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2024 and 2023	2
		Consolidated Unaudited Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023	3
		Consolidated Unaudited Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	5
		Notes to Consolidated Unaudited Financial Statements	7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.		Controls and Procedures	44

	PART II—OTHER INFORMATION

Item 1.		Legal Proceedings	45
Item 1A.		Risk Factors	45
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds, and Issuer Purchases of Securities	45
Item 3.		Defaults Upon Senior Securities	45
Item 4.		Mine Safety Disclosures	46
Item 5.		Other Information	46
Item 6.		Exhibits	47
Signatures			48

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;

•

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.

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	June 30, 2024			December 31, 2023
	(Unaudited)
ASSETS
Operating Real Estate Investments
Land	$	359,819		$	359,819
Buildings and improvements		1,729,021			1,719,864
Construction in progress		5,197			8,322
Furniture, fixtures, and equipment		190,879			180,435
Total Gross Operating Real Estate Investments		2,284,916			2,268,440
Accumulated depreciation and amortization		(459,854	)		(411,087	)
Total Net Operating Real Estate Investments		1,825,062			1,857,353
Real estate held for sale, net of accumulated depreciation of $4,624 and $31,871, respectively		20,173			110,747
Total Net Real Estate Investments		1,845,235			1,968,100
Cash and cash equivalents		21,262			12,367
Restricted cash		33,385			32,912
Accounts receivable, net		11,508			14,598
Prepaid and other assets		11,107			8,640
Fair value of interest rate swaps		66,225			71,028
TOTAL ASSETS	$	1,988,722		$	2,107,645

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable, net	$	1,454,418		$	1,453,787
Mortgages payable held for sale, net		—			88,044
Credit facility, net		—			23,243
Accounts payable and other accrued liabilities		10,826			17,140
Accrued real estate taxes payable		13,615			11,230
Accrued interest payable		8,603			9,399
Security deposit liability		3,004			3,159
Prepaid rents		1,493			1,773
Total Liabilities		1,491,959			1,607,775

Redeemable noncontrolling interests in the Operating Partnership		5,618			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; 25,403,537 and 25,674,313 shares issued and outstanding, respectively		254			256
Additional paid-in capital		402,117			413,010
Accumulated earnings less dividends		23,695			11,493
Accumulated other comprehensive income		65,079			69,865
Total Stockholders' Equity		491,145			494,624
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,988,722		$	2,107,645

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,
	2024			2023			2024			2023
Revenues
Rental income	$	62,383		$	67,810		$	127,981		$	135,347
Other income		1,855			1,759			3,834			3,449
Total revenues		64,238			69,569			131,815			138,796
Expenses
Property operating expenses		13,776			15,492			27,544			28,758
Real estate taxes and insurance		8,188			9,334			17,500			19,354
Property management fees (1)		1,872			2,031			3,830			4,058
Advisory and administrative fees (2)		1,734			1,927			3,477			3,816
Corporate general and administrative expenses		4,779			4,624			9,689			7,991
Property general and administrative expenses		2,651			2,242			4,932			4,512
Depreciation and amortization		24,442			23,872			48,765			47,138
Total expenses		57,442			59,522			115,737			115,627
Operating income before gain on sales of real estate		6,796			10,047			16,078			23,169
Gain on sales of real estate (3)		18,686			—			50,395			—
Operating income		25,482			10,047			66,473			23,169
Interest expense		(13,971	)		(14,524	)		(28,362	)		(31,263	)
Gain (loss) on extinguishment of debt and modification costs		(255	)		—			(801	)		122
Casualty loss		(737	)		(66	)		(538	)		(880	)
Gain on forfeited deposits		—			250			—			250
Equity in earnings of affiliate		53			—			91			—
Miscellaneous income		66			325			177			736
Net income (loss)		10,638			(3,968	)		37,040			(7,866	)
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership		42			(15	)		146			(30	)
Net income (loss) attributable to common stockholders	$	10,596		$	(3,953	)	$	36,894		$	(7,836	)
Other comprehensive income (loss)
Unrealized gains (losses) on interest rate derivatives		(7,488	)		13,130			(4,805	)		(4,076	)
Total comprehensive income (loss)		3,150			9,162			32,235			(11,942	)
Comprehensive income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership		12			35			127			(45	)
Comprehensive income (loss) attributable to common stockholders	$	3,138		$	9,127		$	32,108		$	(11,897	)

Weighted average common shares outstanding - basic		25,540			25,677			25,630			25,633
Weighted average common shares outstanding - diluted		26,309			25,677			26,331			25,633

Earnings (loss) per share - basic	$	0.41		$	(0.15	)	$	1.44		$	(0.31	)
Earnings (loss) per share - diluted	$	0.40		$	(0.15	)	$	1.40		$	(0.31	)

(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).

(3)

$31.5 million with a related party for the six months ended June 30, 2024 (see Note 9).

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			Common Stock Held in
Three Months ended June 30, 2024	Number of Shares		Par Value		Number of Shares			Par Value			Paid-in Capital			Less Dividends			Comprehensive Income (Loss)			Treasury at Cost			Total
Balances, March 31, 2024		—	$	—	$	25,774,730		$	257		$	414,243		$	25,742		$	72,537		$	—		$	512,779
Net income attributable to common stockholders		—		—		—			—			—			10,596			—			—			10,596
Vesting of stock-based compensation		—		—		67,485			1			2,443			—			—			—			2,444
Repurchases of common stock		—		—		—			—			—			—			—			(14,573	)		(14,573	)
Retirement of common stock held in treasury				—		(438,678	)		(4	)		(14,569	)		—						14,573			—
Common stock dividends declared ($0.46242 per share)		—		—		—			—			—			(12,071	)		—			—			(12,071	)
Other comprehensive loss		—		—		—			—			—			—			(7,458	)		—			(7,458	)
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership		—		—		—			—			—			(572	)		—			—			(572	)
Balances, June 30, 2024		—	$	—		25,403,537		$	254		$	402,117		$	23,695		$	65,079		$	—		$	491,145


	Preferred Stock				Common Stock						Additional			Accumulated Earnings (Loss)			Accumulated Other			Common Stock Held in
Six Months ended June 30, 2024	Number of Shares		Par Value		Number of Shares			Par Value			Paid-in Capital			Less Dividends			Comprehensive Income (Loss)			Treasury at Cost			Total
Balances, December 31, 2023		—	$	—	$	25,674,313		$	256		$	413,010		$	11,493		$	69,865		$	—		$	494,624
Net income attributable to common stockholders		—		—		—			—			—			36,894			—			—			36,894
Vesting of stock-based compensation		—		—		167,902			2			3,676			—			—			—			3,678
Repurchases of common stock		—		—		—			—			—			—			—			(14,573	)		(14,573	)
Retirement of common stock held in treasury		—		—		(438,678	)		(4	)		(14,569	)		—			—			14,573			—
Common stock dividends declared ($0.92484 per share)		—		—		—			—			—			(24,351	)		—			—			(24,351	)
Other comprehensive loss		—		—		—			—			—			—			(4,786	)		—			(4,786	)
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership		—		—		—			—			—			(341	)		—			—			(341	)
Balances, June 30, 2024		—	$	—		25,403,537		$	254		$	402,117		$	23,695		$	65,079		$	—		$	491,145

See Notes to Consolidated Financial Statements

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(dollars in thousands)

(Unaudited)


	Preferred Stock				Common Stock				Additional		Accumulated Earnings (Loss)			Accumulated Other
Three Months ended June 30, 2023	Number of Shares		Par Value		Number of Shares		Par Value		Paid-in Capital		Less Dividends			Comprehensive Income (Loss)		Total
Balances, March 31, 2023		—	$	—		25,657,723	$	256	$	405,847	$	(3,084	)	$	85,014	$	488,033
Net loss attributable to common stockholders		—		—		—		—		—		(3,953	)		—		(3,953	)
Vesting of stock-based compensation		—		—		16,590		—		2,272		—			—		2,272
Common stock dividends declared ($0.42 per share)		—		—		—		—		—		(11,047	)		—		(11,047	)
Other comprehensive income		—		—		—		—		—		—			13,080		13,080
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership		—		—		—		—		—		(141	)		—		(141	)
Balances, June 30, 2023		—	$	—		25,674,313	$	256	$	408,119	$	(18,225	)	$	98,094	$	488,244


	Preferred Stock				Common Stock				Additional		Accumulated Earnings (Loss)			Accumulated Other
Six Months ended June 30, 2023	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		—		—		—		—		—		(7,836	)		—			(7,836	)
Vesting of stock-based compensation		—		—		124,994		1		2,743		—			—			2,744
Common stock dividends declared ($0.84 per share)		—		—		—		—		—		(21,987	)		—			(21,987	)
Other comprehensive loss		—		—		—		—		—		—			(4,061	)		(4,061	)
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership		—		—		—		—		—		(282	)		—			(282	)
Balances, June 30, 2023		—	$	—

NexPoint Residential Trust, Inc. [NXRT] Filings
10-Q	[2024-08-01]
10-Q	[2024-05-03]
10-K	[2024-02-27]
10-Q	[2023-11-09]
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]