NexPoint Residential Trust, Inc. : Reports Second Quarter 2019 Results

DALLAS, July 30, 2019 /PRNewswire/ -- NexPoint Residential Trust, Inc. (NYSE:NXRT) reported financial results for the second quarter ended June 30, 2019.

Highlights

• NXRT¹ reported Net Loss, FFO², Core FFO² and AFFO² of $(2.0)M, $11.0M, $11.0M and $12.9M, respectively, attributable to common stockholders for the quarter ended June 30, 2019, compared to Net Loss, FFO, Core FFO, and AFFO of $(1.7)M, $9.3M, $8.7M and $10.2M, respectively, attributable to common stockholders for the quarter ended June 30, 2018.
• NXRT reported Net Loss, FFO, Core FFO and AFFO of $(6.3)M, $22.0M, $22.0M and $25.6M, respectively, attributable to common stockholders for the six months ended June 30, 2019, compared to Net Income, FFO, Core FFO, and AFFO of $8.4M, $17.0M, $17.0M and $19.8M, respectively, attributable to common stockholders for the six months ended June 30, 2018.
• For the three months ended June 30, 2019, Q2 Same Store properties³ average effective rent, total revenue and NOI² increased 4.3%, 4.0% and 5.4%, respectively, and occupancy increased 40 bps over the prior year period.
• For the six months ended June 30, 2019, YTD Same Store properties³ average effective rent, total revenue and NOI² increased 4.3%, 4.3% and 6.2%, respectively, and occupancy increased 40 bps over the prior year period.
• For the three months ended June 30, 2019, Q2 Same Store properties expenses increased 2.2% over the prior year period, primarily due to increases in property taxes of 11.5%.
• During the three months ended June 30, 2019, NXRT acquired Summer's Landing in Fort Worth, TX for a purchase price of approximately $19.4M.
• The weighted average effective monthly rent per unit across all 39 properties held as of June 30, 2019 (the "Portfolio"), consisting of 13,407 units, was $1,016, while physical occupancy was 94.4%.
• NXRT paid a second quarter dividend of $0.275 per share of common stock on June 28, 2019.
• During the second quarter, for the properties in our Portfolio, we completed 475 full and partial upgrades and leased 381 upgraded units, achieving an average monthly rent premium of $109 and a 27.1% ROI⁴. Since inception, for the properties in our Portfolio, we have completed 6,594 full and partial upgrades and achieved an average monthly rental increase per unit of $97, equating to a 23.2% ROI on all units leased as of June 30, 2019.
• During the second quarter of 2019, we completed Smart Home Technology installs on 4,891 units, covering 15 properties.
• On June 25, 2019, NXRT entered into a sale agreement on six properties (the "Sunbelt Portfolio") for a total sale price of approximately $289.9 million which will net proceeds of approximately $145.0 million after repayment of debt and before closing costs. The sales of the properties are expected to close on or before August 30, 2019.

1. In this release, "we," "us," "our," the "Company," "NexPoint Residential Trust," and "NXRT" each refer to NexPoint Residential Trust, Inc., a Maryland corporation.
2. FFO, Core FFO, AFFO and NOI are non-GAAP measures. For a discussion of why we consider these non-GAAP measures useful and reconciliations of FFO, Core FFO, AFFO and NOI to net income (loss), see the "Definitions and Reconciliations of Non-GAAP Measures" and "FFO, Core FFO and AFFO" sections of this release.
3. We define "Same Store" properties as properties that were in our Portfolio for the entirety of the periods being compared. There are 32 properties encompassing 11,471 units of apartment space in our Same Store pool for the three and six months ended June 30, 2019 (our "Q2 Same Store" and "YTD Same Store" properties).
4. We define Return on Investment ("ROI") as the sum of the actual rent premium divided by the sum of the total cost.

"We are pleased to report strong operating performance for Q2 2019, buoyed by robust demand for workforce housing communities and the success of our interior upgrade programs. As a result, we are raising our 2019 earnings guidance to $4.59 per share and 2019 Core FFO guidance by $0.03 to $1.90 per share," stated NXRT Chairman and President, Jim Dondero.

Second Quarter 2019 Financial Results

• Total revenues were $43.1 million for the second quarter of 2019, compared to $35.7 million for the second quarter of 2018.
• Net loss for the second quarter of 2019 totaled $(2.0) million, or a loss of $(0.08) per diluted share, which included $13.1 million of depreciation and amortization expense. This compared to net loss of $(1.7) million, or a loss of $(0.08) per diluted share, for the second quarter of 2018, which included $11.0 million of depreciation and amortization expense and $0.1 million of loss on extinguishment and debt modification costs.
• The change in our net loss of $2.0 million for the three months ended June 30, 2019 as compared to our net loss of $1.7 million for the three months ended June 30, 2018 primarily relates to increases in operating expenses, depreciation and amortization and interest expense, and was partially offset by an increase in total revenues.
• For the second quarter of 2019, NOI was $24.6 million on 39 properties, compared to $19.8 million for the second quarter of 2018 on 32 properties.
• For the second quarter of 2019, Q2 Same Store NOI increased 5.4% to $20.8 million, compared to $19.8 million for the second quarter of 2018.
• For the second quarter of 2019, FFO totaled $11.0 million, or $0.46 per diluted share, compared to $9.3 million, or $0.44 per diluted share, for the second quarter of 2018.
• For the second quarter of 2019, Core FFO totaled $11.0 million, or $0.45 per diluted share, compared to $8.7 million, or $0.41 per diluted share, for the second quarter of 2018.
• For the second quarter of 2019, AFFO totaled $12.9 million, or $0.53 per diluted share, compared to $10.2 million, or $0.48 per diluted share, for the second quarter of 2018.

Second Quarter Earnings Conference Call

NXRT will host a call on Tuesday, July 30, 2019 at 11:00 a.m. ET to discuss its second quarter financial results. The conference call can be accessed live over the phone by dialing 800-263-0877 or, for international callers, 646-828-8143, and using passcode Conference ID: 1506608. A live audio webcast of the call will be available online at the Company's website, http://www.nexpointliving.com (under "Investor Relations"). An online replay will be available shortly after the call on the Company's website and will continue to be available for 60 days.

A replay of the conference call will also be available through Tuesday, August 6, 2019 by dialing [phone] or, for international callers, [phone] and entering passcode 1506608.

About NXRT

NexPoint Residential Trust is a publicly traded REIT, with its shares listed on the New York Stock Exchange under the symbol "NXRT," primarily focused on acquiring, owning and operating well-located middle-income multifamily properties with "value-add" potential in large cities and suburban submarkets of large cities, primarily in the Southeastern and Southwestern United States. NXRT is externally advised by NexPoint Real Estate Advisors, L.P., an affiliate of Highland Capital Management, L.P., a leading global alternative asset manager and an SEC-registered investment adviser. Our filings with the Securities and Exchange Commission (the "SEC") are available on our website, www.nexpointliving.com, under the "Investor Relations" tab.

Cautionary Statement Regarding Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs. Forward-looking statements can often be identified by words such as "expect," "anticipate," "estimate," "may," "should," "intend" and similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding NXRT's business and industry in general, NXRT's guidance for financial results for the full year 2019 and the related assumptions, net asset value and the related components and assumptions, guidance for the third quarter 2019 and the related assumptions, and expected acquisitions and dispositions. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statement. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the Company's most recent Annual Report on Form 10-K and other filings with the SEC for a more complete discussion of the risks and other factors that could affect any forward-looking statements. The statements made herein speak only as of the date of this release and except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements.

Contact:
Investor Relations
Jackie Graham
972-419-6213

FFO, Core FFO and AFFO

The following table reconciles our calculations of FFO, Core FFO and AFFO to net income (loss), the most directly comparable GAAP financial measure, for the three and six months ended June 30, 2019 and 2018 (in thousands, except per share amounts):

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2019				2018				2019				2018				% Change (1)
Net income (loss)		$	(1,987)			$	(1,666)			$	(6,360)			$	8,428				-175.5	%
Depreciation and amortization			13,066				11,038				28,464				22,410				27.0	%
Gain on sales of real estate			—				—				—				(13,742)				-100.0	%
Adjustment for noncontrolling interests			(33)				(28)				(66)				(51)				29.4	%
FFO attributable to common stockholders			11,046				9,344				22,038				17,045				29.3	%
FFO per share - basic		$	0.47			$	0.45			$	0.93			$	0.82				14.2	%
FFO per share - diluted		$	0.46			$	0.44			$	0.91			$	0.80				14.4	%
Loss on extinguishment of debt and modification costs			—				78				—				629				-100.0	%
Casualty-related recoveries			(43)				(690)				(7)				(666)				-98.9	%
Amortization of deferred financing costs - acquisition term notes			—				—				—				21				-100.0	%
Adjustment for noncontrolling interests			—				2				—				—				N/A
Core FFO attributable to common stockholders			11,003				8,734				22,031				17,029				29.4	%
Core FFO per share - basic		$	0.46			$	0.42			$	0.93			$	0.82				14.3	%
Core FFO per share - diluted		$	0.45			$	0.41			$	0.91			$	0.80				14.5	%
Amortization of deferred financing costs - long term debt			470				352				902				720				25.3	%
Equity-based compensation expense			1,419				1,094				2,654				2,009				32.1	%
Adjustment for noncontrolling interests			(5)				(4)				(11)				(8)				37.5	%
AFFO attributable to common stockholders			12,887				10,176				25,576				19,750				29.5	%
AFFO per share - basic		$	0.54			$	0.49			$	1.08			$	0.95				14.4	%
AFFO per share - diluted		$	0.53			$	0.48			$	1.06			$	0.92				14.6	%
Weighted average common shares outstanding - basic			23,736				20,780				23,643				20,883				13.2	%
Weighted average common shares outstanding - diluted			24,233				21,295				24,139				21,362				13.0	%
Dividends declared per common share		$	0.275			$	0.250			$	0.550			$	0.500				10.0	%
FFO Coverage - diluted	(2)		1.66x				1.76x		(2)		1.66x				1.60x				4.02	%
Core FFO Coverage - diluted	(2)		1.65x				1.64x		(2)		1.66x				1.59x				4.08	%
AFFO Coverage - diluted	(2)		1.93x				1.91x		(2)		1.93x				1.85x				4.18	%

(1)	Represents the percentage change for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.
(2)	Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period.

Definitions and Reconciliations of Non-GAAP Measures

Definitions

This presentation contains non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets or statements of cash flows of the Company. The non-GAAP financial measures used within this presentation are net operating income ("NOI"), funds from operations attributable to common stockholders ("FFO"), FFO per diluted share, Core FFO, Core FFO per diluted share, adjusted FFO ("AFFO"), AFFO per diluted share and net debt.

NOI is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of our properties. NOI is calculated by adjusting net income (loss) to add back (1) the cost of funds, (2) acquisition costs, (3) advisory and administrative fees, (4) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (5) corporate general and administrative expenses, (6) other gains and losses that are specific to us, (7) casualty-related expenses/(recoveries), and (8) property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on behalf of the Company at the property for expenses such as legal, professional and franchise tax fees. We define "Same Store NOI" as NOI for our properties that are comparable between periods. We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods.

FFO is defined by the National Association of Real Estate Investment Trusts ("NAREIT"), as net income (loss) computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization and impairment charges. We compute FFO in accordance with NAREIT's definition. Our presentation differs slightly in that we begin with net income (loss) before adjusting for amounts attributable to (1) noncontrolling interests in consolidated joint ventures and (2) redeemable noncontrolling interests in the OP and we show the combined amounts attributable to such noncontrolling interests as an adjustment to arrive at FFO attributable to common stockholders.

Core FFO makes certain adjustments to FFO, which are either not likely to occur on a regular basis or are otherwise not representative of the ongoing operating performance of our Portfolio. Core FFO adjusts FFO to remove items such as losses on extinguishment of debt and modification costs (includes prepayment penalties and defeasance costs incurred and the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to the retirement of debt and costs incurred in connection with a debt modification that are expensed), casualty-related expenses and recoveries, the amortization of deferred financing costs incurred in connection with obtaining short-term debt financing, the ineffective portion of fair value adjustments on our interest rate derivatives designated as cash flow hedges, and the noncontrolling interests related to these items.

AFFO makes certain adjustments to Core FFO. There is no industry standard definition of AFFO and practice is divergent across the industry. AFFO adjusts Core FFO to remove items such as equity-based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, and the noncontrolling interests related to these items.

Net debt is calculated by subtracting cash and cash equivalents and restricted cash held for value-add upgrades and green improvements from total debt outstanding.

We believe that the use of NOI, FFO, Core FFO, AFFO and net debt, combined with the required GAAP presentations, improves the understanding of operating results and debt levels of real estate investment trusts ("REITs") among investors and makes comparisons of operating results and debt levels among such companies more meaningful. While NOI, FFO, Core FFO, AFFO and net debt are relevant and widely used measures of operating performance and debt levels of REITs, they do not represent cash flows from operations, net income (loss) or total debt as defined by GAAP and should not be considered an alternative to those measures in evaluating our liquidity, operating performance and debt levels. NOI, FFO, Core FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. We present net debt because we believe it provides our investors a better understanding of our leverage ratio. Net debt should not be considered an alternative to total debt, as we may not always be able to use our available cash to repay debt. Our computation of NOI, FFO, Core FFO, AFFO and net debt may not be comparable to NOI, FFO, Core FFO, AFFO and net debt reported by other REITs. For a more complete discussion of NOI, FFO, Core FFO and AFFO, see our most recent Annual Report on Form 10-K and our other filings with the SEC.

Reconciliations

NOI and Same Store NOI for the three and six months ended June 30, 2019 and 2018

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles NOI and our Q2 and YTD Same Store NOI for the three and six months ended June 30, 2019 and 2018 to net income (loss), the most directly comparable GAAP financial measure (in thousands):

		For the Three Months Ended  June 30,								For the Six Months Ended June 30,
		2019				2018				2019				2018
Net income (loss)		$	(1,987)			$	(1,666)			$	(6,360)			$	8,428
Adjustments to reconcile net loss to NOI:
Advisory and administrative fees			1,872				1,863				3,722				3,701
Corporate general and administrative expenses			2,741				1,986				4,974				3,799
Casualty-related recoveries	(1)		(43)				(690)				(7)				(666)
Property general and administrative expenses	(2)		339				406				696				786
Depreciation and amortization			13,066				11,038				28,464				22,410
Interest expense			8,590				6,823				16,678				13,620
Loss on extinguishment of debt and modification costs			—				78				—				629
Gain on sales of real estate			—				—				—				(13,742)
NOI		$	24,578			$	19,838			$	48,167			$	38,965
Less Non-Same Store
Revenues	(3)		(6,004)				(13)				(11,017)				(232)
Operating expenses	(3)		2,263				(51)				4,103				125
Same Store NOI	(3)	$	20,837			$	19,774			$	41,253			$	38,858

NOI and Same Store NOI for the year ended December 31, 2018

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2017-2018 Same Store NOI for the year ended December 31, 2018 to net loss, the most directly comparable GAAP financial measure (in thousands):

		For the Year Ended December 31, 2018
Net loss		$	(1,614)
Adjustments to reconcile net loss to NOI:
Advisory and administrative fees			7,474
Corporate general and administrative expenses			7,808
Casualty-related recoveries	(1)		(663)
Property general and administrative expenses	(2)		1,294
Depreciation and amortization			47,470
Interest expense			28,572
Loss on extinguishment of debt and modification costs			3,576
Gain on sales of real estate			(13,742)
NOI		$	80,175
Less Non-Same Store
Revenues	(3)		(23,012)
Operating expenses	(3)		10,744
Same Store NOI	(3)	$	67,907

(1)	Adjustment to net income (loss) to exclude certain property operating expenses that are casualty-related recoveries.
(2)	Adjustment to net income (loss) to exclude certain property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.
(3)	Amounts for the three months ended June 30, 2019 and 2018 are derived from the operations of our Q2 Same Store and Non-Same Store properties; amounts for the six months ended June 30, 2019 and 2018 are derived from the operations of our YTD Same Store and Non-Same Store properties; amounts for the year ended December 31, 2018 is derived from the operations of our 2017-2018 Same Store and Non-Same Store properties.

Reconciliation of Debt to Net Debt

(dollar amounts in thousands)		Q2 2019				Q2 2018
Total mortgage debt		$	934,345			$	750,693
Credit facilities			52,500				35,000
Adjustments to arrive at net debt:
Cash and cash equivalents			(16,892)				(18,312)
Restricted cash held for value-add upgrades and green improvements			(8,210)				(3,702)
Net Debt		$	961,743			$	763,679
Enterprise Value (1)		$	1,950,743			$	1,353,679
Leverage Ratio			49	%			56	%

(1)	Enterprise Value is calculated as Market Capitalization plus Net Debt.

Reconciliations of NOI, Same Store NOI, FFO, Core FFO and AFFO

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles NOI to net income (loss) (the most directly comparable GAAP financial measure) for the periods presented below (in thousands):

		For the Year Ended December 31, 2019				For the Three Months Ended September 30, 2019
		Guidance (1)				Guidance (1)
Net income		$	111,856			$	121,854
Adjustments to reconcile net loss to NOI:
Advisory and administrative fees			7,500				1,875
Corporate general and administrative expenses			9,434				2,212
Property general and administrative expenses	(2)		1,300				325
Depreciation and amortization			60,464				16,000
Interest expense			34,948				9,430
Loss on extinguishment of debt and modification costs			2,900				2,900
Gain on sales of real estate			(129,051)				(129,051)
NOI		$	99,351			$	25,545
Less Non-Same Store
Revenues	(3)		(53,624)
Operating expenses	(3)		21,822
Same Store NOI	(3)	$	67,549

(1)	Estimates shown for full year and third quarter 2019 guidance. Assumptions made for full year and third quarter 2019 NOI guidance include the Same Store operating growth projections included in the "2019 Full Year Guidance Summary" section of this release, the effect of the acquisition of the Phoenix Portfolio, Summer's Landing, and the other acquisition and disposition assumptions presented under "2019 Full Year Guidance Summary."
(2)	Adjustment to net income to exclude certain property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.
(3)	Amounts are derived from the results of operations of our pro forma Full Year 2019 Same Store properties and Non-Same Store properties. There are 26 properties in our pro forma Full Year 2019 Same Store pool.

The following table reconciles our FFO, Core FFO and AFFO guidance to our net loss (the most directly comparable GAAP financial measure) guidance for the year ended December 31, 2019 (in thousands, except per share data):

		For the Year Ended December 31, 2019
		Mid-Point
Net income		$	111,856
Depreciation and amortization			60,464
Gain on sales of real estate			(129,051)
Adjustment for noncontrolling interests			(130)
FFO attributable to common stockholders			43,139
FFO per share - diluted (1)		$	1.78
Loss on extinguishment of debt and modification costs			2,900
Casualty-related recoveries			(8)
Adjustment for noncontrolling interests			(9)
Core FFO attributable to common stockholders			46,022
Core FFO per share - diluted (1)		$	1.90
Amortization of deferred financing costs - long term debt			1,981
Equity-based compensation expense			5,154
Adjustment for noncontrolling interests			(21)
AFFO attributable to common stockholders			53,136
AFFO per share - diluted (1)		$	2.19
Weighted average common shares outstanding - diluted			24,274

(1)	For purposes of calculating per share data, we assume a weighted average diluted share count of approximately 24.3 million for the full year 2019.

 

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SOURCE NexPoint Residential Trust, Inc.