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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, 2021

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)

(972) 628-4100

(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 April 29, 2021, the registrant had 25,127,141 shares of its common stock, par value $0.01 per share, outstanding.

 

 

 


 

NEXPOINT RESIDENTIAL TRUST, INC.

Form 10-Q

Quarter Ended March 31, 2021

INDEX

 

 

 

Page

Cautionary Statement Regarding Forward-Looking Statements

 

iii

 

 

 

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020

 

1

 

 

Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020

 

2

 

 

Consolidated Unaudited Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

 

3

 

 

Consolidated Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

 

4

 

 

Notes to Consolidated Unaudited Financial Statements

 

6

Item 2.

 

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

 

28

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

44

Item 4.

 

Controls and Procedures

 

45

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

 

Legal Proceedings

 

46

Item 1A.

 

Risk Factors

 

46

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

46

Item 3.

 

Defaults Upon Senior Securities

 

46

Item 4.

 

Mine Safety Disclosures

 

46

Item 5.

 

Other Information

 

46

Item 6.

 

Exhibits

 

47

Signatures

 

 

 

48

 

2


 

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;
risks associated with the current COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases;
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;
potential reforms to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association;
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;

3


 

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;
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 (the “IRS”) 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;
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 22, 2021 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.

4


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Operating Real Estate Investments

 

 

 

 

 

 

Land

 

$

323,429

 

 

$

323,429

 

Buildings and improvements

 

 

1,546,465

 

 

 

1,544,115

 

Intangible lease assets

 

 

1,675

 

 

 

1,675

 

Construction in progress

 

 

11,975

 

 

 

10,796

 

Furniture, fixtures, and equipment

 

 

100,377

 

 

 

96,228

 

Total Gross Operating Real Estate Investments

 

 

1,983,921

 

 

 

1,976,243

 

Accumulated depreciation and amortization

 

 

(235,669

)

 

 

(215,494

)

Total Net Operating Real Estate Investments

 

 

1,748,252

 

 

 

1,760,749

 

Cash and cash equivalents

 

 

22,706

 

 

 

24,457

 

Restricted cash

 

 

29,925

 

 

 

32,558

 

Accounts receivable, net

 

 

7,757

 

 

 

9,045

 

Prepaid and other assets

 

 

1,578

 

 

 

2,405

 

TOTAL ASSETS

 

$

1,810,218

 

 

$

1,829,214

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Mortgages payable, net

 

$

1,162,969

 

 

$

1,162,855

 

Credit facility, net

 

 

182,531

 

 

 

182,323

 

Accounts payable and other accrued liabilities

 

 

11,022

 

 

 

10,058

 

Accrued real estate taxes payable

 

 

7,876

 

 

 

12,822

 

Accrued interest payable

 

 

2,240

 

 

 

2,274

 

Security deposit liability

 

 

2,670

 

 

 

2,688

 

Prepaid rents

 

 

1,844

 

 

 

1,639

 

Fair market value of interest rate swaps

 

 

12,198

 

 

 

43,530

 

Total Liabilities

 

 

1,383,350

 

 

 

1,418,189

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests in the Operating Partnership

 

 

3,375

 

 

 

3,098

 

 

 

 

 

 

 

 

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; 25,127,141 and 25,016,957 shares issued and outstanding, respectively

 

 

251

 

 

 

250

 

Additional paid-in capital

 

 

376,897

 

 

 

376,710

 

Accumulated earnings less dividends

 

 

59,451

 

 

 

75,321

 

Accumulated other comprehensive loss

 

 

(13,106

)

 

 

(44,354

)

Total Stockholders' Equity

 

 

423,493

 

 

 

407,927

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

1,810,218

 

 

$

1,829,214

 

 

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,

 

 

 

2021

 

 

2020

 

Revenues

 

 

 

 

 

 

Rental income

 

$

50,340

 

 

$

51,115

 

Other income

 

 

1,456

 

 

 

1,467

 

Total revenues

 

 

51,796

 

 

 

52,582

 

Expenses

 

 

 

 

 

 

Property operating expenses

 

 

11,216

 

 

 

11,721

 

Real estate taxes and insurance

 

 

8,722

 

 

 

8,023

 

Property management fees (1)

 

 

1,485

 

 

 

1,550

 

Advisory and administrative fees (2)

 

 

1,868

 

 

 

1,865

 

Corporate general and administrative expenses

 

 

2,940

 

 

 

2,701

 

Property general and administrative expenses

 

 

1,559

 

 

 

1,832

 

Depreciation and amortization

 

 

20,758

 

 

 

23,338

 

Total expenses

 

 

48,548

 

 

 

51,030

 

Operating income before gain on sales of real estate

 

 

3,248

 

 

 

1,552

 

Gain on sales of real estate

 

 

 

 

 

38,972

 

Operating income

 

 

3,248

 

 

 

40,524

 

Interest expense

 

 

(10,616

)

 

 

(11,662

)

Loss on extinguishment of debt and modification costs

 

 

 

 

 

(874

)

Casualty gains

 

 

 

 

 

51

 

Miscellaneous income

 

 

468

 

 

 

 

Net income (loss)

 

 

(6,900

)

 

 

28,039

 

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

 

 

(21

)

 

 

84

 

Net income (loss) attributable to common stockholders

 

$

(6,879

)

 

$

27,955

 

Other comprehensive income (loss)

 

 

 

 

 

 

Unrealized gains (losses) on interest rate derivatives

 

 

31,342

 

 

 

(50,540

)

Total comprehensive income (loss)

 

 

24,442

 

 

 

(22,501

)

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

 

 

73

 

 

 

(68

)

Comprehensive income (loss) attributable to common stockholders

 

$

24,369

 

 

$

(22,433

)

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

25,068

 

 

 

25,388

 

Weighted average common shares outstanding - diluted

 

 

25,068

 

 

 

25,851

 

 

 

 

 

 

 

 

Earnings (loss) per share - basic

 

$

(0.27

)

 

$

1.10

 

Earnings (loss) per share - diluted

 

$

(0.27

)

 

$

1.08

 

 

(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 10).
(2)
Fees incurred to the Adviser (see Note 11).

 

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 (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, 2020

 

 

 

 

$

 

 

 

25,016,957

 

 

$

250

 

 

$

376,710

 

 

$

75,321

 

 

$

(44,354

)

 

$

407,927

 

Net loss attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,879

)

 

 

 

 

 

(6,879

)

Vesting of stock-based compensation

 

 

 

 

 

 

 

 

110,184

 

 

 

1

 

 

 

363

 

 

 

 

 

 

 

 

 

364

 

Issuance of common shares through at-the-market offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(176

)

 

 

 

 

 

 

 

 

(176

)

Common stock dividends declared ($0.34125 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,776

)

 

 

 

 

 

(8,776

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,248

 

 

 

31,248

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(215

)

 

 

 

 

 

(215

)

Balances, March 31, 2021

 

 

 

 

$

 

 

 

25,127,141

 

 

$

251

 

 

$

376,897

 

 

$

59,451

 

 

$

(13,106

)

 

$

423,493

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Earnings (Loss)

 

 

Accumulated Other

 

 

Common Stock
Held in

 

 

 

 

 

 

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, 2019

 

 

 

 

$

 

 

 

25,245,740

 

 

$

251

 

 

$

359,748

 

 

$

63,776

 

 

$

2,466

 

 

$

 

 

$

426,241

 

Net income attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,955

 

 

 

 

 

 

 

 

 

27,955

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,999

)

 

 

(30,999

)

Retirement of common stock held in treasury

 

 

 

 

 

 

 

 

(225,799

)

 

 

(2

)

 

 

(7,546

)

 

 

 

 

 

 

 

 

7,548

 

 

 

 

Vesting of stock-based compensation

 

 

 

 

 

 

 

 

137,608

 

 

 

1

 

 

 

(433

)

 

 

 

 

 

 

 

 

 

 

 

(432

)

Issuance of common shares through at-the-market offering

 

 

 

 

 

 

 

 

560,000

 

 

 

6

 

 

 

27,174

 

 

 

 

 

 

 

 

 

 

 

 

27,180

 

Common stock dividends declared ($0.3125 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,206

)

 

 

 

 

 

 

 

 

(8,206

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50,388

)

 

 

 

 

 

(50,388

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

820

 

 

 

 

 

 

 

 

 

820

 

Balances, March 31, 2020

 

 

 

 

$

 

 

 

25,717,549

 

 

$

256

 

 

$

378,943

 

 

$

84,345

 

 

$

(47,922

)

 

 

(23,451

)

 

$

392,171

 

 

 

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,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

(6,900

)

 

$

28,039

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Gain on sales of real estate

 

 

 

 

 

(38,972

)

Depreciation and amortization

 

 

20,758

 

 

 

23,338

 

Amortization/write-off of deferred financing costs

 

 

571

 

 

 

1,207

 

Change in fair value on derivative instruments included in interest expense

 

 

3,663

 

 

 

(648

)

Net cash received (paid) on derivative settlements

 

 

(3,618

)

 

 

737

 

Interest payable on derivative instruments

 

 

 

 

 

(62

)

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

 

 

(51

)

 

 

(51

)

Provision for bad debts, net

 

 

734

 

 

 

 

Vesting of stock-based compensation

 

 

1,608

 

 

 

1,300

 

Insurance proceeds received for business interruption

 

 

121

 

 

 

 

Casualty gains

 

 

(468

)

 

 

(51

)

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

 

 

 

 

 

 

Operating assets

 

 

578

 

 

 

791

 

Operating liabilities

 

 

(3,252

)

 

 

(4,210

)

Net cash provided by operating activities

 

 

13,744

 

 

 

11,418

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Net proceeds from sales of real estate

 

 

 

 

 

85,418

 

Prepaid acquisition costs

 

 

 

 

 

(2,025

)

Insurance premiums paid for casualty losses