NexPoint Residential Trust(NXRT) - 2019 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements This section presents NexPoint Residential Trust, Inc.'s unaudited consolidated financial statements for periods ending June 30, 2019, detailing financial position, operations, and cash flows Consolidated Balance Sheets As of June 30, 2019, total assets increased to $1.277 billion from $1.161 billion at year-end 2018, primarily driven by a significant increase in real estate held for sale, while total liabilities also grew to $1.003 billion from $862.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Net Real Estate Investments | $1,228,497 | $1,087,542 | | Real estate held for sale, net | $175,968 | $17,329 | | Cash and cash equivalents | $16,892 | $19,864 | | Total Assets | $1,276,921 | $1,161,210 | | Mortgages payable, net | $769,973 | $824,702 | | Mortgages payable held for sale, net | $156,636 | $13,318 | | Credit facility, net | $51,536 | $— | | Total Liabilities | $1,002,541 | $862,615 | | Total Stockholders' Equity | $271,348 | $296,028 | Consolidated Statements of Operations and Comprehensive Income (Loss) For Q2 2019, the company reported a net loss of $2.0 million, compared to a $1.7 million loss in Q2 2018, while the six-month period ended June 30, 2019, saw a net loss of $6.4 million, a significant shift from the $8.4 million net income in the prior year Financial Performance (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $43,066 | $35,655 | $84,557 | $70,712 | | Total expenses | $36,463 | $30,420 | $74,239 | $61,777 | | Operating income | $6,603 | $5,235 | $10,318 | $22,677 | | Net income (loss) | $(1,987) | $(1,666) | $(6,360) | $8,428 | | Net income (loss) attributable to common stockholders | $(1,981) | $(1,661) | $(6,341) | $8,403 | | Earnings (loss) per share - diluted | $(0.08) | $(0.08) | $(0.27) | $0.39 | - The increase in net loss for Q2 2019 was primarily due to a $2.0 million rise in property operating expenses and a $1.8 million increase in interest expense, which offset revenue growth[147][150][157] - The shift from net income to net loss for the six-month period was mainly attributable to the absence of a $13.7 million gain on sale of real estate that was present in 2018[159] Consolidated Statements of Cash Flows For the six months ended June 30, 2019, net cash from operating activities increased to $23.6 million, while investing activities used $152.3 million, and financing activities provided $125.1 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,620 | $17,333 | | Net cash provided by (used in) investing activities | $(152,321) | $14,449 | | Net cash provided by (used in) financing activities | $125,140 | $(35,811) | | Net decrease in cash, cash equivalents and restricted cash | $(3,561) | $(4,029) | Notes to Consolidated Unaudited Financial Statements These notes detail the company's REIT structure, accounting policies, real estate portfolio, debt, and equity transactions, highlighting key acquisitions, credit facility changes, and subsequent events - The Company is a REIT focused on 'value-add' multifamily investments primarily in the Southeastern and Southwestern U.S., externally managed by NexPoint Real Estate Advisors, L.P[28][29] - During the first six months of 2019, the company acquired four properties for a total purchase price of $151.5 million, with no dispositions during this period[64][65][66] - On January 28, 2019, the company entered into a $75.0 million corporate credit facility, which was later increased to $125 million on June 29, 2019, with $52.5 million outstanding as of June 30, 2019[74] - Subsequent to the quarter end, the company declared a quarterly dividend of $0.275 per share, acquired two properties for $100 million, and entered an agreement to sell six properties for approximately $290 million[127][128][129] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, including revenue and expense drivers, non-GAAP measures, liquidity, debt strategies, and progress on value-add programs Results of Operations For Q2 2019, total revenues increased by $7.4 million to $43.1 million, but a net loss of $2.0 million was recorded due to higher operating and interest expenses, while the six-month period reported a net loss of $6.4 million, primarily due to the absence of a prior year gain on real estate sales Comparison of Operating Results (in thousands) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $43,066 | $35,655 | $84,557 | $70,712 | | Total expenses | $(36,463) | $(30,420) | $(74,239) | $(61,777) | | Interest expense | $(8,590) | $(6,823) | $(16,678) | $(13,620) | | Gain on sales of real estate | $— | $— | $— | $13,742 | | Net income (loss) | $(1,987) | $(1,666) | $(6,360) | $8,428 | - The increase in net loss for Q2 2019 was primarily due to a $2.0 million rise in property operating expenses and a $1.8 million increase in interest expense, which offset revenue growth[147][150][157] - The shift from net income to net loss for the six-month period was mainly attributable to the absence of a $13.7 million gain on sale of real estate that was present in 2018[159] Non-GAAP Financial Measures The company reported strong growth in non-GAAP operating metrics, with Q2 Same Store NOI increasing 5.4% and FFO and AFFO per diluted share growing 14.4% and 14.6% respectively for the six months ended June 30, 2019 Same Store NOI Performance (Q2 2019 vs Q2 2018) | Metric | Q2 2019 ($ thousands) | Q2 2018 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Same Store revenues | $37,062 | $35,642 | 4.0% | | Same Store operating expenses | $16,225 | $15,868 | 2.2% | | Same Store NOI | $20,837 | $19,774 | 5.4% | FFO and AFFO per Diluted Share (Six Months Ended June 30) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | FFO per share - diluted | $0.91 | $0.80 | 14.4% | | Core FFO per share - diluted | $0.91 | $0.80 | 14.5% | | AFFO per share - diluted | $1.06 | $0.92 | 14.6% | Liquidity and Capital Resources The company's liquidity is supported by cash from operations, existing cash balances, and a corporate credit facility with $72.5 million of unused capacity, while it relies on debt and equity markets for long-term needs and raised $9.4 million through its ATM stock offering in Q2 2019 - Short-term liquidity is met through net cash from operations, existing cash, and an available $72.5 million on the Corporate Credit Facility as of June 30, 2019[213] - The company utilized its At-The-Market (ATM) program, issuing 252,165 shares for net proceeds of approximately $9.4 million during the three months ended June 30, 2019[216] - The company spent $10.6 million on its value-add rehab program in the first six months of 2019, completing interior rehabs on 720 units[232] - The Freddie Mac Green Program has been effective, contributing to a 15.5% decrease in utility costs for YTD Same Store properties compared to the prior year[233] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its $986.8 million of total indebtedness, actively managed through interest rate swaps and caps, with a 0.25% change in LIBOR estimated to increase annual interest expense by approximately $500,000 - The primary market risk is interest rate risk associated with its debt, of which $949.5 million was floating rate as of June 30, 2019[253] - The company uses interest rate swaps to mitigate risk, effectively fixing the rate on $750.0 million of its floating rate mortgage debt with a weighted average fixed rate of 1.4272%[255] Interest Rate Sensitivity Analysis | Change in Interest Rates | Annual Increase to Interest Expense | | :--- | :--- | | 0.25% | $500,000 | | 0.50% | $1,000,000 | | 1.00% | $2,000,000 | - The company is monitoring the planned transition from LIBOR to alternative reference rates like SOFR, as it has material contracts indexed to LIBOR[258] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019, with no material changes in internal control over financial reporting during the second quarter - Based on an evaluation as of June 30, 2019, the President and CFO concluded that the company's disclosure controls and procedures were effective[259] - No changes occurred in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[261] PART II—OTHER INFORMATION Legal Proceedings The company is not aware of any legal proceedings that are reasonably likely to have a material adverse effect on its financial condition or results of operations - The company is party to legal proceedings arising in the ordinary course of business, but management does not believe any will have a material adverse effect[264] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes have occurred from the risk factors disclosed in the Annual Report filed on February 19, 2019[265] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its common stock during the six months ended June 30, 2019, under its authorized $40 million share repurchase program, which is effective until June 15, 2020 - The company has a share repurchase program authorized up to $40 million, extending to June 15, 2020. No shares were repurchased during the six months ended June 30, 2019[266] Defaults Upon Senior Securities None - No defaults upon senior securities were reported[267] Mine Safety Disclosures Not applicable - This item is not applicable to the company[268] Other Information None - No other information was reported under this item[269] Exhibits This section lists the exhibits filed with the Form 10-Q, including a Purchase and Sale Agreement, CEO and CFO certifications, and XBRL data files - Exhibits filed include a Purchase and Sale Agreement dated June 25, 2019, Sarbanes-Oxley Act certifications (Sections 302 and 906), and XBRL interactive data files[272]