NexPoint Residential Trust(NXRT) - 2022 Q1 - Quarterly Report

Cautionary Statement Regarding Forward-Looking Statements This report contains forward-looking statements subject to various risks and uncertainties - This report contains forward-looking statements regarding liquidity, capital resources, property performance, and future financial performance, which are subject to risks and uncertainties[10] - Key risks include unfavorable market and economic conditions, the COVID-19 pandemic, real estate ownership risks, limited asset disposal ability, geographic concentration, and increased interest rates[12][13] PART I—FINANCIAL INFORMATION This part presents the company's unaudited financial statements and management's analysis Item 1. Financial Statements This section presents the unaudited consolidated financial statements and accompanying notes Consolidated Balance Sheets The balance sheet shows a 4.5% increase in total assets driven by a rise in cash and derivative values Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2022 | December 31, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Net Real Estate Investments | $1,945,131 | $1,961,700 | $(16,569) | -0.84% | | Cash and cash equivalents | $99,538 | $49,450 | $50,088 | 101.29% | | Fair market value of interest rate swaps | $58,104 | $3,526 | $54,578 | 1547.99% | | TOTAL ASSETS | $2,156,411 | $2,063,467 | $92,944 | 4.50% | | Mortgages payable, net | $1,276,240 | $1,276,285 | $(45) | -0.00% | | Credit facility, net | $332,979 | $278,215 | $54,764 | 19.68% | | Total Liabilities | $1,637,242 | $1,587,483 | $49,759 | 3.13% | | Total Stockholders' Equity | $512,555 | $469,845 | $42,710 | 9.09% | Consolidated Statements of Operations and Comprehensive Income Total comprehensive income more than doubled due to significant unrealized gains on interest rate derivatives Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $60,786 | $51,796 | $8,990 | 17.36% | | Total expenses | $55,126 | $48,548 | $6,578 | 13.55% | | Operating income | $5,660 | $3,248 | $2,412 | 74.26% | | Interest expense | $(10,636) | $(10,616) | $(20) | 0.19% | | Net loss | $(4,667) | $(6,900) | $2,233 | -32.36% | | Net loss attributable to common stockholders | $(4,653) | $(6,879) | $2,226 | -32.36% | | Unrealized gains on interest rate derivatives | $54,579 | $31,342 | $23,237 | 74.14% | | Total comprehensive income | $49,912 | $24,442 | $25,470 | 104.21% | | Loss per share - basic | $(0.18) | $(0.27) | $0.09 | -33.33% | Consolidated Statements of Stockholders' Equity Stockholders' equity increased primarily due to other comprehensive income from derivative gains Stockholders' Equity Changes (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Balances, December 31, 2021/2020 | $469,845 | $407,927 | | Net loss attributable to common stockholders | $(4,653) | $(6,879) | | Vesting of stock-based compensation | $(880) | $364 | | Issuance of common stock through ATM offering | $4,138 | $(176) | | Common stock dividends declared | $(9,976) | $(8,776) | | Other comprehensive income | $54,415 | $31,248 | | Adjustment to reflect redemption value of NCI | $(334) | $(215) | | Balances, March 31, 2022/2021 | $512,555 | $423,493 | Consolidated Statements of Cash Flows A significant increase in financing activities drove a substantial rise in cash and cash equivalents Consolidated Cash Flow Highlights (in thousands) | Metric | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $8,682 | $13,744 | $(5,062) | -36.83% | | Net cash used in investing activities | $(10,462) | $(7,587) | $(2,875) | 37.90% | | Net cash provided by (used in) financing activities | $45,208 | $(10,541) | $55,749 | -528.88% | | Net increase (decrease) in cash, cash equivalents and restricted cash | $43,428 | $(4,384) | $47,812 | -1090.60% | | Cash, cash equivalents and restricted cash, end of period | $132,124 | $52,631 | $79,493 | 151.03% | Notes to Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies and financial components 1. Organization and Description of Business The company is an externally managed REIT focused on value-add multifamily investments in the U.S - NexPoint Residential Trust, Inc (the 'Company') is a Maryland-incorporated REIT focused on 'value-add' multifamily investments primarily in the Southeastern and Southwestern United States[30] - The Company conducts substantially all business through NexPoint Residential Trust Operating Partnership, L.P (the 'OP'), owning approximately 99.9% of the Portfolio[30] - The Company is externally managed by NexPoint Real Estate Advisors, L.P (the 'Adviser'), which provides asset management services and makes investment decisions[31] - Investment objectives include maximizing cash flow and property value, acquiring properties with growth potential, providing quarterly cash distributions, and achieving long-term capital appreciation[32] 2. Summary of Significant Accounting Policies This section details the accounting principles, estimates, and policies applied in the financial statements - Financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions[34] - Revenue from rental income is recognized when earned, typically from lease agreements of one year or less[38] - The Company has elected to be taxed as a REIT and intends to comply with all requirements, including distributing at least 90% of its REIT taxable income[46][47] - The Company transitioned a portion of its debt to one-month Term SOFR in Q1 2022, applying ASC 848 elections to maintain hedge accounting designations[51] - The COVID-19 pandemic has not materially impacted the Company to date, but potential risks include difficulties in rent collection, leasing, property transactions, and accessing capital[52] 3. Investments in Subsidiaries The company operates through the OP, which holds properties via consolidated single-asset entities - The Company operates through the OP, which owns properties via single-asset limited liability companies (SPEs) that are consolidated[53] - As of March 31, 2022, the Company owned 39 properties through SPEs, maintaining 100% effective ownership in each[56] - The Company may use reverse like-kind exchanges (1031 Exchanges) where an Exchange Accommodation Titleholder (EAT) holds legal title to 'Parked Assets' until the exchange is complete[54] 4. Real Estate Investments Statistics Portfolio statistics show a stable unit count with increased average rent and slightly lower occupancy Portfolio Statistics (as of March 31, 2022 vs. December 31, 2021) | Metric | March 31, 2022 | December 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Number of Units | 14,825 | 14,825 | 0 | | Average Effective Monthly Rent Per Unit | $1,310 | $1,260 | $50 | | % Occupied | 94.2% | 94.5% | -0.3% | - 49 units were excluded from the Portfolio's total unit count and same store pools due to casualty events (fires and flooding) as of March 31, 2022[59][66] 5. Real Estate Investments This section details the components of gross operating real estate investments and related expenses Total Gross Operating Real Estate Investments (in thousands) | Component | March 31, 2022 | December 31, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Land | $375,857 | $375,857 | $0 | 0.00% | | Buildings and improvements | $1,745,341 | $1,743,866 | $1,475 | 0.08% | | Intangible lease assets | $1,376 | $2,576 | $(1,200) | -46.58% | | Construction in progress | $4,529 | $6,078 | $(1,549) | -25.49% | | Furniture, fixtures and equipment | $127,030 | $120,419 | $6,611 | 5.49% | | Total Gross Operating Real Estate Investments | $2,254,133 | $2,248,796 | $5,337 | 0.24% | Depreciation and Amortization Expense (in thousands) | Expense Type | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Depreciation expense | $22,600 | $19,900 | $2,700 | 13.57% | | Amortization of intangible lease assets | $1,100 | $800 | $300 | 37.50% | - No acquisitions or dispositions of real estate occurred during the three months ended March 31, 2022 and 2021[64][65] - Seven properties (Silverbrook, Venue at 8651, Bloom, Old Farm, Timber Creek, The Preserve at Terrell Mill, and Six Forks) suffered significant property damages from fires and flooding, resulting in 49 units being excluded from the portfolio[66] 6. Debt This section provides a detailed breakdown of the company's mortgage and credit facility obligations Mortgage Debt Summary (in thousands) | Metric | March 31, 2022 | | :--- | :--- | | Total Outstanding Principal | $1,280,765 | | Weighted Average Interest Rate | 2.10% | | Adjusted Weighted Average Interest Rate (with swaps) | 2.95% | - The weighted average interest rate on mortgage indebtedness increased from 1.81% (Dec 31, 2021) to 2.10% (Mar 31, 2022), primarily due to a 35 basis point increase in one-month LIBOR[69] Credit Facility Summary (in thousands) | Metric | March 31, 2022 | | :--- | :--- | | Outstanding Principal | $335,000 | | Interest Rate | 2.80% | | Maturity Date | June 30, 2024 | - The Corporate Credit Facility was modified on March 25, 2022, with $350.0 million available for borrowing and an option to increase commitments by an additional $150.0 million[72] Scheduled Debt Maturities (in thousands) | Year | Operating Properties | Credit Facility | Total | | :--- | :--- | :--- | :--- | | 2022 | $1,040 | $— | $1,040 | | 2023 | $21,047 | $— | $21,047 | | 2024 | $394,956 | $335,000 | $729,956 | | 2025 | $205,662 | $— | $205,662 | | 2026 | $423,149 | $— | $423,149 | | Thereafter | $234,911 | $— | $234,911 | | Total | $1,280,765 | $335,000 | $1,615,765 | 7. Fair Value of Derivatives and Financial Instruments The company utilizes interest rate swaps and caps to mitigate risk on its floating rate debt - The Company uses interest rate swaps and caps to manage interest rate risk on floating rate debt, aiming for stability in interest expense[79][81] - As of March 31, 2022, interest rate swaps with a notional amount of $1.4 billion effectively fixed the interest rate on a portion of floating rate debt at a weighted average fixed rate of 1.2128%[82][83] - Interest rate cap agreements covered $458.8 million of floating rate mortgage debt, capping one-month LIBOR at a weighted average rate of 4.79%[81] Fair Value of Derivative Financial Instruments (in thousands) | Derivative Type | Balance Sheet Location | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | :--- | | Interest rate swaps | Fair market value of interest rate swaps | $58,350 | $11,045 | | Interest rate caps | Prepaid and other assets | $1,453 | $263 | | Total Asset Derivatives | | $59,803 | $11,308 | | Interest rate swaps | Liability Derivatives | $246 | $7,519 | Effect of Derivatives on Statements of Operations (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Unrealized gain (loss) on hedging instruments recognized in OCI | $51,017 | $27,679 | | Gain (loss) reclassified from OCI into income (Interest expense) | $(3,562) | $(3,663) | | Gain (loss) on non-designated derivatives recognized in income (Interest expense) | $1,184 | $12 | 8. Stockholders' Equity This section details common stock activity, including incentive plans and at-the-market offerings - As of March 31, 2022, 25,700,190 shares of common stock were issued and outstanding[95] - The Board authorized a Share Repurchase Program of up to $100.0 million, extended to March 12, 2023. No shares were repurchased in Q1 2022 or Q1 2021[96][97] - Under the 2016 Long-Term Incentive Plan (LTIP), 142,159 restricted stock units were granted in Q1 2022. Equity-based compensation expense was $1.9 million in Q1 2022, up from $1.6 million in Q1 2021[100][102] - Through the 2020 At-the-Market (ATM) Program, 52,091 shares of common stock were issued in Q1 2022 at an average price of $83.16 per share, generating $4.3 million in gross proceeds[103] 9. Earnings (Loss) Per Share This section provides the calculation for basic and diluted loss per share for the period Loss Per Share (in thousands, except per share amounts) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net loss attributable to common stockholders | $(4,653) | $(6,879) | | Weighted average common shares outstanding | 25,620 | 25,068 | | Loss per share - basic | $(0.18) | $(0.27) | | Loss per share - diluted | $(0.18) | $(0.27) | - During periods of net loss, unvested restricted stock units are anti-dilutive and not included in diluted EPS calculation[104][107] - The conversion of OP Units held by noncontrolling limited partners is not reflected in EPS as they are exchangeable on a one-for-one basis, having no net impact on diluted loss per share[105] 10. Noncontrolling Interests This section details the accounting for redeemable noncontrolling interests in the Operating Partnership - Redeemable noncontrolling interests (NCI) in the OP are marked to their redemption value if it exceeds carrying value, based on the Company's common stock fair value[108][110] Redeemable Noncontrolling Interests in the OP (in thousands) | Metric | Q1 2022 | | :--- | :--- | | Redeemable noncontrolling interests in the OP, December 31, 2021 | $6,139 | | Net loss attributable to redeemable noncontrolling interests in the OP | $(14) | | Other comprehensive income attributable to redeemable noncontrolling interests in the OP | $164 | | Distributions to redeemable noncontrolling interests in the OP | $(9) | | Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP | $334 | | Redeemable noncontrolling interests in the OP, March 31, 2022 | $6,614 | - BH Management Services, LLC ('BH'), the property manager, is an affiliate of BH Equity, a noncontrolling limited partner of the OP. Property management fees paid to BH are approximately 3% of monthly gross income[113][114] 11. Related Party Transactions This section discloses transactions with the Adviser and its affiliates, including fees and waivers - The Company pays the Adviser an annual advisory fee of 1.00% and an administrative fee of 0.20% of Average Real Estate Assets[115][116] - Advisory and administrative fees incurred were $1.8 million in Q1 2022 and $1.9 million in Q1 2021. The Adviser voluntarily waived approximately $4.9 million and $4.0 million, respectively, for these periods[120][121] - The total expense cap for operating expenses and advisory/administrative fees is 1.5% of Average Real Estate Assets per calendar year[119] - The Company has funded $0.3 million to NLMF Holdco, LLC (an affiliate of the Adviser) for fiber internet service, incurring $0.1 million in expenses in Q1 2022[123] 12. Commitments and Contingencies The company has construction commitments and potential liabilities that are not expected to be material - The Company has rehabilitation construction commitments and potential future funding requirements of up to $4.0 million for NLMF Holdco, LLC[124][125] - Management believes that any liabilities from claims, lawsuits, or legal proceedings will not have a material adverse effect on the Company's financial position[126] - The Company incurred $0.6 million in claims related to a fire at Six Forks Station under its 2022 self-insurance policy, which has an aggregate amount of $1.8 million allocated to the Company[129] 13. Subsequent Events This section reports on material events that occurred after the balance sheet date - On April 25, 2022, the Board declared a quarterly dividend of $0.38 per share, payable on June 30, 2022[130] - On April 1, 2022, the Company acquired The Adair and Estates on Maryland for a total consideration of $143.4 million, consisting of 26,558 OP Units and $71.1 million in cash[131] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operating results Overview The company's portfolio consists of 39 multifamily properties with a focus on value-add strategies - As of March 31, 2022, the portfolio comprised 39 multifamily properties with 14,825 units, 94.2% leased, and a weighted average monthly effective rent of $1,310 per occupied unit[134] - The Company focuses on acquiring and operating 'value-add' multifamily properties in the Southeastern and Southwestern U.S. to improve rental rates and NOI[135] - The Company issued 52,091 common shares for $4.3 million gross proceeds in Q1 2022 through its $225 million 2020 ATM Program[136] - The Company maintains its REIT tax status, requiring distribution of at least 90% of REIT taxable income[137] Components of Our Revenues and Expenses This section breaks down the primary sources of revenue and categories of expenses for the company - Revenues primarily consist of rental income from multifamily properties (leases typically one year or less) and other income (ancillary fees)[139][140] - Expenses include property operating costs, real estate taxes and insurance, property management fees, advisory and administrative fees, corporate G&A, property G&A, and depreciation and amortization[141][142][143][144] - Other income and expenses include interest expense, loss on extinguishment of debt, casualty losses, miscellaneous income (e.g., business interruption proceeds), and gain on sales of real estate[145][146][147][148][149] Results of Operations Operating income grew significantly due to strong revenue growth outpacing expense increases Operating Results Summary (in thousands) | Metric | Q1 2022 | Q1 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $60,786 | $51,796 | $8,990 | 17.4% | | Total expenses | $55,126 | $48,548 | $6,578 | 13.5% | | Operating income | $5,660 | $3,248 | $2,412 | 74.3% | | Net loss attributable to common stockholders | $(4,653) | $(6,879) | $2,226 | -32.4% | - Rental income increased by $9.0 million (17.9%) due to a 15.9% increase in weighted average monthly effective rent per occupied unit, driven by the value-add program and organic market growth[151] - Property operating expenses rose by $2.4 million (21.4%), mainly due to a $0.7 million increase in payroll costs and $0.2 million in water/sewer fees[153] - Depreciation and amortization increased by $2.9 million (14.0%), primarily from a $2.7 million rise in depreciation due to 2021 acquisition activity and a $0.3 million increase in intangible lease asset amortization[159] - Interest expense remained stable at $10.6 million, with a $1.3 million increase in interest on debt offset by a $1.2 million mark-to-market gain on interest rate cap derivatives[160] Non-GAAP Measurements This section defines and reconciles non-GAAP financial measures used to evaluate performance Net Operating Income and Same Store Net Operating Income NOI and Same Store NOI are used to evaluate property-level performance independent of financing and corporate costs - NOI is a non-GAAP measure used to evaluate property performance, excluding interest expense, advisory/administrative fees, depreciation/amortization, corporate G&A, and other specific gains/losses[161] - Same Store NOI compares operating results of properties owned for the entirety of current and comparable periods, eliminating variations from acquisitions or dispositions[167] NOI and Same Store NOI Both total NOI and Same Store NOI showed strong year-over-year growth in the first quarter NOI and Same Store NOI Reconciliation (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net loss | $(4,667) | $(6,900) | | Adjustments (Advisory fees, G&A, D&A, Interest, etc.) | $40,902 | $36,624 | | NOI | $36,565 | $29,724 | | Less Non-Same Store (Revenues, Expenses, Income) | $(3,410) | $(1,229) | | Same Store NOI | $33,155 | $28,495 | - Total NOI increased by $6.8 million (23.0%) to $36.6 million in Q1 2022, while Same Store NOI increased by $4.7 million (16.4%) to $33.2 million[168][171] - The Same Store pool includes 34 properties (13,456 units), excluding five properties and 49 units currently down due to casualty events[170] Same Store Results of Operations Same Store results were driven by a significant increase in rental income from higher effective rents - Same Store rental income increased by $5.7 million (11.7%) to $54.1 million, primarily due to a 15.4% increase in weighted average monthly effective rent per occupied unit, partially offset by a 0.9% decrease in occupancy[174] - Same Store property operating expenses increased by $1.0 million (9.5%), mainly from a $0.4 million rise in repair and maintenance costs and a $0.3 million increase in payroll[176] - Same Store real estate taxes and insurance decreased by $0.3 million (3.5%), largely due to an increase in property tax refunds[177] FFO, Core FFO and AFFO Key non-GAAP performance metrics for REITs all demonstrated substantial year-over-year growth - FFO, Core FFO, and AFFO are non-GAAP supplemental measures of operating performance for REITs, providing a more refined view by adjusting for non-cash items and non-recurring events[180][181][182][183] FFO, Core FFO, and AFFO Reconciliation (in thousands, except per share amounts) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Net loss | $(4,667) | $(6,900) | 32.4% | | FFO attributable to common stockholders | $18,994 | $13,817 | 37.5% | | FFO per share - diluted | $0.74 | $0.55 | 34.5% | | Core FFO attributable to common stockholders | $20,091 | $14,091 | 42.6% | | Core FFO per share - diluted | $0.78 | $0.56 | 39.5% | | AFFO attributable to common stockholders | $22,346 | $16,045 | 39.3% | | AFFO per share - diluted | $0.87 | $0.64 | 36.3% | | Dividends declared per common share | $0.380 | $0.341 | 11.4% | | FFO Coverage - diluted | 1.95x | 1.62x | 20.8% | | Core FFO Coverage - diluted | 2.06x | 1.65x | 25.3% | | AFFO Coverage - diluted | 2.30x | 1.88x | 22.4% | - FFO increased by $5.2 million, Core FFO by $6.0 million, and AFFO by $6.3 million in Q1 2022 compared to Q1 2021, primarily driven by increased revenues and adjustments for casualty-related expenses and equity-based compensation[188][189][190] Liquidity and Capital Resources This section analyzes the company's cash flows, debt profile, and capital management strategies Cash Flows Cash from financing activities increased significantly while cash from operations decreased Cash Flow Activities (in thousands) | Activity | Q1 2022 | Q1 2021 | $ Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $8,682 | $13,744 | $(5,062) | | Net cash used in investing activities | $(10,462) | $(7,587) | $(2,875) | | Net cash provided by (used in) financing activities | $45,208 | $(10,541) | $55,749 | - Net cash from operating activities decreased by $5.1 million, mainly due to 2021 acquisition and disposition activity[196] - Net cash from financing activities increased by $55.7 million, driven by a $54.8 million net increase in debt and $4.3 million from common stock issuance, partially offset by a $1.4 million increase in dividends paid[198] Debt, Derivatives and Hedging Activity The company actively uses derivatives to manage interest rate risk on its significant floating rate debt - As of March 31, 2022, total mortgage debt was $1.3 billion with a weighted average interest rate of 2.10% (adjusted to 2.95% with swaps)[199] - Interest rate swap agreements covered 100% of $1.2 billion floating rate mortgage debt and 61.4% of the $335.0 million Corporate Credit Facility, effectively fixing rates at a weighted average of 1.2128%[200][207] - Interest rate cap agreements covered $458.8 million of floating rate mortgage debt, capping one-month LIBOR at a weighted average rate of 4.79%[201] - The Corporate Credit Facility was modified on March 25, 2022, with $350.0 million available for borrowing and $335.0 million outstanding, maturing on June 30, 2024[205] Obligations and Commitments This section outlines the company's future contractual obligations, primarily related to debt service Contractual Obligations and Commitments (in thousands) | Type | Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Properties Mortgage Debt (Principal) | $1,280,765 | $1,040 | $21,047 | $394,956 | $205,662 | $423,149 | $234,911 | | Operating Properties Mortgage Debt (Interest) | $120,478 | $27,846 | $26,532 | $22,440 | $16,861 | $11,213 | $15,586 | | Credit Facility (Principal) | $335,000 | $— | $— | $335,000 | $— | $— | $— | | Credit Facility (Interest) | $21,493 | $7,216 | $9,544 | $4,733 | $— | $— | $— | | Total Contractual Obligations | $1,757,736 | $36,102 | $57,123 | $757,129 | $222,523 | $434,362 | $250,497 | - The Advisory Agreement requires an annual advisory and administrative fee of 1.2%, with a $5.4 million annual cap on Contributed Assets[213] - The Company has a maximum exposure of $4.0 million in potential future funding commitments to NLMF Holdco, LLC for project costs[214] Capital Expenditures and Value-Add Program The company details its strategy for recurring capital expenditures and its value-add renovation program - The Company anticipates average annual repairs and maintenance expenses of $575-$725 per unit and reserves $250-$350 per unit for non-recurring capital expenditures[215] - The value-add program involves investing $4,000-$10,000 per unit in the first 36 months of ownership. As of March 31, 2022, $14.1 million in renovation value-add reserves are available for 924 planned interior rehabs[215] Rehab Expenditures (in thousands) | Expenditure Type | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Interior | $4,714 | $2,332 | | Exterior and common area | $917 | $2,960 | | Total rehab expenditures | $5,631 | $5,292 | Income Taxes The company intends to maintain its REIT status and manage taxable income from non-REIT activities - The Company expects to maintain its REIT status, requiring annual distribution of at least 90% of REIT taxable income[216] - Taxable income from non-REIT activities is managed through a Taxable REIT Subsidiary (TRS) and is subject to applicable income taxes[216] - No material unrecognized tax benefit or expense, accrued interest, or penalties were reported as of March 31, 2022[220] Dividends The company plans to make regular quarterly dividend payments in line with REIT requirements - The Company intends to make regular quarterly dividend payments, generally requiring distribution of at least 90% of REIT taxable income[221] - Dividends are based on estimated taxable earnings, which may differ from GAAP earnings due to items like depreciation and fair value adjustments[222] - The Board declared a quarterly dividend of $0.38 per share on February 14, 2022, paid on March 31, 2022, funded by operating cash flows[222] Off-Balance Sheet Arrangements The company reports no material off-balance sheet arrangements as of the reporting date - As of March 31, 2022, the Company had no off-balance sheet arrangements with a material current or future effect on its financial condition or results of operations[223] Critical Accounting Policies and Estimates This section highlights key accounting policies that require significant management judgment and estimation - Key accounting policies involve significant judgments and estimates, including purchase price allocation for acquisitions, impairment reviews of real estate assets, and the impact of inflation[224][225][227][228] - Purchase price allocation for asset acquisitions is based on management's estimate of 'as-if' vacant fair value, using Level 3 inputs[226] - Real estate assets are reviewed for impairment when circumstances indicate carrying amounts may not be recoverable, based on estimated future cash flows and liquidation value[227] - The Company mitigates inflation risks through short-term leases that reset to market rates and by using long-term fixed interest rate loans and interest rate hedges[228][229] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to interest rate and counterparty credit risks - Primary market risks are interest rate risk on $1.5 billion of floating rate debt and counterparty credit risk on derivatives[231] - Interest rate swap agreements effectively covered 100% of $1.2 billion floating rate mortgage debt and 61.4% of the $335.0 million Corporate Credit Facility, fixing rates at a weighted average of 1.2128%[231][233] - Interest rate cap agreements covered $458.8 million of floating rate mortgage debt, capping one-month LIBOR at a weighted average rate of 4.79%[232] Estimated Annual Increase to Interest Expense from LIBOR Changes (in thousands) | Change in Interest Rates | Annual Increase to Interest Expense | | :--- | :--- | | 0.25% | $320 | | 0.50% | $640 | | 0.75% | $960 | | 1.00% | $1,280 | - The Company is monitoring the transition from LIBOR to SOFR, as it has material contracts indexed to USD-LIBOR[236] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures as of the quarter-end - As of March 31, 2022, the Company's disclosure controls and procedures were evaluated and deemed effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[237] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[239] PART II—OTHER INFORMATION This part covers legal proceedings, risk factors, and other required disclosures Item 1. Legal Proceedings The company is not aware of any material legal proceedings that would adversely affect its financials - Management is not aware of any material legal proceedings or threatened litigation that would adversely affect the Company's operations or financial condition[242] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Annual Report - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K were identified[243] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares during the quarter under its authorized program - The Company did not repurchase any shares of common stock during the three months ended March 31, 2022[243] - The Share Repurchase Program, authorized for up to $100.0 million, had $38.8 million remaining as of March 31, 2022[243] - Since inception through March 31, 2022, the Company repurchased 2,382,155 shares at a total cost of approximately $61.2 million, or $25.70 per share[243] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[244] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[245] Item 5. Other Information No other information is required to be disclosed under this item - No other information was reported[246] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q - Exhibits include the March 2022 Modification of Loan Documents, certifications from the CEO and CFO (302 and 906), and Inline XBRL documents[249] Signatures The report is duly signed by the company's principal executive and financial officers - The report was signed by Jim Dondero (President and Director) and Brian Mitts (Chief Financial Officer and Director) on April 28, 2022[254]