NexPoint Residential Trust, Inc. (NYSE:NXRT) Q3 2023 Earnings Call Transcript

NexPoint Residential Trust, Inc. (NYSE:NXRT) Q3 2023 Earnings Call Transcript October 31, 2023

NexPoint Residential Trust, Inc. beats earnings expectations. Reported EPS is $1.28, expectations were $0.85.

Operator: Thank you for standing by, and welcome to the NexPoint Residential Trust Q3 2023 Conference Call. I would now like to welcome Kristen Thomas, Investor Relations, to begin the call. Kristen, over to you.

Kristen Thomas: Thank you. Good day, everyone, and welcome to NexPoint Residential Trust’s conference call to review the company’s results for the third quarter ended September 30, 2023. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer; Matt McGraner, Executive Vice President and Chief Investment Officer; and Bonner McDermett, Vice President, Asset and Investment Management. As a reminder, this call is being webcast at the company’s website at nxrt.nexpoint.com. Before we begin, I would like to remind everyone that this conference call 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.

Listeners 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 the company’s other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements. The statements made during this conference call speak only as of today’s date, and except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, see the company’s earnings release that was filed earlier today. I would now like to turn the call over to Brian Mitts.

Aerial view of a retail property owned by the real estate investment trust.

Please go ahead, Brian.

Brian Mitts: Thank you, Kristen. Welcome to everyone joining us this morning. I’m joined here with — by Matt McGraner and Bonner McDermett. I’m going to kick off the call and cover our Q3 and year-to-date results, walk through our updated NAV calculation. And then give our revised guidance. I’ll then turn it over to Matt and Bonner to discuss specifics on the portfolio lease environment metrics and the items driving our performance and guidance. So I’ll start with Q3 results. Net income for the third quarter was $33.7 million or $1.28 per diluted share on total revenue of $69.8 million as compared to a net loss of $600,000 or $0.02 loss per diluted share in the same period in 2022. On total revenue of $68.1 million, a 2.5% increase in revenue on 39 properties versus 41 properties for the prior year period.

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Q&A Session

For the third quarter, NOI was $42.1 million on 39 properties as compared to $40 million for the third quarter of 2022 on 41 properties, a 5.3% increase in NOI. For the quarter, same-store rent increased 3.1%, and same-store occupancy dropped 10 basis points to 93.9%. This coupled with a 7.7% increase in other income and a 0.3% decrease in same-store expenses led to an increase in same-store NOI of 8% as compared to the third quarter of 2022. As compared to Q2 2023, rents for the third quarter on the same-store portfolio were down 40 basis points to $1,529 per unit per month. We reported Q3 core FFO of $17.1 million or $0.65 per diluted share compared to $0.84 per diluted share in the third quarter of 2022. For the quarter, we completed 420 full and partial renovations and leased 330 renovated units, achieving an average monthly rent premium of $215 and 23.6% ROI, which is slightly higher than our long-term average ROI in renovations.

Inception to date in the current portfolio, we’ve completed 8,671 full and partial upgrades, which represents approximately 60% of the total units, 4,812 kitchen upgrades and washer and dryer installments and 12,285 technology package installations, achieving an average monthly rent premium of $168, $49 and $44 respectively, and a return on investment of 21%, 65.3% and 37.8% respectively. NXRT paid a third quarter dividend of $0.42 per share on the common stock on September 29. On October 30, the Board approved a 10.1% increase to the dividend to $0.46242 per share, payable beginning December 29. Since our IPO in 2015, we’ve increased the dividend 124.5%. Moving on to year-to-date results. Net income year-to-date was — sorry, $25.9 million or $0.99 per diluted share on total revenue of $208.6 million as compared to a net loss of $13 million or $0.51 per diluted share in the same period in 2022 on total revenue of $194.6 million, or an increase of 7.2% of revenue.

Year-to-date, NOI was $125.2 million on 39 properties as compared to $115.7 million on 41 properties for the same period in 2022 for an increase of 8.2%. Year-to-date, per unit same-store rent increased 3% to $1,524. And same-store occupancy was down 10 basis points to 93.9%. This coupled with an increase in same-store other income of 4.7% and an increase in same-store expenses of 6.7%, led to an increase in same-store NOI of 9.5% compared to the same period in 2022. We reported year-to-date core FFO of $56.1 million or $2.14 per diluted share compared to $2.38 per diluted share in the nine months ended September 30, 2022. Moving on to our balance sheet. As of 9/30, we had $1.58 billion of mortgage debt, of which $112 million was held for sale.

And $41 million was outstanding on our credit facility — corporate credit facility. This compares to mortgage debt of $1.61 billion at 12/31/22, of which $68.2 million was held for sale and $74.5 million was outstanding on our corporate credit facility. This represents a 1.8% reduction in mortgage debt and a 45% reduction in our corporate debt year-to-date. Once we sell the four assets that we show as held for sale, we’ll further reduce our mortgage debt by $112 million and our corporate debt by $41 million, representing a total 9.7% reduction in leverage. As of 9/30, we have swaps with a notional value of $1.17 billion with fixed rates ranging from 2% on the high end to 57 basis points in the low end with a weighted average fixed rate of 1.07%.

Our swaps have a liquidation value of $98.6 million as of 9/30. As of 9/30, we have interest rate caps on $1.39 billion of notional debt with the strike prices ranging from 6.82% on the high end to 2.7% on the low end with a weighted average strike of 5.83%. As of 9/30, we had 13 caps that were above the reference rate of 5.32% representing $418.4 million of notion value. For the third quarter, our swaps and caps reduced our interest cost by approximately $13.5 million. NXRT is 98.1% effectively fixed. We’re considering our swaps caps, we fixed debt, meaning at current or higher rates, we’re basically fully hedged. One interesting point to make regarding the capital structure with regards to the caps and how that will impact interest expense in a rising rate environment, which is to say that our interest will remain flat to decrease as rates rise.