NexPoint Residential Trust, Inc. Reports Third Quarter Results

October 31, 2017

DALLAS, Oct. 31, 2017 /PRNewswire/ -- NexPoint Residential Trust, Inc. (NYSE:NXRT) reported financial results for the three and nine months ended September 30, 2017.

Highlights

  • NXRT reported Net Income, FFO¹, Core FFO¹, and AFFO¹ of $57.7M, $16.5M, $22.0M, and $25.6M, respectively, attributable to common stockholders for the nine months ended September 30, 2017.
  • For the nine months ended September 30, 2017, Same Store average effective rent, total revenue and NOI¹ increased 5.5%, 7.1% and 7.9%, respectively, over the prior year period.
  • The weighted average effective monthly rent per unit, across all 32 properties held as of September 30, 2017, improved to $932, while we closed the quarter with physical occupancy of 94.0%.
  • NXRT paid a third quarter dividend of $0.22 per share of common stock on September 29, 2017.
  • On October 30, 2017, the Company's board of directors increased the Company's quarterly dividend 13.6%, or by $0.03 per share, declaring a quarterly dividend of $0.25 per share, payable on December 29, 2017 to stockholders of record on December 15, 2017.
  • On July 14, 2017, NXRT sold Regatta Bay for a gross sales price of $28.2 million. The disposition had an IRR of approximately 43% and a 1.89x multiple on invested capital.
  • On September 29, 2017, NXRT sold four properties: The Arbors, The Crossings, The Crossings at Holcomb Bridge and The Knolls (the "NAVA Portfolio") for a cumulative gross sales price of $116.0 million. The portfolio had combined returns totaling an IRR of approximately 47% and a 2.89x multiple on invested capital. The Company used proceeds from the sale of the NAVA Portfolio to repay $46.0 million of short term debt and to complete the reverse 1031 exchange initiated to acquire Rockledge Apartments in the second quarter of this year.
  • During the third quarter of 2017, NXRT completed upgrades on 422 units and leased 168 upgraded units, achieving an average monthly rental increase per unit of $79 and a 23.5% ROI on those units. Across its current portfolio, NXRT has completed 4,029 upgrades and achieved a $91 average monthly rental increase per unit, equating to a 20.7% ROI on all units leased through September 30, 2017.
  • During the nine months ended September 30, 2017, NXRT repurchased 58,157 shares of its common stock at a total cost of approximately $1,354,000, or $23.27 per share. As of September 30, 2017, NXRT has repurchased 308,313 shares of its common stock at a total cost of approximately $5,941,000, or $19.27 per share.

"We are pleased to report a strong 9.3% same store NOI increase and continued execution of our capital recycling strategy. During the quarter, we successfully disposed of five assets, generating an average IRR of approximately 47% and 2.83x equity multiple, while upgrading the quality and location of the portfolio," stated NXRT Chairman and President, Jim Dondero. "And given our ability to generate healthy internal growth and free cash flow, we are also pleased with the Board's decision to increase the quarterly dividend by 13.6%, as we continue to experience strength in the value-add class B segment."

Third Quarter Financial Results

  • Total revenues were $37.1 million for the period, compared to $33.1 million for the prior year period.
  • Net income was $54.1 million for the period, compared to $8.8 million for the prior year period. The change in net income between the periods primarily relates to increases in gain on sales of real estate and same store operating results, both of which were partially offset by increases in depreciation and amortization expense and interest expense. The change in net income between the periods was also due to NXRT's acquisition and disposition activity in 2016 and 2017 and the timing of the transactions.
  • For the three months ended September 30, 2017, NXRT reported earnings of $2.51 per diluted share, compared to earnings of $0.33 per diluted share for the prior year period.
  • NOI¹ increased to $19.5 million for the period, compared to $17.1 million for prior year period.
  • Same store NOI¹ increased 9.3% to $13.8 million, over the prior year period.
  • FFO¹ totaled $6.8 million, or $0.32 per diluted share, compared to $6.9 million, or $0.32 per diluted share, for the prior year period.
  • Core FFO¹ totaled $7.9 million, or $0.37 per diluted share, compared to $7.5 million, or $0.35 per diluted share, for the prior year period.
  • AFFO¹ totaled $9.0 million, or $0.42 per diluted share, compared to $8.1 million, or $0.38 per diluted share, for the prior year period.

Financial Results for the Nine Months Ended September 30, 2017

  • Total revenues were $109.3 million for the period, compared to $100.2 million for the prior year period.
  • Net income was $60.7 million for the period, compared to $25.7 million for the prior year period. The change in net income between the periods primarily relates to increases in gain on sales of real estate and same store operating results, and was partially offset by increases in depreciation and amortization expense, interest expense and loss on extinguishment of debt and modification costs. The change in net income between the periods was also due to NXRT's acquisition and disposition activity in 2016 and 2017 and the timing of the transactions.
  • For the nine months ended September 30, 2017, NXRT reported earnings of $2.70 per diluted share, compared to earnings of $1.02 per diluted share for the prior year period.
  • NOI¹ increased to $57.3 million for the period, compared to $52.2 million for prior year period.
  • Same store NOI¹ increased 7.9% to $40.5 million, over the prior year period.
  • FFO¹ totaled $16.5 million, or $0.77 per diluted share, compared to $22.7 million, or $1.07 per diluted share, for the prior year period.
  • Core FFO¹ totaled $22.0 million, or $1.03 per diluted share, compared to $24.1 million, or $1.13 per diluted share, for the prior year period.
  • AFFO¹ totaled $25.6 million, or $1.20 per diluted share, compared to $25.4 million, or $1.19 per diluted share, for the prior year period.

¹ FFO, Core FFO, AFFO and NOI are non-GAAP measures. For reconciliations of FFO, Core FFO, AFFO and NOI to net income, and a discussion of why we consider these non-GAAP measures useful, see the "Definitions and Reconciliations" section of this release.

Same Store Properties Operating Results
There are 26 properties encompassing 8,871 units of apartment space in our same store pool for the three and nine months ended September 30, 2017 (our "Same Store" properties). The Same Store portfolio finished the quarter with a weighted average effective rent of $893 per occupied unit and physical occupancy of 94.4%. Effective rent rose by $47, or 5.5%, per occupied unit over September 30, 2016, while occupancy was unchanged at the end of each period.

The following table reflects the revenues, property operating expenses and NOI for the three months ended September 30, 2017 and 2016 for our Same Store and Non-Same Store properties (dollars in thousands):



For the Three Months Ended September 30,












2017



2016



$ Change



% Change


Revenues

















Same Store

















Rental income


$

22,191



$

20,841



$

1,350




6.5

%

Other income



3,591




3,227




364




11.3

%

   Same Store revenues



25,782




24,068




1,714




7.1

%

Non-Same Store

















Rental income



9,957




7,791




2,166




27.8

%

Other income



1,358




1,220




138




11.3

%

   Non-Same Store revenues



11,315




9,011




2,304




25.6

%

   Total revenues



37,097




33,079




4,018




12.1

%


















Operating expenses

















Same Store

















Property operating expenses (1)



7,208




6,983




225




3.2

%

Real estate taxes and insurance



3,201




2,920




281




9.6

%

Property management fees (2)



775




721




54




7.5

%

Property general and administrative expenses (3)



840




857




(17)




-2.0

%

   Same Store operating expenses



12,024




11,481




543




4.7

%

Non-Same Store

















Property operating expenses (4)



3,248




2,888




360




12.5

%

Real estate taxes and insurance



1,652




1,053




599




56.9

%

Property management fees (2)



335




268




67




25.0

%

Property general and administrative expenses (5)



327




324




3




0.9

%

   Non-Same Store operating expenses



5,562




4,533




1,029




22.7

%

   Total operating expenses



17,586




16,014




1,572




9.8

%


















NOI

















Same Store



13,758




12,587




1,171




9.3

%

Non-Same Store



5,753




4,478




1,275




28.5

%

   Total NOI


$

19,511



$

17,065



$

2,446




14.3

%



(1)

For the three months ended September 30, 2017 and 2016, excludes approximately $(410,000) and $3,000, respectively, of casualty-related expenses/(recoveries).

(2)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the Company's operating partnership, NexPoint Residential Trust Operating Partnership, L.P. (the "OP").

(3)

For the three months ended September 30, 2017 and 2016, excludes approximately $316,000 and $220,000, respectively, of 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.

(4)

For the three months ended September 30, 2017 and 2016, excludes approximately $29,000 and $0, respectively, of casualty-related expenses/(recoveries).

(5)

For the three months ended September 30, 2017 and 2016, excludes approximately $111,000 and $126,000, respectively, of 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.

The following table reflects the revenues, property operating expenses and NOI for the nine months ended September 30, 2017 and 2016 for our Same Store and Non-Same Store properties (dollars in thousands):



For the Nine Months Ended September 30,












2017



2016



$ Change



% Change


Revenues

















Same Store

















Rental income


$

65,311



$

61,525



$

3,786




6.2

%

Other income



10,421




9,178




1,243




13.5

%

   Same Store revenues



75,732




70,703




5,029




7.1

%

Non-Same Store

















Rental income



29,253




25,881




3,372




13.0

%

Other income



4,337




3,663




674




18.4

%

   Non-Same Store revenues



33,590




29,544




4,046




13.7

%

   Total revenues



109,322




100,247




9,075




9.1

%


















Operating expenses

















Same Store

















Property operating expenses (1)



20,625




19,723




902




4.6

%

Real estate taxes and insurance



9,632




8,704




928




10.7

%

Property management fees (2)



2,274




2,122




152




7.2

%

Property general and administrative expenses (3)



2,698




2,620




78




3.0

%

   Same Store operating expenses



35,229




33,169




2,060




6.2

%

Non-Same Store

















Property operating expenses (4)



9,337




9,133




204




2.2

%

Real estate taxes and insurance



5,279




3,622




1,657




45.7

%

Property management fees (2)



1,006




885




121




13.7

%

Property general and administrative expenses (5)



1,154




1,226




(72)




-5.9

%

   Non-Same Store operating expenses



16,776




14,866




1,910




12.8

%

   Total operating expenses



52,005




48,035




3,970




8.3

%


















NOI

















Same Store



40,503




37,534




2,969




7.9

%

Non-Same Store



16,814




14,678




2,136




14.6

%

   Total NOI


$

57,317



$

52,212



$

5,105




9.8

%



(1)

For the nine months ended September 30, 2017 and 2016, excludes approximately $(380,000) and $9,000, respectively, of casualty-related expenses/(recoveries).

(2)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP.

(3)

For the nine months ended September 30, 2017 and 2016, excludes approximately $622,000 and $460,000, respectively, of 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.

(4)

For the nine months ended September 30, 2017 and 2016, excludes approximately $29,000 and $82,000, respectively, of casualty-related expenses/(recoveries).

(5)

For the nine months ended September 30, 2017 and 2016, excludes approximately $282,000 and $167,000, respectively, of 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.

Value-Add Programs

For the three months ended September 30, 2017, we completed full and partial renovations on 422 units at an average cost of $4,016 per renovated unit. Since inception, for the properties in our portfolio as of September 30, 2017, we have completed full and partial renovations on 4,029 units at an average cost of $5,115 per renovated unit. We have achieved average rent growth of 10.9%, or a $91 average monthly rental increase per unit, on all units renovated and leased from inception through September 30, 2017, resulting in a ROI of 20.7%.

The following table sets forth a summary of our capital expenditures related to our value-add program for the three and nine months ended September 30, 2017 and 2016 (in thousands):



For the Three Months Ended

September 30,



For the Nine Months Ended

September 30,


Rehab Expenditures


2017



2016



2017



2016


Interior

(1)

$

1,883



$

2,439



$

6,647



$

7,136


Exterior and common area



1,166




1,746




5,067




8,078


Total rehab expenditures


$

3,049



$

4,185



$

11,714



$

15,214




(1)

Includes total capital expenditures during the period on completed and in-progress interior rehabs. For the three months ended September 30, 2017 and 2016, we completed full and partial interior rehabs on 422 and 538 units, respectively. For the nine months ended September 30, 2017 and 2016, we completed full and partial interior rehabs on 1,253 and 1,475 units, respectively.

Fourth Quarter 2017 Dividend

On October 30, 2017, NXRT's board of directors increased the Company's quarterly dividend 13.6%, or by $0.03 per share, declaring a quarterly dividend of $0.25 per share, payable on December 29, 2017 to stockholders of record on December 15, 2017.

Subsequent Events

Acquisition of Multifamily Property

On October 25, 2017, NXRT acquired Atera, a 380-unit property in Dallas, TX for $59.2 million. NXRT acquired Atera through a 1031 Exchange with the NAVA Portfolio and a planned reverse 1031 Exchange with Timberglen (anticipated to close in the first quarter of 2018). This is NXRT's eleventh acquisition in Dallas, expanding its footprint in the market to 3,556 units and bringing its total portfolio to 33 properties consisting of 11,775 units in 10 markets as of October 31, 2017.

 

Property Name


Location


Date of Acquisition


Purchase Price



Debt



# Units



Ownership


Atera


Dallas, Texas


October 25,
2017


$

59,200


(1)

$

29,500


(2)


380




100

%
























(1)

The Company used approximately $14.1 million of proceeds from the sale of the NAVA Portfolio to fund part of the equity portion of the purchase price.     

(2)

The Company placed a first mortgage on the property with a floating interest rate at 1.48% over one-month LIBOR and an 84-month term that is full-term, interest-only.

2017 Bridge Facility

On October 19, 2017, NXRT used proceeds from the sale of the NAVA Portfolio to pay down approximately $46.0 million on the 2017 Bridge Facility.     

On October 26, 2017, NXRT, through the OP, amended the 2017 Bridge Facility to extend the maturity date on the remaining balance of approximately $8.6 million to March 31, 2018. We intend to repay the 2017 Bridge Facility with excess proceeds from the disposition of Timberglen and cash on hand.

Revised 2017 Full Year Guidance

NXRT increased or reaffirmed (as the case may be) 2017 Full Year Guidance as presented in the Company's Second Quarter 2017 Financial Supplement for Revenue, Net Income, NOI, FFO, Core FFO and AFFO as follows (amounts in thousands, except per share data): 


Revised FY 2017


Prior


Low-End

Mid-Point

High-End


Mid-Point

Revenue

143,500

144,250

145,000


144,000

Net Income (1)

56,000

56,200

56,600


54,000

NOI (2)

75,900

76,500

77,250


76,250

FFO/Share – diluted (2) (3)

1.15

1.17

1.20


1.16

Core FFO/Share – diluted (2) (3)

1.37

1.43

1.47


1.40

AFFO/Share – diluted (2) (3)

1.63

1.65

1.68


-

Acquisitions

197,200

197,200

197,200


170,000

Dispositions

228,100

228,100

228,100


227,500



(1)

Net Income: revised upwards from the previous midpoint of $54,000 due to higher than anticipated cumulative sales price and gain on sales of real estate.

(2)

See the "Definitions and Reconciliations" section of this press release for a reconciliation of 2017 Full Year Non-GAAP Guidance to 2017 Full Year net income guidance.

(3)

For purposes of calculating per share data, NXRT assumes a weighted average diluted share count of 21.40 million for the full year 2017.

Supplemental Information

Additional information on third quarter results and 2017 financial and earnings guidance is included in NXRT's "Supplemental Information: Third Quarter 2017" that can be found in the Investor Relations section of the Company's website at www.nexpointliving.com.  

Third Quarter Earnings Conference Call

NXRT will host a call to discuss its third quarter results on Tuesday, October 31, 2017 at 11:00 a.m. ET. The number to call for this interactive teleconference is (800) 210-9006, or for international callers, (719) 325-2390 in each case using passcode 6163998. 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 continue to be available for 60 days.

A replay of the conference call will also be available through Tuesday, November 7, 2017, by dialing (888) 203-1112 or, for international callers, (719) 457-0820 and entering passcode 6163998.

About NXRT 

NexPoint Residential Trust, Inc. 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., which is an affiliate of Highland Capital Management, L.P., a leading global alternative asset manager and an SEC-registered investment adviser. More information about NXRT is available at http://www.nexpointliving.com

Cautionary Notice Regarding Forward-Looking Statements

This press 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," "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 guidance for financial results for the full year 2017, the expected timing of property acquisitions and dispositions, and the expected repayment of indebtedness. They are not guarantees of future results and are subject to risks, uncertainties, assumptions and anticipated sales of properties 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 Securities and Exchange Commission (the "SEC") for a more complete discussion of the risks and other factors that could affect any forward-looking statements. Except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements.

 

Select Financial Statements for the Three and Nine Months Ended September 30, 2017 and 2016
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)










September 30,
2017



December 31,
2016




(Unaudited)






ASSETS









Operating Real Estate Investments









Land


$

167,245



$

165,863


Buildings and improvements



768,499




733,374


Intangible lease assets



3,021




5,140


Construction in progress



1,850




2,828


Furniture, fixtures, and equipment



41,190




36,616


Total Gross Operating Real Estate Investments



981,805




943,821


Accumulated depreciation and amortization



(78,387)




(60,214)


Total Net Operating Real Estate Investments



903,418




883,607


Real estate held for sale, net of accumulated depreciation of $3,397 and $6,099, respectively



32,915




79,430


Total Net Real Estate Investments



936,333




963,037


Cash and cash equivalents



92,695




22,705


Restricted cash



29,417




32,556


Accounts receivable



3,298




3,008


Prepaid and other assets



3,923




1,678


Fair market value of interest rate swaps



11,759




12,413


TOTAL ASSETS


$

1,077,425



$

1,035,397











LIABILITIES AND EQUITY









Liabilities:









Mortgages payable, net


$

694,968



$

367,453


Mortgages payable held for sale, net



30,327




55,685


Credit facilities, net



29,803




310,492


Bridge facility, net



54,531




29,874


Accounts payable and other accrued liabilities



5,229




5,551


Accrued real estate taxes payable



11,443




6,534


Accrued interest payable



1,820




1,067


Security deposit liability



1,451




1,364


Prepaid rents



1,627




1,275


Total Liabilities



831,199




779,295











Redeemable noncontrolling interests in the Operating Partnership



2,110














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; 21,095,769 and 21,043,669 shares issued and outstanding, respectively



211




213


Additional paid-in capital



206,613




241,450


Accumulated earnings less dividends



28,960




(14,584)


Accumulated other comprehensive income



8,332




9,052


Common stock held in treasury at cost; 0 and 250,156 shares, respectively






(4,587)


Total Stockholders' Equity



244,116




231,544


Noncontrolling interests






24,558


Total Equity



244,116




256,102


TOTAL LIABILITIES AND EQUITY


$

1,077,425



$

1,035,397


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
(Unaudited)




For the Three Months Ended September 30,



For the Nine Months Ended September 30,




2017



2016



2017



2016


Revenues

















Rental income


$

32,148



$

28,632



$

94,564



$

87,406


Other income



4,949




4,447




14,758




12,841


Total revenues



37,097




33,079




109,322




100,247


Expenses

















Property operating expenses



10,075




9,874




29,611




28,947


Acquisition costs






386







386


Real estate taxes and insurance



4,853




3,973




14,911




12,326


Property management fees (1)



1,110




989




3,280




3,007


Advisory and administrative fees (2)



1,870




1,698




5,544




4,944


Corporate general and administrative expenses



1,623




1,023




4,842




2,649


Property general and administrative expenses



1,594




1,527




4,756




4,473


Depreciation and amortization



11,215




8,667




35,866




26,363


Total expenses



32,340




28,137




98,810




83,095


Operating income



4,757




4,942




10,512




17,152


Interest expense



(8,257)




(4,791)




(22,479)




(15,650)


Loss on extinguishment of debt and modification costs



(914)




(888)




(5,717)




(1,722)


Gain on sales of real estate



58,490




9,562




78,386




25,932


Net income



54,076




8,825




60,702




25,712


Net income attributable to noncontrolling interests






1,735




2,836




4,047


Net income attributable to redeemable noncontrolling interests in the Operating Partnership



162







162





Net income attributable to common stockholders


$

53,914



$

7,090



$

57,704



$

21,665


Other comprehensive income (loss)

















Unrealized gains (losses) on interest rate derivatives



214




(1,084)




(835)




(1,128)


Total comprehensive income



54,290




7,741




59,867




24,584


Comprehensive income attributable to noncontrolling interests






1,627




2,720




3,935


Comprehensive income attributable to redeemable noncontrolling interests in the Operating Partnership



163







163





Comprehensive income attributable to common stockholders


$

54,127



$

6,114



$

56,984



$

20,649



















Weighted average common shares outstanding - basic



21,085




21,260




21,057




21,282


Weighted average common shares outstanding - diluted



21,453




21,376




21,407




21,322



















Earnings per share - basic


$

2.56



$

0.33



$

2.74



$

1.02


Earnings per share - diluted


$

2.51



$

0.33



$

2.70



$

1.02



















Dividends declared per common share


$

0.220



$

0.206



$

0.660



$

0.618




(1)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the Company's OP.

(2)

Fees incurred to the Company's adviser.

Definitions and Reconciliations

This press release includes analysis of net operating income, or NOI, funds from operations, or FFO, core funds from operations, or Core FFO, and adjusted funds from operations, or AFFO, all of which are non-GAAP financial measures of performance. These non-GAAP measures should be used as a supplement to, and not a substitute for, net income (loss) computed in accordance with GAAP. 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. 

This press release also includes an analysis of our Same Store properties, which are defined as those that are stabilized and comparable for both the current and the prior year reporting periods. Same Store analysis for the three and nine months ended September 30, 2017 includes 26 properties totaling 8,871 units, or approximately 78% of NXRT's 11,395 units.

Net Operating Income

NOI is a non-GAAP financial measure of performance. 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 as NOI is not affected by (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 NXRT at the property for expenses such as legal, professional and franchise tax fees.

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and Same Store NOI for the three and nine months ended September 30, 2017 and 2016 to net income, the most directly comparable GAAP financial measure (in thousands):



For the Three Months Ended

September 30,



For the Nine Months Ended

September 30,




2017



2016



2017



2016


Net income


$

54,076



$

8,825



$

60,702



$

25,712


Adjustments to reconcile net income to NOI:

















   Advisory and administrative fees



1,870




1,698




5,544




4,944


   Corporate general and administrative expenses



1,623




1,023




4,842




2,649


   Casualty-related expenses/(recoveries)

(1)


(381)




3




(351)




91


   Property general and administrative expenses

(2)


427




346




904




627


   Depreciation and amortization



11,215




8,667




35,866




26,363


   Interest expense



8,257




4,791




22,479




15,650


   Loss on extinguishment of debt and modification costs



914




888




5,717




1,722


   Gain on sales of real estate



(58,490)




(9,562)




(78,386)




(25,932)


   Acquisition costs






386







386


NOI


$

19,511



$

17,065



$

57,317



$

52,212


Less Non-Same Store

















   Revenues



(11,315)




(9,011)




(33,590)




(29,544)


   Operating expenses



5,562




4,533




16,776




14,866


Same Store NOI


$

13,758



$

12,587



$

40,503



$

37,534




(1)

Adjustment to net income to exclude certain property operating expenses that are casualty-related expenses/(recoveries).

(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.

FFO, Core FFO and AFFO 

We believe that net income, as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations, or FFO, as defined by the National Association of Real Estate Investment Trusts, or NAREIT, core funds from operations, or Core FFO, and adjusted funds from operations, or AFFO, are important non-GAAP supplemental measures of operating performance for a REIT.

Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined by NAREIT as net income 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 attributable to common stockholders 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; 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 continuing basis or are otherwise not representative of the continuing operating performance of our portfolio.

Core FFO adjusts FFO to remove items such as acquisition expenses, losses on extinguishment of debt and modification costs (includes prepayment penalties incurred and the write-off of unamortized deferred loan costs related to the early retirement of debt and costs incurred in connection with a debt modification that are expensed), 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 (as described above) related to these items. We believe Core FFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.

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 (as described above) related to these items. We believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.

The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted FFO, Core FFO and AFFO per share, as they are exchangeable for common stock on a one-for-one basis. The FFO, Core FFO and AFFO allocable to such units is allocated on this same basis and reflected in the adjustments for noncontrolling interests in the table below. As such, the assumed conversion of these units would have no net impact on the determination of diluted FFO, Core FFO and AFFO per share.

We believe that the use of FFO, Core FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. While FFO, Core FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO, Core FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO, Core FFO and AFFO may not be comparable to FFO, Core FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define Core FFO or AFFO differently than we do.

The following table reconciles our calculations of FFO, Core FFO and AFFO to net income, the most directly comparable GAAP financial measure, for the three and nine months ended September 30, 2017 and 2016 (in thousands, except per share amounts):



For the Three Months Ended

September 30,



For the Nine Months Ended

September 30,




2017



2016



2017



2016


Net income


$

54,076



$

8,825



$

60,702



$

25,712


Depreciation and amortization



11,215




8,667




35,866




26,363


Gain on sales of real estate



(58,490)




(9,562)




(78,386)




(25,932)


Adjustment for noncontrolling interests



(21)




(1,021)




(1,670)




(3,401)


FFO attributable to common stockholders



6,780




6,909




16,512




22,742



















FFO per share - basic


$

0.32



$

0.32



$

0.78



$

1.07


FFO per share - diluted


$

0.32



$

0.32



$

0.77



$

1.07



















Acquisition costs






386







386


Loss on extinguishment of debt and modification costs



914




888




5,717




1,722


Change in fair value on derivative instruments - ineffective portion



(32)




(599)




(97)




(599)


Amortization of deferred financing costs - acquisition term notes



197







323





Adjustment for noncontrolling interests



(4)




(104)




(430)




(188)


Core FFO attributable to common stockholders



7,855




7,480




22,025




24,063



















Core FFO per share - basic


$

0.37



$

0.35



$

1.05



$

1.13


Core FFO per share - diluted


$

0.37



$

0.35



$

1.03



$

1.13



















Amortization of deferred financing costs - long term debt



375




385




1,225




1,084


Equity-based compensation expense



822




296




2,414




296


Adjustment for noncontrolling interests



(3)




(38)




(72)




(93)


AFFO attributable to common stockholders



9,049




8,123




25,592




25,350



















AFFO per share - basic


$

0.43



$

0.38



$

1.22



$

1.19


AFFO per share - diluted


$

0.42



$

0.38



$

1.20



$

1.19



















Weighted average common shares outstanding - basic



21,085




21,260




21,057




21,282


Weighted average common shares outstanding - diluted



21,453




21,376




21,407




21,322



















Dividends declared per common share


$

0.220



$

0.206



$

0.660



$

0.618



















FFO Coverage - diluted


1.44x



1.57x



1.17x



1.73x


Core FFO Coverage - diluted


1.66x



1.7x



1.56x



1.83x


AFFO Coverage - diluted


1.92x



1.84x



1.81x



1.92x


The three months ended September 30, 2017 as compared to the three months ended September 30, 2016

FFO was $6.8 million for the three months ended September 30, 2017 compared to $6.9 million for the three months ended September 30, 2016, which was a decrease of approximately $0.1 million. The change in our FFO between periods primarily relates to increases in total property operating expenses of approximately $0.9 million, interest expense of approximately $3.5 million and corporate general and administrative expenses of approximately $0.6 million, and was partially offset by an increase in total revenues of approximately $4.0 million and adjustments for amounts attributable to noncontrolling interests.

Core FFO was $7.9 million for the three months ended September 30, 2017 compared to $7.5 million for the three months ended September 30, 2016, which was an increase of approximately $0.4 million. The change in our Core FFO between periods primarily relates to a decrease in gain recognized related to the ineffective portion of changes in fair value of our interest rate swap derivatives designated as cash flow hedges of approximately $0.6 million, partially offset by decreases in acquisition costs of approximately $0.4 million and FFO.

AFFO was $9.0 million for the three months ended September 30, 2017 compared to $8.1 million for the three months ended September 30, 2016, which was an increase of approximately $0.9 million. The change in our AFFO between periods primarily relates to increases in equity-based compensation expense of approximately $0.5 million and Core FFO.

The nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016

FFO was $16.5 million for the nine months ended September 30, 2017 compared to $22.7 million for the nine months ended September 30, 2016, which was a decrease of approximately $6.2 million. The change in our FFO between periods primarily relates to increases in total property operating expenses of approximately $3.4 million, interest expense of approximately $6.8 million, loss on extinguishment of debt and modification costs of approximately $4.0 million and corporate general and administrative expenses of approximately $2.2 million, and was partially offset by an increase in total revenues of approximately $9.1 million and adjustments for amounts attributable to noncontrolling interests.

Core FFO was $22.0 million for the nine months ended September 30, 2017 compared to $24.1 million for the nine months ended September 30, 2016, which was a decrease of approximately $2.1 million. The change in our Core FFO between periods primarily relates to decreases in gain recognized related to the ineffective portion of changes in fair value of our interest rate swap derivatives designated as cash flow hedges of approximately $0.5 million and FFO, partially offset by a $4.0 million increase in loss on extinguishment of debt and modification costs and adjustments for amounts attributable to noncontrolling interests.

AFFO was $25.6 million for the nine months ended September 30, 2017 compared to $25.4 million for the nine months ended September 30, 2016, which was an increase of approximately $0.2 million. The change in our AFFO between periods primarily relates to an increase in equity-based compensation expense of approximately $2.1 million, partially offset by a decrease in Core FFO.

Same Store Properties 

We review our stabilized multifamily communities on a comparable basis between periods. Our Same Store properties are defined as those that are stabilized and comparable for both the current and the prior year reporting periods.

There are 26 properties meeting this definition for the three and nine months ended September 30, 2017: Arbors on Forest Ridge, Cutter's Point, Eagle Crest, Silverbrook, Timberglen, Edgewater at Sandy Springs, Beechwood Terrace, Willow Grove, Woodbridge, Abbington Heights, Courtney Cove, The Summit at Sabal Park, Timber Creek, Belmont at Duck Creek, Radbourne Lake, Sabal Palm at Lake Buena Vista, Southpoint Reserve at Stoney Creek, Cornerstone, The Preserve at Terrell Mill, The Ashlar, Heatherstone, Versailles, Seasons 704 Apartments, Madera Point, The Pointe at the Foothills, and Venue at 8651.

Reconciliation of FY 2017 Guidance for NOI, FFO, Core FFO and AFFO

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI guidance to our net income (the most directly comparable GAAP financial measure) guidance for the year ended December 31, 2017 (in millions):



 

Mid-Point


Net income


$

56.2


Adjustments to reconcile net income to NOI:





Advisory and administrative fees



7.4


Corporate general and administrative expenses



6.3


Casualty-related expenses/(recoveries) (1)



(0.3)


Property general and administrative expenses (2)



1.2


Depreciation and amortization



48.9


Interest expense



29.5


Loss on extinguishment of debt and modification costs



5.7


Gain on sales of real estate



(78.4)


NOI


$

76.5




(1)

Adjustment to net income to exclude certain property operating expenses that are casualty-related expenses/(recoveries).

(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.

The following table reconciles our FFO, Core FFO and AFFO guidance to our net income (the most directly comparable GAAP financial measure) guidance for the year ended December 31, 2017 (in millions, except per share data):



 

Mid-Point


Net income


$

56.2


Depreciation and amortization



48.9


Gain on sales of real estate



(78.4)


Adjustment for noncontrolling interests



(1.7)


FFO attributable to common stockholders


$

25.0







FFO per share - diluted (1)


$

1.17







Loss on extinguishment of debt and modification costs


$

5.7


Change in fair value on derivative instruments - ineffective portion



(0.1)


Amortization of deferred financing costs - acquisition term notes



0.4


Adjustment for noncontrolling interests



(0.4)


Core FFO attributable to common stockholders


$

30.6







Core FFO per share - diluted (1)


$

1.43







Amortization of deferred financing costs - long term debt


$

1.6


Equity-based compensation expense



3.1


Adjustment for noncontrolling interests



(0.1)


AFFO attributable to common stockholders


$

35.2







AFFO per share - diluted (1) (2)


$

1.65







Weighted average common shares outstanding - diluted (1)



21.4




(1)

For purposes of calculating per share data, NXRT assumes a weighted average diluted share count of 21.40 million for the full year 2017.

(2)

Difference of $0.01 due to rounding.

In this release, "we," "us," "our," the "Company," "NexPoint Residential Trust" and "NXRT" each refer to NexPoint Residential Trust, Inc., a Maryland corporation.

Contact:
Marilynn Meek
Financial Relations Board
212-827-3773

 

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SOURCE NexPoint Residential Trust, Inc.