News Details

DALLAS, July 31, 2018 /PRNewswire/ -- NexPoint Residential Trust, Inc. (NYSE:NXRT) reported financial results for the second quarter ended June 30, 2018.

Highlights

• NXRT reported Net Loss, FFO¹, Core FFO¹ and AFFO¹ of $(1.7)M, $9.3M, $8.7M and $10.2M, respectively, attributable to common stockholders for the quarter ended June 30, 2018.
• For the three months ended June 30, 2018, Q2 Same Store properties² average effective rent, occupancy, total revenue and NOI¹ increased 3.6%, 1.6%, 4.7% and 11.0%, respectively, over the prior year period.
• Q2 Same Store expenses decreased 2.2% in the second quarter due to implementation of the Freddie Mac Green-Up Program and lower property taxes through aggressive challenges of assessed values.
• The weighted average effective monthly rent per unit across all 32 properties held as of June 30, 2018 (the "Portfolio"), consisting of 11,471 units, was $967, while physical occupancy was 94.2%.
• NXRT paid a second quarter dividend of $0.25 per share of common stock on June 29, 2018.
• During the second quarter, for the properties in our Portfolio, NXRT completed 379 full and partial upgrades and leased 215 upgraded units, achieving $94 average monthly rent premiums and a 24.6% ROI³. Since inception, for the properties in our Portfolio, we have completed 4,906 full and partial upgrades and achieved a $92 average monthly rental increase per unit, equating to a 21.4% ROI on all units leased as of June 30, 2018.
• During the second quarter of 2018, NXRT repurchased 178,988 shares of its common stock at a total cost of approximately $4,615,000, or $25.78 per share. As of June 30, 2018, NXRT had repurchased a total of 737,458 shares of its common stock at a total cost of approximately $16,694,000, or $22.64 per share.

1. FFO, Core FFO, AFFO and NOI are non-GAAP measures. For reconciliations of FFO, Core FFO, AFFO and NOI to net income (loss), and a discussion of why we consider these non-GAAP measures useful, see the "Definitions and Reconciliations" section of this release.
2. We define "Same Store" properties as properties that were in our portfolio for the entirety of the periods being compared. There are 30 properties encompassing 10,383 units of apartment space in our Same Store pool for the three months ended June 30, 2018 (our "Q2 Same Store" properties).
3. We define Return on Investment ("ROI") as the sum of the actual rent premium divided by the sum of the total cost.

"Fundamental strength and further execution of our business plans led to another strong quarter of results for NXRT. We are pleased with the results of our efforts to deliver value for our residents and our shareholders, and we believe the future outlook for quality Class B/workforce housing in our high-growth markets remains bright." – James D. Dondero, Chairman and President

Second Quarter 2018 Financial Results

• Total revenues were $35.7 million for the second quarter of 2018, compared to $35.2 million for the second quarter of 2017.
• Net loss for the second quarter of 2018 totaled $(1.7) million, or a loss of $(0.08) per diluted share, which included $11.0 million of depreciation and amortization expense. This compared to net income of $7.4 million, or $0.34 per diluted share, for the second quarter of 2017, which included $19.9 million of gain on sales of real estate and $12.2 million of depreciation and amortization expense.
• The change in our net income (loss) between the periods primarily relates to a decrease in gain on sales of real estate, and was partially offset by decreases in property operating expenses, depreciation and amortization, and loss on extinguishment of debt and modification costs.
• For the second quarter of 2018, NOI was $19.8 million on 32 properties, compared to $18.1 million for the second quarter of 2017 on 37 properties.
• For the second quarter of 2018, Q2 Same Store NOI increased 11.0% to $17.5 million, compared to $15.7 million for the second quarter of 2017.
• For the second quarter of 2018, FFO totaled $9.3 million, or $0.44 per diluted share, compared to $1.7 million, or $0.08 per diluted share, for the second quarter of 2017.
• For the second quarter of 2018, Core FFO totaled $8.7 million, or $0.41 per diluted share, compared to $6.1 million, or $0.28 per diluted share, for the second quarter of 2017.
• For the second quarter of 2018, AFFO totaled $10.2 million, or $0.48 per diluted share, compared to $7.4 million, or $0.35 per diluted share, for the second quarter of 2017.

Q2 Same Store Results of Operations for the Three Months Ended June 30, 2018 and 2017

As of June 30, 2018, our 30 properties encompassing 10,383 units of apartment space in our Q2 Same Store pool were approximately 94.2% leased with a weighted average monthly effective rent per occupied apartment unit of $944, a year over year increase of 160 bps and $32, respectively.

The following table reflects the revenues, property operating expenses and NOI for the three months ended June 30, 2018 and 2017 for our Q2 Same Store and Non-Same Store properties (dollars in thousands):

YTD Same Store Results of Operations for the Six Months Ended June 30, 2018 and 2017

There are 29 properties encompassing 10,123 units of apartment space in our Same Store pool for the six months ended June 30, 2018 (our "YTD Same Store" properties). As of June 30, 2018, our YTD Same Store properties were approximately 94.2% leased with a weighted average monthly effective rent per occupied apartment unit of $944, a year over year increase of 157 bps and $34, respectively.

The following table reflects the revenues, property operating expenses and NOI for the six months ended June 30, 2018 and 2017 for our YTD Same Store and Non-Same Store properties (dollars in thousands):

Value-Add Programs

For the properties in our Portfolio as of June 30, 2018, we completed full and partial renovations on 379 units in the second quarter of 2018 at an average cost of $4,547 per renovated unit. Since inception, for the properties in our Portfolio, we have completed full and partial renovations on 4,906 units at an average cost of $5,015 per renovated unit that has been leased as of June 30, 2018. We have achieved average rent growth of 10.8%, or a $92 average monthly rental increase per unit, on all units renovated and leased as of June 30, 2018, resulting in a 21.4% ROI.

The following table sets forth a summary of our capital expenditures related to our value-add program for the three and six months ended June 30, 2018 and 2017 (in thousands):

Third Quarter 2018 Dividend

On July 30, 2018, NXRT's board of directors declared a quarterly dividend of $0.25 per share of common stock. The dividend will be paid on September 28, 2018 to stockholders of record on September 14, 2018.

Share Repurchase Program

As noted above, during the second quarter, NXRT repurchased 178,988 shares of its common stock at a total cost of approximately $4,615,000, or $25.78 per share. As of June 30, 2018, NXRT had repurchased a total of 737,458 shares of its common stock at a total cost of approximately $16,694,000, or $22.64 per share. As of June 30, 2018, NXRT had 20,747,367 shares of its common stock issued and outstanding.

2018 Full Year Guidance Summary

NXRT has revised full year 2018 guidance ranges¹ for Earnings per diluted share, Same Store Total Expenses, and Same Store NOI²; raised the low-end and tightened its 2018 guidance for Core FFO per diluted share² and reaffirmed 2018 guidance ranges for Same Store Rental Income and Same Store Total Revenue as follows:

Additional information on second quarter 2018 results and 2018 financial and earnings guidance is included in supplemental data that can be found in the Investor Relations section of the Company's website at www.nexpointliving.com.

Supplemental Information

Supplemental information to this press release can be found in the Investor Relations section of the Company's website at www.nexpointliving.com.

Second Quarter Earnings Conference Call

NXRT will host a call on Tuesday, July 31, 2018 at 11:00 a.m. ET to discuss its second quarter financial results. The conference call can be accessed live over the phone by dialing (334) 323-0522 or, for international callers, (877) 260-1479, and using passcode Conference ID: 7830851. 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, August 7, 2018, by dialing (888) 203-1112 or, for international callers, (719) 457-0820 and entering passcode 7830851.

About NXRT

NexPoint Residential Trust 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., 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," "estimate," "may," "should," "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 2018 or expected dispositions or acquisitions. They are not guarantees of future results and are subject to risks, uncertainties and assumptions 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.

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

Definitions and Reconciliations

This press release includes analysis of funds from operations ("FFO"), core funds from operations ("Core FFO"), adjusted funds from operations ("AFFO"), and net operating income ("NOI"), 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 FFO, Core FFO, AFFO, and NOI, 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 Q2 and YTD Same Store properties, which are defined as those that are stabilized and comparable for both the current and the prior reporting periods. Same Store analysis for Q2 includes 30 properties totaling 10,383 units, or approximately 91% of our Portfolio; while YTD includes 29 properties totaling 10,123 units, or approximately 88% of our Portfolio.

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 our Q2 and YTD Same Store NOI for the three and six months ended June 30, 2018 and 2017 to net income (loss), the most directly comparable GAAP financial measure (in thousands):

FFO, Core FFO and AFFO

We believe that net income, as defined by GAAP, is the most appropriate earnings measure. We also believe that FFO, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), Core FFO, and 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 regular 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 financing costs and fair market value adjustments of assumed debt related to the early retirement of debt and costs incurred in connection with a debt modification that are expensed), casualty-related expenses and recoveries, 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 in order to arrive at a more refined measure of the operating performance of our portfolio. 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 (loss), the most directly comparable GAAP financial measure, for the three and six months ended June 30, 2018 and 2017 (in thousands, except per share amounts):

The three months ended June 30, 2018 as compared to the three months ended June 30, 2017

FFO was $9.3 million for the three months ended June 30, 2018 compared to $1.7 million for the three months ended June 30, 2017, which was an increase of approximately $7.6 million. The change in our FFO between periods primarily relates to decreases in total property operating expenses of approximately $1.9 million and loss on extinguishment of debt and modification costs of approximately $4.7 million, an increase in total revenues of approximately $0.4 million and adjustments for amounts attributable to noncontrolling interests.

Core FFO was $8.7 million for the three months ended June 30, 2018 compared to $6.1 million for the three months ended June 30, 2017, which was an increase of approximately $2.6 million. The change in our Core FFO between periods primarily relates to an increase in FFO, partially offset by a $4.7 million decrease in loss on extinguishment of debt and modification costs, a $0.7 million increase in casualty-related recoveries and adjustments for amounts attributable to noncontrolling interests.

AFFO was $10.2 million for the three months ended June 30, 2018 compared to $7.4 million for the three months ended June 30, 2017, which was an increase of approximately $2.8 million. The change in our AFFO between periods primarily relates to increases in Core FFO and equity-based compensation expense of $0.1 million.

The six months ended June 30, 2018 as compared to the six months ended June 30, 2017

FFO was $17.0 million for the six months ended June 30, 2018 compared to $9.7 million for the six months ended June 30, 2017, which was an increase of approximately $7.3 million. The change in our FFO between periods primarily relates to decreases in total property operating expenses of approximately $3.1 million and loss on extinguishment of debt and modification costs of approximately $4.2 million, and was partially offset by a decrease in total revenues of approximately $1.5 million and adjustments for amounts attributable to noncontrolling interests.

Core FFO was $17.0 million for the six months ended June 30, 2018 compared to $14.2 million for the six months ended June 30, 2017, which was an increase of approximately $2.8 million. The change in our Core FFO between periods primarily relates to an increase in FFO, partially offset by a $4.2 million decrease in loss on extinguishment of debt and modification costs, a $0.7 million increase in casualty-related recoveries and adjustments for amounts attributable to noncontrolling interests.

AFFO was $19.8 million for the six months ended June 30, 2018 compared to $16.6 million for the six months ended June 30, 2017, which was an increase of approximately $3.2 million. The change in our AFFO between periods primarily relates to increases in Core FFO and equity-based compensation expense of $0.4 million.

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 period and the same period for the prior reporting year.

For our Q2 Same Store properties, there are 30 properties meeting this definition: Arbors on Forest Ridge, Cutter's Point, Eagle Crest, Silverbrook, 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, Venue at 8651, Parc500, The Colonnade, Old Farm, Stone Creek at Old Farm and Hollister Place.

For our YTD Same Store properties, there are 29 properties meeting this definition: Arbors on Forest Ridge, Cutter's Point, Eagle Crest, Silverbrook, 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, Venue at 8651, Parc500, The Colonnade, Old Farm and Stone Creek at Old Farm.

Reconciliation of FY 2018 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, 2018 (in thousands):