NEXPOINT RESIDENTIAL TRUST, INC. 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 For the Nine Months Ended
September 30, 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, $59,200 (1) $29,500 (2) 380 100%
2017
(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, December 31,
2017 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 For the Nine Months Ended
September 30, 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 For the Nine Months Ended
September 30, 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.
