Earnings call: NexPoint Residential Trust reports Q3 2023 results, increases dividend and plans asset sales

NexPoint Residential Trust (NYSE:) reported a net income of $33.7 million for Q3 2023, marking a significant turnaround from a net loss of $600,000 in the same period last year. The company also announced a 10.1% increase in the dividend for the next quarter and plans to sell several assets.

Key takeaways from the call:

• Total revenue for Q3 2023 increased by 2.5% to $69.8 million.
• Same-store rent increased by 3.1% while occupancy dropped slightly to 93.9%.
• The company completed 420 renovations and leased 330 renovated units during the quarter, achieving an average monthly rent premium of $215.
• NXRT paid a third-quarter dividend of $0.42 per share and approved a 10.1% increase to the dividend for the next quarter.
• The company plans to sell two assets, Silverbrook and Timber Creek, which will generate net proceeds of $19.5 million and $23.8 million, respectively. Another asset, Old Farm in Houston, will also be sold for $103 million. The proceeds will be used to reduce the drawn balance on the credit facility.
• NXRT’s mortgage debt reduced by 1.8% and corporate debt reduced by 45% year-to-date. The company’s interest rate swaps and caps reduced interest costs by approximately $13.5 million in the third quarter.
• The company revised its full-year 2023 guidance for core FFO per diluted share to be between $2.81 and $2.95, and same-store NOI to be between 7.8% and 9.5%.

During the earnings call, it was reported that the company achieved a strong third quarter same-store NOI growth of 9.5% and an NOI margin of 61.4%. However, new leases turned negative by $60 per unit or 4.6% on a lease-over-lease basis due to new supply, skips, evictions, and fraud. The company expects pricing power to return to Class B assets in the future.

The decision to raise the dividend by 10% aligns with the company’s strategy of generating high single-digit same-store NOI growth, earnings growth, and dividend growth. The Atlanta and Las Vegas markets have seen improvements in skips and evictions, and the company expects the trend to continue. Unit turnover has been consistent, with a focus on renewals and closing the back door on skips and evictions.

The sale of the Old Farm and Timber Creek assets for $103 million is expected to generate $47 million in net proceeds. The sale will help retire the remaining balance on the credit facility and reduce the company’s debt, positioning them as fully hedged going into 2024. The management team expressed appreciation for everyone’s time and mentioned their presence at the upcoming NAREIT event.

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