NexPoint Residential Trust, Inc. (NXRT) is a real estate investment trust (REIT) focused on acquiring and operating "value-add" multifamily properties primarily located in the Southeastern and Southwestern United States. The company has demonstrated strong operational performance, strategic asset sales, and a disciplined capital allocation strategy, positioning it for continued success in the dynamic multifamily market.

Financials

For the full year 2023, NXRT reported net income of $44,264,000 on total revenue of $277,526,000. The company generated annual operating cash flow of $97,767,000 and annual free cash flow of $97,767,000. These robust financial results underscore NXRT's ability to drive value for its shareholders.

In the first quarter of 2024, NXRT reported net income of $26,298,000, a significant improvement from the net loss of $3,883,000 in the same period of 2023. Total revenue for the quarter was $67,577,000, compared to $69,227,000 in the prior-year quarter. The company's strong operational performance is reflected in its first-quarter NOI of $41,089,000, which was flat compared to the same period in 2023.

Operational Excellence

NXRT's focus on value-add multifamily properties has enabled the company to drive consistent operational improvements across its portfolio. In the first quarter of 2024, the company's same-store rental income increased by 3.6%, while same-store occupancy improved to 94.7%, up from 94.4% in the prior-year period. This growth was achieved despite a modest 0.4% decrease in the weighted average monthly effective rent per occupied apartment unit.

The company's value-add program continues to be a key driver of performance, with NXRT completing 59 full and partial interior upgrades during the first quarter of 2024. These upgrades resulted in an average monthly rent premium of $240 and a 21.8% return on investment. Since the inception of the program, NXRT has completed 8,593 full and partial renovations, 4,829 kitchen and laundry appliance installations, and 11,614 technology package upgrades, generating significant rent premiums and returns on investment.

Geographic Diversification and Market Positioning

NXRT's portfolio is strategically positioned in high-growth Sunbelt markets, with a focus on large cities and suburban submarkets. As of March 31, 2024, the company's 37 multifamily properties were located primarily in the Southeastern and Southwestern United States, encompassing 13,399 units of apartment space.

The company's geographic diversification has been a key strength, as its markets have continued to benefit from strong in-migration and demographic trends. According to CoStar, one out of every two jobs in the United States is expected to be created in NXRT's target markets through 2027, underscoring the long-term growth potential of the company's portfolio.

Disciplined Capital Allocation and Strategic Dispositions

NXRT has demonstrated a disciplined approach to capital allocation, balancing growth initiatives with strategic asset sales and balance sheet optimization. In the first quarter of 2024, the company completed the sale of its Old Farm property in Houston, Texas, for $103 million, generating $49.4 million in net sales proceeds and a 22.1% levered internal rate of return (IRR).

Additionally, NXRT is scheduled to close the sale of its Radbourne Lake property in Charlotte, North Carolina, for $39.25 million later today. This transaction is expected to retire $20 million in property-level debt and generate $18.8 million in net sales proceeds, representing a 19.3% levered IRR and a 3.64x multiple on invested capital.

These strategic dispositions have strengthened NXRT's balance sheet and provided the company with additional liquidity to pursue value-enhancing initiatives, such as its recently announced $25 million share repurchase program. The company's ability to identify and execute on opportunistic asset sales underscores its deep market knowledge and disciplined approach to capital allocation.

Guidance and Outlook

NXRT is reaffirming its 2024 guidance, which includes a core FFO per diluted share range of $2.60 to $2.85, with a midpoint of $2.72. The company expects same-store rental income to increase between 1.4% and 3.2%, with a midpoint of 2.3%, and same-store NOI to range from a 2% decline to a 2% increase, with a midpoint of 0%.

The company's guidance reflects its cautious approach to the near-term market dynamics, including elevated supply levels in certain submarkets. However, NXRT remains optimistic about the long-term growth potential of its Sunbelt-focused portfolio, particularly as supply growth is expected to moderate in the coming years.

Risks and Challenges

While NXRT has demonstrated resilience in the face of market headwinds, the company is not without its risks and challenges. The multifamily sector continues to grapple with macroeconomic uncertainties, including the potential for further interest rate hikes and their impact on both consumer demand and the company's cost of capital.

Additionally, NXRT's geographic concentration in the Southeastern and Southwestern United States exposes the company to regional economic and demographic shifts. The company must remain vigilant in monitoring market conditions and adapting its strategy accordingly to mitigate these risks.

Conclusion

NexPoint Residential Trust, Inc. has established itself as a leading player in the Sunbelt multifamily market, leveraging its value-add expertise and strategic capital allocation to drive consistent operational and financial performance. The company's robust first-quarter results, disciplined approach to dispositions, and reaffirmed guidance underscore its ability to navigate the current market environment and position itself for long-term success.

With a strong balance sheet, a well-positioned portfolio, and a proven management team, NXRT is poised to continue capitalizing on the favorable demographic and economic trends in its target markets. As the company executes on its strategic initiatives, investors can look forward to NXRT's continued growth and value creation.