NexPoint Residential Trust, Inc. (NXRT) is a publicly traded real estate investment trust (REIT) that primarily focuses on acquiring, owning, and operating well-located, middle-income multifamily properties with value-add potential in the Southeastern and Southwestern United States. The company has established itself as a successful player in the multifamily sector, leveraging its expertise and disciplined approach to drive consistent performance and returns for its shareholders.

History and Business Overview

NexPoint Residential Trust was incorporated in Maryland on September 19, 2014, and elected to be taxed as a real estate investment trust (REIT). The company commenced operations in 2015 after being spun off from its former parent company, NexPoint Advisors, L.P. NXRT's core strategy revolves around identifying and acquiring underperforming or undervalued multifamily properties, implementing a comprehensive value-add program, and then operating the assets to maximize cash flow and long-term appreciation.

NXRT conducts substantially all of its business through its operating partnership, NexPoint Residential Trust Operating Partnership, L.P. The company is externally managed by NexPoint Real Estate Advisors, L.P., an affiliate of NexPoint Advisors, L.P. (the Sponsor). In March 2015, NXRT entered into an advisory agreement with NexPoint Real Estate Advisors, L.P. to manage its business and affairs. Around this time, NXRT also listed its common stock on the New York Stock Exchange under the ticker symbol "NXRT".

NXRT's investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions, and achieve long-term capital appreciation for its stockholders through targeted management and a value-add program. The company has faced some challenges over the years, including the Chapter 11 bankruptcy filing by Highland Capital Management, L.P., a former affiliate of its Sponsor, in October 2019. This event, and the related litigation, exposed NXRT to negative publicity and potential conflicts of interest, though the company maintained that it did not expect the bankruptcy to have a material effect on its business. Additionally, in 2022 and 2023, NXRT navigated the COVID-19 pandemic, which impacted its operations and financial performance to some degree.

Despite these challenges, NXRT has continued to execute on its investment strategy, acquiring and operating multifamily properties in its key markets. The company has also engaged in periodic capital recycling activities, selling certain properties in order to fund new acquisitions and value-add initiatives. Through these efforts, NXRT has sought to deliver stable cash flows and long-term capital appreciation to its shareholders.

As of December 31, 2024, NXRT's portfolio consisted of 35 multifamily properties, representing 12,980 apartment units across seven states, primarily in the Southeastern and Southwestern United States. The company's target markets include major metropolitan areas and suburban submarkets that exhibit strong job growth, household formation, and housing demand fundamentals. This geographic focus has allowed NXRT to capitalize on favorable demographic and economic trends in its core regions.

Financial Performance and Capital Allocation

NXRT has demonstrated a consistent track record of financial success, with significant growth in key metrics over the years. For the full year 2024, the company reported total revenues of $259.7 million, a 6.4% decrease year-over-year, primarily due to the timing of property dispositions in 2023 and 2024. Net income was $1.1 million, a decrease from $44.3 million in 2023, largely due to a decline in gain on sales of real estate and rental income, as well as an increase in loss on extinguishment of debt and modification costs.

The company's core funds from operations (Core FFO), a crucial REIT performance metric, decreased modestly from $76.6 million in 2023 to $73.1 million in 2024, reflecting the underlying strength of NXRT's operating platform. On a per diluted share basis, Core FFO was $2.79 in 2024, compared to $2.92 in 2023.

The company's same-store properties saw a 2.0% increase in total revenue and a 0.9% improvement in net operating income (NOI) for the full year 2024 compared to 2023, despite headwinds from the broader economic environment. NXRT's disciplined capital allocation and value-add initiatives have been a key driver of its consistent performance, as evidenced by the company's 20.8% return on investment for its interior renovation program.

For the fourth quarter of 2024, NXRT reported revenue of $63.8 million, a 7.5% decrease compared to Q4 2023. Net income for the quarter was negative $26.9 million, down from $18.4 million in Q4 2023. This decrease was primarily attributed to the sale of three properties in 2024 compared to two properties sold in 2023. The company's Q4 2024 Core FFO was $17.7 million or $0.68 per diluted share, compared to $0.75 per diluted share in Q4 2023.

Balance Sheet and Liquidity

As of December 31, 2024, NXRT had a strong balance sheet, with $23.1 million in unrestricted cash and $350 million of available capacity on its unsecured corporate credit facility, providing ample liquidity to fund future growth initiatives. The company's total debt stood at $1.5 billion, with a weighted average interest rate of 6.21% (or 2.96% when accounting for the impact of interest rate swaps), and a weighted average maturity of approximately 6.8 years.

In 2024, NXRT completed a significant refinancing effort, with 34 property-level mortgage loans totaling $1.47 billion, effectively extending its debt maturity profile and reducing its weighted average interest rate. This proactive capital management strategy has positioned the company well to navigate the current high-interest-rate environment.

The company's debt-to-equity ratio stood at 3.57 as of December 31, 2024, while its current ratio and quick ratio were both 2.69. These metrics indicate a solid financial position and the ability to meet short-term obligations.

Value-Add Initiatives and Operational Excellence

A key differentiator for NXRT is its focus on value-add multifamily investments. Since inception, the company has completed full or partial interior renovations on 8,348 units, achieving an average monthly rental increase of $175 per unit and a 20.8% return on investment. These upgrades, which include improvements to kitchens, appliances, technology packages, and other amenities, have been instrumental in driving NOI growth and enhancing the resident experience.

The company's value-add strategy involves investing capital to upgrade properties' exteriors, common areas, and interiors to increase rents and property values. On average, NXRT has invested $10,120 per renovated unit, resulting in significant rental increases and attractive returns on investment.

In addition to its value-add program, NXRT's operational excellence has been a hallmark of its success. The company's strong relationships with its property manager, BH Management Services, LLC, have allowed it to achieve scale efficiencies, maintain high occupancy levels, and effectively execute its strategic initiatives. For the full year 2024, NXRT's same-store properties achieved an average occupancy of 94.7%, demonstrating the company's ability to effectively manage its assets and retain its resident base.

2025 Guidance and Outlook

For the full year 2025, NXRT has provided the following guidance:

• Core FFO per diluted share between $2.56 and $2.83, with a midpoint of $2.70

• Same-store revenue growth between a 0.2% decrease and a 1.3% increase, with a midpoint of a 0.5% increase
• Same-store expense growth between 2.4% and 4.9%, with a midpoint of 3.7%
• Same-store NOI growth between a 3.5% decrease and a 0.5% increase, with a midpoint of a 1.5% decrease

The company's outlook reflects its continued focus on operational efficiency, capital recycling, and strategic value-add investments to drive long-term growth and shareholder value. NXRT's experienced management team and disciplined approach to portfolio management position the company well to navigate the current market environment and capitalize on emerging opportunities.

As part of its value-add strategy for 2025, NXRT plans to complete 425 full interior unit upgrades at an average cost of $18,000 per unit, generating a $269 average monthly rent premium. Additionally, the company intends to complete 336 partial interior unit upgrades at an average cost of $5,200 per unit, resulting in an $86 average monthly rent premium. NXRT also expects to install 661 washer and dryers at an average cost of $1,000 per unit, generating a $53 average monthly premium.

Conclusion

NexPoint Residential Trust, Inc. has established itself as a leading player in the multifamily REIT space, leveraging its expertise, disciplined investment strategy, and operational excellence to deliver consistent results for its shareholders. With a strong balance sheet, a well-positioned portfolio, and a proven track record of value creation, NXRT is poised to continue its growth trajectory and capitalize on the favorable dynamics within the Southeastern and Southwestern U.S. multifamily markets.

Despite facing challenges such as property dispositions and increased debt-related expenses in 2024, the company remains focused on its core strategy of acquiring and upgrading multifamily properties to drive long-term value. With a clear plan for continued value-add initiatives in 2025 and beyond, NXRT is well-positioned to navigate the evolving real estate landscape and deliver sustainable returns for its investors.