NexPoint Residential Trust NYSE: NXRT reported third-quarter results below management’s expectations, citing higher property expenses, softer occupancy and rent trends, and increased interest expense. The apartment REIT lowered its full-year Core FFO and same-store net operating income outlook while outlining plans to reduce leverage through selective asset sales and potentially revisit its dividend policy.
Paul Richards, executive vice president and chief financial officer, said third-quarter Core FFO was $13.4 million, or $0.52 per diluted share, compared with $0.70 per share a year earlier and $0.07 below consensus expectations. FFO was $0.46 per share, while AFFO was $0.63 per share. Net loss totaled $11.5 million, or $0.45 per share, compared with a $7.8 million loss, or $0.31 per share, in the prior-year quarter.
Total revenue increased to $64.5 million from $62.8 million, including contributions from Sedona. However, same-store revenue across 35 properties declined 0.7%, while expenses increased 11.2%, resulting in an 8.2% decline in same-store NOI to $35.6 million. Quarter-end occupancy was 92.9%, down 70 basis points year over year, and average effective rent declined 0.7% to $1,487.
Expenses and Interest Costs Weighed on Results
Richards said expenses accounted for about $2.7 million of the company’s $3.2 million year-over-year NOI decline. A prior-year Nashville real estate tax refund created an approximately $854,000 unfavorable comparison. Excluding Nashville, real estate taxes increased less than 1%, he said.
Resident amenity services, largely related to the company’s bulk fiber internet rollout, increased by about $640,000 in the quarter. Richards said resident fees largely offset the costs, and that the broader amenity-services program generated approximately $400,000 more in revenue than expenses during the quarter.
Other costs rose as NexPoint spent more on unit turns, repairs, landscaping, marketing, office operations and utilities to support leasing activity and property presentation. Richards said some of the increased spending was intentional, as the company pulled work forward during a weak leasing environment, while other spending is being reduced.
For the first nine months of the year, same-store revenue declined 1.2%, expenses rose 3.9%, and same-store NOI fell 4.6% to $109.3 million. Excluding resident amenity services and the prior-year Nashville tax refund, Richards said year-to-date same-store expenses increased only 40 basis points.
Interest expense totaled $18.1 million in the third quarter, up from $15.8 million in the second quarter, following the scheduled expiration of lower-rate swaps. NexPoint’s adjusted weighted average interest rate was 4.75% at quarter-end, compared with 3.58% at June 30. The company projected full-year interest expense of about $71.8 million.
Richards said NexPoint had approximately $1.6 billion of total indebtedness at quarter-end. Its first mortgage maturity is not until October 2028, with remaining mortgage maturities extending to 2031 and beyond.
Guidance Reduced as Occupancy Recovery Remains a Focus
NexPoint reduced its full-year Core FFO guidance range to $2.17 to $2.27 per diluted share, with a midpoint of $2.22, from a prior midpoint of $2.45. The company also lowered its same-store NOI outlook to a decline of 5.1% to 3.6%, with a midpoint decline of 4.3%, versus its previous midpoint forecast of a 1% decline.
Richards attributed the guidance reduction principally to weaker same-store revenue, higher controllable expenses, increased interest expense and lower interest income. Vacancy was the largest revenue factor in the revised outlook, followed by bad debt and concessions.
Matt McGraner, executive vice president and chief investment officer, said the company maintained asking rents and set renewal increases during the summer, but demand did not sustain prior occupancy levels. Occupancy fell to 92.5% at the end of August before recovering to 92.9% at quarter-end after the company cut prices and added concessions.
New-lease trade-outs declined from 3.3% in July to 6% in September, while quarterly concessions rose 74% year over year to $634,000. NexPoint’s same-store portfolio was 94.6% leased at the time of the call, and management expects physical occupancy to improve through the fourth quarter.
Renewals were positive in every market, McGraner said, led by Raleigh at 4.2% and Phoenix at 3.5%, excluding the effect of Las Vegas all-in pricing. October retention improved to 57.5% from 54.9% in September after NexPoint lowered renewal increases to protect occupancy.
Management said fourth-quarter assumptions include average financial occupancy of 92.8% and concessions equal to 1.9% of gross potential rent. McGraner said the company is prioritizing occupancy during the winter to enter 2027 with stronger leasing momentum.
Raleigh Acquisition and Capital Allocation Plans
On Oct. 2, NexPoint acquired Midtown Crossing, a 228-unit community in Raleigh, North Carolina, for $32 million, or about $140,000 per unit. Including $1.9 million of planned capital expenditures, the company’s all-in cash basis is approximately $152,600 per unit.
Richards said Midtown Crossing was purchased from an REO lender book and had already received approximately $3.1 million of capital investment from the seller. NexPoint underwrote rents to increase from approximately $1,325 to $1,403 by month 36, with NOI projected to rise from $1.44 million to $2.15 million by year three.
The company expects to pair the acquisition with one or two dispositions, using proceeds first to repay the borrowings used for Midtown Crossing. NexPoint maintained disposition guidance of $0 million to $200 million, with a midpoint of $100 million.
McGraner said the company is evaluating selected assets for potential sales but does not intend to sell properties at what it considers weak pricing. He said sale proceeds beyond debt repayment could be used for stock repurchases. The board authorized up to $150 million of repurchases over the next two years on Oct. 26.
Dividend and NAV
NexPoint declared a fourth-quarter dividend of $0.53 per share, payable Dec. 31. Richards said third-quarter Core FFO nearly covered the dividend, but the company’s implied fourth-quarter Core FFO of about $0.35 per share would not. The board plans to determine by its next meeting whether to reset the dividend at a level considered appropriately covered.
The company estimated net asset value at $38.33 per share at the midpoint of its valuation range, down from $46.76 in the prior quarter. Richards said a 25-basis-point increase in the company’s capitalization-rate range accounted for $4.45 of the decline, with lower NOI expectations and balance-sheet changes accounting for the remainder.
About NexPoint Residential Trust (NYSE:NXRT)
NexPoint Residential Trust, Inc NYSE: NXRT is a publicly traded real estate investment trust focused on acquiring, owning, operating and selectively renovating multifamily apartment communities. The company generally targets value-add properties, seeking to improve their operating performance and resident appeal through renovations, property management initiatives and other capital improvements.
NexPoint Residential Trust's portfolio is concentrated primarily in the Southeastern and Southwestern United States.
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