NexPoint Residential Trust, Inc. Completes the Sale of Old Farm and Will Repay the Full Outstanding Balance on the Corporate Credit Facility
- Successful sale of Old Farm in Houston, TX, for $84.7 million.
- Net proceeds of approximately $49.4 million from the sale.
- Exceptional financial performance with a 5.36% cap rate, 22.14% levered internal rate of return, and a 2.98x multiple on invested capital.
- Partial repayment of $24 million on the corporate credit facility for strategic de-leveraging and balance sheet improvement.
- None.
Insights
The sale of Old Farm by NexPoint Residential Trust represents a significant liquidity event, with the divestiture generating net proceeds of approximately $49.4 million. The property's sale at a 2.98x multiple on invested capital indicates a robust return, particularly when juxtaposed with the reported 22.14% levered internal rate of return (IRR). Such performance is indicative of a well-executed value-add strategy or favorable market conditions that allowed NXRT to capitalize on asset appreciation since its acquisition in 2016.
From a real estate investment standpoint, the transaction's trailing nominal tax and insurance adjusted capitalization rate (cap rate) of 5.36% is reflective of the current income generated by the property relative to the sale price. This cap rate must be evaluated in the context of the broader Houston market and the specific submarket dynamics to gauge competitiveness. The high occupancy rate at the time of sale (91.41%) also underscores the asset's operational strength, contributing to the favorable outcome.
The strategic paydown of the corporate credit facility, resulting in a zero drawn balance, aligns with NXRT's de-leveraging objectives. This move not only improves the company's debt profile but also enhances financial flexibility, potentially leading to a more favorable perception among investors and credit rating agencies.
The financial implications of NXRT's recent transaction are multifaceted. Firstly, the substantial liquidity infusion from the sale can be allocated to various growth-oriented initiatives. The decision to deploy a portion of the proceeds towards repaying corporate debt is prudent, as it reduces interest expense and improves the company's debt-to-equity ratio. This action can be positively received by the stock market, as it may lead to an improved risk profile and potentially lower cost of capital for NXRT.
Furthermore, the company's mention of potential share repurchases and paying off higher property-level debt suggests a proactive capital allocation strategy aimed at enhancing shareholder value. Share repurchases can be accretive to earnings per share (EPS), particularly if the management believes the stock is undervalued. Paying off higher-interest debt can reduce financial risk and improve net income margins.
It is important to note that NXRT's strategic focus on balance sheet improvement and liquidity management is crucial in an industry where market cycles can significantly impact operational performance and access to capital.
The real estate market, particularly in major cities like Houston, is a critical indicator of economic health and investor sentiment. The successful sale of Old Farm by NXRT and the subsequent financial maneuvers provide insights into broader market trends. For instance, the property's high leasing rate and effective rent suggest a healthy demand for residential units in the area, which could signal a broader trend of urban or suburban growth.
Additionally, the company's strategic de-leveraging may reflect a cautious approach in anticipation of potential market shifts or economic headwinds. By strengthening its balance sheet, NXRT is positioning itself to weather possible downturns or to take advantage of opportunistic acquisitions should they arise. This strategic foresight can be a point of interest for investors who favor companies with a proactive approach to market challenges and opportunities.
Moreover, the real estate sector's performance, particularly the residential segment, is often a leading indicator for the stock market. NXRT's actions and performance could, therefore, be a microcosm of the sector's current state, providing valuable insights for market participants tracking real estate investment trusts (REITs) and related securities.
"NXRT is pleased to announce the closing of Old Farm, which allows us to deliver a strong return on a 7-year investment, creates almost
About NXRT
NexPoint Residential Trust 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
Cautionary Statement 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 "should," "continue," "will," "seek" and similar expressions, and variations or negatives of these words. These forward-looking statements include, but are not limited to, statements regarding the Company's strategic objectives, the execution of the strategic objectives, the use of proceeds from the sale of Old Farm to pay down the Company's corporate credit facility, that NXRT is committed to unlocking liquidity which the Company can use to improve the balance sheet, repurchase shares and/or pay off higher property-level debt that will be accretive to future growth and the Company will seek to continue this approach in 2024. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements described in our filings with the Securities and Exchange Commission, particularly those described in our Annual Report on Form 10-K. 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 SEC for a more complete discussion of the risks and other factors that could affect any forward-looking statements. The statements made herein speak only as of the date of this release and except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward-looking statements.
Contact:
Kristen Thomas
Investor Relations
IR@nexpoint.com
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SOURCE NexPoint Residential Trust, Inc.
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