2024
ANNUAL
REPORT
RESIDENTIAL TRUST
nxrt.nexpoint.com
NexPoint Residential Trust, Inc. (“NXRT”) is
an externally advised, publicly traded real
estate investment trust 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 Southwestern United States.
NEXPOINT RESIDENTIAL TRUST (NYSE: NXRT)
NXRT.NEXPOINT.COM | IR@NEXPOINT.COM | 300 CRESCENT CT. STE. 700 DALLAS, TX 75201
April , 2025
TO MY FELLOW STOCKHOLDERS,
NexPoint Residential Trust, Inc. (NYSE: NXRT) (“NXRT” or the “Company”) demonstrated
resilience in navigating shifting market conditions, showcasing adaptability in a fluctuating
real estate landscape. The Company maintained its commitment to enhancing property
values through the successful execution of strategic renovations and upgrades, which
positions the portfolio well for long-term value creation. Management’s expertise in
identifying and executing these improvements is a key driver of NXRT’s growth and success
to date. NXRT’s central focus on high quality suburban Sunbelt locations, targeting
underutilized assets that we expect to see increased demand and higher rental incomes
over time, continues to serve the Company well. An outsized bias toward Sunbelt assets,
where migration, population and employment growth are expected to persist near-term is
expected to support further growth in operating performance, stockholder value and
capital demand for our portfolio.
NXRT continues to dedicate resources toward sustainability and community development.
Since inception, NXRT has spent approximately $5.2 million on environmentally
responsible green initiatives across all properties. From inception of the program through
December 31, 2024, those properties reported reduced utility costs of approximately
$17.0 million, saving approximately 2.0 billion gallons of water and approximately 50.0
million kWh since inception, while also generating an average annual ROI of 3.2%. We
expect these environmentally friendly improvements will continue to reduce operating
expenses, benefitting residents and investors alike, thereby enhancing property value,
asset quality, and extending the runway for further organic revenue growth.
By integrating eco-friendly practices, tech-enabled centralization initiatives and fostering
community engagement, NXRT is not only contributing to the well-being of its tenants but
also enhancing the appeal of its properties, which leads to higher occupancy rates,
improved operating margins and elevated tenant satisfaction.
Looking ahead, NXRT's initiatives to strengthen the portfolio and engage in responsible
growth practices lay a solid foundation for enhancing stockholder value. We believe our
strategic investments, focus on high-potential Sunbelt markets, and commitment to
sustainability and community well-being highlight a promising trajectory for the future.
Note: See “Cautionary Statement Regarding Forward-Looking Statements” in our Form 10-K for the year
ended December 31, 2024, accompanying this letter.
Ϯ
Performance Highlights – As of Close of Trading March 31, 2025
314.2% Cumulative Total Return Since Inception
For the full year 2024, NXRT reported Net Income, FFO, Core FFO and AFFO of $1.1M,
$44.5M, $73.1M and $883.6M, respectively, attributable to common stockholders.1 For
the full year 2023, NXRT reported Net Income, FFO, Core FFO and AFFO of $44.3M,
$71.4M, $73.5M and $84.4M, respectively, attributable to common stockholders.1
Since inception, we have continued to generate superior Same Store NOI growth relative
to our multifamily peers.3 During 2024, our 2023-2024 Same Store properties average
effective rent decreased 1.6% and total revenue and NOI increased 2.0% and 0.9%,
respectively, over the prior year period.1.
Our value-add program has also continued to add to our outsized performance. We
completed full and partial renovations on 195 units across our portfolio in 2024, improving
current resident quality of life, attracting new residents, and achieving meaningful returns
for our stockholders. During the past year, we leased 182 completed renovations and
achieved an average monthly rent increase of $197 resulting in a total return on investment
of 18.2%. Looking forward to 2025, we are expecting to complete 425 full interior
upgrades and 326 partial interior upgrades which we expect to produce estimated ROIs of
approximately 17.8% and 19.9%, respectively, on those value-added initiatives.
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In 2024, we installed 193 new kitchen and laundry appliances, which produced an ROI of
approximately 61.3%. Looking forward to 2025, we are budgeting to install 661
washer/dryer sets and expect to produce an estimated ROI of approximately 64.0%.
We believe NXRT's focus on acquiring properties with a value-add component should
continue to produce attractive returns and outsized Core FFO and NOI growth, which we
believe will deliver long-term capital appreciation to stockholders. Additionally, the
Company declared dividends totaling $49.8 million, or $1.90 per share, in 2024. Driven
by excellent cash flow generation, our board of directors increased the quarterly dividend
by 10.3% during the fourth quarter of 2024. This increase in our quarterly dividend by
$0.30 per share represents an 147.6% increase since inception.
Superior Capital Allocation & Balance Sheet Management
During 2024, the Company successfully completed the sale of Old Farm, Radbourne Lake
and Stone Creek at Old Farm for a sale price of $166.8 million. All dispositions well
exceeded underwritten expectations.
The Company will continue to evaluate strategic capital allocation, recycling and
deleveraging initiatives that we expect to help position us to take advantage of future
opportunities and serve the best interests of investors.
Outlook/Strategic Advantages
Looking forward to 2025, we are focusing on resident satisfaction, occupancy optimization,
tech-enabled centralization, and efficient operation to drive performance. We continue to
favor our portfolio focused on Sunbelt markets, given the growth potential we see,
attributable to strong job and population growth, favorable climate, relative affordability,
and lower cost of living. While we acknowledge the near-term impact that peaking new
apartment deliveries have on market fundamentals this year, we maintain our view that
the U.S. is structurally underhoused, particularly at the middle market price point, and we
see reason to maintain our conviction around the long-term growth and success of high-
quality well-located workforce housing assets. We expect to return to a better-balanced
supply/demand environment in 2026/2027, which should serve us well as we continue
working to maximize portfolio performance and returns. We maintain a core focus on
delivering internal growth and outsized performance to investors while making prudent
capital allocation decisions to drive value creation for our stockholders. We have long
focused on Class B assets that have been upgraded and will continue to attract tenants,
ϰ
through any market condition. We believe we will continue to be well-positioned – from
both geographic and capital allocation perspectives – as we enter 2025.
Thank you for your continued support of our team and belief in our Company,
James D. Dondero, President
1 For information regarding our non-GAAP measures and reconciliations, see Non-GAAP Measurements
included in our Form 10-K for the year ended December 31, 2024, accompanying this letter.
2 NXRT’s peer group includes the following NYSE-listed multifamily REITs: CPT, EQR, ESS, IRT, MAA.
Note: The names of the directors and executive officers and brief bios are contained under the headings
“Proposal 1 – Election of Directors” and “Executive Officers” in the proxy statement on pages 4 and 28,
respectively, which are included with this Annual Report to Stockholders.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
ց
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
տ
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission File Number 001-36663
NexPoint Residential Trust, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Maryland
47-1881359
(State or other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
300 Crescent Court, Suite 700, Dallas, Texas
75201
(Address of Principal Executive Offices)
(Zip Code)
(214) 276-6300
(Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
NXRT
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ց No տ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes տ No ց
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ց No տ
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ց No տ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large Accelerated Filer
ց
Accelerated Filer
տ
Non-Accelerated Filer
տ
Smaller reporting company
տ
Emerging growth company
տ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. տ
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ց
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previously issued financial statements. տ
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). տ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes տ No ց
The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant, based upon the closing price of such shares on
June 28, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $951,000,000.
As of February 26, 2025, the registrant had 25,466,105 shares of its common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrant’s 2025 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
Auditor Firm Id:
185
Auditor Name:
KPMG, LLP
Auditor Location:
Dallas, Texas, United States
This page intentionally left blank
i
NEXPOINT RESIDENTIAL TRUST, INC.
Form 10-K
Year Ended December 31, 2024
INDEX
Page
Cautionary Statement Regarding Forward-Looking Statements ........................................................................................
ii
PART I
Item 1.
Business .......................................................................................................................................................
5
Item 1A. Risk Factors .................................................................................................................................................
17
Item 1B. Unresolved Staff Comments ........................................................................................................................
43
Item 1C. Cybersecurity ...............................................................................................................................................
42
Item 2.
Properties .....................................................................................................................................................
45
Item 3.
Legal Proceedings ........................................................................................................................................
45
Item 4.
Mine Safety Disclosures ..............................................................................................................................
46
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ....................................................................................................................................................
47
Item 6.
[Reserved] ...................................................................................................................................................
48
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................
49
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .....................................................................
72
Item 8.
Financial Statements and Supplementary Data ............................................................................................
72
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................
72
Item 9A. Controls and Procedures ..............................................................................................................................
73
Item 9B. Other Information ........................................................................................................................................
73
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ...........................................................................
74
Item 11.
Executive Compensation .............................................................................................................................
74
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ....
74
Item 13.
Certain Relationships and Related Transactions, and Director Independence .............................................
74
Item 14.
Principal Accountant Fees and Services ......................................................................................................
74
PART IV
Item 15.
Exhibits and Financial Statement Schedules ................................................................................................
75
Index to Consolidated Financial Statements ................................................................................................
F-1
ii
Cautionary Statement Regarding Forward-Looking Statements
This annual report (the "Annual Report") contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital
resources, the performance of our properties and results of operations contain forward-looking statements. Furthermore, all of the
statements regarding future financial performance (including market conditions and demographics) are forward-looking statements.
We caution investors that any forward-looking statements presented in this Annual Report are based on management’s current beliefs
and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,”
“expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result” and similar expressions that
do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking
statements by discussions of strategy, plans or intentions.
Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown
risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.
We caution you therefore against relying on any of these forward-looking statements.
Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ
materially from those expressed or implied by forward-looking statements include, among others, the following:
•
unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where
our properties are located;
•
macroeconomic trends including inflation and high interest rates may adversely affect our financial condition and results
of operations;
•
risks associated with the ownership of real estate;
•
limited ability to dispose of assets because of the relative illiquidity of real estate investments;
•
our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United
States, which makes us more susceptible to adverse developments in those markets;
•
increased risks associated with our strategy of acquiring value enhancement multifamily properties rather than more
conservative investment strategies;
•
failure to succeed in new markets may have adverse consequences on our performance;
•
potential reforms to the Federal Home Loan Mortgage Corporation (“Freddie Mac”);
•
competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our
profitability and impede our growth;
•
competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase
or maintain rents;
•
the relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them,
and as a result, cause a decline in our occupancy rates;
•
the risk that we may fail to consummate future property acquisitions;
•
failure of acquisitions to yield anticipated results;
•
risks associated with increases in interest rates and our ability to issue additional debt or equity securities in the future;
•
risks associated with selling apartment communities, which could limit our operational and financial flexibility;
•
contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire;
•
lack of or insufficient amounts of insurance;
•
the risk that our environmental assessments may not identify all potential environmental liabilities and our remediation
actions may be insufficient;
•
high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based
paint, chemical vapor, subsurface contamination and mold growth;
iii
•
high costs associated with the compliance with various accessibility, environmental, building and health and safety laws
and regulations, such as the Americans with Disabilities Act of 1990 and the Fair Housing Act;
•
risks associated with limited warranties we may obtain when purchasing properties;
•
exposure to decreases in market rents due to our short-term leases;
•
risks associated with operating through joint ventures and funds;
•
our dependence on information systems;
•
risks associated with breaches of our data security;
•
costs associated with being a public company, including compliance with securities laws;
•
the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or
internal control over financial reporting;
•
risks associated with our substantial current indebtedness and indebtedness we may incur in the future;
•
risks associated with derivatives or hedging activity;
•
risks associated with representations and warranties made by us in connection with sales of our properties may subject us
to liability that could result in losses and could harm our operating results and, therefore, distributions we make to our
stockholders;
•
loss of key personnel of NexPoint Advisors, L.P. (our “Sponsor”), NexPoint Real Estate Advisors, L.P. (“our Adviser”)
and our property manager;
•
the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our
Adviser, members of our Adviser’s management team or by our Sponsor or its affiliates;
•
risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);
•
our ability to change our major policies, operations and targeted investments without stockholder consent;
•
the substantial fees and expenses we pay to our Adviser and its affiliates;
•
risks associated with any potential internalization of our management functions;
•
conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;
•
the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and residents;
•
failure to maintain our status as a REIT;
•
failure of our operating partnership to be taxable as a partnership for U.S. federal income tax purposes, possibly causing us
to fail to qualify for or to maintain REIT status;
•
compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo
otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;
•
risks associated with our ownership of interests in taxable REIT subsidiaries ("TRSs");
•
the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges
in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”);
•
the risk that the Internal Revenue Service (the “IRS”) may consider certain sales of properties to be prohibited transactions,
resulting in a 100% penalty tax on any taxable gain;
•
the risk that we may be subject to other tax liabilities that may reduce our cash flows and distributions on our shares;
•
the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;
•
risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our
charter;
•
the ability of our board of directors to revoke our REIT qualification without stockholder approval;
•
recent and potential legislative or regulatory tax changes or other actions affecting REITs;
•
foreign investors may be subject to U.S. federal income tax or withholding tax on distributions received from us or on
proceeds and the disposition of our current common stock;
•
risks associated with the market for our common stock and the general volatility of the capital and credit markets;
iv
•
failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels;
•
risks associated with limitations of liability for and our indemnification of our directors and officers;
•
the risk that legal proceedings we become involved in from time to time could adversely affect our business;
•
the risk that acts of violence could decrease the value of our assets and have an adverse effect on our business and results
of operations;
•
risks associated with the Highland Capital Management, L.P. bankruptcy, including related litigation and potential conflicts
of interest; and
•
any other risks included under the heading “Risk Factors” in this Annual Report.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are
based on estimates and assumptions only as of the date of this Annual Report. We undertake no obligation to update or revise any
forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events
or other changes, except as required by law.
5
PART I
ITEM 1. BUSINESS
General
NexPoint Residential Trust, Inc. (the “Company,” “we,” “our”) was incorporated in Maryland on September 19, 2014, and
has elected to be taxed as a REIT. The Company is focused on “value-add” multifamily investments primarily located in the
Southeastern and Southwestern United States. Substantially all of the Company’s business is conducted through NexPoint
Residential Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. The Company owns its properties
(the “Portfolio”) through the OP and its wholly owned TRS. The OP owns approximately 99.9% of the Portfolio; the TRS owns
approximately 0.1% of the Portfolio. The Company’s wholly owned subsidiary, NexPoint Residential Trust Operating Partnership
GP, LLC (the “OP GP”), is the sole general partner of the OP. As of December 31, 2024, there were 26,053,988 common units in
the OP (“OP Units”) outstanding, of which 25,951,154, or 99.6%, were owned by the Company and 102,834, or 0.4%, were owned
by noncontrolling limited partners (see Note 9 to our consolidated financial statements).
The Company is externally managed by the Adviser, through an agreement dated March 16, 2015, as amended, and renewed
on February 24, 2025 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the Adviser. The
Adviser conducts substantially all of the Company’s operations and provides asset management services for its real estate
investments. The Company expects it will only have accounting employees while the Advisory Agreement is in effect. All of the
Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and
the Company’s board of directors (the “Board”). The Adviser is wholly owned by the Sponsor.
The Company’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. Consistent with the Company’s policy to acquire assets for both income and
capital gain, the Company intends to hold at least majority interests in its properties for long-term appreciation and to engage in the
business of directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component
in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States consistent with
its investment objectives. Economic and market conditions may influence the Company to hold properties for different periods of
time. From time to time, the Company may sell a property if, among other deciding factors, the sale would be in the best interest of
its stockholders.
The Company may allocate up to 30% of the Portfolio to investments in real estate-related debt and securities with the
potential for high current income or total returns. These allocations may include first and second mortgages and subordinated, bridge,
mezzanine, construction and other loans, as well as debt securities related to or secured by multifamily real estate and common and
preferred equity securities, which may include securities of other REITs or real estate companies.
As of December 31, 2024, the Company, through the OP and the wholly owned TRS, owned 35 properties representing
12,984 units in seven states, as further described under Item 2, “Properties” and Notes 3 and 4 to our consolidated financial
statements.
2024 Highlights
Key highlights and transactions completed in 2024 include the following:
•
Refinancing: We completed a 34 property refinance on property mortgage debt of approximately $1,429.0 million,
increasing the outstanding mortgage debt to approximately $1,469.4 million. We completed the refinancings with a 1.09%
spread on 30-Day Average Secured Overnight Financing Rate ("SOFR") and maturity dates ranging from October 1, 2031
to December 1, 2031.
•
Dispositions: We sold three properties totaling 1,149 units in 2024. Details of the dispositions are in the table below (in
thousands):
Property Name
Location
Date of Sale
Sales Price
Outstanding
Principal (1)
Net Cash
Proceeds (2)
Gain on Sale
of Real Estate
Old Farm
Houston, Texas
March 1, 2024 $ 103,000 $
52,886 $
102,704 $
31,548
Radbourne Lake
Charlotte, North Carolina April 30, 2024
39,250
20,000
38,904
18,847
Stone Creek at Old Farm Houston, Texas
October 1, 2024
24,500
15,274
24,095
3,851
$ 166,750 $
88,160 $
165,703 $
54,246
6
(1) Represents the outstanding principal balance when the loan was repaid at the time the property sold.
(2) Represents sales price, net of closing costs.
•
Renovations: For the properties in our Portfolio as of December 31, 2024, we completed full and partial renovations on
388 units at an average cost of $12,268 per renovated unit. Since inception, for the properties in our Portfolio as of December
31, 2024, we have completed full and partial renovations on 8,348 units at an average cost of $10,123 per renovated unit
that has been leased as of December 31, 2024. We have achieved average rent growth of 15.0%, or a $175 average monthly
rental increase per unit, on all units renovated and leased as of December 31, 2024, resulting in a return on investment on
capital expended for interior renovations of 20.8%.
•
Dividends: We declared dividends totaling $49.8 million, or $1.90 per share for the year ended December 31, 2024. During
the fourth quarter of 2024, we increased our quarterly dividend for the seventh time since the Spin-Off (as defined below)
to $0.51 per share, which was an increase of $0.04758 per share, or a 10.3% increase, over our previous quarterly dividends
declared in 2024. The increase in our quarterly dividend to $0.51 per share is an increase of $0.30 per share, or a 147.6%
increase, over our quarterly dividends declared from the Spin-Off. Our fourth quarter dividend equates to a 4.9% annualized
yield based on our closing share price of $41.75 on December 31, 2024.
•
Share Repurchases: We repurchased and subsequently retired 438,678 of our shares for a weighted average price of $33.19
per share.
•
Results of Operations and Non-GAAP Measures: We reported the following net income, net operating income (“NOI”),
funds from operations (“FFO”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”)
for the year ended December 31, 2024 as compared to the year ended December 31, 2023 (dollars in thousands):
For the Year Ended December 31,
2024
2023
$ Change
% Change
Net income
$
1,114
$
44,433 $
(43,319 ) (1)
-97.5 %
NOI
(2)
157,035 (3)
167,404
(10,369 )
-6.2 %
FFO attributable to common stockholders
(2)
44,454
71,420
(26,966 )
-37.8 %
Core FFO attributable to common stockholders
(2)
73,130
76,630
(3,500 )
-4.6 %
AFFO attributable to common stockholders
(2)
83,631
85,882
(2,251 )
-2.6 %
(1) The change in our net income between the periods primarily relates to decreases in gain on sales of real estate and rental
income of $13.7 million and $18.2 million, respectively, in addition to an increase in loss on extinguishment of debt and
modification costs of $21.6 million.
(2) See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” for a discussion
regarding the non-GAAP measures of NOI, FFO, Core FFO and AFFO provided above, including reconciliations to net
income in accordance with U.S. generally accepted accounting principles (“GAAP”).
(3) Prior year NOI, Core FFO attributable to common stockholders and AFFO attributable to common stockholders were
updated to conform to current year presentation.
•
Same Store Growth: There are 35 properties encompassing 12,948 units of apartment space in our same store pool for the
years ended December 31, 2024 and 2023 (our “2023-2024 Same Store” properties). Our 2023-2024 Same Store properties
exclude 36 down units in our Portfolio as of December 31, 2024 (see Note 4 to our consolidated financial statements). For
our 2023-2024 Same Store properties, we recorded the following operating metrics for the year ended December 31, 2024
as compared to the year ended December 31, 2023:
Operating Metric
2024
2023
% Change
Occupancy (1)
94.7 %
94.7 %
0.0 %
Average Effective Monthly Rent Per Unit (2)
$
1,491 $
1,516
-1.6 %
Rental income (in thousands)
$
246,688 $
241,188
2.3 %
Other income (in thousands)
$
5,320 $
5,773
-7.8 %
NOI (in thousands)
$
154,050 $
152,730
0.9 %
(1) Occupancy is calculated as the number of units occupied as of December 31 for the respective year, divided by the total
number of units, expressed as a percentage.
(2) Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December
31 for the respective year minus any tenant concessions over the term of the lease, divided by the number of units under
commenced leases as of December 31 for the respective year.
7
•
Corporate Credit Facility: On March 5, 2024, the Company made a $17.0 million principal payment on the Corporate
Credit Facility, constituting payment in full. As of December 31, 2024, there is no outstanding principal balance on the
Corporate Credit Facility.
•
Cash Position: At December 31, 2024, we had $53.9 million of cash on our balance sheet, of which $3.2 million was
reserved for future renovations, and $27.6 million was reserved for lender-required escrows and security deposits. We
believe we have adequate cash on hand, in addition to our expected cash flows from operations, to meet our near-term
obligations, service our debt, pay distributions and make opportunistic acquisitions.
Our Real Estate Portfolio
As of December 31, 2024, we owned 35 properties representing 12,984 units that we lease in seven states that were
approximately 94.7% occupied with a weighted average monthly effective rent per occupied apartment unit of $1,491. For additional
information regarding our Portfolio, see Item 2, “Properties” and Notes 3 and 4 to our consolidated financial statements.
We view our real estate assets as one industry segment and, accordingly, our properties are aggregated into one reportable
segment.
Our Business Objectives and Strategies
Our primary business objectives are to:
•
deliver stable, attractive yields and long-term capital appreciation to our stockholders;
•
acquire multifamily properties in markets with attractive job growth and household formation fundamentals primarily in
the Southeastern and Southwestern United States;
•
acquire assets at discounts to replacement cost;
•
implement a value-add program to increase returns to our stockholders;
•
own assets that provide lifestyle amenities and upgraded living spaces for low and moderate income renters; and
•
recycle capital from dispositions when economic and market conditions present opportunities that we believe are in the
best interest of our stockholders.
We intend to accomplish these objectives by:
•
Focusing on Acquiring Class B Properties in Our Core Markets. We will continue to seek opportunities to acquire
primarily Class B multifamily properties at prices that we believe represent discounts to replacement cost, provide the
potential for significant long-term value appreciation and that we expect will generate attractive yields for our
stockholders. We will focus on these types of opportunities in our core markets, which we consider to be primarily major
metropolitan areas in the Southeastern and Southwestern United States.
•
Focusing on Multifamily Properties with a Value-Add Component. We will continue to seek opportunities to acquire
multifamily properties that have a value-add component. Due to a lack of reinvestment by many prior owners, we believe
these types of properties provide us the opportunity to make relatively modest capital expenditures that result in a
significant increase in rents, thereby generating NOI growth, and thus higher yields and capital appreciation for our
stockholders.
8
•
Prudently Using Leverage to Increase Stockholder Value. We will typically finance new property acquisitions at a target
leverage level of approximately 50-60% loan-to-value (outstanding principal balance to enterprise value). Given that we
intend for the majority of our acquisitions to have a value-add component in the first three years of ownership, we will
generally seek leverage with the optionality to refinance (such as floating rate debt). In the management team’s experience,
this leverage strategy allows for the opportunity to maximize returns for our stockholders while providing maximum
flexibility. We are currently targeting to reduce our leverage to 40-45% loan-to-value (outstanding principal balance to
enterprise value) over time by increasing the value of our properties, refinancing properties we intend to hold longer term
and strategically paying down debt with excess cash flows from operations or future equity offerings.
Our Adviser’s investment approach combines its management team’s experience with a structure that emphasizes thorough
market research, local market knowledge, underwriting discipline and risk management in evaluating potential investments with a
goal of maximizing long-term stockholder value and a philosophy of thoughtful capital allocation and balance sheet management.
Acquisition and Operating Strategy
We seek primarily Class B multifamily properties that are priced at a discount to replacement cost. We believe that through
the implementation of our value-add program we will be able to grow the NOI of these types of properties significantly in the first
three years of ownership and thus these types of acquisitions will be accretive over the long-term to our FFO, Core FFO and AFFO.
As we progress through the real estate life cycle, these opportunities will become more difficult to find. However, we will continue
to take a disciplined approach to acquisitions by primarily pursuing these types of opportunities.
At times, we may acquire properties from affiliates, including from Delaware statutory trusts managed by affiliates of our
Adviser (“Advised DSTs”). On or about March 1, 2022, through our OP, we sent an offer to acquire two properties from Advised
DSTs. One property was a Class B apartment community consisting of 232 units located in the Atlanta, Georgia MSA (“Adair”).
The other property was a Class A apartment community consisting of 330 units located in the Phoenix, Arizona MSA (“Estates”).
The OP acquired Adair and Estates through exchange rights granted to the OP in the respective trust agreements for Adair and
Estates. The total consideration for Adair was $65.5 million. The total consideration for Estates was $77.9 million. Affiliates of our
Adviser own less than 2% of the Adair trust units and less than 1% of the Estates trust units and participated in the sales on the same
terms as other holders. Under the exchange rights, the owners of the Advised DSTs were permitted to elect to receive either units of
the OP or cash for their proportionate share of the consideration. The transaction closed in the second quarter of 2022.
Our Adviser’s investment approach includes active management of each property acquired. Our Adviser believes that active
management is critical to creating value. Prior to the purchase of a property, BH Management Services, LLC (“BH”) and our Adviser
generally tour each property and develop a business strategy for the property. This includes a forecast of the action items to be taken
and the capital needed to achieve the anticipated returns. Our Adviser reviews such property-level business strategies on an ongoing
basis to anticipate changes or opportunities in the market. In an effort to keep properties in compliance with our underwriting
standards and management strategies, our Adviser remains involved throughout the investment life cycle of each acquired property
and actively consults with BH throughout the holding period.
Value-Add Strategy
We will continue to implement our value-add strategy at our properties where we believe we can achieve a significant increase
in rents above what would otherwise be the case with purely organic market increases. Our value-add program has three components:
1) improvement of exteriors and common areas, 2) improvement of interiors and 3) management and cost improvements.
We invest in exterior and common areas improvements at our properties in an effort to enhance asset quality, to improve
“curb appeal”/market positioning, and expand or enhance our amenity offerings, all of which we believe will improve tenant retention
and modestly drive rent and NOI growth. Renovations to the exteriors and common areas include structural improvements that
enhance the physical condition, value and/or useful life of our properties, as well as aesthetic improvements to, among others,
landscape and signage. We also seek to improve our competitive positioning by adding to, redecorating or otherwise enhancing our
common areas and amenity offerings. As of December 31, 2024, we have renovated the exteriors and common areas at a majority
of the properties in our Portfolio.
We expect interior renovations, along with organic growth in rents, to be the primary drivers of rent and NOI growth at our
properties. Our interior renovations include: 1) aesthetic design enhancements such as kitchen and/or bath remodeling, 2)
replacement of outdated appliances, equipment and fixtures, 3) addition of washer/dryer appliances, 4) private yards, 5) fiber internet
and 6) smart technologies such as Bluetooth locks, networked climate control systems and USB electrical outlets. We also seek to
achieve cost improvements through investment in longer-lived materials, energy conservation projects, and other strategic initiatives.
Since inception, for the properties in our Portfolio as of December 31, 2024, we have completed full and partial renovations on 8,348
units out of our 12,984 total units with an average monthly rental increase per unit of $175 and an average cost of $10,123 per
renovated unit that has been leased as of December 31, 2024. In cases where we believe rents will grow significantly in a market
organically, we will implement the value-add program more strategically in order to capture significant rent and NOI growth without
9
expending additional capital. Additionally, to the extent we believe rents at a property are maximized regardless of the level of
additional renovations, we may opt not to further renovate units at that property. As of December 31, 2024, we had reserved
approximately $3.2 million for our planned capital expenditures and other expenses to implement our value-add program, which will
complete approximately 12,984 planned interior rehabs, eliminating the need for us to raise additional capital in order to carry out
our currently planned value-add program.
Disposition Strategy
In general, we intend to hold our multifamily properties for production of rental income for a period of at least three years
from the date of acquisition. Economic and market conditions may influence us to hold our investments for different periods of time.
From time to time, we may sell an asset before the end of the expected holding period, particularly if we receive a bona fide
unsolicited offer with attractive terms, have an upcoming liquidity need, such as a debt maturing, are strategically exiting a certain
market or sub-market or the sale of the asset would otherwise be in the best interest of our stockholders. When reviewing whether a
sale is in the best interest of our stockholders, we take into consideration whether market conditions and asset positioning have
maximized the value of the property to us and any potential adverse tax consequences of a sale.
Financing Strategy
We intend to use leverage in making our investments with an objective of maintaining a strong balance sheet and providing
liquidity to grow our Portfolio. We are currently targeting to reduce our leverage to 40-45% loan-to-value (outstanding principal
balance to enterprise value) over time by increasing the value of our properties and refinancing properties we intend to hold longer-
term. However, we are not subject to any limitations on the amount of leverage we may use, and, accordingly, the amount of leverage
we use may be significantly less or greater than what we currently anticipate. We are currently meeting our short-term liquidity
needs through our cash and cash equivalents and cash flows from operations.
When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties and
other assets for cash with the intention of obtaining a loan for a portion of the purchase price at a later time. We will refinance
properties during the term of a loan only under certain circumstances, such as when a decline in interest rates makes it beneficial to
prepay an existing mortgage, an existing mortgage matures, the value of the property has increased significantly and we can obtain
more attractive terms through refinancing the property, or an attractive investment becomes available and the proceeds from the
refinancing can be used to purchase such investment.
We typically use floating rate debt with interest rate swaps and interest rate caps as opposed to using fixed rate debt. We
believe this is a more sensible and flexible way to utilize leverage, while limiting our interest rate risk in our strategy as we attempt
to increase the value of each property over the course of three years after acquisition through our value-add program. Fixed rate
financing is typically more expensive and less flexible since there are typically high prepayment penalties, yield maintenance
payments and/or defeasance penalties when refinancing the debt prior to maturity. To the extent we intend to hold a property long-
term, we will reassess the use of refinancing with fixed rate debt.
Property Management Strategy
We seek to achieve long-term earnings growth through superior property management. To achieve this, we have partnered
with BH to manage all of our properties as an external manager. In order to align our property manager’s interests with those of our
stockholders, BH (through an affiliate) is a noncontrolling limited partner of the OP. We believe BH provides the following benefits:
•
manages approximately 91,000 multifamily units in 24 states and has managed multifamily communities for 32 years;
•
brings a scale of operations we could not otherwise achieve for approximately 3% of gross income, which is the contracted
amount we pay for its property management services;
•
has operations in all of our current and desired markets, allowing us greater scale when entering new markets or make
investments in non-core markets without making substantial investments in management infrastructure in those markets;
•
has a construction management operation and substantial experience in renovating Class B multifamily units;
•
its scale allows it to obtain highly competitive pricing as it pertains to the costs of our value-add program, increasing our
return on investment for renovations;
•
helps us source and underwrite opportunities as well as assist in due diligence of properties prior to closing;
•
assists in locating potential buyers for our properties;
•
its size, scale and experience allows it to keep costs low and maximize rents and occupancy; and
•
has proved successful in driving other revenue growth at properties it manages.
10
Our Structure
The following chart shows our ownership structure.
An affiliate of BH Equities, LLC is the property manager for all of our properties.
Our Adviser
We are externally managed by our Adviser pursuant to the Advisory Agreement, by and among the OP, our Adviser, and us.
Our Adviser was organized on September 5, 2014 and is an affiliate of our Sponsor. Our Adviser has contractual and fiduciary
responsibilities to us and our stockholders as further described under “—Our Advisory Agreement” below. The members of our
Adviser’s management team are James Dondero, Paul Richards, Matt McGraner and D.C. Sauter, all of whom are employed by our
Adviser or its affiliates.
11
Our Advisory Agreement
Below is a summary of the terms of our Advisory Agreement:
Duties of Our Adviser. Our Advisory Agreement provides that our Adviser manage our business and affairs in accordance
with the policies and guidelines established by our Board and that our Adviser be under the supervision of our Board. The agreement
requires our Adviser to provide us with all services necessary or appropriate to conduct our business, including the following:
•
locating, presenting and recommending to us real estate investment opportunities consistent with our investment policies,
acquisition and disposition strategies and objectives, including our conflicts of interest policies;
•
structuring the terms and conditions of transactions pursuant to which acquisitions and dispositions of properties will be
made;
•
acquiring and disposing properties on our behalf in compliance with our investment objectives, strategies and applicable
tax regulations;
•
arranging for the financing and refinancing of properties;
•
administering our bookkeeping and accounting functions;
•
serving as our consultant in connection with policy decisions to be made by our Board, managing our properties or causing
our properties to be managed by another party;
•
monitoring our compliance with regulatory requirements, including the Securities Act of 1933, as amended, (the “Securities
Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations
promulgated thereunder, the New York Stock Exchange (“NYSE”) rules and regulations of the Code to maintain our status
as a REIT;
•
performing administrative services; and
•
rendering other services as our Board deems appropriate.
Our Adviser is required to obtain the prior approval of our Board in connection with:
•
any investment for which the portion of the consideration paid out of our equity equals or exceeds $50,000,000;
•
any investment that is inconsistent with the publicly disclosed investment guidelines as in effect from time to time, or, if
none are then publicly disclosed, as otherwise adopted by our Board from time to time; or
•
any engagement of affiliated service providers on behalf of us or the OP, which engagement terms will be negotiated on an
arm’s length basis.
For these purposes, “equity” means the purchase price of the investment, exclusive of the proceeds of any debt financing
incurred or to be incurred in connection with the relevant investment and anticipated closing and other acquisition costs.
Our Adviser will be prohibited from taking any action, in its sole judgment, or in the sole judgment of our Board, that:
•
would adversely affect our qualification as a REIT under the Code, unless our Board had determined that REIT qualification
is not in the best interest of us and our stockholders;
•
would subject us to regulation under the Investment Company Act of 1940 (the “1940 Act”), except to the extent that we
and our Adviser have undertaken in the Advisory Agreement and our charter to comply with Section 15 of the 1940 Act in
connection with the entry into, continuation of, or amendment of the Advisory Agreement or any advisory agreement;
•
is contrary to or inconsistent with our investment guidelines; or
•
would violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over
us or our shares of common stock, or otherwise not be permitted by our charter or bylaws.
Advisory Fee. Our Advisory Agreement requires that we pay our Adviser an annual advisory fee of 1.00% of our Average
Real Estate Assets.
“Average Real Estate Assets” means the average of the aggregate book value of Real Estate Assets (see below) before reserves
for depreciation or other non-cash reserves, computed by taking the average of the book value of real estate assets at the end of each
month (1) for which any fee under the Advisory Agreement is calculated or (2) during the year for which any expense reimbursement
under the Advisory Agreement is calculated. “Real Estate Assets” is defined broadly in the Advisory Agreement to include, among
other things, investments in real estate-related securities and mortgages and reserves for capital expenditures (the value-add
program).
12
In calculating the advisory fee, we categorize our Average Real Estate Assets into either “Contributed Assets” or “New
Assets.” The advisory fee on Contributed Assets may not exceed $4.5 million in any calendar year. This cap is intended to limit the
fees paid to our Adviser on the Contributed Assets following our Spin-Off (the "Spin-Off") to the fees that would have been paid by
NHF to its adviser had the Spin-Off not occurred. The advisory fee on New Assets is not subject to this limitation but is subject to
the expense cap mentioned below.
“Contributed Assets” means all of the real estate assets we owned upon the completion of the Spin-Off and is not reduced for
dispositions of such assets subsequent to the Spin-Off.
“New Assets” means all of the Average Real Estate Assets other than Contributed Assets. New Assets includes proceeds from
the sale of a Contributed Asset that are used to purchase a new investment.
The advisory fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or a
portion of such fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving
Shares.” The number of shares issued to our Adviser as payment for the advisory fee will be equal to the dollar amount of the portion
of such fee that is payable in shares divided by the volume-weighted average closing price of shares of our common stock for the
ten trading days prior to the end of the month for which such fee will be paid, which we refer to as the fee VWAP. Our Adviser
computes each installment of the advisory fee as promptly as possible after the end of the month with respect to which such
installment is payable.
The accrued fees are payable monthly as promptly as possible after the end of each month during which the Advisory
Agreement is in effect. A copy of the computations made by our Adviser to calculate such installment is delivered to our Board for
informational purposes only.
Administrative Fee. Our Advisory Agreement requires that we pay our Adviser an annual administrative fee of 0.20% of the
Average Real Estate Assets.
In calculating the administrative fee, we categorize our Average Real Estate Assets into either Contributed Assets or New
Assets. The administrative fee on Contributed Assets may not exceed $890,000 in any calendar year. This cap is intended to limit
the fees paid to our Adviser on the Contributed Assets following the Spin-Off to the fees that would have been paid by NHF to its
adviser had the Spin-Off not occurred. The administrative fee on New Assets is not subject to this limitation but is subject to the
expense cap described below.
The administrative fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or
a portion of such fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving
Shares.” The number of shares issued to our Adviser as payment for the administrative fee will be equal to the dollar amount of the
portion of such fee that is payable in shares divided by the fee VWAP. Our Adviser computes each installment of the administrative
fee as promptly as possible after the end of each month with respect to which such installment is payable. The accrued fees are
payable monthly as promptly as possible after the end of each month during which the Advisory Agreement is in effect. A copy of
the computations made by our Adviser to calculate such installment is delivered to our Board for informational purposes only.
Reimbursement of Expenses. Our Advisory Agreement requires that we reimburse our Adviser for all of its out-of-pocket
expenses in performing its services, including legal, accounting, financial, due diligence and other services performed by our Adviser
that outside professionals or outside consultants would otherwise perform and also pay our pro rata share of rent, telephone, utilities,
office furniture, equipment, machinery and other office, internal and overhead expenses of our Adviser required for our operations
(“Adviser Operating Expenses”). Adviser Operating Expenses do not include expenses for the advisory and administrative services
provided under the Advisory Agreement. We will also reimburse our Adviser for any and all expenses (other than underwriters’
discounts) in connection with an offering, including, without limitation, legal, accounting, printing, mailing and filing fees and other
documented offering expenses.
When applicable, our Adviser prepares a statement documenting all expenses incurred during each month, and delivers such
statement to us within 15 business days after the end of each month. When submitted for reimbursement, such expenses are
reimbursed by us no later than the 15th business day immediately following the date of delivery of such statement of expenses to us.
All expenses payable by us or reimbursable to our Adviser pursuant to the agreement will not be in amounts greater than those which
would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an
arm’s length basis. Our Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket
expenses paid on our behalf. Once waived, these expenses are considered permanently waived and become non-recoupable in the
future.
13
Expense Cap. Reimbursement of Adviser Operating Expenses under the Advisory Agreement, advisory and administrative
fees paid to our Adviser and corporate general and administrative expenses such as audit, legal, listing and Board fees and equity-
based compensation expense recognized under a long-term incentive plan will not exceed 1.5% of Average Real Estate Assets per
calendar year (or part thereof that the Advisory Agreement is in effect) (the “Expense Cap”). The Expense Cap does not limit the
reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply to legal,
accounting, financial, due diligence and other service fees incurred in connection with mergers and acquisitions, extraordinary
litigation or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred
in connection with the acquisition or disposition of real estate assets.
Term of the Advisory Agreement. The Advisory Agreement has a one-year term. The Advisory Agreement shall continue
in full force and effect so long as the Advisory Agreement is approved at least annually by our Board. On February 24, 2025, our
Board, including the independent directors, unanimously approved the renewal of the Advisory Agreement with the Adviser for a
one-year term.
The Advisory Agreement may be terminated at any time, without payment of any penalty to our Adviser, by vote of our Board
or stockholders, or by our Adviser, in each case on not more than 60 days’ nor less than 30 days’ prior written notice to the other
party. The Advisory Agreement shall automatically and immediately terminate in the event of its “assignment” (as defined in the
1940 Act).
Amendment. The Advisory Agreement may only be amended, waived, discharged or terminated in writing signed by the
party against which enforcement of the amendment, waiver, discharge or termination is sought.
Limitations on Receiving Shares. The ability of our Adviser to receive shares of our common stock as payment for all or a
portion of the advisory and administrative fees due under the terms of our Advisory Agreement will be subject to the following
limitations: (1) the ownership of shares of common stock by our Adviser may not violate the ownership limitations set forth in our
charter, after giving effect to any exception from such ownership limitations that our Board may grant to our Adviser or its affiliates
and (2) compliance with all applicable restrictions under the U.S. federal securities laws and the NYSE rules. To the extent that
payment of any fee in shares of our common stock would result in a violation of the ownership limits set forth in our charter (taking
into account any applicable waiver or any restrictions imposed under the U.S. federal securities laws or NYSE rules), all or a portion
of such fee payable to our Adviser will be payable in cash to the extent necessary to avoid such violation.
Registration Rights. We entered into a registration rights agreement with our Adviser with respect to any shares of our
common stock that our Adviser receives as payment for any fees owed under our Advisory Agreement. These registration rights will
require us to file a registration statement with respect to such shares. We agreed to pay all of the expenses relating to registering
these securities. The costs associated with registering these securities will not be deducted from the compensation owed to our
Adviser.
Liability and Indemnification of our Adviser. Under the Advisory Agreement, we are also required to indemnify our
Adviser and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding with respect to certain of our
Adviser’s acts or omissions.
Other Activities of our Adviser and its Affiliates. Our Adviser and its affiliates expect to engage in other business ventures,
and as a result, their resources will not be dedicated exclusively to our business. However, pursuant to the Advisory Agreement, our
Adviser will be required to devote sufficient resources to our administration to discharge its obligations.
Potential Acquisition of our Adviser. Many REITs that are listed on a national stock exchange are considered “self-
managed” or “internally managed,” since the employees of such REITs perform all significant management functions. In contrast,
REITs that are not self-managed, like us, are referred to as “externally managed” and typically engage a third party, such as our
Adviser, to perform management functions on its behalf. Our independent directors may determine that we should become self-
managed through the acquisition of our Adviser, which we refer to as an internalization transaction. See “Risk Factors—If we
internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be
reduced, and we could incur other significant costs associated with being self-managed.”
Our Property Manager
The entities through which we own the properties in our Portfolio have entered into management agreements with BH (the
"Management Agreements"). Pursuant to these agreements, BH operates and leases the underlying properties in our Portfolio. In
addition to property management and leasing services, BH also provides us with market research, acquisition advice, a pipeline of
investment opportunities and construction management services. We utilize BH for property and construction management services
and leasing, paying BH a management fee of approximately 3% of the monthly gross income from each property managed, as well
as construction supervision fees and certain other fees described under “—Property Management Agreements” below.
14
Property Management Agreements
Under these agreements, BH operates, coordinates and supervises the ordinary and usual business and affairs pertaining to
the operation, maintenance, leasing, licensing, and management of each property. The following summarizes the terms of the
Management Agreements.
Term. The terms of the Management Agreements will continue until the last day of the calendar month following the second
anniversary of the Management Agreement. Upon the expiration of the original term, the Management Agreements will
automatically renew on a month-to-month basis until terminated. The Management Agreements may be terminated at any time with
60 days written notice.
Proposed Management Plans. Each Management Agreement requires that BH prepare and submit a proposed management
plan and operating budget for the marketing, operation, repair and maintenance, and renovation of the property for the year the
Management Agreement is entered into. BH must submit subsequent proposed management plans 45 days prior to the beginning of
the next year.
Amounts Payable under the Management Agreements. The entities that own the properties pay BH monthly for its
services. Pursuant to the Management Agreements, BH may pay itself out of each property’s operating account. Any sums not paid
within 10 days after becoming due bear interest at the rate of 18% per annum. Compensation under the Management Agreements
consists of the following components:
•
Management Fee. The management fee is approximately 3% of the monthly gross income from each property. For the
purposes of calculating the management fee, “monthly gross income” is defined as all receipts of every kind and nature
actually collected from the operation of the property, determined on a cash basis, including, without limitation, rental or
lease payments, late charges, service charges, forfeited security deposits, proceeds of vending machine collections, resident
utility payment collections, and all other forms of miscellaneous income (but excluding the collection of any insurance or
condemnation awards).
•
Set-Up/Inspection Fees. BH receives a one-time set-up/inspection fee per unit upon commencement of management of
each property.
•
Construction Supervision Fee. BH receives a construction supervision fee of 5-6% of total project costs if BH performs
these services.
•
Renter’s Insurance Program Fee; Other Fees. In the event that the entities that own the properties direct BH to implement
a renter’s insurance program at a property, the entities pay BH a fee in connection with running such program. In
consideration for any additional services other than the services required under the Management Agreements, the entities
pay BH an hourly rate.
Additionally, BH also acts as a paymaster for the properties and is reimbursed at cost for various operating expenses it pays
on behalf of the properties.
Termination. A Management Agreement will terminate automatically in the event that the entity that owns the property is
sold or if all or substantially all of the property to which the agreement applies is otherwise disposed of. Additionally, a Management
Agreement may be terminated if certain other events occur, including:
•
a default by BH or the entity that owns the property that is not cured prior to the expiration of any applicable cure periods;
•
upon written notice by either party if a petition for bankruptcy, reorganization or arrangement is filed by the other party, or
if any such petition shall be filed against the other party and is not dismissed within 60 days of the date of such filing, or in
the event the other party shall make an assignment for the benefit of creditors, or take advantage of any insolvency statute
or similar law;
•
upon 15 days written notice in the event that all or substantially all of the property is destroyed by a casualty, or taken by
means of eminent domain or condemnation; or
•
upon 60 days written notice by either party.
If a Management Agreement is terminated by the entity that owns the property for any reason, or if it is terminated by BH
due to our default or due to the destruction, condemnation or taking by eminent domain of a property, the entity that owns the
property will be required to pay damages to BH. Such damages will be equal to the management fee earned by BH for the calendar
month immediately preceding the month in which the notice of termination is given, multiplied by the number of months and/or
portions thereof remaining from the termination date until the end of the initial term or term year in which the termination occurred.
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Additionally, for the month or the partial month after the date of the termination of BH’s on-site property management
responsibilities, BH will be paid a close-out management fee equivalent to 50% of the last month’s full management fee.
Insurance. The entities that own the properties are required to maintain property and liability insurance for each property,
and its liability insurance policy must include BH as an “Additional Insured.” BH is required to maintain, at the entities’ expense,
workers’ compensation insurance covering all employees of BH employed in, on, or about each property so as to provide statutory
benefits required by state and federal laws.
Assignment. BH may not assign the Management Agreements without the prior written consent of the entities that own the
properties.
Indemnification. The entities that own the properties are required to indemnify, defend and hold harmless BH and its agents
and employees from and against all claims, liabilities, losses, damages, and/or expenses arising out of (1) BH’s performance under
the Management Agreements, or (2) facts, occurrences, or matters first arising before the date of the Management Agreements. The
entities that own the properties are not required to indemnify BH against damages or expenses suffered as a result of the gross
negligence, willful misconduct, or fraud on the part of BH, its agents, or employees.
BH is required to indemnify, defend, and hold harmless the entities that own the properties and their agents and employees
from and against all claims, liabilities, losses, damages, and/or expenses arising out of the gross negligence, willful misconduct, or
fraud on the part of BH, its agents, or employees, and shall at its own cost and expense defend any action or proceeding against us
arising therefrom.
Regulation
Multifamily properties are subject to various laws, ordinances and regulations, including regulations relating to common
areas, such as swimming pools, activity centers, and recreational facilities. We believe that each of our properties has the necessary
permits and approvals to operate its business.
Americans with Disabilities Act
The properties in our Portfolio must comply with Title III of the Americans with Disability Act of 1990 (the “ADA”), to the
extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers
to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe
that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital
expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or
an award of damages to private litigants. The obligation to make readily accessible accommodations is an ongoing one, and we will
continue to assess our properties and make alterations as appropriate in this respect.
Fair Housing Act
The Fair Housing Act (the “FHA”), its state law counterparts and the regulations promulgated by the U.S. Department of
Housing and Urban Development and various state agencies, prohibit discrimination in housing on the basis of race or color, national
origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women
and people securing custody of children under 18) or handicap (disability) and, in some states, financial capability or other bases. A
failure to comply with these laws in our operations could result in litigation, fines, penalties or other adverse claims, or could result
in limitations or restrictions on our ability to operate, any of which could materially and adversely affect us. We believe that we
operate our properties in substantial compliance with the FHA.
Environmental Matters
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or
operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic
substances, waste or petroleum products at, on, in, under, or migrating from such property, including costs to investigate and clean
up such contamination and liability for natural resources. Such laws often impose liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These
liabilities could be substantial and the cost of any required remediation, removal, fines, or other costs could exceed the value of the
property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our
properties may expose us to third-party liability for costs of remediation and/or personal or property damage or materially adversely
affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental
laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination.
Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which
property may be used or businesses may be operated, and these restrictions may require substantial expenditures.
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Independent environmental consultants have conducted Phase I Environmental Site Assessments at all of the properties in
our Portfolio using the applicable version of American Society for Testing and Materials Standard E 1527 in effect at the time of
their commission A Phase I Environmental Site Assessment is a report that reviews various publicly available information and
includes a site visit to identify recognized environmental conditions. Phase I Site assessments are intended to identify and evaluate
known and reasonably ascertainable information regarding the environmental condition of the assessed property and surrounding
properties. These assessments do not generally include soil samplings, subsurface investigations or an asbestos survey. None of the
site assessments identified any known past or present contamination that we believe would have a material adverse effect on our
business, assets or operations. However, the assessments are limited in scope and may have failed to identify all environmental
conditions or concerns. A prior owner or operator of a property or historic operations at our properties, or operations and conditions
at nearby properties, may have created a material environmental condition that is not known to us or the independent consultants
preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in
the future, and future laws, ordinances or regulations may impose material additional environmental liability. Moreover, conditions
identified in environmental assessments that did not appear material at that time, may in the future result in material liability.
Environmental laws also govern the presence, maintenance and removal of hazardous materials in building materials (e.g.,
asbestos and lead), and may impose fines and penalties for failure to comply with these requirements or expose us to third-party
liability (e.g., liability for personal injury associated with exposure to asbestos). Such laws require that owners or operators of
buildings containing hazardous materials properly manage and maintain certain hazardous materials, adequately notify or train those
who may come into contact with certain hazardous materials, and undertake special precautions, including removal or other
abatement, if certain hazardous materials would be disturbed during renovation or demolition of a building. In addition, the properties
in our Portfolio are subject to various federal, state, and local environmental and health and safety requirements, such as state and
local fire requirements.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or
irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources,
and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain
levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the
presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation
program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In
addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if
property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our
properties.
We believe that there are no compliance issues with laws and regulations that have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the protection of the environment, that have adversely affected,
or are reasonably expected to adversely affect, our business, financial condition and results of operations, and we do not currently
anticipate material capital expenditures arising from environmental regulation. We believe that climate change could present risks
to our business. Some of the potential impacts of climate change to our business include increased operating costs due to additional
regulatory requirements and the risk of disruptions to our business. We do not believe these risks are material to our business at this
time. Our currently anticipated capital expenditures for environmental control facility matters are not material.
The cost of future environmental compliance may materially and adversely affect us. See “Risk Factors—We may face high
costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint,
chemical vapor, subsurface contamination and mold growth.”
Insurance
We carry comprehensive general liability coverage on the properties in our Portfolio, with limits of liability customary within
the industry to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct physical
damage in amounts necessary to reimburse us on a replacement-cost basis for costs incurred to repair or rebuild each property,
including loss of rental income during the reconstruction period. The majority of our property policies for all U.S. operating and
development communities include coverage for the perils of flood, tornado and earthquake shock with limits and deductibles
customary in the industry and specific to the project. We will also obtain title insurance policies when acquiring new properties,
which insure fee title to the properties in our Portfolio. We have obtained coverage for losses incurred in connection with both
domestic and foreign terrorist-related activities. These policies include limits and terms we consider commercially reasonable. There
are certain losses (including, but not limited to, losses arising from environmental conditions, acts of war or certain kinds of terrorist
attacks) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief,
economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own
funds to resolve the issue, including litigation costs. In addition, for the properties in our Portfolio, we could self-insure certain
portions of our insurance program and therefore, use our own funds to satisfy those limits. We believe the policy specifications and
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insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice. In the opinion of our
management team, the properties in our Portfolio are adequately insured.
Competition
In attracting and retaining residents to occupy the properties in our Portfolio, we compete with numerous other housing
alternatives. The properties in our Portfolio compete directly with other rental apartments as well as condominiums and single-family
homes that are available for rent or purchase in the sub-markets in which our properties are located. Principal factors of competition
include rent or price charged, attractiveness of the location and property and quality and breadth of services and amenities. If our
competitors offer leases at rental rates below current market rates, or below the rental rates that the tenants of the properties in our
Portfolio pay, we may lose potential tenants and we may be pressured to reduce rental rates below those currently charged or to offer
more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain
tenants when the tenants’ leases expire.
The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease
apartment units at our properties and on the rents we charge. In addition, we compete with numerous other investors for suitable
properties. This competition affects our ability to acquire properties and the price that we pay in such acquisitions.
Human Capital Disclosure
As of December 31, 2024, we had two employees. We endeavor to maintain workplaces that are free from discrimination or
harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification
or expression or any other status protected by applicable law. The basis for recruitment, hiring, development, training, compensation
and advancement is a person’s qualifications, performance, skills and experience. Our employees are fairly compensated, without
regard to gender, race and ethnicity, and routinely recognized for outstanding performance.
Our Adviser conducts substantially all of our operations and provides asset management for our real estate investments. We
expect we will only have accounting employees while the Advisory Agreement is in effect.
Corporate Information
Our Adviser’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201. Our Adviser’s telephone number is
(214) 276-6300. We maintain a website at nxrt.nexpoint.com. We make our Annual Report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act available on our website as soon as reasonably practicable after we file such material with, or furnish it to, the SEC.
Information contained on, or accessible through our website, is not incorporated by reference into and does not constitute a part of
this Annual Report or any other report or documents we file with or furnish to the Securities and Exchange Commission ("SEC").
These documents may also be found on the SEC’s website at www.sec.gov.
Item 1A. Risk Factors
You should carefully consider the following risks and other information in this Annual Report in evaluating us and our capital
stock. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem
immaterial, could materially and adversely affect our business, financial condition or results of operations, and could, in turn,
impact the trading price of our capital stock.
Summary Risk Factors
The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial
condition and results of operations. You should read this summary together with the more detailed description of each risk factor
contained below.
•
unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where
our properties are located;
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•
macroeconomic trends including inflation and high interest rates may adversely affect our financial condition and results
of operations;
•
risks associated with the ownership of real estate;
•
limited ability to dispose of assets because of the relative illiquidity of real estate investments;
•
our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United
States, which makes us more susceptible to adverse developments in those markets;
•
increased risks associated with our strategy of acquiring value enhancement multifamily properties rather than more
conservative investment strategies;
•
failure to succeed in new markets may have adverse consequences on our performance;
•
competition for attractive investment opportunity and any increased affordability of residential homes could limit our ability
to lease our apartments or increase or maintain rents;
•
high costs associated with the compliance with various accessibility, environmental, building and health and safety laws
and regulations;
•
risks associated with buying owning and selling apartment communities, including contingent or unknown liabilities related
to the properties and the risk that we may not be able to yield anticipated results or sell certain properties;
•
risks associated with operating through joint ventures and funds;
•
our dependence on information systems;
•
risks associated with breaches of our data security;
•
costs associated with being a public company, including compliance with securities laws;
•
the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or
internal control over financial reporting;
•
risks associated with our substantial current indebtedness and indebtedness we may incur in the future;
•
risks associated with derivatives or hedging activity;
•
risks associated with representations and warranties made by us in connection with sales of our properties may subject us
to liability that could result in losses and could harm our operating results and, therefore, distributions we make to our
stockholders;
•
loss of key personnel of our Sponsor, our Adviser and our property manager;
•
the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our
Adviser, members of our Adviser’s management team or by our Sponsor or its affiliates;
•
risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);
•
our ability to change our major policies, operations and targeted investments without stockholder consent;
•
the substantial fees and expenses we pay to our Adviser and its affiliates;
•
risks associated with any potential internalization of our management functions;
•
conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;
•
the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and residents;
•
failure to maintain our status as a REIT;
•
failure of our OP to be taxable as a partnership for U.S. federal income tax purposes, possibly causing us to fail to qualify
for or to maintain REIT status;
•
compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo
otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;
•
risks associated with our ownership of interests in TRSs;
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•
the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges
in accordance with Section 1031 of the Code;
•
the risk that the IRS may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax
on any taxable gain;
•
the risk that we may be subject to other tax liabilities that may reduce our cash flows and distributions on our shares;
•
the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;
•
risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our
charter;
•
the ability of our board of directors to revoke our REIT qualification without stockholder approval;
•
recent and potential legislative or regulatory tax changes or other actions affecting REITs;
•
foreign investors may be subject to U.S. federal income tax or withholding tax distributions received from us or on proceeds
and the disposition of our current common stock;
•
risks associated with the market for our common stock and the general volatility of the capital and credit markets;
•
failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels;
•
risks associated with limitations of liability for and our indemnification of our directors and officers;
•
the risk that legal proceedings we become involved in from time to time could adversely affect our business; and
•
the risk that acts of violence could decrease the value of our assets and have an adverse effect on our business and results
of operations.
Risks Related to Our Business and Industry
Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets where
our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses and the
overall market value of our assets, and impair our ability to sell, recapitalize or refinance our assets.
Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States
and globally may significantly affect our occupancy levels, our rental rates, rent collections, operating expenses, the market value of
our properties and our ability to strategically acquire, dispose, recapitalize or refinance our multifamily properties on economically
favorable terms or at all. Our ability to lease our properties at favorable rates is adversely affected by increases in supply of
multifamily communities in our markets and is dependent upon overall economic conditions, which are adversely affected by, among
other things, inflation, interest rates, a recession, personal debt levels, a downturn in the housing market, stock market volatility and
uncertainty about the future. Some of our major expenses, including debt service and real estate taxes, generally do not decline when
related rents decline. We expect that any declines in our occupancy levels, rental revenues and/or the values of our multifamily
properties would cause us to have less cash available to pay our indebtedness, fund necessary capital expenditures and to make
distributions to our stockholders, which could negatively affect our financial condition and the market value of our assets. Factors
that may affect our occupancy levels, our revenues, our NOI and/or the value of our properties include the following, among others:
•
downturns in global, national, regional and local economic conditions;
•
declines in the financial condition of our residents, which may make it more difficult for us to collect rents from these
residents;
•
the inability or unwillingness of our residents to pay rent increases;
•
a decline in household formation;
•
a decline in employment or lack of employment growth;
•
an oversupply of, or a reduced demand for, apartment homes;
•
changes in market rental rates in our core markets;
•
our ability to renew leases or re-lease space on favorable terms;
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•
the timing and costs associated with property improvements, repairs and renovations, including supply chain issues,
inflation and labor shortages;
•
declines in mortgage interest rates, making home and condominium ownership more affordable;
•
changes in home loan lending practices, including the easing of credit underwriting standards, increasing the availability of
home loans and thereby reducing demand for apartment homes;
•
government or builder incentives which enable first-time homebuyers to put little or no money down, making alternative
housing options more attractive;
•
rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset
increases in operating costs; and
•
economic conditions that could cause an increase in our operating expenses, such as increases in property taxes (particularly
as a result of increased local, state and national government budget deficits and debt and potentially reduced federal aid to
state and local governments), utilities, insurance, compensation of on-site associates and routine maintenance.
Macroeconomic trends including inflation, high interest rates or recession may adversely affect our financial condition and
results of operations.
Macroeconomic trends, including increases in or high inflation and high interest rates, may adversely impact our business,
financial condition and results of operations. Inflation could have an adverse impact on general and administrative expenses, as these
costs could increase at a rate higher than our rental revenue, interest income or other revenue. Inflationary pressures have increased
our direct and indirect operating and investment costs. Inflationary pressures have also increased or may have the effect of increasing
our costs related to property management, third-party contractors and vendors, insurance, transportation and taxes, and our residents
may also be adversely impacted by higher cost of living expenses, including food, energy and transportation, which may increase
our rate of resident defaults and harm our operating results.
To the extent our exposure to increases in or high interest rates on any of our debt is not eliminated through interest rate
swaps and interest rate protection agreements that we may utilize for hedging purposes, increases in prevailing interest rates will
result in higher debt service costs which will adversely affect our cash flows. We cannot assure you that our access to capital and
other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings,
renewals or refinancings. Such future constraints could increase our borrowing costs, which would make it more difficult or
expensive to obtain additional financing or refinance existing obligations and commitments, which could slow or deter future growth.
In addition, actions by the Federal Reserve, as well as efforts by other central banks globally to combat inflation and
restore price stability and other global events, may raise the prospect or severity of a recession. The war in Ukraine and the Israel-
Hamas war adds, and other international tensions or escalations of conflict may add, instability to the uncertainty driving
socioeconomic forces, which may continue to have an impact on global trade and result in inflation or economic instability. Present
conditions and the state of the U.S and global economies make it difficult to predict whether and/or when and to what extent a
recession will occur in the near future. Should a recession occur it could negatively impact the value of commercial and residential
real estate and the value of our investments, potentially materially. While the Company has taken steps to prepare for a potential
downturn in the economy, should a recession occur there can be no guaranty that the Company’s efforts will prevent any negative
impacts to the value of the Company’s investments.
We are subject to risks inherent in ownership of real estate.
Real estate cash flows and values are affected by a number of factors, including competition from other available properties
and the ability to provide adequate property maintenance and insurance and to control operating costs. Real estate cash flows and
values are also affected by such factors as government regulations (including zoning, usage and tax laws) limitations on rent and
rent increases, interest rate levels, the availability of financing, property tax rates, utility expenses, potential liability under
environmental and other laws and changes in environmental and other laws.
Real estate investments are relatively illiquid and may limit our flexibility.
Equity real estate investments are relatively illiquid, which tends to limit our ability to react promptly to changes in
economic or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market
conditions. Our inability to sell our properties on favorable terms or at all could have a material adverse effect on our sources of
working capital and our ability to satisfy our debt obligations. In addition, real estate can at times be difficult to sell quickly at prices
we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the
number of multifamily properties in our Portfolio promptly in response to changes in economic or other conditions.
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Our multifamily properties are concentrated in certain geographic markets, which makes us more susceptible to adverse
developments in those markets.
Our most significant geographic investment concentrations are primarily in the Southeastern and Southwestern United
States. We are, therefore, subject to increased exposure from economic and other competitive factors specific to markets within these
geographic areas, including supply and demand for apartments in these areas, local real estate conditions, increases in real estate and
other taxes, rent control or rent stabilization laws and other regulatory conditions. To the extent general economic conditions, job
growth or unemployment worsen in one or more of these markets, or if any of these areas experience a natural disaster, the value of
our Portfolio and our market rental rates could be adversely affected. As a result, our results of operations, cash flow, cash available
for distribution, including cash available to pay distributions to our stockholders, and our ability to satisfy our debt obligations could
be materially adversely affected.
Failure to succeed in new markets may have adverse consequences on our performance.
We may make acquisitions outside of our existing market areas if appropriate opportunities arise. Our historical experience
in our existing markets does not ensure that we will be able to operate successfully in new markets, should we choose to enter them.
We may be exposed to a variety of risks if we choose to enter new markets, including an inability to accurately evaluate local market
conditions, to identify appropriate acquisition opportunities, to hire and retain key personnel and a lack of familiarity with local
governmental and permitting procedures. In addition, we may abandon opportunities to enter new markets that we have begun to
explore for any reason and may, as a result, fail to recover expenses already incurred.
Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more conservative investment
strategies.
Our primary strategy is a value-add strategy. Therefore, for a majority of our Portfolio, we intend to execute a “value-
enhancement” strategy whereby we will acquire under-managed assets in high-demand neighborhoods, invest additional capital, and
reposition the properties to increase both average rental rates and resale value. Our strategy for acquiring value-enhancement
multifamily properties involves greater risks than more conservative investment strategies. The risks related to these value-
enhancement investments include risks related to delays in the repositioning or improvement process, higher than expected capital
improvement costs, the additional capital needed to execute our value-add program, including possible borrowings or raising
additional equity necessary to fund such costs, and ultimately that the repositioning process may not result in the higher rents and
occupancy rates anticipated. In addition, our value-enhancement properties may not produce revenue while undergoing capital
improvements. Furthermore, we may also be unable to complete the improvements of these properties and may be forced to hold or
sell these properties at a loss. For these and other reasons, we cannot assure you that we will realize growth in the value of our value-
enhancement multifamily properties, and as a result, our ability to make distributions to our stockholders could be adversely affected.
Potential reforms or changes to Freddie Mac could adversely affect our business.
As of December 31, 2024, we had approximately $1.5 billion of outstanding consolidated indebtedness under our Freddie
Mac mortgage loans. We rely on national and regional institutions, including Freddie Mac, to provide financing for our acquisitions
and permanent financing on properties we may develop in the future. Currently, there is uncertainty regarding the future of Freddie
Mac. Should Freddie Mac have its mandate changed or reduced, be disbanded or reorganized by the government, privatized or
otherwise discontinue providing liquidity to our sector, it could significantly reduce our access to debt capital and/or increase
borrowing costs and could significantly reduce our sales of assets and/or the values realized upon sale.
Competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability
and impede our growth.
We compete with numerous real estate companies and other owners of real estate in seeking multifamily properties for
acquisition and pursuing buyers for dispositions. We expect that other real estate investors, including insurance companies, private
equity funds, sovereign wealth funds, pension funds, other REITs and other well-capitalized investors, will compete with us to
acquire existing properties and to develop new properties, and many of these investors will have greater sources of capital to acquire
properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our
profitability and impede our growth. Similarly, some of our competitors may have loan covenants or fund requirements that
encourage decisions on occupancy targets or rental rates that vary from decisions based on market conditions, which could require
us to react in ways that may affect our strategy or negatively affect our performance.
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Competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or
maintain rents.
Our multifamily properties compete with other housing alternatives to attract residents, including other rental apartments,
condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family
homes for sale. All of our multifamily properties are located in developed areas that include other multifamily properties and/or
condominiums. The number of competitive multifamily properties and/or condominiums in a particular area, and any increased
affordability of owner occupied single and multifamily homes caused by declining housing prices, low mortgage interest rates and
government programs to promote home ownership, could have a material adverse effect on our ability to lease our apartments and
the rents we are able to obtain. In addition, single-family homes and other residential properties provide housing alternatives to
residents and potential residents of our multifamily properties.
A decrease in residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as
a result, cause a decline in occupancy rates.
A decrease in residential mortgage interest rates and government-sponsored programs to promote home ownership may
encourage potential renters to purchase residences rather than lease them, thereby causing a decline in the occupancy rates of our
properties.
We depend on our residents for substantially all of our revenues. Poor resident selection and defaults and nonrenewals by our
residents may adversely affect our reputation, financial performance and ability to make distributions.
We depend on rental income from residents for substantially all of our revenues. As a result, our success depends in large
part upon our ability to attract and retain qualified residents for our properties. Our reputation, financial performance and ability to
make distributions to our shareholders would be adversely affected if a significant number of our residents fail to meet their lease
obligations or fail to renew their leases. For example, residents may default on rent payments, make unreasonable and repeated
demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, use our
properties for illegal purposes, damage or make unauthorized structural changes to our properties that are not covered by security
deposits, refuse to leave the property upon termination of the lease, engage in domestic violence or similar disturbances, disturb
nearby residents with noise, trash, odors or eyesores, fail to comply with HOA regulations, sublet to less desirable individuals in
violation of our lease or permit unauthorized persons to live with them. Damage to our properties may delay re-leasing after eviction,
necessitate expensive repairs or impair the rental income or value of the property resulting in a lower than expected rate of return.
Increases in unemployment levels and other adverse changes in the economic conditions in our markets could result in substantial
resident defaults. In the event of a resident default or bankruptcy, we may experience delays in enforcing our rights as landlord at
that property and will incur costs in protecting our investment and re-leasing the property. In addition, we rely on information
supplied by prospective residents in making resident selections, which may in some cases be false.
We may fail to consummate future property acquisitions, and we may not be able to find suitable alternative investment
opportunities.
When acquiring properties in the future, we may be subject to various closing conditions, and there can be no assurance
that we can satisfy these conditions or that the acquisitions will close. If we fail to consummate future acquisitions, there can be no
assurance that we will be able to find suitable alternative investment opportunities.
Acquisitions may not yield anticipated results, which could negatively affect our financial condition and results of operations.
We intend to actively acquire multifamily properties for rental operations as market conditions, including access to the
debt and equity markets, dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease-up.
We may be unable to lease-up these multifamily properties on schedule, resulting in decreases in expected rental revenues and/or
lower yields as the result of lower occupancy and rental rates as well as higher than expected concessions. We may underestimate
the costs necessary to bring an acquired property up to standards established for its intended market position or to complete a
development project. We may be unable to integrate the existing operations of newly acquired multifamily properties and over time
such communities may not perform as well as existing communities or as we initially anticipated in terms of occupancy and/or rental
rates. Additionally, we expect that other major real estate investors with significant capital will compete with us for attractive
investment opportunities or may also develop properties in markets where we focus our development efforts. This competition may
increase acquisition costs for multifamily properties. We may not be in a position or have the opportunity in the future to make
suitable property acquisitions on favorable terms.
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We are subject to certain risks associated with selling apartment communities, which could limit our operational and financial
flexibility.
We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market
conditions may make it difficult to sell apartment communities like the ones we own. We cannot predict whether we will be able to
sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would
be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.
Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. These
conditions may limit our ability to dispose of properties and to change our Portfolio promptly in order to meet our strategic objectives,
which may in turn have a material adverse effect on our financial condition and the market value of our assets. We are also subject
to the following risks in connection with sales of our apartment communities:
•
a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales
to qualify as a tax deferred exchange under Section 1031 of the Code (“1031 Exchanges”) so that any related capital gain
can be deferred for U.S. federal income tax purposes. As a result, we may not have immediate access to all of the cash
proceeds generated from our property sales; and
•
U.S. federal income tax laws limit our ability to profit on the sale of communities that we have owned for less than two
years, and this limitation may prevent us from selling communities when market conditions are favorable.
We may be subject to contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire
for which we may have limited or no recourse against the sellers.
The properties or businesses that we have acquired or may acquire, may be subject to unknown or contingent liabilities
for which we have limited or no recourse against the sellers. Unknown liabilities might include liabilities for, among other things,
cleanup or remediation of undisclosed environmental conditions, liabilities under the Employee Retirement Income Security Act of
1974, as amended (“ERISA”), claims of residents, vendors or other persons dealing with the entities prior to the acquisition of such
property, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. Because
many liabilities, including tax liabilities, may not be identified within the applicable contractual indemnification period, we may
have no recourse against any of the owners from whom we acquire such properties for these liabilities. The existence of such
liabilities could significantly and adversely affect the value of the property subject to such liability. As a result, if a liability were
asserted against us based on ownership of any of such properties, then we might have to pay substantial sums to settle it, which could
adversely affect our cash flows.
We are subject to losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.
There are certain types of losses (including, but not limited to, losses arising from environmental conditions, earthquakes,
tornados and hurricanes, acts of war or certain kinds of terrorist attacks) that are not insured, in full or in part, because they are either
uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. We carry
commercial general liability insurance, property insurance and terrorism insurance with respect to our communities with limits and
on terms we consider commercially reasonable. If an uninsured loss or liability were to occur, whether because of a lack of insurance
coverage or a loss in excess of insured limits, we could lose our capital invested in a community, as well as the anticipated future
revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations
related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement
with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely
affect our business and our financial condition and results of operations.
Compliance with various laws and regulations, including accessibility, building and health and safety laws and regulations, may
be costly, may adversely affect our operations or expose us to liability.
In addition to compliance with environmental regulations, we must comply with various laws and regulations such as
accessibility, building, zoning, landlord/tenant and health and safety laws and regulations, including, but not limited to, the ADA
and the FHA. Some of those laws and regulations may conflict with one another or be subject to limited judicial or regulatory
interpretations. Under those laws and regulations, we may be liable for, among other things, the costs of bringing our properties into
compliance with the statutory and regulatory requirements. Noncompliance with certain of these laws and regulations may result in
liability without regard to fault and the imposition of fines and could give rise to actions brought against us by governmental entities
and/or third parties who claim to be or have been damaged as a consequence of an apartment not being in compliance with the
subject laws and regulations. As part of our due diligence procedures in connection with the acquisition of a property, we typically
conduct an investigation of the property’s compliance with known laws and regulatory requirements with which we must comply
once we acquire a property, including a review of compliance with the ADA and local zoning regulations. Our investigations and
these assessments may not have revealed, and may not with respect to future acquisitions reveal, all potential noncompliance issues
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or related liabilities and we can provide no assurance that our properties have been, or that our future projects will be, designed and
built in accordance with all applicable legal requirements.
The development, construction and operation of our communities are subject to regulations and permitting under various
federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff
and wastewater discharge. Noncompliance with such laws and regulations may subject us to fines and penalties. We can provide no
assurance that we will not incur any material liabilities as a result of noncompliance with these laws.
We may obtain only limited warranties when we acquire a property and may only have limited recourse if our due diligence did
not identify any issues that may subject us to unknown liabilities or lower the value of our property, which could adversely affect
our financial condition and ability to make distributions to you.
The seller of a property often sells the property in its “as is” condition on a “where is” basis and “with all faults,” without
any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only
limited warranties, representations and indemnifications that will survive for only a limited period after the closing. The acquisition
of, or purchase of, properties with limited warranties increases the risk that we may lose some or all of our invested capital in the
property, lose rental income from that property or may be subject to unknown liabilities with respect to such properties.
Representations and warranties made by us in connection with sales of our properties may subject us to liability that could
result in losses and could harm our operating results and, therefore, distributions we make to our stockholders.
When we sell a property, we may be required to make representations and warranties regarding the property and other
customary items. In the event of a breach of such representations or warranties, the purchaser of the property may have claims for
damages against us, rights to indemnification from us or otherwise have remedies against us. In any such case, we may incur
liabilities that could result in losses and could harm our operating results and, therefore distributions we make to our stockholders.
Short-term apartment leases expose us to the effects of declining market rent, which could adversely affect our ability to make
cash distributions to our stockholders.
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the
residents to leave at the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more
quickly than if our leases were for longer terms.
We may be subject to risks involved in real estate activity through joint ventures.
We may acquire properties through joint ventures when we believe circumstances warrant the use of such structures. Joint
venture investments involve risks, including: the possibility that joint venture partners might refuse to make capital contributions
when due; that we may be responsible to joint venture partners for indemnifiable losses; that joint venture partners might at any time
have business or economic goals which are inconsistent with ours; and that joint venture partners may be in a position to take action
or withhold consent contrary to our recommendations, instructions or requests. In some instances, joint venture partners may have
competing interests in our markets that could create conflicts of interest. Further, joint venture partners may fail to meet their
obligations to the joint venture as a result of financial distress or otherwise, and we would be forced to make contributions to maintain
the value of the property. To the extent joint venture partners do not meet their obligations to the joint venture or they take action
inconsistent with the interests of the joint venture, we could be adversely affected.
If we acquire properties through joint ventures, we may be required to make decisions jointly with the other investors who
have interests in the respective joint ventures. We might not have the same interests as the other investors in relation to these decisions
or transactions. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or
other inducements to the other investors to obtain a favorable resolution.
In addition, various restrictive provisions and third-party rights, including consent rights to certain transactions, may apply
to sales or transfers of interests in joint ventures. Consequently, decisions to buy or sell interests in a property or properties relating
to joint ventures may be subject to the prior consent of other investors. These restrictive provisions and third-party rights would
potentially preclude us from achieving full value of the properties because of our inability to obtain the necessary consents to sell or
transfer the interests.
The Company’s real estate assets may be subject to impairment charges.
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A decline in the fair value of our assets may require us to recognize an impairment against our assets under accounting
principles generally accepted in the United States (“GAAP”) if we were to determine that, with respect to any assets in unrealized
loss positions, we do not have the ability and intent to hold such assets for a period of time sufficient to allow for recovery of the
depreciated cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and
write-down the depreciated cost of such assets to a new cost basis, based on the fair value of such assets on the date they are
considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale
of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and
adjusted amortized cost of such assets at the time of sale. If we are required to recognize material asset impairment charges, these
charges could adversely affect our financial condition and results of operations.
Our business and reputation depend on our ability to continue providing high quality housing and consistent operation of our
communities, the failure of which could adversely affect our business, financial condition and results of operations.
We provide residents with reliable services, including water and electric power, along with the consistent operation of our
communities, including a wide variety of amenities. Public utilities, especially those that provide water and electric power, are
fundamental for the consistent operation of our communities. The delayed delivery or any prolonged interruption of these services
may cause residents to terminate their leases or may result in a reduction of rents and/or increase in our costs or other issues. In
addition, we may fail to provide quality housing and continuous access to amenities as a result of other factors, including government
mandated closures, mechanical failure, power outage, human error, vandalism, physical or electronic security breaches, war,
terrorism or similar events. Such events may also expose us to additional liability claims and damage our reputation and brand and
could cause residents to terminate or not renew their leases, or prospective residents to seek housing elsewhere. Any such failures
could impair our ability to continue providing quality housing and consistent operation of our communities, which could adversely
affect our financial condition and results of operations.
We are dependent on a concentration of our investments in a single asset class, making our results of operations more
vulnerable to a downturn in the sector.
As of December 31, 2024, substantially all of our investments are concentrated in the multifamily apartment sector. As a
result, we are subject to risks inherent in investments in a single type of property. A downturn or slowdown in the demand for
multifamily housing may have more pronounced effects on our results of operations or on the value of our assets than if we had
diversified our investments into more than one asset class.
Risks Related to Health and the Environment
Our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be
insufficient.
Properties being considered for potential acquisition by us are subjected to at least a Phase I or similar environmental
assessment prior to closing, which generally does not involve invasive techniques such as soil or ground water sampling. A Phase II
assessment is conducted if recommended in the Phase I report. These assessments, together with subsurface assessments conducted
on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have
a material adverse effect on our business, assets, financial condition or results of operations. However, such environmental
assessments may not identify all potential environmental liabilities. Moreover, we may in the future discover adverse environmental
conditions at our communities, including at communities we acquire in the future, which may have a material adverse effect on our
business, assets, financial condition or results of operations. In connection with our ownership, operation and selective development
of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other
contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an
indemnity exists upon which we may be able to rely if environmental liability arises from the contamination, or if remediation costs
exceed estimates. We can provide no assurance, however, that all necessary remediation actions have been or will be undertaken at
our communities or that we will be indemnified, in full or at all, in the event that environmental liability arises.
We may face high costs associated with the investigation or remediation of environmental contamination, including asbestos,
lead-based paint, chemical vapor, subsurface contamination and mold growth.
We are subject to various federal, state and local environmental and public health laws, regulations and ordinances. Under
various federal, state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of
knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases
at our properties (including in some cases natural substances such as methane and radon gas) and may be held liable under these
laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for
investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial and may
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exceed any insurance coverage we have for such events. The presence of such substances, or the failure to properly remediate the
contamination, may adversely affect our ability to borrow against, sell or rent the affected property. In addition, some environmental
laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and
costs it incurs as a result of the contamination.
Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of
asbestos containing materials (“ACMs”) when such materials are in poor condition or in the event of renovation or demolition of a
building. These laws and the common law may impose liability for release of ACMs into the environment and may allow third
parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. ACMs
may have been used in the construction of a number of the communities that we acquired and may have been used in the construction
of communities we acquire in the future. We will implement an operations and maintenance program at each of the communities at
which we discover ACMs. We can provide no assurance that we will not incur any material liabilities as a result of the presence of
ACMs at our communities.
Some of our communities may have lead-based paint and we may have to implement an operations and maintenance
program at some of our communities. Communities that we acquire in the future may also have lead-based paint. We can provide
no assurance that we will not incur any material liabilities as a result of the presence of lead-based paint at our communities.
We are also aware that environmental agencies and third parties have, in the case of certain communities with on-site or
nearby contamination, asserted claims for remediation, property damage or personal injury based on the alleged actual or potential
intrusion into buildings of chemical vapors (e.g., radon) or volatile organic compounds from soils or groundwater underlying or in
the vicinity of those buildings or on nearby properties. We can provide no assurance that we will not incur any material liabilities as
a result of vapor intrusion at our communities.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the
moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily
and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent
years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit
mold growth, we educate residents about the importance of adequate ventilation and include a lease requirement that they notify us
when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or
excessive moisture when we become aware of its presence regardless of whether the resident believes or we believe a health risk is
present.
However, we can provide no assurance that mold or excessive moisture will be detected and remediated in a timely manner.
If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to
contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any applicable
insurance coverage.
Risk of Pandemics or Other Health Crises.
Pandemics, epidemics or other health crises have and could in the future disrupt our business. Both global and locally
targeted health events could materially affect areas where our properties, corporate offices or major service providers are located.
These events have and could in the future have an adverse effect on our business, results of operations, financial condition and
liquidity in a number of ways, including, but not limited to:
•
The deterioration of global economic conditions as a result of such a crisis could ultimately decrease occupancy levels and
pricing across our Portfolio and/or increase concessions, reduce or defer our residents’ spending, result in changes in
resident preferences (including changes resulting from increased employer flexibility to work from home) or negatively
impact our residents’ ability to pay their rent on time or at all;
•
Local and national authorities expanding or extending certain measures that impose restrictions on our ability to enforce
residents’ contractual rental obligations (such as eviction moratoriums or rental forgiveness) and limit our ability to raise
rents or charge certain fees;
•
The risk of a prolonged outbreak and/or multiple waves of an outbreak could cause long-term damage to economic
conditions, which in turn could diminish our access to capital at attractive terms and/or cause material declines in the fair
value of our assets, leading to asset impairment charges; and
•
The potential inability to maintain adequate staffing at our properties and corporate offices due to an outbreak and/or
changes in employee preferences causing them to leave their jobs.
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To the extent a pandemic, epidemic or other health crisis adversely affects our business, results of operations, cash flows
and financial condition, it may also continue to heighten many of the other risks described elsewhere in this Item 1A, Risk Factors.
Risks Related to Indebtedness
Variable rate debt is subject to interest rate risk, which could increase our interest expense, increase the cost to refinance and
increase the cost of issuing new debt.
As of December 31, 2024, approximately $1.5 billion of our total debt outstanding bears interest at variable rates, and we
may also borrow additional money at variable interest rates in the future. As of December 31, 2024, 8 interest rate swap agreements,
with a combined notional amount of $1.1 billion and terms expiring in 2025 and 2026, effectively fix the interest rate on $1.1 billion,
or 73%, of our $1.5 billion of floating rate debt outstanding. As of December 31, 2024, the interest rate cap agreements we have
entered into effectively cap the applicable reference rate on $2.5 billion of our floating rate mortgage debt outstanding at a weighted
average rate of 6.31% for the term of the agreements, which is generally 2-3 years. Except to the extent we have arrangements in
place that hedge against the risk of rising interest rates, increases in interest rates would increase our interest expense under these
instruments and would increase the cost of refinancing these instruments and issuing new debt. As a result, our cash flow and our
ability to service our indebtedness and to make distributions to our stockholders would be adversely affected, which could adversely
affect the market price of our common stock.
We may incur mortgage indebtedness and other borrowings, which we have broad authority to incur, that may increase our
business risks and decrease the value of your investment.
We expect that in most instances, we will acquire real properties by using either existing financing or borrowing new
funds. In addition, we may incur additional mortgage and other secured debt and pledge all or some of our unpledged real properties
as security for that debt to obtain funds to acquire additional real properties. We may borrow if we need funds to satisfy the REIT
tax qualification requirement that we generally distribute annually to our stockholders at least 90% of our REIT taxable income
(which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends
paid and excluding net capital gain. We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain
our qualification as a REIT.
If there is a shortfall between the cash flow from a property and the cash flow needed to service the related debt, then the
amount available for distributions to stockholders may be reduced. In addition, incurring secured debt increases the risk of loss since
defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the
property securing the loan that is in default, thus reducing the value of your investment. For U.S. federal income tax purposes, a
foreclosure of any of our properties subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase
price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the
mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash
proceeds. In such event, we may be unable to pay the amount of distributions required in order to maintain our REIT status.
Foreclosure could also trigger tax indemnification obligations under the terms of any tax protection agreements with
respect to the sales of properties subject to any such agreements. We may give full or partial guarantees to lenders of mortgage and
other secured debt to the entities that own our properties. When we provide a guaranty on behalf of an entity that owns one of our
properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages or other
secured debt contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.
If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely
affected, which could result in losing our REIT status and would result in a decrease in the value of your investment.
We have a substantial amount of indebtedness, which may limit our financial and operating activities and may adversely affect
our ability to incur additional debt to fund future needs.
As of December 31, 2024, there was $1.5 billion of mortgage debt outstanding related to our Portfolio. Payments of
principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our
capital expenditure, acquisition and development activities, or pay the dividends necessary to maintain our REIT qualification. Our
level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the
following:
•
require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on,
indebtedness, thereby reducing the funds available for other purposes;
•
make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things,
adversely affect our ability to meet operational needs;
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•
force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of
the 100% tax on income from prohibited transactions, discussed below in “—Risks Related to Our Structure”) or in violation
of certain covenants to which we may be subject;
•
subject us to increased sensitivity to an increase in or high interest rate;
•
make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events;
•
limit our ability to withstand competitive pressures;
•
limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of
our original indebtedness;
•
reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or
•
place us at a competitive disadvantage to competitors that have relatively less debt than we have.
If any one of these consequences were to materialize, our financial condition, results of operations, cash flow and trading
price of our common stock could be adversely affected. Furthermore, foreclosures could create taxable income without
accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
We may be unable to refinance current or future indebtedness on favorable terms, if at all.
We may not be able to refinance existing debt on terms as favorable as the terms of existing indebtedness, or at all,
including as a result of increases in interest rates or a decline in the value of our Portfolio or portions thereof. If principal payments
due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our
operating cash flow will not be sufficient in all years to repay all maturing debt. As a result, certain of our other debt may default,
we may be forced to postpone capital expenditures necessary for the maintenance of our properties, we may have to dispose of one
or more properties on terms that would otherwise be unacceptable to us or we may be forced to allow the mortgage holder to foreclose
on a property. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would likely have a negative
impact on our financial condition and results of operations and could adversely affect our ability to make distributions to our
stockholders.
Our debt agreements include restrictive covenants, which could limit our flexibility and our ability to make distributions.
Our debt agreements, including our lines of credit, contain customary negative covenants that, among other things, limit
our ability, without the prior consent of the lender, to further mortgage the property, to reduce or change insurance coverage or to
engage in material asset sales, mergers, consolidations and acquisitions. Our debt agreements require certain mandatory prepayments
upon disposition of underlying collateral. Early repayments of certain debt are subject to prepayment penalties. Failure to comply
with these covenants could cause a default under the agreements and result in a requirement to repay the indebtedness prior to its
maturity, which could have an adverse effect on our cash flow and ability to make distributions to our stockholders. In addition, loan
documents may limit our ability to replace a property’s property manager or terminate certain operating or lease agreements related
to a property. These or other limitations would decrease our operating flexibility and our ability to achieve our operating objectives.
If we are required to make payments under any “bad boy” carve out guarantees that we have provided in connection with certain
mortgages and related loans, our business and financial results could be materially adversely affected.
In obtaining certain non-recourse loans, we have provided our lenders with standard carve out guarantees. These
guarantees are only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture
partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that
are fraudulent or improper (commonly referred to as “bad boy” guarantees). Although we believe that “bad boy” carve out guarantees
are not guarantees of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s
control, some lenders in the real estate industry have recently sought to make claims for payment under such guarantees. In the event
such a claim were made against us under a “bad boy” carve out guarantee, following foreclosure on mortgages or related loans, and
such claim were successful, our business and financial results could be materially adversely affected.
Derivatives and hedging activity could adversely affect cash flow.
In the normal course of business, we use derivatives to manage our exposure to interest rate volatility on debt instruments,
including hedging for future debt issuances. At other times, we may utilize derivatives to increase our exposure to floating interest
rates. However, these hedging arrangements may not have the desired beneficial impact. Hedging arrangements, which can include
a number of counterparties, may expose us to additional risks, including failure of any of our counterparties to perform under these
contracts, and may involve extensive costs, such as transaction fees or, if we terminate them, breakage costs. No strategy can
completely insulate us from the risks associated with interest rate fluctuations.
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Risks Related to Our Structure
The Chapter 11 bankruptcy filing by Highland Capital Management, L.P. (“Highland”) may have materially adverse
consequences on our business, financial condition and results of operations.
On October 16, 2019, Highland, a former affiliate of our Sponsor, filed for Chapter 11 bankruptcy protection with the
United States Bankruptcy Court for the District of Delaware (the “Highland Bankruptcy”), which was subsequently transferred to
the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”). On January 9, 2020, the Bankruptcy
Court approved a change of control of Highland, which involved the resignation of James Dondero as the sole director of, and the
appointment of an independent board to, Highland’s general partner. On September 21, 2020, Highland filed a plan of reorganization
and disclosure statement with the Bankruptcy Court, which was subsequently amended (the “Fifth Amended Plan of
Reorganization”).
On October 9, 2020, Mr. Dondero resigned as an employee of Highland and as portfolio manager for all Highland-advised
funds. As a result of these changes, our Sponsor is no longer under common control with Highland and therefore Highland is no
longer affiliated with us. On February 22, 2021, the Bankruptcy Court entered an order confirming Highlands’s Fifth Amended Plan
of Reorganization (the “Plan”), which became effective on August 11, 2021. On October 15, 2021, Marc S. Kirschner, as litigation
trustee of a litigation subtrust formed pursuant to the Plan, filed a lawsuit (the “Bankruptcy Trust Lawsuit”) against various persons
and entities, including our Sponsor and James Dondero. The Bankruptcy Trust Lawsuit does not include claims related to our
business or our assets or operations. On March 24, 2023, Marc S. Kirschner filed a motion seeking to voluntarily stay the Bankruptcy
Trust Lawsuit, which motion was granted on April 4, 2023. As of January 30, 2024, the Bankruptcy Trust Lawsuit continues to be
stayed.
The Highland Bankruptcy and lawsuits filed in connection therewith, including the Bankruptcy Trust Lawsuit, could
expose our Sponsor, our Adviser, our affiliates, our management and/or us to negative publicity, which might adversely affect our
reputation and/or investor confidence in us, and/or future debt or equity capital raising activities. In addition, the Highland
Bankruptcy and the Bankruptcy Trust Lawsuit may be both time consuming and disruptive to our operations and cause significant
diversion of management attention and resources which may materially and adversely affect our business, financial condition and
results of operations. Further, the Highland Bankruptcy has and may continue to expose our Sponsor, our Adviser and our affiliates
to claims arising out of our former relationship with Highland that could have an adverse effect on our business, financial condition
and results of operations.
Litigation against James Dondero and others may have materially adverse consequences on our business, financial condition
and results of operations.
On February 8, 2023, UBS Securities LLC and its affiliate (collectively, “UBS”) filed a lawsuit in the Supreme Court of
the State of New York, County of New York against Mr. Dondero and a number of other persons and entities seeking to collect on
$1.3 billion in judgments UBS obtained against entities that were managed indirectly by Highland (the “UBS Lawsuit”). On February
26, 2024, the respondents, including Mr. Dondero, filed motions to dismiss the UBS Lawsuit. A hearing was held on July 8, 2024.
The court dismissed the claims against one respondent, CLO HoldCo, Ltd., for lack of personal jurisdiction in a July 12, 2024 order.
On August 24, 2024, UBS filed a notice of appeal for that dismissal order, which has not yet been briefed. The remaining respondents’
motions to dismiss, including Mr. Dondero’s, remain pending. The UBS Lawsuit does not include claims related to our business or
our assets. While neither our Sponsor nor our Adviser are parties to the UBS Lawsuit, these proceedings could expose our Sponsor,
our Adviser, our affiliates, our management and/or us to negative publicity, which might adversely affect our reputation and/or
investor confidence in us, and/or future debt or equity capital raising activities. In addition, the UBS Lawsuit may be both time
consuming and disruptive to our operations and cause significant diversion of management attention and resources which may
materially and adversely affect our business, financial condition and results of operations.
We depend upon key personnel of our Adviser and its affiliates and our property manager.
We are an externally managed REIT and therefore we do not have any internal management capacity and only have
accounting employees. We also depend on BH for our property management and construction services. We depend to a significant
degree on the diligence, skill and network of business contacts of the management team and other key personnel of our Adviser and
of our property manager to achieve our investment objectives, including Messrs. Dondero, Richards, McGraner and Sauter, all of
whom may be difficult to replace. We expect that our Adviser will evaluate, negotiate, structure, close and monitor our investments
in accordance with the terms of the Advisory Agreement.
We also depend upon the senior professionals of our Adviser and our property manager to maintain relationships with
sources of potential investments, and we rely upon these relationships to provide us with potential investment opportunities. We
cannot assure you that these individuals will continue to provide indirect investment advice to us. If these individuals, including the
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members of the management team of our Adviser, do not maintain their existing relationships with our Adviser, maintain existing
relationships or develop new relationships with other sources of investment opportunities, we may not be able to grow our investment
portfolio. In addition, individuals with whom the senior professionals of our Adviser and our property manager have relationships
are not obligated to provide us with investment opportunities. Therefore, we can offer no assurance that such relationships will
generate investment opportunities for us.
We may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members
of our Adviser’s management team
Our primary focus in making investments generally differs from that of existing investment funds, accounts or other
investment vehicles that are or have been managed by affiliates of our Adviser or members of our Adviser’s management team Past
performance is not a guarantee of future results. We cannot assure you that we will replicate the historical results achieved by entities
managed by affiliates of our Adviser or members of the management team, and we caution you that our investment returns could be
substantially lower than the returns achieved by them in prior periods. Additionally, all or a portion of the prior results may have
been achieved in particular market conditions which may never be repeated.
Our Adviser can resign on 30 days’ notice from its role as adviser, and we may not be able to find a suitable replacement within
that time, resulting in a disruption in our operations that could adversely affect our financial condition, business, and results of
operations and cash flows.
The Advisory Agreement gives our Adviser the right to resign after giving not more than 60 nor less than 30 days’ written
notice, whether we have found a replacement or not. If our Adviser resigns, we may not be able to find a new adviser or hire internal
management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 30 to 60 days,
or at all. If we are unable to do so quickly, our operations are likely to experience a disruption and our financial condition, business
and results of operations, as well as our ability to pay distributions, are likely to be adversely affected. In addition, the coordination
of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a
single institution or group of executives having the experience possessed by our Adviser and its affiliates. Even if we are able to
retain comparable management, the integration of such management and its lack of familiarity with our investment objectives may
result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash
flows.
You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as
a stockholder.
Our Board determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT
qualification and distributions. Our Board may amend or revise these and other policies without your vote. Our Board’s broad
discretion in setting policies and your inability to exert control over those policies increases the uncertainty and risks you face as a
stockholder.
We may change our targeted investments without stockholder consent.
We expect our Portfolio of investments in commercial real estate to consist primarily of multifamily properties. Though
this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and
investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent
of our stockholders. Any such change could result in us making investments that are different from, and possibly riskier than, the
investments described in this Annual Report. These policies may change over time. A change in our targeted investments or
investment guidelines, which may occur without notice to you or without your consent, may increase our exposure to interest rate
risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our
ability to make distributions to you. We intend to disclose any changes in our investment policies in our next required periodic report,
if any.
We pay substantial fees and expenses to our Adviser and its affiliates and to our property manager, which payments increase the
risk that you will not earn a profit on your investment.
Pursuant to the Advisory Agreement, we pay significant fees to our Adviser and its affiliates. Those fees include advisory
and administrative fees and obligations to reimburse our Adviser and its affiliates for expenses they incur in connection with
providing services to us, including certain personnel services. Additionally, pursuant to the Management Agreements we have
entered into with BH, we pay significant fees to BH. These fees include property management fees, construction management and
other customary property manager fees.
If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders
could be reduced, and we could incur other significant costs associated with being self-managed.
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In the future, our Board may consider internalizing the functions performed for us by our Adviser by, among other
methods, acquiring our Adviser’s assets. The method by which we could internalize these functions could take many forms. There
is no assurance that internalizing our management functions will be beneficial to us and our stockholders. An acquisition of our
Adviser could result in a dilution of your interests as a stockholder and could reduce earnings per share and FFO, Core FFO and
AFFO per share. Additionally, we may not realize the perceived benefits, we may not be able to properly integrate a new staff of
managers and employees or we may not be able to effectively replicate the services provided previously by our Adviser, property
manager or their affiliates. Internalization transactions, including without limitation, transactions involving the acquisition of
affiliated advisers or property managers have also, in some cases, been the subject of litigation. Even if these claims are without
merit, we could be forced to spend significant amounts of money defending claims that would reduce the amount of funds available
for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect
on our results of operations, financial condition and ability to pay distributions.
There are significant potential conflicts of interest that could affect our investment returns.
As a result of our arrangements with our Adviser, there may be times when our Adviser or its affiliates have interests that
differ from those of our stockholders, giving rise to a conflict of interest.
Our directors and management team serve or may serve as officers, directors or principals of entities that operate in the
same or a related line of business as we do, or of investment funds managed by our Adviser or its affiliates. Similarly, our Adviser
or its affiliates may have other clients with similar, different or competing investment objectives, including, but not limited to,
NexPoint Real Estate Finance, Inc., VineBrook Homes Trust, Inc., NexPoint Homes Trust, Inc. and NexPoint Diversified Real Estate
Trust. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment
of which may not be in the best interest of us or our stockholders. For example, the management team of our Adviser has, and will
continue to have, management responsibilities for other investment funds, accounts or other investment vehicles managed or
sponsored by our Adviser or its affiliates. Our investment objectives may overlap with the investment objectives of such affiliated
investment funds, accounts or other investment vehicles. As a result, those individuals may face conflicts in the allocation of
investment opportunities among us and other investment funds or accounts advised by or affiliated with our Adviser. Our Adviser
will seek to allocate investment opportunities among eligible accounts in a manner consistent with its allocation policy. However,
we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over time.
Additionally, under the Advisory Agreement, our Adviser does not assume any responsibility to us other than to render
the services called for under that agreement, and it will not be responsible for any action of our Board in following or declining to
follow our Adviser’s advice or recommendations. In addition, we have agreed to indemnify our Adviser and each of its officers,
directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other
expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our
behalf pursuant to authority granted by the Advisory Agreement, except where attributable to gross negligence, willful misconduct,
bad faith or reckless disregard of such person’s duties under the Advisory Agreement. These protections may lead our Adviser to
act in a riskier manner when acting on our behalf than it would when acting for its own account.
Our Adviser faces conflicts of interest relating to the fee structure under our Advisory Agreement, which could result in actions
that are not necessarily in the long-term best interest of our stockholders.
Under our Advisory Agreement, our Adviser or its affiliates is entitled to fees that are structured in a manner intended to
provide incentives to our Adviser to perform in our best interest and in the best interest of our stockholders. However, because our
Adviser is entitled to receive substantial compensation regardless of performance, our Adviser’s interests are not wholly aligned
with those of our stockholders. In that regard, our Adviser could be motivated to recommend riskier or more speculative investments
that would entitle our Adviser to the highest fees. For example, because advisory and administrative fees payable to our Adviser are
based on our total real estate assets, including any form of investment leverage, our Adviser may have an incentive to incur a high
level of leverage or to acquire properties on less than favorable terms in order to increase the total amount of real estate assets under
management. In addition, our Adviser’s ability to receive higher fees and reimbursements depends on our continued investment in
real properties. Therefore, the interest of our Adviser and its affiliates in receiving fees may conflict with the interest of our
stockholders in earning income on their investment in our common stock.
Our Adviser, Sponsor and their officers and employees face competing demands relating to their time, and this may cause our
operating results to suffer.
Our Adviser, our Sponsor and their officers and employees and their respective affiliates are key personnel, general
partners, sponsors, managers, owners and advisers of other real estate investment programs, including investment products sponsored
by affiliates of our Adviser, some of which have investment objectives and legal and financial obligations similar to ours and may
have other business interests as well. Because these persons have competing demands on their time and resources, they may have
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conflicts of interest in allocating their time between our business and these other activities. If this occurs, the returns on our
investments may suffer.
We may compete with other entities affiliated with our Sponsor and property manager for residents.
Neither our Sponsor and its affiliates nor BH and its affiliates is prohibited from engaging, directly or indirectly, in any
other business or from possessing interests in any other business venture, including ventures involved in the acquisition,
development, ownership, management, leasing or sale of real estate, including properties in the vicinity of the properties in our
Portfolio. Our Sponsor and/or its affiliates and BH and its affiliates may own and/or manage properties in the same geographical
areas in which we currently own and expect to acquire real estate assets. Therefore, our properties may compete for residents with
other properties owned and/or managed by our Sponsor and its affiliates and BH and its affiliates. Our Sponsor and BH may face
conflicts of interest when evaluating resident opportunities for our properties and other properties owned and/or managed by our
Sponsor and its affiliates and BH and its affiliates, and these conflicts of interest may have a negative impact on our ability to attract
and retain residents.
Risks Related to Legal, Regulatory, Tax and Accounting
Our failure to qualify as a REIT for U.S federal income tax purposes would reduce the amount of income we have available for
distribution and limit our ability to make distributions to our stockholders.
We have elected to be taxed as a REIT under the Code. Our qualification as a REIT depends upon our ability to meet
requirements, some on an annual and quarterly basis, regarding our organization and ownership, distributions of our income, the
nature and diversification of our income and assets and other tests imposed by the Code. Meeting some of these requirements may
involve the determination of various factual matters and circumstances not entirely within our control. The REIT qualification
requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is
limited. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied
retroactively, which could result in our disqualification as a REIT. We believe we have been and are organized and qualify as a
REIT, and we intend to operate in a manner that will permit us to continue to qualify as a REIT. However, we cannot assure you that
we have qualified as a REIT, or that we will remain qualified as a REIT in the future.
If we were to fail to qualify as a REIT for any taxable year, we would be subject to U.S. federal income tax on our taxable
income at corporate rates, could be subject to increased state and local taxes and dividends paid to our stockholders would not be
deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the
amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of shares of
our common stock. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from taxation as
a REIT and would not be allowed to re-elect REIT status for the four taxable years following the year in which we failed to qualify
as a REIT. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available
for investment or distribution to our stockholders. This would materially and adversely affect us. In addition, we would no longer be
required to make distributions to our stockholders.
Furthermore, we may acquire additional direct or indirect interests in one or more entities that will elect to be taxed as
REITs under the Code (each, a “Subsidiary REIT”). A Subsidiary REIT is subject to the various REIT qualification requirements
and other limitations described herein that are applicable to us. If a Subsidiary REIT were to fail to qualify as a REIT, then (i) that
Subsidiary REIT would become subject to U.S. federal income tax and (ii) the Subsidiary REIT’s failure to qualify could have an
adverse effect on our ability to comply with the REIT income and asset tests, and thus could impair our ability to qualify as a REIT
unless we could avail ourselves of certain relief provisions.
If our OP failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease
to qualify as a REIT.
Our OP intends to qualify as a partnership for U.S. federal income tax purposes, and intends to take that position for all
income tax reporting purposes. We cannot assure you, however, that the IRS will not challenge the status of our OP or any other
subsidiary partnership in which we own an interest as a partnership for U.S. federal income tax purposes, or that a court would not
sustain such a challenge. If classified as a partnership, our OP generally will not be a taxable entity and will not incur any U.S.
federal income tax liability. Instead, each of its partners, including us, will be allocated, and may be required to pay tax with respect
to, its share of our OP’s income. However, our OP would be treated as a corporation for U.S. federal income tax purposes if it was
a “publicly traded partnership,” unless at least 90% of its income was qualifying income as defined in the Code. A “publicly traded
partnership” is a partnership whose partnership interests are traded on an established securities market or are readily tradable on a
secondary market (or the substantial equivalent thereof). Although our OP’s partnership units are not traded on an established
securities market, the OP’s units could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof),
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and our OP may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90% test
generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs
and the definition of qualifying income for purposes of this 90% test are similar in most respects. Our OP may not meet this qualifying
income test. If our OP were to be taxed as a corporation, it would incur substantial tax liabilities, and we could then fail to qualify
as a REIT for U.S. federal income tax purposes, unless we qualified for relief under certain statutory savings provisions, and our
ability to raise additional capital and pay distributions to our stockholders could be impaired.
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the
nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. In
order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT
requirements may hinder our performance. In particular, we must ensure that at the end of each calendar quarter, at least 75% of the
value of our assets consists of cash, cash items, government securities, stock in REITs and other qualified real estate assets, including
certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government
securities, securities of TRSs and qualified real estate assets) generally cannot include more than 10% of the outstanding voting
securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general,
no more than 5% of the value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can
consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of
one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within
30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification
and suffering adverse tax consequences. As a result, we may be required to liquidate, or contribute to a TRS, otherwise attractive
investments from our Portfolio, and may be unable to pursue investments that would be otherwise advantageous to us in order to
satisfy the tests for qualifying as a REIT. These actions could have the effect of reducing our income and amounts available for
distribution to our stockholders.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax
liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we
enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be
made to acquire or carry real estate assets or to offset certain other positions, if properly identified under applicable Treasury
Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into
other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes
of the 75% or 95% gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques
or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject
to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In
addition, losses from hedges held in a TRS generally will not provide any tax benefit, except for being carried forward against future
taxable income of such TRS.
Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.
Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes or non-U.S.
taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a
result of a foreclosure, and state or local income, property and transfer taxes. In addition, our TRSs and any TRS we form in the
future will be subject to corporate U.S. federal, state and local taxes. State, local and non-U.S. income tax laws may differ
substantially from the corresponding U.S. federal income tax laws. Any of these taxes would decrease cash available for distributions
to stockholders. Prospective investors are urged to consult their tax advisors regarding the effect of the other U.S. federal, state, local
and non-U.S. tax laws on an investment in our stock.
Our ownership of interests in TRSs raises certain tax risks.
A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint
election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS
owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other
than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision
of customary or non-customary services to residents of its parent REIT. A TRS is subject to income tax as a C corporation. We
currently own interests in TRSs and may acquire securities in additional TRSs in the future.
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We will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess interest” or
“redetermined TRS service income.” In general, redetermined rents are rents from real property that are overstated as a result of
services furnished to any of our residents by a TRS of ours. Redetermined deductions and excess interest generally represent amounts
that are deducted by a TRS of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on
arm’s-length negotiations. Redetermined TRS service income generally represents amounts by which the gross income of a TRS
attributable to its services for or on behalf of us (other than to a resident of ours) would be increased based on arm’s length
negotiations.
Our TRSs are and any TRS we acquire in the future will be subject to corporate income tax at the U.S. federal, state and
local levels, (including on the gain realized from the sale of property held by it, as well as on income earned while such property is
operated by the TRS). This tax obligation, if material, would diminish the amount of the proceeds from the sale or operation of such
property, or other income earned through the TRS, that would be distributable to our stockholders. U.S. federal, state and local
corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds
available for distribution by us to our stockholders from the sale of property or other income earned through a TRS after the effective
date of any increase in such tax rates. We do not anticipate material income tax obligations in connection with our ownership of
interests in TRSs.
As a REIT, the value of our interests in our TRSs generally may not exceed 20% of the total value of our total assets at
the end of any calendar quarter. If the IRS were to determine that the value of our interests in all of our TRSs exceeded this limit at
the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interest to own a
substantial number of our properties through one or more TRSs, then it is possible that the IRS may conclude that the value of our
interests in our TRSs exceeds 20% of the value of our total assets at the end of any calendar quarter and therefore cause us to fail to
qualify as a REIT. Additionally, as a REIT, no more than 25% of our gross income with respect to any year may, in general, be from
sources other than certain real estate-related assets. Dividends paid to us from a TRS are typically considered to be non-real estate
income. Therefore, we may fail to qualify as a REIT if dividends from all of our TRSs, when aggregated with all other non-real
estate income with respect to any one year, are more than 25% of our gross income with respect to such year.
The sale of certain properties could result in significant tax liabilities unless we are able to defer the taxable gain through 1031
Exchanges.
In general, we may structure asset sales for possible inclusion in 1031 Exchanges. The ability to complete a 1031 Exchange
depends on many factors, including, among others, identifying and acquiring suitable replacement property within limited time
periods, and the ownership structure of the properties being sold and acquired. Therefore, we are not always able to sell an asset as
part of a 1031 Exchange. When successful, a 1031 Exchange enables us to defer the taxable gain on the asset sold. If we cannot defer
the taxable gain resulting from the sales of certain properties, our business, financial condition, results of operations and cash flow,
the market price per share of our common stock and our ability to satisfy our debt service obligations and make distributions to our
stockholders could be materially and adversely affected.
Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your
investment.
For so long as we qualify as a REIT, our ability to dispose of property during the first few years following its acquisition
may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding
prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on
the sale or other disposition of any property (other than foreclosure property) that we own or hold an interest in, directly or indirectly
through any subsidiary entity, including our OP, but generally excluding TRSs, that is deemed to be inventory or property held
primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily
for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding
each property. During such time as we qualify as a REIT, we intend to avoid the 100% prohibited transaction tax by (1) conducting
activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur income taxes at the
corporate rate with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale
or other disposition of an asset we own or hold an interest in, directly or through any subsidiary, will be treated as a prohibited
transaction, or (3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction
safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. However,
no assurance can be given that any particular property that we own or hold an interest in, directly or through any subsidiary entity,
including our OP, but generally excluding TRSs, will not be treated as inventory or property held primarily for sale to customers in
the ordinary course of a trade or business and that we will not be subject to the 100% prohibited transactions tax.
The 100% tax described above may limit our ability to enter into transactions that would otherwise be beneficial to us. For
example, if circumstances make it not profitable or otherwise uneconomical for us to remain in certain states or geographical markets,
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the 100% tax could delay our ability to exit those states or markets by selling our assets in those states or markets other than through
a TRS, which could harm our operating profits.
To continue qualifying as a REIT, we must meet annual distribution requirements, which may force us to forgo otherwise
attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet
our investment objectives and reduce your overall return.
In order to maintain our qualification as a REIT, among other requirements, we must distribute annually to our stockholders
at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined
without regard to the deduction for dividends paid and excluding net capital gains. To the extent that we satisfy this distribution
requirement but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on
our undistributed taxable income. We will also be subject to U.S. federal income tax on our undistributed REIT taxable income and
net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year
are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed
income from prior years. We intend to make distributions to our stockholders to comply with the requirements of the Code for REITs
and to minimize or eliminate our U.S. federal income tax obligation. However, these requirements could cause us to distribute
amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow
funds, possibly at unfavorable rates, or sell assets to fund these distributions.Our access to third-party sources of capital depends on
a number of factors, including the market’s perception of our growth potential, our current debt levels, and our current and potential
future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all,
which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could adversely affect
our financial condition, results of operations, cash flow and the value of our securities. Certain types of assets generate substantial
mismatches between REIT taxable income and available cash. Such assets include rental real estate that has been financed through
financing structures which require some or all of available cash flows to be used to service borrowings. As a result, the requirement
to distribute a substantial portion of our REIT taxable income could cause us to: (1) sell assets in adverse market conditions; (2) raise
capital on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, expansions or
developments, capital expenditures or repayment of debt, in order to comply with REIT requirements. Further, amounts distributed
will not be available to fund our operations. Under certain circumstances, covenants and provisions in our existing and future debt
instruments may prevent us from making distributions that we deem necessary to comply with REIT requirements. It is possible that
we might not always be able to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal
income and excise taxes on our earnings while we qualify as a REIT. Furthermore, our inability to make required distributions could
threaten our status as a REIT and could result in material adverse tax consequences for us and our stockholders. Alternatively, we
may make taxable in-kind distributions of our own stock, which may cause our stockholders to be required to pay income taxes with
respect to such distributions in excess of any cash they receive, or we may be required to withhold taxes with respect to such
distributions in excess of any cash our stockholders receive.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Income from “qualified dividends” payable to U.S. stockholders that are individuals, trusts, and estates is generally subject
to tax at reduced rates. However, dividends payable by REITs to their stockholders generally are not eligible for the reduced rates
for qualified dividends and are taxed at ordinary income rates (but U.S. stockholders that are individuals, trusts and estates generally
may deduct up to 20% of ordinary dividends from a REIT for taxable years beginning before January 1, 2026 (subject to certain
limitations)). To qualify for this deduction, the U.S. stockholder receiving such dividends must hold the dividend-paying REIT stock
for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock
becomes ex-dividend and cannot be under an obligation to make related payments with respect to a position in substantially similar
or related property. At the current maximum ordinary income tax rate of 37% applicable for taxable years beginning before January
1, 2026, the maximum tax rate on ordinary REIT dividends for non-corporate stockholders is 29.6%. Although this does not adversely
affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to corporate qualified dividends
could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than
investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of
REITs, including our common stock, and could be detrimental to our ability to raise additional funds through the future sale of our
common stock. In addition, certain U.S. stockholders may be subject to a 3.8% Medicare tax on dividends payable by REITs. Tax
rates could be changed in future legislation.
The share ownership restrictions of the Code for REITs and the 6.2% share ownership limit in our charter may inhibit market
activity in shares of our stock and restrict our business combination opportunities.
In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively,
more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than
the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or
constructively owns shares of our common stock for purposes of this ownership limitation. Additionally, at least 100 persons must
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beneficially own shares of our common stock during at least 335 days of a taxable year for each taxable year, other than the first
year for which a REIT election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the
acquisition, ownership and transfer of shares of our common stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve
our qualification as a REIT while we so qualify. Unless exempted by our Board (prospectively or retroactively), for so long as we
qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from
beneficially or constructively owning (applying certain attribution rules under the Code) more than 6.2% in value of the aggregate
of the outstanding shares of our capital stock and more than 6.2% (in value or in number of shares, whichever is more restrictive) of
the outstanding shares of our common stock. Our Board may not grant an exemption from these restrictions to any proposed
transferee whose ownership in excess of the 6.2% ownership limit would result in our failing to qualify as a REIT. Our Board granted
a waiver from the ownership limits for James Dondero and certain of his affiliates, and may grant additional waivers in the future.
These waivers will be subject to certain initial and ongoing conditions in our charter designed to protect our status as a REIT,
including providing that any ownership or purported transfer of our shares in violation of the foregoing restrictions will result in the
shares so owned or transferred being automatically transferred to a charitable trust for the benefit of a charitable beneficiary, and the
purported owner or transferee acquiring no rights in such shares. Furthermore, if a transfer of our shares would result in our shares
being beneficially owned by fewer than 100 persons or the transfer to a charitable trust would be ineffective for any reason to prevent
a violation of the other restrictions on ownership and transfer of our shares, the transfer resulting in such violation will be void ab
initio. These restrictions on transferability and ownership will not apply, however, if our Board determines that it is no longer in our
best interest to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to so qualify as a REIT.
These ownership limits could also delay or prevent a transaction or a change in control that might involve a premium price
for our common stock or otherwise be in the best interest of the stockholders.
The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our
stockholders.
Our charter provides that our Board may revoke or otherwise terminate our REIT election, without the approval of our
stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we
will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and will be subject to U.S.
federal income tax at corporate rates and state and local taxes, which may have adverse consequences on our total return to our
stockholders.
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more
difficult or impossible for us to qualify or remain qualified as a REIT.
The U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial
or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in us. The U.S. federal
income tax rules dealing with REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S.
Department of the Treasury, which could result in statutory changes as well as frequent revisions to regulations and interpretations.
There can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or
enacted that could adversely impact our business and financial results.
We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings
will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding
potential future changes to the U.S. federal tax laws on an investment in our stock.
Foreign investors may be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions
received from us and upon disposition of shares of our common stock.
Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent
of our current or accumulated earnings and profits. Such dividends paid to a non-U.S. stockholder ordinarily will be subject to U.S.
withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are
treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign
Investment in Real Property Tax Act of 1980 (“FIRPTA”), capital gain distributions attributable to sales or exchanges of “U.S. real
property interests” (“USRPIs”), generally will be taxed to a non-U.S. stockholder as if such gain were effectively connected with a
U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (1) the distribution is
received with respect to a class of stock that is regularly traded on an established securities market located in the United States and
(2) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on
the date the distribution is received.
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Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject
to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a
USRPI so long as we are a “domestically-controlled” REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s
stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons, including through a foreign-
controlled domestic corporation, during a continuous five-year period ending on the date of disposition or, if shorter, during the
entire period of the REIT’s existence. We cannot assure you that we will qualify as a “domestically controlled” REIT. If we were to
fail to so qualify, gain realized by foreign investors on a sale of shares of our stock would be subject to FIRPTA tax, unless the
shares of our stock were traded on an established securities market and the foreign investor did not at any time during a specified
testing period directly or indirectly own more than 10% of the value of our outstanding common stock.
We and our subsidiaries and stockholders may be subject to state, local or foreign tax filing and payment obligations taxation in
various jurisdictions including those in which we or they transact business, own property or reside.
We may own assets located in, or transact business in, numerous jurisdictions, and may be required to file tax returns in
some or all of those jurisdictions. Our state, local or foreign tax treatment and that of our stockholders may not conform to the U.S.
federal income tax treatment discussed above. Prospective investors should consult their tax advisors regarding the application and
effect of state, local and foreign income and other tax laws on an investment in our stock.
Risks Related to the Ownership of our Common Stock
Our common stock is listed on the NYSE and broad market fluctuations could negatively affect the market price of our stock.
We have listed shares of our common stock on the NYSE under the symbol “NXRT.” The price of NXRT common stock
may fluctuate significantly. Further, the market price of our common stock may be volatile. In addition, the trading volume in our
common stock may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of our
common stock will not fluctuate or decline significantly in the future. Some of the factors that could affect our stock price or result
in fluctuations in the price or trading volume of our common stock include:
•
actual or anticipated variations in our quarterly operating results;
•
changes in our operations or earnings estimates or publication of research reports about us or the real estate industry;
•
changes in market valuations of similar companies;
•
increases in or high interest rates that lead purchasers of our shares to demand a higher yield;
•
adverse market reaction to any increased indebtedness we incur in the future;
•
additions or departures of key management personnel;
•
actions by institutional stockholders;
•
speculation in the press or investment community;
•
the realization of any of the other risk factors presented in this Annual Report;
•
the extent of investor interest in our securities;
•
the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities,
including securities issued by other real estate-based companies;
•
our underlying asset value;
•
investor confidence in the stock and bond markets, generally;
•
changes in tax laws;
•
future equity issuances;
•
failure to meet income estimates; and
•
failure to meet and maintain REIT qualifications.
In the past, class-action litigation has often been instituted against companies following periods of volatility in the price
of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources,
which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common
stock.
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The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other
considerations.
The form, timing and/or amount of dividend distributions will be declared at the discretion of our Board and will depend
on actual cash flows from operations, our financial condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Code and other factors as our Board may consider relevant. Our Board may modify our dividend policy from
time to time at its discretion.
We may be unable to make distributions at expected levels, which could result in a decrease in the market price of our common
stock.
If sufficient cash is not available for distribution from our operations, we may have to fund distributions from working
capital, borrow to provide funds for such distributions, reduce the amount of such distributions, or issue stock dividends. To the
extent we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for
distribution from what they otherwise would have been. If cash available for distribution generated by our assets is less than we
expect, our inability to make the expected distributions could result in a decrease in the market price of our common stock. In
addition, if we make stock dividends in lieu of cash distributions, it may have a dilutive effect on the holdings of our stockholders.
All distributions are made at the discretion of our Board and are based upon, among other factors, our historical and
projected results of operations, financial condition, cash flows and liquidity, maintenance of our REIT qualification and other tax
considerations, capital expenditure and other expense obligations, debt covenants, contractual prohibitions or other limitations,
applicable law and such other matters as our Board may deem relevant from time to time. We may not be able to make distributions
in the future, and our inability to make distributions, or to make distributions at expected levels, could result in a decrease in the
market price of our common stock.
Our charter permits the Board to issue stock with terms that may subordinate the rights of our common stockholders or
discourage a third party from acquiring us in a manner that could otherwise result in a premium price to our stockholders.
Our Board may classify or reclassify any unissued shares of common stock or preferred stock and establish the preferences,
conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of
redemption of any such stock. Thus, our Board could authorize the issuance of preferred stock with terms and conditions that could
have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such
preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary
transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to
holders of our common stock.
Future issuances of debt securities and equity securities may negatively affect the market price of shares of our common stock
and, in the case of equity securities, may be dilutive to existing stockholders and could reduce the overall value of your investment.
In the future, we may issue debt or equity securities or incur other financial obligations, including stock dividends and
shares that may be issued in exchange for common units and equity plan shares/units. Upon liquidation, holders of our debt securities
and other loans and preferred stock will receive a distribution of our available assets before common stockholders. We are not
required to offer any such additional debt or equity securities to existing stockholders on a preemptive basis. Therefore, additional
common stock issuances, directly or through convertible or exchangeable securities (including common units and convertible
preferred units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the
perception of such issuances may reduce the market price of shares of our common stock. Any convertible preferred units would
have, and any series or class of our preferred stock would likely have, a preference on distribution payments, periodically or upon
liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders.
Existing stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue
600 million shares of capital stock, of which 500 million shares are designated as common stock and 100 million shares are
designated as preferred stock. Our Board may increase the number of authorized shares of capital stock without stockholder approval.
Our Board may elect to (1) sell additional shares in future public offerings; (2) issue equity interests in private offerings; (3) issue
shares of our common stock under a long-term incentive plan to our directors, officers and other key employees (and those of our
Adviser or its affiliates and our subsidiaries), our non-employee directors, and potentially certain non-employees who perform
employee-type functions; (4) issue shares to our Adviser, its successors or assigns, in payment of an outstanding fee obligation or as
consideration in a related-party transaction; or (5) issue shares of our common stock to sellers of properties we acquire in connection
with an exchange of OP units. To the extent we issue additional equity interests, your percentage ownership interest in us will be
diluted. Further, depending upon the terms of such transactions, most notably the offering price per share, existing stockholders may
also experience a dilution in the book value of their investment in us.
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Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce
your and our recovery against them if they negligently cause us to incur losses.
Maryland law provides that a director has no liability in the capacity as a director if he or she performs his or her duties in
good faith, in a manner he or she reasonably believes to be in the company’s best interest and with the care that an ordinarily prudent
person in a like position would use under similar circumstances. As permitted by the Maryland General Corporation Law (the
“MGCL”), our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for
liability resulting from:
•
actual receipt of an improper benefit or profit in money, property or services; or
•
a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the
cause of action adjudicated.
In addition, our charter authorizes us, and our bylaws require us, to indemnify our directors and officers for actions taken
by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the
maximum extent permitted by Maryland law. We have entered into indemnification agreements with our directors and executive
officers. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise
exist under common law. Accordingly, in the event that actions taken by any of our directors or officers are immune or exculpated
from, or indemnified against, liability but which impede our performance, our stockholders’ ability to recover damages from that
director or officer will be limited.
Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in
control.
Our charter and bylaws contain a number of provisions, the exercise or existence of which could delay, defer or prevent a
transaction or a change in control that might involve a premium price for our stockholders or otherwise be in their best interest,
including the following:
•
Our Charter Contains Restrictions on the Ownership and Transfer of Our Stock. In order for us to qualify, and elect to
be taxed, as a REIT, no more than 50% of the value of outstanding shares of our stock may be owned, beneficially or
constructively, by five or fewer individuals at any time during the last half of each taxable year other than the first year for
which we elect to be taxed as a REIT. Subject to certain exceptions, our charter prohibits any stockholder from owning
beneficially or constructively more than 6.2% in value or in number of shares, whichever is more restrictive, of the
outstanding shares of our common stock, or 6.2% in value of the aggregate of the outstanding shares of all classes or series
of our stock. We refer to these restrictions collectively as the “ownership limits.” The constructive ownership rules under
the Code are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed
to be constructively owned by one individual or entity. As a result, the acquisition of less than 6.2% of our outstanding
shares of common stock or the outstanding shares of all classes or series of our stock by an individual or entity could cause
that individual or entity or another individual or entity to own constructively in excess of the relevant ownership limits. Our
charter also prohibits any person from owning shares of our stock that would result in our being “closely held” under Section
856(h) of the Code or otherwise cause us to fail to qualify as a REIT. Any attempt to own or transfer shares of our common
stock or of any of our other capital stock in violation of these restrictions may result in the shares being automatically
transferred to a charitable trust or may be void. These ownership limits may prevent a third party from acquiring control of
us if our Board does not grant an exemption from the ownership limits, even if our stockholders believe the change in
control is in their best interest. Our Board granted a waiver from the ownership limits applicable to holders of our common
stock to James Dondero and certain of his affiliates and may grant additional waivers in the future. These waivers will be
subject to certain initial and ongoing conditions designed to protect our status as a REIT.
•
Our Board Has the Power to Cause Us to Issue Additional Shares of Our Stock without Stockholder Approval. Our
charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our
Board may, without stockholder approval, amend our charter to increase the aggregate number of shares of our common
stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any
unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified
shares. As a result, our Board may establish a series of shares of common or preferred stock that could delay or prevent a
transaction or a change in control that might involve a premium price for our shares of common stock or otherwise be in
the best interest of our stockholders.
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Certain provisions of Maryland law may limit the ability of a third party to acquire control of us.
Certain provisions of the MGCL may have the effect of inhibiting a third party from acquiring us or of impeding a change
of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium
over the then-prevailing market price of such shares, including:
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between an
“interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our
outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-year period
immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then
outstanding stock of the corporation) or an affiliate of any interested stockholder and us for five years after the most recent
date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder
voting requirements on these combinations; and
•
“control share” provisions that provide that holders of “control shares” of us (defined as voting shares of stock that, if
aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of
three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct
or indirect acquisition of issued and outstanding “control shares”) have no voting rights with respect to such control shares
except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes entitled
to be cast on the matter, excluding all interested shares.
Pursuant to the Maryland Business Combination Act, our Board by resolution exempted from the provisions of the
Maryland Business Combination Act all business combinations (1) between our Adviser, James Dondero and certain of his affiliates
or their respective affiliates and us and (2) between any other person and us, provided that such business combination is first approved
by our Board (including a majority of our directors who are not affiliates or associates of such person). Our bylaws contain a provision
exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of shares of our stock. There
can be no assurance that these exemptions or resolutions will not be amended or eliminated at any time in the future.
Additionally, Title 3, Subtitle 8 of the MGCL permits our Board, without stockholder approval and regardless of what is currently
provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which are not currently
provided for in our charter or bylaws.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions
and proceedings that may be initiated by our stockholders and provide that claims relating to causes of action under the Securities
Act may only be brought in federal district courts, which could limit stockholders' ability to obtain a favorable judicial forum for
disputes with us or our directors, officers or employees and could discourage lawsuits against us and our directors, officers and
employees.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for
Baltimore City, Maryland, or, if that court does not have subject matter jurisdiction, any state court located within the state of
Maryland, or, if all such state courts do not have subject matter jurisdiction, the United States District Court for the District of
Maryland will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, or any
successor provision thereof, (b) any derivative action or proceeding brought on behalf of the Corporation, (c) any action asserting a
claim of breach of any duty owed by any director or officer or other employee of the Company to the Company or to the stockholders
of the Company, (d) any action asserting a claim against the Company or any director or officer or other employee of the Company
arising pursuant to any provision of the MGCL, the Charter or the Bylaws, (e) any action or proceeding to interpret, apply, enforce
or determine the validity of the Charter or the Bylaws of the Company (including any right, obligation, or remedy thereunder), (f)
any action or proceeding as to which the MGCL confers jurisdiction on the Circuit Court for Baltimore City, Maryland, or (g) any
action asserting a claim against the Company or any director or officer or other employee of the Company that is governed by the
internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over
the indispensable parties named as defendants, except that the foregoing does not apply to suits brought to enforce a duty or liability
created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Unless the Company
consents in writing to the selection of an alternative forum, the federal district courts of the United States of America will, to the
fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising
under the Securities Act. The choice of forum provision could limit a stockholder’s ability to bring a claim in a judicial forum that
it finds favorable for disputes with us or our directors, officers or other employees, which could discourage such lawsuits against us
and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our
bylaws to be inapplicable or unenforceable in an action, we could incur additional costs associated with resolving such action in
other jurisdictions.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act could materially and adversely affect our business and the market price of our common stock.
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Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over
financial reporting, which require significant resources and management oversight. Internal control over financial reporting is
complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot
assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be
discovered with respect to a prior period for which we had previously believed that internal controls were effective. Matters
impacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate
previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by
the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due
to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial
statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our
internal control over financial reporting. This could materially adversely affect us by, for example, leading to a decline in the market
price for our common stock and impairing our ability to raise capital.
Additionally, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-
Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. If we cannot maintain
effective procedures or internal control over financial reporting, or our independent registered public accounting firm cannot provide
an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn,
the market price of our common stock could decline.
General Risks
We are highly dependent on information technology and security breaches or systems failures could significantly disrupt our
business, which may, in turn, negatively affect the market price of our securities and our ability to pay dividends.
Our business is highly dependent on information technology. In the ordinary course of our business, we may store
sensitive data, including our proprietary business information and that of our business partners, on our networks. The secure
maintenance and transmission of this information is critical to our operations. Cybersecurity incidents and cyber-attacks, ransomware
attacks and social engineering attempts (including business email compromise attacks) have been occurring globally at a more
frequent and severe level and will likely continue to increase in frequency in the future. Despite our security measures, our
information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance
or other disruptions, the risk of which may be heightened by the increased prevalence and use of artificial intelligence. Any such
breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any
such access, disclosure or other loss of information, including accidental or unauthorized disclosure of information, could result in
legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our
operations, disrupt our trading activities, or damage our reputation, which could have a material adverse effect on our financial
results and negatively affect the market price of our securities and our ability to pay dividends to stockholders. In addition, although
our Adviser maintains insurance coverage that may cover certain aspects of our cyber and information security risks, such insurance
coverage may be insufficient to cover all losses, such as litigation costs or financial losses that exceed policy limits or are not covered
under any of our Adviser’s current insurance policies.
The resources required to protect our information technology and infrastructure, and to comply with the laws and
regulations related to data and privacy protection, are subject to uncertainty. Even in circumstances where we are able to successfully
protect such technology and infrastructure from attacks, we may incur significant expenses in connection with our responses to such
attacks. In addition, recent well-publicized security breaches have led to enhanced government and regulatory scrutiny of the
measures taken by companies to protect against cyber-security attacks, and may in the future result in heightened cyber-security
requirements and/or additional regulatory oversight. As cybersecurity threats and government and regulatory oversight of associated
risks continue to evolve, we may be required to expend additional resources to enhance or expand upon the security measures we
currently maintain. Any such actions may adversely impact our results of operations and financial condition.
Furthermore, if some of our or our Adviser’s employees are required to work remotely in the future due to pandemics or
infectious diseases, or if we or our Adviser allow permanent or significant remote work by any of our or its employees, there may
be an increased risk of disruption to our operations because they may be utilizing residential networks and infrastructure which may
not be as secure as in our office environment.
Breaches of our data security could materially harm our business and reputation.
We collect and retain certain personal information provided by our residents and prospective residents. In addition, our
Sponsor engages third-party service providers that may collect and hold personally identifiable information of our residents or
prospective residents. While security measures to protect the confidentiality of this information are in place, we can provide no
assurance that we will be able to prevent unauthorized access to this information. Any breach of our data security measures and/or
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loss of this information may result in legal liability and costs (including damages and penalties), as well as damage to our reputation,
that could materially and adversely affect our business and financial performance.
As the techniques used to obtain unauthorized access to information technology systems become more varied and
sophisticated and the occurrence of such breaches becomes more frequent, we and our third-party service providers and other third
parties may be unable to adequately anticipate these techniques or breaches or implement appropriate preventative measures. Any
failure to prevent cybersecurity breaches and maintain the proper function, security and availability of our or our third party service
providers’ and other third parties’ information technology systems could interrupt our operations, damage our reputation and brand,
damage our competitive position, make it difficult for us to attract and retain residents or other tenants, and subject us to liability
claims or regulatory penalties that could adversely affect our business, financial condition and results of operations.
Changes in accounting rules and other policy or regulatory changes could occur at any time and could impact us in significantly
negative ways that we are unable to predict or protect against.
The SEC, Financial Accounting Standards Board (“FASB”) and other regulatory bodies that establish the accounting rules applicable
to us have proposed or enacted a wide array of changes to accounting rules over the last several years. Moreover, in the future, these
regulators may propose additional changes that we do not currently anticipate. Changes to accounting rules that apply to us could
significantly impact our business or our reported financial performance in negative ways that we cannot predict or protect against.
We cannot predict whether any changes to current accounting rules will occur or what impact any codified changes will have on our
business, results of operations, liquidity or financial condition.
The recent change in the U.S. Presidential Administration and changes in Congress could result in significant policy
changes or regulatory uncertainty in our industry. While it is not possible to predict when and whether significant policy or regulatory
changes would occur, any such changes on the federal, state or local level could significantly impact, among other things, our
operating expenses, the availability of financing, interest rates, the economy and the geopolitical landscape. To the extent that the
new government administration takes action by proposing and/or passing regulatory policies that could have a negative impact on
our industry, such actions may have a material adverse effect on our business, results of operations, liquidity and financial condition.
Acts of violence could decrease the value of our assets and could have an adverse effect on our business and results of operations.
Our apartment communities could directly or indirectly be the location or target of actual or threatened terrorist attacks,
crimes, shootings or other acts of violence, the occurrence of which could impact the value of our communities through damage,
destruction, loss or increased security costs, as well as result in operational losses due to reduced rental demand, and the availability
of insurance may be limited or may be subject to substantial costs. If such an incident were to occur at one of our apartment
communities, we may also become subject to significant liability claims, some of which may exceed our insurance coverage for
general liability. In addition, the adverse effects that actual or threatened terrorist attacks could have on national economic conditions,
as well as economic conditions in the markets in which we operate, could similarly have a material adverse effect on our business
and results of operations.
The direct and indirect impacts of climate change may adversely affect our business.
We have been and may continue to be adversely impacted by the direct consequences of climate change, such as property
damage due to increases in the frequency, duration and severity of extreme weather events, such as hurricanes and floods. Similarly,
changes in precipitation levels could lead to increases in droughts or wildfires that could adversely impact demand for our
communities. The increases in property damage due to these events have also contributed to the increases in costs we have faced in
property insurance. In addition, changes in federal, state and local legislation and regulation based on concerns about climate change
could result in delays and increased costs to complete our rehabilitation projects and increased capital expenditures on our existing
properties (for example, to improve their energy efficiency and/or resistance to inclement weather) without a corresponding increase
in revenue, and, as a result, adversely impact our financial results and operations.
Legal proceedings that we become involved in from time to time could adversely affect our business.
As an owner and operator of multifamily apartment communities, we may become involved in various legal proceedings,
including, but not limited to, proceedings related to commercial, employment, environmental, securities, shareholder, tenant or tort
legal issues, some of which could result in a class action lawsuit.
Legal proceedings, if decided adversely to or settled by us, and not covered by insurance, could result in liability material
to our financial condition, results of operations or cash flows. Likewise, regardless of outcome, legal proceedings could result in
substantial costs and expenses, affect the availability or cost of some of our insurance coverage and significantly divert the attention
43
of our management. There can be no assurance that we will be able to prevail in, or achieve a favorable settlement of, any pending
or future legal proceedings to which we become subject.
Our business could be harmed if we are unable to effectively integrate and use artificial intelligence.
If we are unable to remain competitive by integrating and using artificial intelligence, our business could be harmed. In
addition to competitive risks, the incorporation of artificial intelligence into our technological framework poses ethical and
cybersecurity risks, as well as the regulatory risks associated with compliance with state and national laws and regulations.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
The Company’s Board recognizes the critical importance of maintaining the trust and confidence of our customers, clients,
business partners and employees. The Board is actively involved in oversight of the Company’s risk management program, and
cybersecurity represents an important component of the Company’s overall approach to risk management. Our Adviser maintains
cybersecurity policies, standards, processes and practices that are based on recognized security frameworks such as the National
Institute of Standards and Technology cybersecurity framework and the Azure Security Benchmark. In general, our Adviser seeks
to address cybersecurity risks of the Company through a comprehensive, cross-functional approach that is focused on continually
assessing the Company’s information systems to detect, prevent and mitigate cybersecurity threats and effectively respond to
cybersecurity incidents when they occur.
As one of the critical elements of the Company’s overall risk management, our cybersecurity program is focused on the
following key areas:
Governance: The Board’s oversight of cybersecurity risk management is supported by the Audit Committee of the Board
(the “Audit Committee”), which interacts with our Adviser’s Director of Information Technology and other members of
management of our Adviser that implement and oversee our Adviser’s cybersecurity program.
Risk Assessment: No less frequently than annually, our Adviser completes an assessment to identify potential
cybersecurity threats and vulnerabilities to better prioritize and mitigate the Company’s cybersecurity risk. The assessment
includes, among other things, evaluating the nature, sensitivity and location of information the Company collects, processes
and stores and the resiliency of the underlying technologies, the validity and effectiveness of the Company’s security
policies, controls and processes and the cybersecurity preparedness of the third-party vendors used by the Company and
our Adviser. To supplement our Adviser’s internal assessment, our Adviser also periodically engages third-party
consultants to assess system configurations through configuration review and penetration testing.
Technical Safeguards: Our Adviser deploys technical safeguards that are designed to protect the Company’s and our
Adviser’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems,
anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and
cybersecurity threat intelligence.
Incident Response and Recovery Planning: Our Adviser has established and maintains comprehensive business
continuity plans that address potential impacts should the information or technology systems become compromised, and
the technological components of such plans are tested and evaluated on a regular basis.
Third-Party Risk Management: Our Adviser maintains a comprehensive, risk-based approach to identifying and
overseeing cybersecurity risks presented by third parties, including key vendors, service providers and other external users
of the Company’s and the Adviser’s systems, as well as the systems of third parties that could adversely impact our business
in the event of a cybersecurity incident affecting those third-party systems.
Education and Awareness: Our Adviser provides regular, mandatory training for its employees regarding cybersecurity
threats as a means to equip its employees with effective tools to address cybersecurity threats, and to communicate our
Adviser’s evolving information security policies, standards, processes and practices.
Our Adviser engages in the periodic assessment and testing of our Adviser’s policies, standards, processes and practices
that are designed to address the Company’s cybersecurity threats and incidents. These efforts include a wide range of activities,
including annual penetration and third-party compliance testing and ongoing internal testing and creation and modification of policies
and procedures. The results of the annual assessments are reported to the Audit Committee and the Board, and our Adviser adjusts
44
its cybersecurity policies, standards, processes and practices as necessary based on the information provided by these assessments
and ongoing testing.
The Audit Committee oversees the Company’s risk management policies, including the management of risks arising from
cybersecurity threats. The Audit Committee receives presentations and reports on cybersecurity risks, which address a wide range
of topics including annual assessments of internal and third-party policies, vulnerability assessments, technological trends and
information security considerations arising with respect to the Company and our Adviser. The Audit Committee also receives prompt
and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates
regarding any such incident until it has been addressed. On an annual basis, the Board and the Audit Committee discuss the
Company’s approach to cybersecurity risk management with our Adviser, including the Adviser’s Director of Information
Technology.
The Adviser’s Director of Information Technology, in coordination with relevant senior management and personnel of the
Adviser, which includes our Adviser’s Chief Financial Officer, Senior Infrastructure Engineer, and Chief Compliance Officer, work
to conceive, implement, and monitor the effectiveness of a program designed to protect the Company’s information systems from
cybersecurity threats and to promptly respond to any security incidents in accordance with the Company’s business continuity plan.
To ensure the effectiveness of these controls, the Adviser’s technology team continually monitors, hardens, and evolves systems’
security postures to model and mirror various security frameworks such as NIST CSF and Azure Security Benchmark. The Adviser’s
Director of Information Technology will promptly notify our General Counsel of any cybersecurity events, with material
cybersecurity events promptly communicated to the Audit Committee and publicly disclosed as deemed necessary.
The Adviser’s Director of Information Technology has served in various roles in information technology and information
security for 25 years, including serving as Global Technology Manager at a multi-national publicly traded broker-dealer, and 15
years as the Director of Information Technology at a privately held financial services firm. The Adviser’s Director of Information
Technology holds an undergraduate degree in biochemistry and has attained numerous information technology certifications over
the years including Microsoft Certified Systems Engineer (MCSE) and Cisco Certified network Professional (CCNP). The Adviser’s
Senior Infrastructure Engineer has over 20 years industry experience, holds an undergraduate degree in radiology, and has completed
various Microsoft related information technology certifications. Combined, our Adviser’s information technology team has over 50
years of experience covering all major aspects of network architecture and management.
Risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected,
and we do not believe are reasonably likely to materially affect, us, including our business strategy, results of operations or financial
condition. However, the risk of cybersecurity threats could be significant if a cyber-attack disrupts the Company’s critical operations,
service or financial systems. See “Risk Factors - We are highly dependent on information technology and security breaches or
systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our securities and
our ability to pay dividends.”
45
Item 2. Properties
As of December 31, 2024, our Portfolio consisted of 35 properties representing 12,984 units in seven states. The following
table provides a summary of the properties in our Portfolio as of December 31, 2024:
As of December 31, 2024
Properties by State
Location
Number
of Units
Date
Acquired
Purchase
Price (in
thousands)
Average Effective
Monthly Rent
Per Unit (1)
% Occupied
(2)
Number of
Units
Rehabbed (3)
Rehab
Expenditures
per Unit (4)
Texas
Arbors on Forest Ridge
Bedford, Texas
210 1/31/2014 $
12,805 $
1,121
98.6 %
157 $
4,402
Cutter's Point
Richardson, Texas
196 1/31/2014
15,845
1,370
98.5 %
131
6,732
Versailles
Dallas, Texas
388 2/26/2015
26,165
1,130
96.1 %
296
6,164
Venue at 8651
Fort Worth, Texas
333 10/30/2015
19,250
1,160
95.5 %
286
7,009
Atera Apartments
Dallas, Texas
380 10/25/2017
59,200
1,487
95.0 %
215
3,419
Versailles II
Dallas, Texas
242 9/26/2018
24,680
1,064
96.7 %
56
5,632
Summers Landing
Fort Worth, Texas
196
6/7/2019
19,396
1,198
95.4 %
58
11,415
Florida
The Summit at Sabal Park
Tampa, Florida
252 8/20/2014
19,050
1,370
94.4 %
209
5,864
Courtney Cove
Tampa, Florida
324 8/20/2014
18,950
1,249
92.9 %
249
4,974
Sabal Palm at Lake Buena Vista
Orlando, Florida
400 11/5/2014
49,500
1,671
94.0 %
77
13,114
Cornerstone
Orlando, Florida
430 1/15/2015
31,550
1,435
94.4 %
452
4,950
Seasons 704 Apartments
West Palm Beach, Florida
222 4/15/2015
21,000
1,818
95.0 %
188
7,836
Parc500
West Palm Beach, Florida
217 7/27/2016
22,421
1,879
96.3 %
212
14,650
Avant at Pembroke Pines
Pembroke Pines, Florida
1,520 8/30/2019
322,000
2,199
95.3 %
580
17,848
Residences at West Place
Orlando, Florida
342 7/17/2019
55,000
1,586
95.0 %
117
11,892
Nevada
Bella Solara
Las Vegas, Nevada
320 11/22/2019
66,500
1,328
93.1 %
113
11,232
Bloom
Las Vegas, Nevada
528 11/22/2019
106,500
1,276
94.7 %
142
14,115
Torreyana Apartments
Las Vegas, Nevada
316 11/22/2019
68,000
1,444
95.9 %
52
13,435
Georgia
The Preserve at Terrell Mill
Marietta, Georgia
752
2/6/2015
58,000
1,282
94.3 %
719
11,370
Rockledge Apartments
Marietta, Georgia
708 6/30/2017
113,500
1,488
94.3 %
440
11,091
The Adair
Sandy Springs, Georgia
232
4/1/2022
65,500
1,995
91.4 %
140
11,904
Tennessee
Brandywine I & II
Nashville, Tennessee
632 9/26/2018
79,800
1,204
94.6 %
525
10,808
Arbors of Brentwood
Nashville, Tennessee
346 9/10/2019
62,250
1,458
93.1 %
141
10,251
Residences at Glenview Reserve Nashville, Tennessee
360 7/17/2019
45,000
1,248
95.3 %
259
13,544
Arizona
Madera Point
Mesa, Arizona
256
8/5/2015
22,525
1,311
93.8 %
255
4,535
The Venue on Camelback
Phoenix, Arizona
415 10/11/2016
44,600
981
92.8 %
271
10,266
Bella Vista
Phoenix, Arizona
248 1/28/2019
48,400
1,712
89.9 %
198
10,537
The Enclave
Tempe, Arizona
204 1/28/2019
41,800
1,782
93.6 %
162
10,392
The Heritage
Phoenix, Arizona
204 1/28/2019
41,900
1,676
94.6 %
174
9,637
Fairways at San Marcos
Chandler, Arizona
352 11/2/2020
84,480
1,574
95.7 %
136
13,667
Estates on Maryland
Phoenix, Arizona
330
4/1/2022
77,900
1,430
95.5 %
110
13,250
North Carolina
The Verandas at Lake Norman
Charlotte, North Carolina
264 6/30/2021
63,500
1,343
98.1 %
66
12,376
Creekside at Matthews
Charlotte, North Carolina
240 6/30/2021
58,000
1,423
95.8 %
83
10,957
Six Forks Station
Raleigh, North Carolina
323 9/10/2021
74,760
1,359
93.2 %
123
12,784
High House at Cary
Cary, North Carolina
302 12/7/2021
93,250
1,498
92.1 %
107
13,517
Total
12,984
$
2,032,977 $
1,491
94.7 %
7,499 $
10,123
(1) Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31,
2024 minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of
December 31, 2024.
(2) Percent occupied is calculated as the number of units occupied as of December 31, 2024, divided by the total number of units,
expressed as a percentage.
(3) Inclusive of all full and partial interior upgrades completed.
(4) Inclusive of all full and partial interior upgrades completed and leased as of December 31, 2024.
(5) Includes the 36 downed units excluded from our 2023-2024 Same Store pool (see Note 4 to our consolidated financial
statements).
For additional information regarding our Portfolio, see Notes 3 and 4 to our consolidated financial statements.
Item 3. Legal Proceedings
From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not
aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations
or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.
46
Item 4. Mine Safety Disclosures
Not applicable.
47
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock trades on the NYSE under the ticker symbol “NXRT.”
Stockholder Information
On February 26, 2025, we had 25,466,105 shares of common stock outstanding held by a total of approximately 764 record
holders. The number of record holders is based on the records of Equiniti Trust Company, LLC, who serves as our transfer agent.
The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by
a broker or clearing agency, but does include each such broker or clearing agency as one record holder.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On October 24, 2022, the Board authorized us to repurchase an indeterminate number of shares of our common stock at an
aggregate market value of up to $100.0 million during a two-year period that expired on October 24, 2024 (the “Share Repurchase
Program”). On October 28, 2024, the Board authorized us to repurchase an indeterminate number of shares of our common stock at
an aggregate market value of up to $100.0 million during a two-year period that will expire on October 28, 2026. This authorization
replaced the Board’s prior authorization of the Share Repurchase Program. During the year ended December 31, 2024, the Company
repurchased 438,678 shares of its common stock, par value of $0.01 per share, at a total cost of approximately $14.6 million, or
$33.19 per share on average. Since the inception of the Share Repurchase Program in June 2016 through December 31, 2024, the
Company had repurchased 2,989,306 shares of its common stock, par value $0.01 per share, at a total cost of approximately $86.9
million, or $29.07 per share as shown in the table below:
Period
Total Number
of Shares
Purchased
Average Price
Paid Per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar Value
of Shares that may yet be
Purchased under the
Plans or Programs
(in millions)
Beginning Total
2,989,306 $
29.07
2,989,306 $
85.5
October 1 – October 31
—
—
—
85.5
November 1 – November 30
—
—
—
85.5
December 1 – December 31
—
—
—
85.5
Total as of December 31, 2024
2,989,306 $
29.07
2,989,306 $
85.5
48
PERFORMANCE GRAPH
On April 1, 2015, our common stock commenced trading on the NYSE. The following graph compares the cumulative total
stockholder return on our common shares for the measurement period commencing December 31, 2019 and ending December 31,
2024 with the cumulative total returns of the Russell 3000 Index, the MSCI U.S. REIT Index (^RMZ) and the Standard & Poor’s
U.S. REIT Index. The following graph assumes an investment of $100 on the initial day of the relevant measurement period and that
all dividends were reinvested.
Dividends
We intend to make regular quarterly dividend payments to holders of our common stock. U.S. federal income tax law
generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for
dividends paid and excluding net capital gains. As a REIT, we will be subject to U.S. federal income tax on our undistributed REIT
taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect
to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100%
of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of
our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by
our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet
both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable
income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a
portion of the required dividend in the form of a taxable distribution of stock or debt securities.
Item 6. [Reserved]
49
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of our financial condition and our historical results of operations. The following
should be read in conjunction with our financial statements and accompanying notes. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or
expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and
elsewhere in this Annual Report. See “Cautionary Statement Regarding Forward-Looking Statements” in this report, and “Risk
Factors” in this Annual Report. Our management believes the assumptions underlying the Company’s financial statements and
accompanying notes are reasonable. However, the Company’s financial statements and accompanying notes may not be an
indication of our financial condition and results of operations in the future.
This section of this Annual Report generally discusses the years ended December 31, 2024 and 2023. A discussion of the year
ended December 31, 2022 is available at Part II, “Item 7 Management’s Discussion and Analysis of Financial Condition and Results
of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 which was filed with the SEC on February
27, 2024.
Overview
As of December 31, 2024, our Portfolio consisted of 35 multifamily properties primarily located in the Southeastern and
Southwestern United States encompassing 12,984 units of apartment space that was approximately 94.7% leased with a weighted
average monthly effective rent per occupied apartment unit of $1,491. Substantially all of our business is conducted through the OP.
We own the Portfolio through the OP and our TRS. The OP owns approximately 99.9% of the Portfolio; our TRS owns approximately
0.1% of the Portfolio. The OP GP is the sole general partner of the OP. As of December 31, 2024, there were 26,053,988 OP Units
outstanding, of which 25,951,154, or 99.6%, were owned by us and 102,834, or 0.4%, were owned by unaffiliated limited partners
(see Note 9 to our consolidated financial statements).
We are primarily focused on directly or indirectly acquiring, owning, and operating well-located multifamily properties with
a value-add component in large cities and suburban submarkets of large cities, primarily in the Southeastern and Southwestern United
States. We generate revenue primarily by leasing our multifamily properties. We intend to employ targeted management and a value-
add program at a majority of our properties in an attempt to improve rental rates and the NOI at our properties and achieve long-
term capital appreciation for our stockholders. We are externally managed by the Adviser through the Advisory Agreement, by and
among the OP, the Adviser and us. The Advisory Agreement was renewed on February 24, 2025 for a one-year term. The Adviser
is wholly owned by NexPoint Advisors, L.P. On March 4, 2020, the Company, the OP and the Adviser entered into separate equity
distribution agreements with each of the 2020 ATM Sales Agents, pursuant to the 2020 ATM Program (as defined below). See Note
7 to our consolidated financial statements.
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, and expect to continue to qualify as a
REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that
we distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we will be subject to U.S. federal income tax
on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which
distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital
gain net income and (3) 100% of our undistributed income from prior years. We believe we qualify for taxation as a REIT under the
Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as
to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal,
state, and local income and margin taxes. We had no significant taxes associated with our TRS for the years ended December 31,
2024, 2023 and 2022.
The macroeconomic environment remains challenging. The high interest rate environment, and ongoing economic
uncertainty, has limited credit availability to commercial real estate. Less available and more expensive debt capital has had
pronounced effects on the capital markets, making property acquisitions and other investments harder to finance. Similar factors also
impact the timing of and proceeds generated from asset sales and our ability to obtain debt capital.
On October 16, 2019, Highland, a former affiliate of our Sponsor, filed for Chapter 11 bankruptcy protection with the United
States Bankruptcy Court for the District of Delaware (the “Highland Bankruptcy”). On October 15, 2021, Marc S. Kirschner, as
litigation trustee of a litigation subtrust formed pursuant to Highland’s plan of reorganization and disclosure statement which became
effective on August 11, 2021, filed the Bankruptcy Trust Lawsuit against various persons and entities, including our Sponsor and
James Dondero. On March 24, 2023, the litigation trustee filed a motion for leave to stay the Bankruptcy Trust Lawsuit, which was
granted by the bankruptcy court on April 4, 2023. Per the court’s order, the Bankruptcy Trust Lawsuit is stayed until any party
provides 30 days’ notice of the intent to resume the adversary proceeding, with all pending deadlines extended for a period of time
commensurate with the length of the stay. As of the date of this filing, the Bankruptcy Trust Lawsuit continues to be stayed. In
addition, on February 8, 2023, UBS Securities LLC and its affiliate (collectively, “UBS”) filed a lawsuit in the Supreme Court of
the State of New York, County of New York against Mr. Dondero and a number of other persons and entities seeking to collect on
50
$1.3 billion in judgments UBS obtained against entities that were managed indirectly by Highland (the “UBS Lawsuit”). On February
26, 2024, the respondents, including Mr. Dondero, filed motions to dismiss the UBS Lawsuit. A hearing was held on July 8, 2024.
The court dismissed the claims against one respondent, CLO HoldCo Ltd., for lack of personal jurisdiction in a July 12, 2024 order.
On August 24, 2024, UBS filed a notice of appeal for that dismissal order, which has not yet been briefed. The remaining respondents’
motions to dismiss, including Mr. Dondero’s, remain pending. Neither the Bankruptcy Trust Lawsuit nor the UBS Lawsuit include
claims related to our business or our assets. Our Sponsor and Mr. Dondero have informed us they believe the Bankruptcy Trust
Lawsuit has no merit, and Mr. Dondero has informed us he believes the UBS Lawsuit has no merit; we have been advised that the
defendants named in each of the lawsuits intend to vigorously defend against the claims. We do not expect the Bankruptcy Trust
Lawsuit or the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.
Components of Our Revenues and Expenses
Revenues
Rental income. Our earnings are primarily attributable to the rental revenue from our multifamily properties. We anticipate
that the leases we enter into for our multifamily properties will typically be for one year or less on average. Also included are utility
reimbursements, late fees, pet fees, and other rental fees charged to tenants.
Other income. Other income includes ancillary income earned from tenants such as non-refundable fees, application fees,
laundry fees, cable TV income, and other miscellaneous fees charged to tenants.
Expenses
Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit
costs, utilities, casualty-related expenses and recoveries and other property operating costs.
Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending
on the location of each property. Insurance includes the cost of commercial, general liability, and other needed insurance for each
property.
Property management fees. Property management fees include fees paid to BH, our property manager, for managing each
property (see Note 9 to our consolidated financial statements).
Advisory and administrative fees. Advisory and administrative fees include the fees paid to our Adviser pursuant to the
Advisory Agreement (see Note 10 to our consolidated financial statements).
Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited
to, audit fees, legal fees, listing fees, board of director fees, equity-based compensation expense, investor relations costs and
payments of reimbursements to our Adviser for operating expenses. Corporate general and administrative expenses and the advisory
and administrative fees paid to our Adviser (including advisory and administrative fees on properties defined in the Advisory
Agreement as New Assets) will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory
Agreement is in effect), calculated in accordance with the Advisory Agreement, or the Expense Cap. The Expense Cap does not
limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply
to legal, accounting, financial, due diligence, and other service fees incurred in connection with mergers and acquisitions,
extraordinary litigation, or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence
expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the
Adviser, the Adviser may elect to waive certain advisory and administrative fees otherwise due. If advisory and administrative fees
are waived in a period, the waived fees for that period are considered to be waived permanently and the Adviser may not be
reimbursed in the future.
Property general and administrative expenses. Property general and administrative expenses include the costs of marketing,
professional fees, general office supplies, and other administrative related costs of each property.
51
Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our multifamily
properties and amortization of acquired in-place leases.
Other Income and Expense
Interest expense. Interest expense primarily includes the cost of interest expense on debt, the amortization of deferred
financing costs and the related impact of interest rate derivatives used to manage our interest rate risk.
Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs includes
prepayment penalties and defeasance costs, the write-off of unamortized deferred financing costs and fair market value adjustments
of assumed debt related to the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred
financing costs and other costs incurred in a debt extinguishment.
Casualty losses. Casualty losses include expenses resulting from damages from an unexpected and unusual event such as a
natural disaster. Expenses can include additional payments on insurance premiums, impairment recognized on a property, and other
abnormal expenses arising from the related event.
Miscellaneous income. Miscellaneous income includes proceeds received from insurance for business interruption involving
the loss of rental income at a property that has temporarily suspended operations due to an unexpected and unusual event.
Gain on sales of real estate. Gain on sales of real estate includes the gain recognized upon sales of properties. Gain on sales
of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales
prices of the properties.
Results of Operations for the Years Ended December 31, 2024 and 2023
The year ended December 31, 2024 as compared to the year ended December 31, 2023
The following table sets forth a summary of our operating results for the years ended December 31, 2024 and 2023 (in
thousands):
For the Year Ended December 31,
2024
2023
$ Change
Total revenues
$
259,701 $
277,526 $
(17,825 )
Total expenses
(230,387 )
(232,274 )
1,887
Operating income before gain on sales of real estate
29,314
45,252
(15,938 )
Gain on sales of real estate
54,246
67,926
(13,680 )
Operating income
83,560
113,178
(29,618 )
Interest expense
(58,477 )
(67,106 )
8,629
Loss on extinguishment of debt and modification costs
(24,004 )
(2,409 )
(21,595 )
Casualty loss
(626 )
(856 )
230
Gain on forfeited deposits
—
250
(250 )
Equity in earnings of affiliate
172
205
(33 )
Miscellaneous income
489
1,171
(682 )
Net income
1,114
44,433
(43,319 )
Net income attributable to redeemable noncontrolling interests in the OP
4
169
(165 )
Net income attributable to common stockholders
$
1,110 $
44,264 $
(43,154 )
The change in our net income between the periods primarily relates to decreases in gain on sales of real estate and rental
income of $13.7 million and $18.2 million, respectively, in addition to an increase in loss on extinguishment of debt and modification
costs of $21.6 million.
Revenues
Rental income. Rental income was $251.9 million for the year ended December 31, 2024 compared to $270.1 million for the
year ended December 31, 2023, which was a decrease of approximately $18.2 million. The decrease between the periods was
primarily due to our three dispositions in 2024 compared to two dispositions in 2023, and the timing of disposition activity. During
the year ended December 31, 2023, the Company sold one property in the third quarter of 2023 and one property in the fourth quarter
of 2023. During the year ended December 31, 2024, the Company sold one property in each of the first, second, and fourth quarters
of 2024.
52
Other income. Other income was $7.8 million for the year ended December 31, 2024 compared to $7.4 million for the year
ended December 31, 2023, which was an increase of approximately $0.4 million. The increase between the periods was primarily
due to a $0.1 million increase in internet and tech income, in addition to an increase in cable income of $0.2 million and an increase
in all other income of approximately $0.1 million.
Expenses
Property operating expenses. Property operating expenses were $56.6 million for the year ended December 31, 2024
compared to $57.8 million for the year ended December 31, 2023, which was a decrease of approximately $1.2 million. The decrease
between the periods was primarily due to our disposition activity in 2023 and 2024 and the timing of the transactions, as described
above.
Real estate taxes and insurance. Real estate taxes and insurance costs were $33.1 million for the year ended December 31,
2024 compared to $36.8 million for the year ended December 31, 2023, which was a decrease of approximately $3.7 million. The
decrease between the periods was primarily due to our disposition activity in 2023 and 2024 and the timing of the transactions.
Property management fees. Property management fees were $7.5 million for the year ended December 31, 2024 compared to
$8.1 million for the year ended December 31, 2023, which was a decrease of approximately $0.6 million. The decrease between the
periods was primarily due to a decrease in total revenues, which the fee is primarily based on.
Advisory and administrative fees. Advisory and administrative fees were $6.9 million for the year ended December 31, 2024
compared to $7.6 million for the year ended December 31, 2023, which was a decrease of approximately $0.7 million. For the years
ended December 31, 2024 and 2023, our Adviser elected to voluntarily waive advisory and administrative fees of approximately
$21.3 million and $21.7 million and are considered permanently waived. Our Adviser is not contractually obligated to waive fees on
New Assets in the future and may cease waiving fees on New Assets at its discretion. Advisory and administrative fees may increase
in future periods as we acquire additional properties, which will be classified as New Assets.
Corporate general and administrative expenses. Corporate general and administrative expenses were $19.4 million for the
year ended December 31, 2024 compared to $17.1 million for the year ended December 31, 2023, which was an increase of
approximately $2.3 million. The increase was primarily due to increases in stock compensation expense of $1.3 million and an
increase in all other corporate general and administrative expenses of $1.0 million.
Property general and administrative expenses. Property general and administrative expenses were $9.2 million for the year
ended December 31, 2024 compared to $9.5 million for the year ended December 31, 2023, which was a decrease of approximately
$0.3 million. The decrease between the periods was primarily due to decreases in audit fees of $0.3 million.
Depreciation and amortization. Depreciation and amortization costs were $97.8 million for the year ended December 31,
2024 compared to $95.2 million for the year ended December 31, 2023, which was an increase of approximately $2.6 million. The
increase between the periods was due to an increase in value add activity during 2023.
Other Income and Expense
Interest expense. Interest expense was $58.5 million for the year ended December 31, 2024 compared to $67.1 million for the
year ended December 31, 2023, which was a decrease of approximately $8.6 million. The decrease between the periods was primarily
due to a decrease in interest on debt and an increase in mark-to-market gain on interest rate caps of $6.3 million and $2.1 million,
respectively, for the years ended December 31, 2024 and 2023 (in thousands):
For the Year Ended December 31,
2024
2023
$ Change
Interest on debt
$
104,116 $
110,394 $
(6,278 )
Amortization of deferred financing costs
3,364
2,945
419
Interest rate swaps
(48,103 )
(47,717 )
(386 )
Interest rate caps
(307 )
—
(307 )
Interest rate caps mark-to-market (gain)
(593 )
1,484
(2,077 )
Total
$
58,477 $
67,106 $
(8,629 )
53
Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs was $24.0
million for the year ended December 31, 2024 compared to $2.4 million for the year ended December 31, 2023, which was an
increase of approximately $21.6 million. The increase between periods is primarily driven by increases in prepayment penalties and
defeasance costs and write-off of deferred financing costs of $13.1 million and $8.0 million, respectively, due to our refinance
activity in 2024 as compared to 2023. During the year ended December 31, 2024, the Company completed a portfolio refinance on
34 of its property mortgages. The following table details the various costs included in loss on extinguishment of debt and modification
costs for the years ended December 31, 2024 and 2023 (in thousands):
For the Year Ended December 31,
2024
2023
$ Change
Prepayment penalties and defeasance costs
$
15,486 $
2,370 $
13,116
Write-off of deferred financing costs
8,465
483
7,982
Write-off of fair market value adjustment of assumed debt
—
—
—
Debt modification and other extinguishment costs
53
(444 )
497
Total
$
24,004 $
2,409 $
21,595
Casualty gains (losses). Casualty losses were $0.6 million for the year ended December 31, 2024 compared to casualty gains
of $0.9 million for the year ended December 31, 2023. The increase in casualty losses is attributable to damages sustained at Bella
Solara (see Note 4 to our consolidated financial statements).
Miscellaneous income. Miscellaneous income was $0.5 million for the year ended December 31, 2024 compared to $1.2
million for the year ended December 31, 2023, which was a decrease of approximately $0.7 million. The decrease between the
periods was primarily due to business interruption proceeds received from casualty events (see Note 4).
Gain on sales of real estate. Gain on sales of real estate was $54.2 million for the year ended December 31, 2024 compared
to $67.9 million for the year ended December 31, 2023, which was a decrease of approximately $13.7 million. During the year ended
December 31, 2024, we sold three properties for a combined gain of $54.2 million whereas during the year ended December 31,
2023, we sold two properties for a combined gain of $67.9 million.
Non-GAAP Measurements
Net Operating Income and Same Store Net Operating Income
NOI is a non-GAAP financial measure of performance. NOI is used by investors and our management to evaluate and compare
the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of
our properties as NOI is calculated by adjusting net income (loss) to add back (1) interest expense, (2) advisory and administrative
fees, (3) depreciation and amortization expenses, (4) gains or losses from the sale of operating real estate assets that are included in
net income (loss) computed in accordance with GAAP, (5) corporate income and corporate general and administrative expenses that
are not reflective of operations of the properties, (6) other gains and losses that are specific to us including gain (loss) on
extinguishment of debt and modification costs, (7) casualty-related expenses/(recoveries) and casualty gains (losses), (8) gain on
forfeited deposits, (9) property general and administrative expenses that are not reflective of the continuing operations of the
properties or are incurred on behalf of the Company at the property for expenses such as legal, professional, centralized leasing
service and franchise tax fees and (10) equity in earnings of affiliates.
54
The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and
constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well
as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Advisory
and administrative fees and corporate general and administrative expenses are eliminated because they do not reflect continuing
operating costs of the property owner. Depreciation and amortization expenses as well as gains or losses from the sale of operating
real estate assets are eliminated because they may not accurately represent the actual change in value in our multifamily properties
that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over
time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically
increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage
of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the
time of sale, which will usually change from period to period. Casualty-related expenses and recoveries, casualty gains and losses,
and losses on extinguishment of debt and modification costs are excluded because they do not reflect continuing operating costs of
the property owner. Corporate income is excluded as it does not pertain to the performance of the operating properties. Entity level
general and administrative expenses incurred at the properties are eliminated as they are specific to the way in which we have chosen
to hold our properties and are the result of our ownership structuring. Gain of forfeited deposits is eliminated because such gains are
not part of our core operations for the properties. Equity in earnings of affiliates is excluded as its not part of our core operations for
the properties. These items can create distortions when comparing one period to another or when comparing our operating results to
the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating
these items from net income is useful because the resulting measure captures the actual ongoing revenue generated and actual
expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes the items listed above, all of which are significant economic
costs. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is
therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in
conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in “—Results of Operations”
regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different
methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled
measures reported by other companies that do not define the measure exactly as we do.
We define “Same Store NOI” as NOI for our properties that are comparable between periods. We view Same Store NOI as
an important measure of the operating performance of our properties because it allows us to compare operating results of properties
owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or
dispositions during the periods.
55
NOI and 2023-2024 Same Store NOI for the Years Ended December 31, 2024 and 2023
The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2023-
2024 Same Store NOI for the years ended December 31, 2024 and 2023 to net income, the most directly comparable GAAP financial
measure (in thousands):
For the Year Ended December 31,
2024
2023
Net income
$
1,114 $
44,433
Adjustments to reconcile net income (loss) to NOI:
Advisory and administrative fees
6,899
7,645
Corporate general and administrative expenses
19,399
17,146
Corporate income
(2,215 )
(483 )
Casualty-related expenses/(recoveries)
(1)
1,389
(2,214 )
Casualty losses (gains)
626
856
Gain on forfeited deposits
—
(250 )
Property general and administrative expenses
(2)
3,998
3,701
Depreciation and amortization
97,762
95,186
Interest expense
58,477
67,106
Equity in earnings of affiliate
(172 )
(205 )
Loss on extinguishment of debt and modification costs
24,004
2,409
Gain on sales of real estate
(3)
(54,246 )
(67,926 )
NOI
$
157,035 $
167,404
Less Non-Same Store
Revenues
(5,478 )
(30,082 )
Operating expenses
2,496
15,542
Operating income
(3 )
(134 )
Same Store NOI
$
154,050 $
152,730
(1) Adjustment to net income to exclude certain property operating expenses that are casualty-related expenses/(recoveries).
(2) Adjustment to net income to exclude certain property general and administrative expenses that are not reflective of the
continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional,
centralized leasing service and franchise tax fees.
(3) $31.5 million with a related party for the year ended December 31, 2024.
56
NOI and 2022-2024 Same Store NOI for the Years Ended December 31, 2024 and 2023
The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2022-
2024 Same Store NOI for the years ended December 31, 2024 and 2023 to net income, the most directly comparable GAAP financial
measure (in thousands):
For the Year Ended December 31,
2024
2023
Net income
$
1,114 $
44,433
Adjustments to reconcile net income to NOI:
Advisory and administrative fees
6,899
7,645
Corporate general and administrative expenses
19,399
17,146
Corporate income
(2,215 )
(483 )
Casualty-related expenses/(recoveries)
(1)
1,389
(2,214 )
Casualty losses
626
856
Gain on forfeited deposits
—
(250 )
Property general and administrative expenses
(2)
3,998
3,701
Depreciation and amortization
97,762
95,186
Interest expense
58,477
67,106
Equity in earnings of affiliate
(172 )
(205 )
Loss on extinguishment of debt and modification costs
24,004
2,409
Gain on sales of real estate
(3)
(54,246 )
(67,926 )
NOI
$
157,035 $
167,404
Less Non-Same Store
Revenues
(17,318 )
(41,581 )
Operating expenses
6,756
19,327
Operating income
(13 )
(151 )
Same Store NOI
$
146,460 $
144,999
(1) Adjustment to net income to exclude certain property operating expenses that are casualty-related expenses/(recoveries).
(2) Adjustment to net income to exclude certain property general and administrative expenses that are not reflective of the
continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional,
centralized leasing service and franchise tax.
(3) $31.5 million with a related party for the year ended December 31, 2024.
Net Operating Income for Our 2023-2024 Same Store and Non-Same Store Properties for the Years Ended December 31,
2024 and 2023
There are 35 properties encompassing 12,948 units of apartment space in our 2023-2024 Same Store properties. Our 2023-
2024 Same Store properties exclude the 36 units that are currently down (see Note 4 to our consolidated financial statements).
57
The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2024 and
2023 for our 2023-2024 Same Store and Non-Same Store properties (dollars in thousands):
For the Year Ended December 31,
2024
2023
$ Change
% Change
Revenues
Same Store
Rental income
$
246,688 $
241,188 $
5,500
2.3 %
Other income
5,320
5,773
(453 )
-7.8 %
Same Store revenues
252,008
246,961
5,047
2.0 %
Non-Same Store
Rental income
5,173
28,890
(23,717 )
N/M
Other income
305
1,192
(887 )
N/M
Non-Same Store revenues
5,478
30,082
(24,604 )
N/M
Total revenues
257,486
277,043
(19,557 )
-7.1 %
Operating expenses
Same Store
Property operating expenses (1)
53,459
51,280
2,179
4.2 %
Real estate taxes and insurance
32,668
31,900
768
2.4 %
Property management fees (2)
7,279
7,147
132
1.8 %
Property general and administrative expenses (3)
5,038
4,941
97
2.0 %
Same Store operating expenses
98,444
95,268
3,176
3.3 %
Non-Same Store
Property operating expenses (4)
1,735
8,772
(7,037 )
N/M
Real estate taxes and insurance
394
4,947
(4,553 )
N/M
Property management fees (2)
205
922
(717 )
N/M
Property general and administrative expenses (5)
162
901
(739 )
N/M
Non-Same Store operating expenses
2,496
15,542
(13,046 )
N/M
Total operating expenses
100,940
110,810
(9,870 )
-8.9 %
Operating income
Same Store
Miscellaneous income
486
1,037
(551 )
N/M
Non-Same Store
Miscellaneous income
3
134
(131 )
N/M
Total operating income
489
1,171
(682 )
N/M
NOI
Same Store
154,050
152,730
1,320
0.9 %
Non-Same Store
2,985
14,674
(11,689 )
N/M
Total NOI
$
157,035 $
167,404 $
(10,369 )
-6.2 %
(1) For the years ended December 31, 2024 and 2023, excludes approximately $625,000 and $2,247,000, respectively, of casualty-
related recoveries.
(2) Fees incurred to an unaffiliated third party that is an affiliate of a noncontrolling limited partner of the OP.
(3) For the years ended December 31, 2024 and 2023, excludes approximately $3,944,000 and $3,004,000, respectively, of expenses
that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses
such as legal, professional, centralized leasing service and franchise tax fees.
(4) For the years ended December 31, 2024 and 2023, excludes approximately $16,000 and $32,000, respectively, of casualty-
related expenses.
(5) For the years ended December 31, 2024 and 2023, excludes approximately $54,000 and $697,000, respectively, of expenses
that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses
such as legal, professional, centralized leasing service and franchise tax fees.
58
See reconciliation of net income to NOI above under “NOI and 2023-2024 Same Store NOI for the Years Ended December
31, 2024 and 2023.”
2023-2024 Same Store Results of Operations for the Years Ended December 31, 2024 and 2023
As of December 31, 2024, our 2023-2024 Same Store properties were approximately 94.7% leased with a weighted average
monthly effective rent per occupied apartment unit of $1,491. As of December 31, 2023, our 2023-2024 Same Store properties were
approximately 94.7% leased with a weighted average monthly effective rent per occupied apartment unit of $1,516. For our 2023-
2024 Same Store properties, we recorded the following operating results for the year ended December 31, 2024 as compared to the
year ended December 31, 2023:
Revenues
Rental income. Rental income was $246.7 million for the year ended December 31, 2024 compared to $241.2 million for the
year ended December 31, 2023, which was an increase of approximately $5.5 million, or 2.3%. The majority of the increase is related
to an increase in weighted average occupancy during the year ended December 31, 2024 compared to the year ended December 31,
2023.
Other income. Other income was $5.3 million for the year ended December 31, 2024 compared to $5.8 million for the year
ended December 31, 2023, which was a decrease of $0.5 million. The increase between period is primarily attributable to a $0.4
million increase in internet income.
Expenses
Property operating expenses. Property operating expenses were $53.5 million for the year ended December 31, 2024
compared to $51.3 million for the year ended December 31, 2023, which was an increase of approximately $2.2 million, or 4.2%.
The majority of the increase is related to increases in repairs and maintenance expenses of $1.6 million.
Real estate taxes and insurance. Real estate taxes and insurance costs were $32.7 million for the year ended December 31,
2024 compared to $31.9 million for the year ended December 31, 2023, which was an increase of approximately $0.8 million, or
2.4%. The majority of the increase is related to a $0.7 million increase in insurance expense.
Property management fees. Property management fees were $7.3 million for the year ended December 31, 2024 compared to
$7.1 million for the year ended December 31, 2023, which was an increase of approximately $0.2 million, or 1.8%. The majority of
the increase is related to an increase in total revenues, which the fee is primarily based on.
Property general and administrative expenses. Property general and administrative expenses were $5.0 million for the year
ended December 31, 2024 compared to $4.9 million for the year ended December 31, 2023, which was an increase of approximately
$0.1 million, or 2.0%. The majority of the increase is related to a $0.1 million increase in education and training expense.
Net Operating Income for Our 2022-2024 Same Store and Non-Same Store Properties for the Years Ended December 31,
2024 and 2023
There are 33 properties encompassing 12,386 units of apartment space in our same store pool for the years ended December
31, 2024, 2023 and 2022 (our “2022-2024 Same Store” properties). Our 2022-2024 Same Store properties exclude the following 2
properties in our Portfolio as of December 31, 2024: The Adair and Estates on Maryland as well as 36 units that are currently down
(see Note 4 to our consolidated financial statements).
59
The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2024 and
2023 for our 2022-2024 Same Store and Non-Same Store properties (dollars in thousands):
For the Year Ended December 31,
2024 compared to 2023
2024
2023
$ Change
% Change
Revenues
Same Store
Rental income
$
234,934 $
229,801 $
5,133
2.2 %
Other income
5,234
5,661
(427 )
-7.5 %
Same Store revenues
240,168
235,462
4,706
2.0 %
Non-Same Store
Rental income
16,927
40,277
(23,350 )
N/M
Other income
391
1,304
(913 )
N/M
Non-Same Store revenues
17,318
41,581
(24,263 )
N/M
Total revenues
257,486
277,043
(19,557 )
-7.1 %
Operating expenses
Same Store
Property operating expenses (1)
51,122
49,221
1,901
3.9 %
Real estate taxes and insurance
31,340
30,740
600
2.0 %
Property management fees (2)
6,937
6,820
117
1.7 %
Property general and administrative expenses (3)
4,785
4,702
83
1.8 %
Same Store operating expenses
94,184
91,483
2,701
3.0 %
Non-Same Store
Property operating expenses (4)
4,072
10,831
(6,759 )
N/M
Real estate taxes and insurance
1,722
6,107
(4,385 )
N/M
Property management fees (2)
547
1,249
(702 )
N/M
Property general and administrative expenses (5)
415
1,140
(725 )
N/M
Non-Same Store operating expenses
6,756
19,327
(12,571 )
N/M
Total operating expenses
100,940
110,810
(9,870 )
-8.9 %
Operating income
Same Store
Miscellaneous income
476
1,020
(544 )
N/M
Non-Same Store
Miscellaneous income
13
151
(138 )
N/M
Total operating income
489
1,171
(682 )
N/M
NOI
Same Store
146,460
144,999
1,461
1.0 %
Non-Same Store
10,575
22,405
(11,830 )
N/M
Total NOI
$
157,035 $
167,404 $
(10,369 )
-6.2 %
(1) For the years ended December 31, 2024 and 2023, excludes approximately ($624,000) and $54,000, respectively, of casualty-
related expenses/(recoveries).
(2) Fees incurred to an unaffiliated third party that is an affiliate of a noncontrolling limited partner of the OP.
(3) For the years ended December 31, 2024 and 2023, excludes approximately $3,746,000 and $2,909,000, respectively, of expenses
that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses
such as legal, professional, centralized leasing service and franchise tax fees.
(4) For the years ended December 31, 2024 and 2023, excludes approximately $2,013,000 and ($2,268,000), respectively, of
casualty-related expenses/(recoveries).
(5) For the years ended December 31, 2024 and 2023, excludes approximately $252,000 and $792,000, respectively, of expenses
that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses
such as legal, professional, centralized leasing service and franchise tax fees.
60
See reconciliation of net income (loss) to NOI above under “NOI and 2022-2024 Same Store NOI for the Years Ended
December 31, 2024 and 2023.”
2022-2024 Same Store Results of Operations for the Years Ended December 31, 2024 and 2023
As of December 31, 2024, our 2022-2024 Same Store properties were approximately 94.7% leased with a weighted average
monthly effective rent per occupied apartment unit of $1,483. As of December 31, 2023, our 2022-2024 Same Store properties were
approximately 94.7% leased with a weighted average monthly effective rent per occupied apartment unit of $1,509. For our 2022-
2024 Same Store properties, we recorded the following operating results for the year ended December 31, 2024 as compared to the
year ended December 31, 2023:
Revenues
Rental income. Rental income was $234.9 million for the year ended December 31, 2024 compared to $229.8 million for the
year ended December 31, 2023, which was an increase of approximately $5.1 million, or 2.2%. The majority of the increase is related
to an increase in the total number of units in the 2022-2024 same store pool from 12,341 units to 12,386 units as of December 31,
2023 and 2024, respectively.
Other income. Other income was $5.2 million for the year ended December 31, 2024 compared to $5.7 million for the year
ended December 31, 2023, which was a decrease of $0.5 million. The decrease is related to a decrease in cable TV income of $0.1
million and decreases in all other income of $0.4 million.
Expenses
Property operating expenses. Property operating expenses were $51.1 million for the year ended December 31, 2024
compared to $49.2 million for the year ended December 31, 2023, which was an increase of approximately $1.9 million, or 3.9%.
The majority of the increase is related to increases in repairs and maintenance expenses of $1.4 million.
Real estate taxes and insurance. Real estate taxes and insurance costs were $31.3 million for the year ended December 31,
2024 compared to $30.7 million for the year ended December 31, 2023, which was an increase of approximately $0.6 million. The
majority of the increase is related to a $0.7 million increase in property insurance expense.
Property management fees. Property management fees were $6.9 million for the year ended December 31, 2024 compared to
$6.8 million for the year ended December 31, 2023, which was an increase of approximately $0.1 million. The majority of the
increase is related to an increase in total revenues, which the fee is primarily based on.
Property general and administrative expenses. Property general and administrative expenses were $4.8 million for the year
ended December 31, 2024 compared to $4.7 million for the year ended December 31, 2023, which was an increase of approximately
$0.1 million. The majority of the increase is related to a $0.1 million increase in education and training expenses.
FFO, Core FFO and AFFO
We believe that net income, as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from
operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), core funds from
operations (“Core FFO”) and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of
operating performance for a REIT.
Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such
accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values
have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical
cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating
performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined
by GAAP. FFO is defined by NAREIT as net income computed in accordance with GAAP, excluding gains or losses from real estate
dispositions, plus real estate depreciation and amortization. We compute FFO attributable to common stockholders in accordance
with NAREIT’s definition. Our presentation differs slightly in that we begin with net income (loss) before adjusting for amounts
attributable to noncontrolling interests and we show the amounts attributable to such noncontrolling interests as an adjustment to
arrive at FFO attributable to common stockholders.
Core FFO makes certain adjustments to FFO, which are either not likely to occur on a regular basis or are otherwise not
representative of the ongoing operating performance of our Portfolio. Core FFO adjusts FFO to remove items such casualty-related
expenses and recoveries and gains or losses, loss on extinguishment of debt and modification costs, gain on forfeited deposits, the
61
amortization of deferred financing costs, mark-to-market gains or losses related to interest rate cap agreements not designated as
hedges for accounting purposes, and the noncontrolling interests (as described above) related to these items. We believe Core FFO
is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance
with other REITs that are not as involved in the aforementioned activities. Starting in the third quarter of 2024, the Company has
adjusted Core FFO to remove (1) the amortization of all deferred financing costs instead of those solely related to short-term debt
financing and (2) mark-to-market gains or losses related to interest rate cap agreements not designated as hedges for accounting
purposes. Prior periods have been recast to conform to the current presentation.
AFFO makes certain adjustments to Core FFO in order to arrive at a more refined measure of the operating performance of
our Portfolio. There is no industry standard definition of AFFO and practice is divergent across the industry. AFFO adjusts Core
FFO to remove items such as equity-based compensation expense and the related noncontrolling interests (as described above). We
believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating
performance with other REITs that are not as involved in the aforementioned activities.
The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic
and diluted FFO, Core FFO and AFFO per share, as they are exchangeable for common stock on a one-for-one basis. The FFO, Core
FFO and AFFO allocable to such units is allocated on this same basis and reflected in the adjustments for noncontrolling interests in
the table below. As such, the assumed conversion of these units would have no net impact on the determination of diluted FFO, Core
FFO and AFFO per share. See Note 9 for additional information.
We believe that the use of FFO, Core FFO and AFFO, combined with the required GAAP presentations, improves the
understanding of operating results of REITs among investors and makes comparisons of operating results among such companies
more meaningful. While FFO, Core FFO and AFFO are relevant and widely used measures of operating performance of REITs, they
do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative
or substitute to those measures in evaluating our liquidity or operating performance. FFO, Core FFO and AFFO do not purport to be
indicative of cash available to fund our future cash requirements. Further, our computation of FFO, Core FFO and AFFO may not
be comparable to FFO, Core FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT
definition or that interpret the current NAREIT definition or define Core FFO or AFFO differently than we do.
62
The following table reconciles our calculations of FFO, Core FFO and AFFO to net income, the most directly comparable
GAAP financial measure, for the years ended December 31, 2024 and 2023 (in thousands, except per share amounts):
For the Year Ended December 31,
2024
2023
% Change
2024 - 2023
Net income
$
1,114 $
44,433
N/M
Depreciation and amortization
97,762
95,186
2.7 %
Gain on sales of real estate
(1)
(54,246 )
(67,926 )
-20.1 %
Adjustment for noncontrolling interests
(176 )
(273 )
-35.5 %
FFO attributable to common stockholders
44,454
71,420
-37.8 %
FFO per share - basic
$
1.74 $
2.78
-37.3 %
FFO per share - diluted
$
1.69 $
2.72
-37.8 %
Loss on extinguishment of debt and modification costs
24,004
2,409
N/M
Casualty-related expenses/(recoveries)
1,389
(2,214 )
N/M
Casualty losses (gains)
626
856
-26.9 %
Gain on forfeited deposits
—
(250 )
N/M
Amortization of deferred financing costs
3,364
2,945
14.2 %
Mark-to-market adjustments of interest rate caps
(593 )
1,484
N/M
Adjustment for noncontrolling interests
(114 )
(20 )
N/M
Core FFO attributable to common stockholders
73,130
76,630
-4.6 %
Core FFO per share - basic
$
2.87 $
2.99
-4.1 %
Core FFO per share - diluted
$
2.79 $
2.92
-4.6 %
Equity-based compensation expense
10,543
9,287
13.5 %
Adjustment for noncontrolling interests
(42 )
(35 )
20.0 %
AFFO attributable to common stockholders
83,631
85,882
-2.6 %
AFFO per share - basic
$
3.28 $
3.35
-2.1 %
AFFO per share - diluted
$
3.19 $
3.27
-2.6 %
Weighted average common shares outstanding - basic
25,516
25,654
-0.5 %
Weighted average common shares outstanding - diluted
(2)
26,246
26,245
0.0 %
Dividends declared per common share
$
1.89726 $
1.72242 $
0.10151
Net income Coverage - diluted
(3)
0.02x
0.98x
N/M
FFO Coverage - diluted
(3)
0.89x
1.58x
-43.5 %
Core FFO Coverage - diluted
(3)
1.47x
1.70x
-13.4 %
AFFO Coverage - diluted
(3)
1.68x
1.90x
-11.6 %
(1) $31.5 million with a related party for the year ended December 31, 2024.
(2) The Company uses actual diluted weighted average common shares outstanding when in a dilutive position for FFO, Core FFO
and AFFO.
(3) Indicates coverage ratio of net income/FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common
share during the period.
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The year ended December 31, 2024 as compared to the year ended December 31, 2023
FFO was $44.5 million for the year ended December 31, 2024 compared to $71.4 million for the year ended December 31,
2023, which was a decrease of approximately $26.9 million. The change in our FFO between the periods primarily relates to a
decrease in total revenues of $17.8 million and an increase in loss on extinguishment of debt and modification costs of $21.6 million.
Core FFO was $73.1 million for the year ended December 31, 2024 compared to $76.6 million for the year ended December
31, 2023, which was a decrease of approximately $3.5 million. The change in our Core FFO between the periods primarily relates
to a decrease in FFO of $26.9 million, partially offset by an increase in loss on extinguishment of debt and modification costs of
$21.6 million.
AFFO was $83.6 million for the year ended December 31, 2024 compared to $85.9 million for the year ended December 31,
2023, which was a decrease of approximately $2.3 million. The change in our AFFO between the periods primarily relates to a
decrease in Core FFO of $3.5 million partially offset by an increase in equity-based compensation expense of $1.3 million.
Liquidity and Capital Resources
Our short-term cash requirements consist primarily of funds necessary to pay for operating expenses and other expenditures
directly associated with our multifamily properties, including:
•
capital expenditures to continue our value-add program and to improve the quality and performance of our multifamily
properties;
•
interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments”
below);
•
recurring maintenance necessary to maintain our multifamily properties;
•
distributions necessary to qualify for taxation as a REIT;
•
acquisition of additional properties;
•
advisory and administrative fees payable to our Adviser;
•
general and administrative expenses;
•
reimbursements to our Adviser; and
•
property management fees payable to BH.
We expect to meet our short-term cash requirements generally through net cash provided by operations and existing cash
balances and any unused capacity on the Corporate Credit Facility. As of December 31, 2024, we had approximately $3.2 million of
renovation value-add reserves for our planned capital expenditures to implement our value-add program. Renovation value-add
reserves are not required to be held in escrow by a third party. We may reallocate these funds, at our discretion, to pursue other
investment opportunities or meet our short-term liquidity requirements.
Our long-term cash requirements consist primarily of funds necessary to pay for the costs of acquiring additional multifamily
properties, renovations and other capital expenditures to improve our multifamily properties and scheduled debt payments and
distributions. We expect to meet our long-term cash requirements through various sources of capital, which may include a revolving
credit facility and future debt or equity issuances, existing working capital, net cash provided by operations, long-term mortgage
indebtedness and other secured and unsecured borrowings, and property dispositions. However, there are a number of factors that
may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit
markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result
of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our
operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. The success
of our business strategy will depend, in part, on our ability to access these various capital sources.
64
In addition to our value-add program, our multifamily properties will require periodic capital expenditures and renovation to
remain competitive. Also, acquisitions, redevelopments, or expansions of our multifamily properties will require significant capital
outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we
must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid
and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income
and gains. As a result, our ability to fund capital expenditures, acquisitions, or redevelopment through retained earnings long-term
is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable
to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects
could be materially and adversely affected.
We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide
sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month
period following December 31, 2024. We believe that our sources of long-term cash will be sufficient for our needs thereafter.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the years ended December 31,
2024 and 2023 (in thousands):
For the Year Ended December 31,
2024
2023
Net cash provided by operating activities
$
73,573 $
96,581
Net cash provided by (used in) investing activities
130,619
51,923
Net cash provided by (used in) financing activities
(195,554 )
(155,024 )
Net increase (decrease) in cash, cash equivalents and restricted cash
8,638
(6,520 )
Cash, cash equivalents and restricted cash, beginning of year
45,279
51,799
Cash, cash equivalents and restricted cash, end of year
$
53,917 $
45,279
The year ended December 31, 2024 as compared to the year ended December 31, 2023
Cash flows from operating activities. During the year ended December 31, 2024, net cash provided by operating activities
was $73.6 million compared to net cash provided by operating activities of $96.6 million for the year ended December 31, 2023.
The change in cash flows from operating activities was mainly due to a decrease in net income (loss) of $43.3 million partially offset
by a decrease in gain on sales of real estate of $13.7 million and an increase in amortization/write-off of deferred financing costs of
$22.0 million.
Cash flows from investing activities. During the year ended December 31, 2024, net cash provided by investing activities was
$130.6 million compared to net cash provided by investing activities of $51.9 million for the year ended December 31, 2023. The
change in cash flows from investing activities was mainly due to an increase in net proceeds from sales of real estate of $47.9 million
and decrease in additions of real estate investments of $34.2 million.
Cash flows from financing activities. During the year ended December 31, 2024, net cash used in financing activities was
$195.6 million compared to net cash used in financing activities of $155.0 million for the year ended December 31, 2023. The change
in cash flows from financing activities was mainly due to increases in deferred financing cost paid, prepayment penalties on
extinguished debt and repurchases of common stock of $6.4 million, $13.1 million and $14.6 million, respectively.
65
Real Estate Investments Statistics
As of December 31, 2024, the Company was invested in a total of 35 multifamily properties, as listed below:
Average Effective Monthly
Rent Per Unit
as of December 31,*(1)
% Occupied as of December 31,*(2)
Property Name
Rentable Square
Footage
(in thousands)*
Number
of
Units*(3)
Date
Acquired
2024
2023
2024
2023
Arbors on Forest Ridge
155
210
1/31/2014 $
1,121 $
1,187
98.6 %
94.3 %
Cutter's Point
198
196
1/31/2014
1,370
1,442
98.5 %
93.9 %
The Summit at Sabal Park
205
252
8/20/2014
1,370
1,460
94.4 %
95.2 %
Courtney Cove
225
324
8/20/2014
1,249
1,327
92.9 %
95.4 %
Sabal Palm at Lake Buena Vista
371
400
11/5/2014
1,671
1,753
94.0 %
94.5 %
Cornerstone
318
430
1/15/2015
1,435
1,445
94.4 %
96.0 %
The Preserve at Terrell Mill
692
752
2/6/2015
1,282
1,271
94.3 %
96.7 %
Versailles
301
388
2/26/2015
1,130
1,262
96.1 %
92.3 %
Seasons 704 Apartments
217
222
4/15/2015
1,818
1,828
95.0 %
96.4 %
Madera Point
193
256
8/5/2015
1,311
1,312
93.8 %
94.9 %
Venue at 8651
289
333
10/30/2015
1,160
1,175
95.5 %
91.0 %
Parc500
266
217
7/27/2016
1,879
1,914
96.3 %
93.1 %
The Venue on Camelback
256
415
10/11/2016
981
1,065
92.8 %
95.2 %
Rockledge Apartments
802
708
6/30/2017
1,488
1,557
94.3 %
95.5 %
Atera Apartments
334
380
10/25/2017
1,487
1,476
95.0 %
96.3 %
Versailles II
199
242
9/26/2018
1,064
1,181
96.7 %
90.6 %
Brandywine I & II
414
632
9/26/2018
1,204
1,222
94.6 %
93.7 %
Bella Vista
243
248
1/28/2019
1,712
1,774
89.9 %
96.4 %
The Enclave
194
204
1/28/2019
1,782
1,820
93.6 %
94.6 %
The Heritage
199
204
1/28/2019
1,676
1,698
94.6 %
96.6 %
Summers Landing
139
196
6/7/2019
1,198
1,223
95.4 %
93.4 %
Residences at Glenview Reserve
344
360
7/17/2019
1,248
1,307
95.3 %
95.3 %
Residences at West Place
345
342
7/17/2019
1,586
1,559
95.0 %
92.1 %
Avant at Pembroke Pines
1,442
1520
8/30/2019
2,199
2,150
95.3 %
95.6 %
Arbors of Brentwood
325
346
9/10/2019
1,458
1,494
93.1 %
92.2 %
Torreyana Apartments
309
316
11/22/2019
1,444
1,461
95.9 %
95.9 %
Bloom
498
528
11/22/2019
1,276
1,298
94.7 %
94.9 %
Bella Solara
271
320
11/22/2019
1,328
1,337
93.1 %
92.6 %
Fairways at San Marcos
340
352
11/2/2020
1,574
1,580
95.7 %
94.9 %
The Verandas at Lake Norman
241
264
6/30/2021
1,343
1,354
98.1 %
95.8 %
Creekside at Matthews
263
240
6/30/2021
1,423
1,431
95.8 %
95.8 %
Six Forks Station
360
323
9/10/2021
1,359
1,409
93.2 %
92.4 %
High House at Cary
293
302
12/7/2021
1,498
1,464
92.1 %
95.0 %
The Adair
328
232
4/1/2022
1,995
1,968
91.4 %
96.6 %
Estates on Maryland
324
330
4/1/2022
1,430
1,435
95.5 %
95.2 %
11,893
12,984
* Information is unaudited.
(1) Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31,
2024 and December 31, 2023, respectively, minus any tenant concessions over the term of the lease, divided by the number of
units under commenced leases as of December 31, 2024 and December 31, 2023, respectively.
(2) Percent occupied is calculated as the number of units occupied as of December 31, 2024 and 2023, divided by the total number
of units, expressed as a percentage.
(3) Includes 36 down units due to casualty events as of December 31, 2024 (see Note 4 to our consolidated financial statements).
Debt, Derivatives and Hedging Activity
Mortgage Debt
Interest rates for mortgage debt is based on a reference rate plus an applicable margin, except for fixed rate mortgage debt.
The reference rate used in our Portfolio is SOFR. Loans that transitioned from the London Inter-Bank Offered Rate ("LIBOR") to
SOFR include a 0.11448% adjustment to SOFR for the all-in rate ("Adjusted SOFR"). As of December 31, 2024, our subsidiaries
had aggregate mortgage debt outstanding to third parties of approximately $1.5 billion at a weighted average interest rate of 5.56%
and an adjusted weighted average interest rate of 2.96%. For purposes of calculating the adjusted weighted average interest rate of
our mortgage debt outstanding, we have included the weighted average fixed rate of 0.98% for Adjusted SOFR on our combined
$1.1 billion notional amount of interest rate swap agreements, which effectively fix the interest rate on $1.1 billion of our floating
rate mortgage debt. See Notes 5 and 6 for additional information.
66
We have entered into and expect to continue to enter into interest rate swap and cap agreements with various third parties to
fix or cap the floating interest rates on a majority of our floating rate mortgage debt outstanding. The interest rate swap agreements
generally have a term of four to five years and effectively establish a fixed interest rate on debt on the underlying notional amounts.
The interest rate swap agreements involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-
rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2024, interest
rate swap agreements effectively covered 73% of our $1.5 billion of floating rate mortgage debt outstanding.
The interest rate cap agreements generally have a term of three to four years, cover the outstanding principal amount of the
underlying debt and are generally required by our lenders. Under the interest rate cap agreements, we pay a fixed fee in exchange
for the counterparty to pay any interest above a maximum rate. As of December 31, 2024, interest rate cap agreements covered $1.3
billion of our $1.5 billion of floating rate mortgage debt outstanding, which effectively cap SOFR on $1.3 billion of our floating rate
mortgage debt at a weighted average rate of 6.31%.
LIBOR ceased publication on June 30, 2023. On July 1, 2023, LIBOR rates were replaced with SOFR as the reference rate
for most LIBOR debt and derivative instruments.
On November 30, 2022, the Company entered into an agreement with KeyBank as a Freddie Mac servicer to refinance $760.7
million of its first mortgage debt relating to 18 properties. On December 1, 2022, the Company entered into an agreement with
KeyBank as a Freddie Mac servicer to refinance $46.8 million of its first mortgage debt relating to Cornerstone property.
On October 1, 2024, the Company entered into an agreement with JPMorgan Chase Bank, N.A., (“JPM”) to refinance $714.4
million of its first mortgage debt relating to 17 properties that had original loan maturities ranging from September 1, 2025 to
December 1, 2032. The new loans mature on October 1, 2031, with the entire principal amounts due upon maturity totaling $813.6
million and bears interest at an annual rate of 30-day average SOFR plus 109 basis points.
On November 26, 2024, the Company entered into an agreement with JPM to refinance $714.7 million of its first mortgage
debt relating to 17 properties that had original loan maturities on December 1, 2032. The new loans mature on December 1, 2031,
with the entire principal amounts due upon maturity totaling $655.9 million and bears interest at an annual rate of 30-day average
SOFR plus 109 basis points.
We intend to invest in additional multifamily properties as suitable opportunities arise and adequate sources of equity and
debt financing are available. We expect that future investments in properties, including any improvements or renovations of current
or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and
the proceeds from additional issuances of common stock or other securities or property dispositions.
Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance
existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no
assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital,
such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all.
Furthermore, following the completion of our value-add and capital expenditures programs and depending on the interest rate
environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage
levels.
Corporate Credit Facility
On June 30, 2021, the Company, through the OP, entered into a secured $250.0 million credit facility with Truist Bank (“Truist
Bank”), as administrative agent, and the lenders from time to time party thereto (the “Corporate Credit Facility”). $225 million of
the Corporate Credit Facility was a revolving credit facility and $25 million of the Corporate Credit Facility was a term loan. In
addition, on June 30, 2021, in connection with entering into the Corporate Credit Facility, the Company, through the OP, terminated
its prior $225.0 million revolving credit facility with Truist Bank, as administrative agent, and the lenders from time to time party
thereto, prior to the maturity date of January 28, 2022. Subject to conditions provided in the Corporate Credit Facility, the Corporate
Credit Facility may be increased up to an additional $100.0 million if the lenders agree to increase their commitments or if the lenders
agree for the increase to be funded by any additional lender proposed by the Company, through the OP.
67
On September 9, 2021, the Company, through the OP, modified the Corporate Credit Facility to provide for an additional
$35.0 million term loan with a maturity date of December 31, 2021, increasing the Corporate Credit Facility from $250 million to
$285 million. On December 6, 2021, the Company, through the OP, increased the amount of the Corporate Credit Facility by $55.0
million.
On March 25, 2022, the Company entered into a loan modification agreement by and among the Company, the OP, Truist
Bank and the Lenders party thereto, which modified the Company’s Corporate Credit Facility. Subject to conditions provided in the
Corporate Credit Facility, the commitments under Corporate Credit Facility may be increased up to an additional $150.0 million if
the lenders agree to increase their commitments or if the lenders agree for the increase to be funded by any additional lender proposed
by the Company, through the OP.
On October 24, 2022, the Company exercised its option to extend the Corporate Credit Facility with respect to the revolving
commitments for a single one-year term resulting in a maturity date of June 30, 2025. As of December 31, 2024, there was $350.0
million available for borrowing under the Corporate Credit Facility. Subject to conditions provided in the Corporate Credit Facility,
the commitments under Corporate Credit Facility may be increased up to an additional $150.0 million if the lenders agree to increase
their commitments or if the lenders agree for the increase to be funded by any additional lender proposed by the Company, through
the OP.
Advances under the Corporate Credit Facility accrue interest at a per annum rate equal to, at the Company’s election, either
Term SOFR plus a margin of 1.90% to 2.40%, depending on the Company’s total leverage ratio, and a benchmark replacement
adjustment of 0.1%, or a base rate determined according to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%,
(c) Term SOFR plus 1.0% or (d) 0.0% plus a margin of 0.90% to 1.40%, depending on the Company’s total leverage ratio. An
unused commitment fee at a rate of 0.15% or 0.25%, depending on the outstanding aggregate revolving commitments, applies to
unutilized borrowing capacity under the Corporate Credit Facility. Amounts owing under the Corporate Credit Facility may be
prepaid at any time without premium or penalty. The Corporate Credit Facility is guaranteed by the Company and the obligations
under the Corporate Credit Facility are, subject to some exceptions, secured by a continuing security interest in substantially all of
the assets of the Company. As of December 31, 2024 and 2023, the Company is in compliance with all of the covenants required in
its Corporate Credit Facility.
The Corporate Credit Facility is a non-recourse obligation and contains customary events of default, including defaults in the
payment of principal or interest, defaults in compliance with the covenants contained in the document evidencing the loan, defaults
in payments under any other security instrument, and bankruptcy or other insolvency events. As of December 31, 2024, the Company
believes it is compliant with all provisions of the Corporate Credit Facility. As of December 31, 2024, there was $0.0 million in
principal outstanding on the Corporate Credit Facility. For additional information regarding our Corporate Credit Facility, see Note
5 to our consolidated financial statements.
Interest Rate Swap Agreements
In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial
prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we,
through the OP, have entered into five interest rate swap transactions with KeyBank and three with Truist Bank (collectively the
“Counterparties”) with a combined notional amount of $1.1 billion which are effective as of December 31, 2024. As of December
31, 2024, the interest rate swaps we have entered into effectively replace the floating interest rate (SOFR) with respect to $1.1 billion
of our floating rate mortgage debt outstanding with a weighted average fixed rate of 0.98%. During the term of these interest rate
swap agreements, we are required to make monthly fixed rate payments of 0.98%, on a weighted average basis, on the notional
amounts, while the Counterparties are obligated to make monthly floating rate payments based on Adjusted SOFR to us referencing
the same notional amounts. For purposes of hedge accounting under FASB ASC 815, Derivatives and Hedging, we have designated
these interest rate swaps as cash flow hedges of interest rate risk. See Notes 5 and 6 for additional information.
68
The following table contains summary information regarding our outstanding interest rate swaps (dollars in thousands):
Effective Date
Termination Date
Counterparty
Notional
Fixed Rate (1)
September 1, 2019
September 1, 2026
KeyBank
100,000
1.462 %
September 1, 2019
September 1, 2026
KeyBank
125,000
1.302 %
January 3, 2020
September 1, 2026
KeyBank
92,500
1.609 %
March 4, 2020
June 1, 2026
Truist
100,000
0.820 %
June 1, 2021
September 1, 2026
KeyBank
200,000
0.845 %
June 1, 2021
September 1, 2026
KeyBank
200,000
0.953 %
March 1, 2022
March 1, 2025
Truist
145,000
0.573 %
March 1, 2022
March 1, 2025
Truist
105,000
0.614 %
$
1,067,500
0.981 % (2)
(1) The floating rate option for the interest rate swaps is Adjusted SOFR. As of December 31, 2024, Adjusted SOFR was 4.65%.
(2) Represents the weighted average fixed rate of the interest rate swaps.
As of December 31, 2024, the Company had the following outstanding interest rate swaps that were designated as cash flow
hedges of interest rate risk with future effective dates (dollars in thousands):
Effective Date
Termination Date
Counterparty
Notional Amount
Fixed Rate (1)
September 1, 2026
January 1, 2027
KeyBank
$
92,500
1.7980 %
(1) The floating rate option for the interest rate swaps is Adjusted SOFR. As of December 31, 2024, Adjusted SOFR was 4.65%.
Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2024 for the next five
calendar years subsequent to December 31, 2024. We used SOFR as of December 31, 2024 to calculate interest expense due by
period on our floating rate debt and net interest expense due by period on our interest rate swaps.
Payments Due by Period (in thousands)
Total
2025
2026
2027
2028
2029
Thereafter
Operating Properties
Mortgage Debt
Principal payments
$ 1,503,242 $
— $
— $
— $ 33,817 $
— $ 1,469,425
Interest expense
(1)
470,479 48,350
56,543
76,286
76,080 75,031
138,189
Total
$ 1,973,721 $ 48,350 $ 56,543 $ 76,286 $ 109,897 $ 75,031 $ 1,607,614
(1) Interest expense obligations includes the impact of expected settlements on interest rate swaps which have been entered into in
order to fix the interest rate on the hedged portion of our floating rate debt obligations. As of December 31, 2024, the Company
had nine interest rate swaps (including future interest rate swap agreements) with a combined notional amount of $1.1 billion.
We have allocated the total impact of expected settlements on the $1.2 billion notional amount of interest rate swaps to
“Operating Properties Mortgage Debt.” We used Adjusted SOFR as of December 31, 2024 to determine our expected settlements
through the terms of the interest rate swaps.
69
Corporate Credit Facility
The Corporate Credit Facility will mature on June 30, 2025 with respect to the revolving commitments, unless the Company
exercises its option to voluntarily and permanently reduce all of the revolving commitments before the maturity date or elects to
exercise its right and option to extend the facility with respect to the revolving commitments for a single one-year term. See Note 5
to our consolidated financial statements.
Advisory Agreement
Our Advisory Agreement requires that we pay our Adviser an annual advisory and administrative fee of 1.2%. The advisory
and administrative fees paid to the Adviser on the Contributed Assets (as defined in the Advisory Agreement) are subject to an
annual cap of approximately $5.4 million. For the years ended December 31, 2024 and 2023, the Company incurred advisory and
administrative fees of $6.9 million and $7.6 million, respectively.
NLMF Holdco, LLC
The Company’s agreement with NLMF Holdco, LLC may result in additional funding requirements to cover future project
costs. The maximum exposure of potential commitments is expected to be no more than $4.0 million. We expect that these actions
will provide faster, more reliable and lower cost internet to our residents. As of December 31, 2024, the Company has funded
approximately $0.7 million to NLMF Holdco, LLC which is included in prepaid and other assets on the consolidated balance sheet
of the Company. For the year ended December 31, 2024, the Company incurred expenses of $2.6 million for fiber internet service
which is included in property operating expenses on the consolidated statement of operations and comprehensive income (loss).
Capital Expenditures and Value-Add Program
We anticipate incurring average annual repairs and maintenance expense of $575 to $725 per apartment unit in connection
with the ongoing operations of our business. These expenditures are expensed as incurred. In addition, we reserve, on average,
approximately $250 to $350 per apartment unit for non-recurring capital expenditures and/or lender required replacement reserves.
When incurred, these expenditures are either capitalized or expensed, in accordance with GAAP, depending on the type of the
expenditure. Although we will continuously monitor the adequacy of this average, we believe these figures to be sufficient to
maintain the properties at a high level in the markets in which we operate. A majority of the properties in our Portfolio were
underwritten and acquired with the premise that we would invest $4,000 to $10,000 per unit in the first 36 months of ownership, in
an effort to add value to the asset’s exterior and interiors. In many cases, we reserve cash at the closing of each acquisition to fund
these planned capital expenditures and value-add improvements. As of December 31, 2024, we had approximately $3.2 million of
renovation value-add reserves for our planned capital expenditures and other expenses to implement our value-add program, which
will complete approximately 12,984 planned interior rehabs. The following table sets forth a summary of our capital expenditures
related to our value-add program for the years ended December 31, 2024, 2023 and 2022 (in thousands):
For the Year Ended December 31,
Rehab Expenditures
2024
2023
2022
Interior
(1) $
4,760 $
25,504 $
26,229
Exterior and common area
2,202
11,730
9,957
Total rehab expenditures
$
6,962 $
37,234 $
36,186
(1) Includes total capital expenditures during the period on completed and in-progress interior rehabs. For the years ended
December 31, 2024, 2023 and 2022, we completed full and partial interior rehabs on 388, 2,073 and 2,409 units,
respectively.
70
REIT Tax Election and Income Taxes
We elected to be taxed as a REIT for U.S. federal income tax purposes under Sections 856 through 860 of the Code
commencing with the taxable year ended December 31, 2015, and we intend to continue to be organized and to operate in a manner
that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject
to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on
any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income,
(2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain
non-REIT activities is managed through TRSs and is subject to applicable federal, state, and local income and margin taxes. We had
no significant taxes associated with our TRSs for the years ended December 31, 2024, 2023 and 2022.
If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at
corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any
resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for
distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-
electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.
We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax
returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by
the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit
or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for
all major jurisdictions, which include federal and certain states. We have no examinations in progress and none are expected at this
time.
We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is
more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on
the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more
likely than not to be realized upon ultimate settlement.
We had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2024. We and our
subsidiaries are subject to U.S. federal income tax as well as income tax of various state and local jurisdictions. The 2023, 2022 and
2021 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we
recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive
income (loss).
Dividends
We intend to make regular quarterly dividend payments to holders of our common stock. U.S. federal income tax law
generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for
dividends paid and excluding net capital gains. As a REIT, we will be subject to U.S. federal income tax on our undistributed REIT
taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect
to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100%
of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of
our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by
our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet
both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable
income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a
portion of the required dividend in the form of a taxable distribution of stock or debt securities.
71
We will make dividend payments based on our estimate of taxable earnings per share of common stock, but not earnings
calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as
depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, and non-
deductible general and administrative expenses. Our quarterly dividends per share may be substantially different than our quarterly
taxable earnings and GAAP earnings per share. Our Board declared our fourth quarterly dividend of 2024 of $0.51 per share on
October 29, 2024, which was paid on December 31, 2024 and funded out of cash flows from operations.
Off-Balance Sheet Arrangements
As of December 31, 2024, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our
management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for
changes that would affect the reported amounts. These estimates are based on management’s historical industry experience and on
various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from
these judgments, assumptions and estimates. Below is a discussion of the accounting policies that we consider critical to
understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required.
A discussion of recent accounting pronouncements and our significant accounting policies, including further discussion of the
accounting policies described below, can be found in Note 2 “Summary of Significant Accounting Policies” included in this Annual
Report.
Purchase Price Allocation
Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total
consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets based
on relative fair value in accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance
with FASB ASC 805.
The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value
hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (see Note 6 to our consolidated financial
statements), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available
information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related
information. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are
classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized
as interest expense over the life of the debt assumed.
Impairment
Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period,
net operating income, and capitalization rates. In such cases, we will evaluate the recoverability of such real estate assets based on
estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such
undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will
be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in
circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period
the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate
investment.
Inflation
The real estate market has not been directly affected by inflation in the past several years due to increases in rents nationwide.
The majority of our lease terms are for a period of one year or less and reset to market if renewed. The majority of our leases also
contain protection provisions applicable to reimbursement billings for utilities. Due to the short-term nature of our leases, we do not
believe our results will be materially affected.
Inflation may also affect the overall cost of debt, as the implied cost of capital increases. We intend to mitigate these risks
through interest rate hedges, which to date have included interest rate cap and interest rate swap agreements.
72
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the adverse effect on the value of assets and liabilities that results from a change in market conditions. Our
primary market risk exposure is interest rate risk with respect to our indebtedness and counterparty credit risk with respect to our
interest rate derivatives. In order to minimize counterparty credit risk, we enter into and expect to enter into hedging arrangements
only with major financial institutions that have high credit ratings. As of December 31, 2024, we had total indebtedness of $1.5
billion at a weighted average interest rate of 5.56%, of which $1.5 billion was debt with a floating interest rate. The interest rate
swap agreements we have entered into effectively fix the interest rate on 73% of our $1.5 billion of floating rate mortgage debt
outstanding (see below). As of December 31, 2024, the adjusted weighted average interest rate of our total indebtedness was 2.90%.
For purposes of calculating the adjusted weighted average interest rate of the total indebtedness, we have included the weighted
average fixed rate of 0.98% for Adjusted SOFR on the $1.1 billion notional amount of interest rate swap agreements that we have
entered into as of December 31, 2024, which effectively fix the interest rate on $1.1 billion of our floating rate mortgage debt
outstanding.
An increase in interest rates could make the financing of any acquisition by us costlier. Rising or high interest rates could also
limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest
expense on refinanced indebtedness. We may manage, or hedge, interest rate risks related to our borrowings by means of interest
rate cap and interest rate swap agreements. As of December 31, 2024, the interest rate cap agreements we have entered into effectively
cap SOFR on $2.6 billion of our floating rate mortgage debt at a weighted average rate of 6.31% for the term of the agreements,
which is generally three to four years. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and
floating rates for our indebtedness.
In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial
prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we,
through the OP, have entered into nine interest rate swap transactions with the Counterparties with a combined notional amount of
$1.1 billion. The interest rate swaps we have entered into effectively replace the floating interest rate (SOFR) with respect to that
amount with a weighted average fixed rate of 0.98%. During the term of these interest rate swap agreements, we are required to
make monthly fixed rate payments of 0.98%, on a weighted average basis, on the notional amounts, while the Counterparties are
obligated to make monthly floating rate payments based on Adjusted SOFR to us referencing the same notional amounts. We have
designated these interest rate swaps as cash flow hedges of interest rate risk.
Until our interest rates reach the caps provided by our interest rate cap agreements, each quarter point change in SOFR would
result in an approximate increase to annual interest expense costs on our floating rate indebtedness, reduced by any payments due
from the Counterparties under the terms of the interest rate swap agreements we had entered into as of December 31, 2024, of the
amounts illustrated in the table below for our indebtedness as of December 31, 2024 (dollars in thousands):
Change in Interest Rates
Annual Increase to Interest Expense
0.25%
$
1,000
0.50%
2,000
0.75%
3,000
1.00%
4,000
There is no assurance that we would realize such expense as such changes in interest rates could alter our liability positions
or strategies in response to such changes.
We may also be exposed to credit risk in the derivative financial instruments we use. Credit risk is the failure of the
Counterparties to perform under the terms of the derivative financial instruments. If the fair value of a derivative financial instrument
is positive, the Counterparties will owe us, which creates credit risk for us. If the fair value of a derivative financial instrument is
negative, we will owe the Counterparties and, therefore, do not have credit risk. We seek to minimize the credit risk in derivative
financial instruments by entering into transactions with major financial institutions that have high credit ratings.
Item 8. Financial Statements and Supplementary Data
The information required by this Item 8 is included in our consolidated financial statements and the notes thereto beginning
on page F-1 in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
73
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and
Chief Financial Officer, evaluated, as of December 31, 2024, the effectiveness of our disclosure controls and procedures as defined
in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31, 2024, to provide reasonable assurance that information
required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management,
including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance
that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud or error, if any, within a company have been detected.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as that
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for our assessment of the effectiveness of internal
control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our
President and our Chief Financial Officer, and effected by our Board, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in
accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our President and Chief Financial Officer, has conducted an assessment regarding the
effectiveness of our internal control over financial reporting as of December 31, 2024, based on the framework established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our assessment under the criteria described above, management has concluded that our internal control over financial reporting
was effective as of December 31, 2024.
Changes in Internal Control over Financial Reporting
There has been no change in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-
15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2024, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2024 has been audited by KPMG LLP,
an independent registered public accounting firm, as stated in their report which is included herein.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
74
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement to
be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement to
be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement to
be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement to
be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and Services
The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement to
be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
75
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this Annual Report:
1.
Financial Statements. See Index to Consolidated Financial Statements and Schedules of NexPoint Residential Trust,
Inc. on page F-1 of this Report.
2.
Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of NexPoint
Residential Trust, Inc. on page S-1 of this Annual Report. All other schedules are omitted because they are not
required, are inapplicable, or the required information is included in the financial statements or notes thereto.
3.
Exhibits. The exhibits filed with this Annual Report are set forth in the Exhibit Index.
76
EXHIBIT INDEX
Exhibit Number
Description
3.1
Articles of Amendment and Restatement of NexPoint Residential Trust, Inc. (incorporated by reference to Exhibit
3.1 to the Company’s Current Report on 8-K filed with the SEC on June 15, 2016)
3.2
Amended and Restated Bylaws of NexPoint Residential Trust, Inc. (incorporated by reference to Exhibit 3.1 to
the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2023).
4.1
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934 (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on February18, 2022)
10.1
Amended and Restated Limited Partnership Agreement of NexPoint Residential Trust Operating Partnership, L.P.
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017, filed with the SEC on August 1, 2017)
10.2
First Amendment to Amended and Restated Limited Partnership Agreement of NexPoint Residential Trust
Operating Partnership, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form
10-K for the year ended December 31, 2019, filed with the SEC on February 19, 2019)
10.3*
Second Amendment to Amended and Restated Limited Partnership Agreement of NexPoint Residential Trust
Operating Partnership, L.P.
10.4
Advisory Agreement by and among NexPoint Residential Trust, Inc., NexPoint Residential Trust Operating
Partnership, L.P. and NexPoint Real Estate Advisors, L.P. (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 15,
2015)
10.5
Amendment to Advisory Agreement, dated June 15, 2016, by and among the Company, NexPoint Residential
Trust Operating Partnership, L.P. and NexPoint Real Estate Advisors, L.P. (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on 8-K filed with the SEC on June 15, 2016)
10.6
Registration Rights Agreement by and between NexPoint Residential Trust, Inc. and NexPoint Real Estate
Advisors, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2015, filed with the SEC on May 15, 2015)
10.7
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the
Company’s Registration Statement on Form 10 filed with the SEC on January 9, 2015)
10.8
NexPoint Residential Trust, Inc. 2016 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on 8-K filed with the SEC on June 15, 2016)
10.9†
Form of Restricted Stock Units Agreement (Officers) for award agreements entered into prior to 2021
(incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, filed with the SEC on March 15, 2017).
10.10†
Form of Restricted Stock Units Agreement (Officers) for award agreements entered into in 2021, 2022 and 2023
(incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on February 18, 2022).
10.11†
Form of Restricted Stock Units Agreement (Directors) for award agreements entered into prior to 2024
(incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, filed with the SEC on March 15, 2017)
10.12†
Form of Restricted Stock Units Agreement (Officers) for awards entered into in 2024 and after (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024,
filed with the SEC on May 3, 2024)
10.13*†
Form of Restricted Stock Units Agreement (Directors) for awards entered into in 2024 and after
77
10.14
Revolving Credit Agreement by and among NexPoint Residential Trust Operating Partnership, L.P., as Borrower,
the Lenders from time to time party thereto, and SunTrust Bank, a Georgia banking corporation, as Administrative
Agent, dated as of January 28, 2019, as amended (incorporated by reference to Exhibit 10.16 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020)
10.15
Amended and Restated Revolving Credit Agreement, by and among NexPoint Residential Trust Operating
Partnership, L.P., as borrower, the lenders from time to time party thereto and Truist Bank, as administrative agent,
dated as of June 30, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K filed with the SEC on July 1, 2021)
10.16
March 2022 Modification of Loan Documents by and among NexPoint Residential Trust Operating Partnership,
L.P., NexPoint Residential Trust, Inc. Trust Bank and the pledgors and lenders party thereto (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 29, 2022).
10.17
September 2021 Modification of Loan Documents by and among NexPoint Residential Trust Operating
Partnership, L.P., NexPoint Residential Trust, Inc., Truist Bank and the pledgors and lenders party thereto
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2022 filed with the SEC on April 28, 2022).
10.18
Form of Easement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2021, filed with the SEC on July 30, 2021)
10.19
Form of Onboarding Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2021, filed with the SEC on July 30, 2021)
10.20
Separation Agreement, dated November 9, 2023 by and among NexPoint Residential Trust, Inc., NexPoint Real
Estate Advisors, L.P., NexPoint Advisors, L.P., NexPoint Real Estate Finance, Inc., NexPoint Real Estate
Advisors VII, L.P.,NexPoint Diversified Real Estate Trust, NexPoint Real Estate Advisors X, L.P., VineBrook
Homes Trust, Inc., and NexPoint Real Estate Advisors V, L.P and Matt Goetz (incorporated by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, filed with the
SEC on November 9, 2023).
10.21
Separation Agreement, dated as of November 11, 2024, by and among NexPoint Advisors, L.P., NexPoint
Residential Trust, Inc., NexPoint Real Estate Advisors, L.P., NexPoint Real Estate Finance, Inc., NexPoint Real
Estate Advisors VII, L.P., NexPoint Diversified Real Estate Trust, NexPoint Real Estate Advisors X, L.P.,
VineBrook Homes Trust, Inc., NexPoint Real Estate Advisors V, L.P., NexPoint Homes Trust, Inc., NexPoint
Real Estate Advisors XI, L.P., NexPoint Storage Partners, Inc., NexPoint Hospitality Trust and Brian Mitts
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on
November 14, 2024)
19.1
Insider Trading Policy of the Company (incorporated by reference to Exhibit 19.1 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024).
21.1*
List of Subsidiaries of NexPoint Residential Trust, Inc.
23.1*
Consent of KPMG LLP
31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1+
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002
97.1
Clawback Policy of the Company (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on
Form 8-K filed with the SEC on November 7, 2023).
101.INS*
Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its
XBRL tags are embedded within the inline XBRL document)
78
101.SCH*
Inline XBRL Taxonomy Extension Schema
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*104*
Inline XBRL Taxonomy Extension Presentation Linkbase
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
+
Furnished herewith.
†
Management contract, compensatory plan or other arrangement
79
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEXPOINT RESIDENTIAL TRUST, INC.
/s/ James Dondero
February 26, 2025
James Dondero
President (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ James Dondero
President and Director
February 26, 2025
James Dondero
(Principal Executive Officer)
/s/ Paul Richards
Chief Financial Officer
February 26, 2025
Paul Richards
(Principal Financial Officer and Principal Accounting Officer)
/s/ Brian Mitts
Director
February 26, 2025
Brian Mitts
/s/ Edward Constantino
Director
February 26, 2025
Edward Constantino
/s/ Dr. Arthur Laffer
Director
February 26, 2025
Dr. Arthur Laffer
/s/ Scott Kavanaugh
Director
February 26, 2025
Scott Kavanaugh
/s/ Dr. Carol Swain
Director
February 26, 2025
Dr. Carol Swain
/s/ Catherine Wood
Director
February 26, 2025
Catherine Wood
This page intentionally left blank
F-1
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements
NexPoint Residential Trust, Inc.—Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID # 185) ...............................................................
F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023 .......................................................................
F-5
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2024,
2023 and 2022 .....................................................................................................................................
F-6
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2024, 2023 and 2022 ...............
F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022 ............................
F-8
Notes to Consolidated Financial Statements ...................................................................................................
F-10
Financial Statements Schedules
Schedule III—Real Estate and Accumulated Depreciation ................................................................................
S-1
F-2
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of NexPoint Residential Trust, Inc. and subsidiaries (the Company)
as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial
statement Schedule III Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and
our report dated February 26, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-3
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter
or on the accounts or disclosures to which it relates.
Evaluation of real estate investments for impairment
As discussed in Notes 2 and 6 to the consolidated financial statements, the Company evaluates the recoverability of its real
estate investments whenever events or changes in circumstances indicate that the carrying amount of a property may not be
recoverable. The Company’s analysis evaluates the recoverability of such real estate investments based on estimated
undiscounted future cash flows including estimated liquidation value. The key inputs into the Company’s impairment analysis
include the expected holding period, estimated net operating income, and estimated capitalization rate. The Company provides
for impairment if such estimated undiscounted future cash flows are insufficient to recover the carrying amount of the real
estate investment. As disclosed in Note 4 to the consolidated financial statements, the Company had $1.8 billion in real estate
investments as of December 31, 2024.
We identified the evaluation of real estate investments for impairment as a critical audit matter. Identifying events or changes
in circumstances that indicate the carrying value of a real estate investment may not be recoverable involves a high degree of
subjective auditor judgment. In addition, evaluating the expected period the Company will hold the rental property, estimated
net operating income, estimated liquidation value, and the estimated capitalization rate for each respective property requires
subjective auditor judgment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested
the operating effectiveness of certain internal controls over the Company’s process to identify and evaluate events or changes
in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including controls over
determining the period the Company will hold the rental property, estimated net operating income, the estimated capitalization
rate, and estimated liquidation value for each respective real estate investment. We compared the estimated undiscounted cash
flows, inclusive of the estimated liquidation value, based on the expected holding period, of each real estate investment to its
carrying value. We performed independent evaluations using third-party market reports to assess the reasonableness of
management’s selected capitalization rates used in their analysis. We compared the estimated net operating income used in
their analysis to historical operating results. We inquired of Company officials and inspected documents, such as meeting
minutes of the board of directors, to identify Company strategies that might indicate it was more-likely-than not that a property
will be sold before the end of the expected period the Company planned to hold the property. We recalculated the estimated
liquidation value based on the estimated net operating income and estimated capitalization rate.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
Dallas, Texas
February 26, 2025
F-4
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited NexPoint Residential Trust, Inc. and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements
of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2024, and the related notes and financial statement Schedule III Real Estate and Accumulated Depreciation
(collectively, the consolidated financial statements), and our report dated February 26, 2025 expressed an unqualified opinion on
those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Dallas, Texas
February 26, 2025
F-5
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
December 31, 2024
December 31, 2023
ASSETS
Operating Real Estate Investments
Land
$
359,819 $
359,819
Buildings and improvements
1,738,677
1,719,864
Construction in progress
1,267
8,322
Furniture, fixtures, and equipment
202,029
180,435
Total Gross Operating Real Estate Investments
2,301,792
2,268,440
Accumulated depreciation and amortization
(508,569 )
(411,087 )
Total Net Operating Real Estate Investments
1,793,223
1,857,353
Real estate held for sale, net of accumulated depreciation of $0 and $31,871,
respectively
—
110,747
Total Net Real Estate Investments
1,793,223
1,968,100
Cash and cash equivalents
23,148
12,367
Restricted cash
30,769
32,912
Accounts receivable, net
12,337
14,598
Prepaid and other assets
6,102
8,640
Fair market value of interest rate swaps
41,841
71,028
TOTAL ASSETS
$
1,907,420 $
2,107,645
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable, net
$
1,463,650 $
1,453,787
Mortgages payable held for sale, net
—
88,044
Credit facility, net
—
23,243
Accounts payable and other accrued liabilities
11,351
17,140
Accrued real estate taxes payable
4,260
11,230
Accrued interest payable
7,630
9,399
Security deposit liability
2,954
3,159
Prepaid rents
1,425
1,773
Total Liabilities
$
1,491,270 $
1,607,775
Redeemable noncontrolling interests in the OP
5,782
5,246
Stockholders' Equity:
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued
—
—
Common stock, $0.01 par value: 500,000,000 shares authorized; 25,403,537 and
25,674,313 shares issued and outstanding, respectively
254
256
Additional paid-in capital
407,429
413,010
Accumulated earnings (loss) less dividends
(38,030 )
11,493
Accumulated other comprehensive income
40,715
69,865
Total Stockholders' Equity
410,368
494,624
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
1,907,420 $
2,107,645
See Notes to Consolidated Financial Statements
F-6
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
For the Year Ended December 31,
2024
2023
2022
Revenues
Rental income
$
251,861 $
270,078 $
257,855
Other income
7,840
7,448
6,097
Total revenues
259,701
277,526
263,952
Expenses
Property operating expenses
56,583
57,838
58,151
Real estate taxes and insurance
33,062
36,847
37,433
Property management fees (1)
7,484
8,069
7,636
Advisory and administrative fees (2)
6,899
7,645
7,547
Corporate general and administrative expenses
19,399
17,146
14,670
Property general and administrative expenses
9,198
9,543
9,298
Depreciation and amortization
97,762
95,186
97,648
Total expenses
230,387
232,274
232,383
Operating income before gain on sales of real estate
29,314
45,252
31,569
Gain on sales of real estate (3)
54,246
67,926
14,684
Operating income
83,560
113,178
46,253
Interest expense
(58,477 )
(67,106 )
(50,587 )
Loss on extinguishment of debt and modification costs
(24,004 )
(2,409 )
(8,734 )
Casualty gain (loss)
(626 )
(856 )
2,506
Gain on forfeited deposits
—
250
—
Equity in earnings of affiliate
172
205
—
Miscellaneous income
489
1,171
1,271
Net income (loss)
1,114
44,433
(9,291 )
Net income (loss) attributable to redeemable noncontrolling interests
in the OP
4
169
(31 )
Net income (loss) attributable to common stockholders
$
1,110 $
44,264 $
(9,260 )
Other comprehensive income (loss)
Unrealized gains (losses) on interest rate derivatives
(29,265 )
(32,413 )
99,915
Total comprehensive income (loss)
(28,151 )
12,020
90,624
Comprehensive income (loss) attributable to redeemable
noncontrolling interests in the OP
(111 )
46
307
Comprehensive income (loss) attributable to common stockholders
$
(28,040 ) $
11,974 $
90,317
Weighted average common shares outstanding - basic
25,516
25,654
25,610
Weighted average common shares outstanding - diluted
26,246
26,245
25,610
Earnings (loss) per share - basic
$
0.04 $
1.73 $
(0.36 )
Earnings (loss) per share - diluted
$
0.04 $
1.69 $
(0.36 )
(1) Fees incurred to an unaffiliated third party that is an affiliate of a noncontrolling limited partner of the Company’s Operating
Partnership (see Note 9).
(2) Fees incurred to the Adviser (see Note 10).
(3) $31.5 million with a related party for the year ended December 31, 2024 (see Note 10).
See Notes to Consolidated Financial Statements
F-7
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in thousands, except share and per share amounts)
Preferred Stock
Common Stock
Additional
Accumulated
Earnings
(Loss)
Accumulated
Other
Common
Stock
Held in
Number of
Shares
Par Value
Number of
Shares
Par Value
Paid-in
Capital
Less
Dividends
Comprehensive
Income (Loss)
Treasury
at Cost
Total
Balances, December 31, 2021
— $
— 25,500,567 $
255 $
407,803 $
59,209 $
2,578 $
— $
469,845
Net loss attributable to common stockholders
—
—
—
—
—
(9,260 )
—
—
(9,260 )
Repurchases of common stock
—
—
—
—
—
—
—
(11,127 )
(11,127 )
Retirement of common stock held in treasury
—
—
(168,473 )
(2 )
(11,125 )
—
—
11,127
—
Vesting of stock-based compensation
—
—
165,134
1
4,782
—
—
—
4,783
Issuance of common shares through at-the-
market offering, net of offering costs
—
—
52,091
1
3,968
—
—
—
3,969
Common stock dividends declared ($1.56 per
share)
—
—
—
—
—
(40,809 )
—
—
(40,809 )
Other comprehensive income
—
—
—
—
—
—
99,577
—
99,577
Offering costs of the issuance of redeemable
noncontrolling interests in the OP
—
—
—
—
(52 )
—
—
—
(52 )
Adjustment to reflect redemption value of
redeemable noncontrolling interests in the OP
—
—
—
—
—
2,740
—
—
2,740
Balances, December 31, 2022
— $
— 25,549,319 $
255 $
405,376 $
11,880 $
102,155 $
— $
519,666
Net income attributable to common
stockholders
—
—
—
—
—
44,264
—
—
44,264
Vesting of stock-based compensation
—
—
124,994
1
7,569
—
—
—
7,570
Common stock dividends declared ($1.72 per
share)
—
—
—
—
—
(45,178 )
—
—
(45,178 )
Other comprehensive loss
—
—
—
—
—
—
(32,290 )
—
(32,290 )
Adjustment to reflect redemption value of
redeemable noncontrolling interests in the OP
—
—
—
—
65
527
—
—
592
Balances, December 31, 2023
— $
— 25,674,313 $
256 $
413,010 $
11,493 $
69,865 $
— $
494,624
Net income attributable to common
stockholders
—
—
—
—
—
1,110
—
—
1,110
Repurchase of common stock
—
—
—
—
—
—
—
(14,573 )
(14,573 )
Retirement of common stock held in treasury
—
—
(438,678 )
(4 )
(14,569 )
—
—
14,573
—
Vesting of stock-based compensation
—
—
167,902
2
8,988
—
—
—
8,990
Common stock dividends declared ($1.90)
—
—
—
—
—
(49,790 )
—
—
(49,790 )
Other comprehensive loss
—
—
—
—
—
—
(29,150 )
—
(29,150 )
Adjustment to reflect redemption value of
redeemable noncontrolling interests in the OP
—
—
—
—
—
(843 )
—
—
(843 )
Balances, December 31, 2024
— $
— 25,403,537 $
254 $
407,429 $
(38,030 ) $
40,715 $
— $
410,368
See Notes to Consolidated Financial Statements
F-8
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended December 31,
2024
2023
2022
Cash flows from operating activities
Net income (loss)
$
1,114 $
44,433 $
(9,291 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sales of real estate (1)
(54,246 )
(67,926 )
(14,684 )
Depreciation and amortization
97,762
95,186
97,648
Amortization/write-off of deferred financing costs and debt prepayment penalties
27,317
5,354
11,513
Change in fair value on derivative instruments included in interest expense
(49,003 )
(46,233 )
(10,124 )
Net cash received on derivative settlements
53,295
49,699
2,329
Amortization/write-off of fair market value adjustment of assumed debt
(106 )
(108 )
(194 )
Provision for bad debts, net
3,741
8,652
8,004
Vesting of stock-based compensation
10,543
9,286
7,902
Insurance proceeds received for business interruption
803
936
681
Equity in earnings of affiliate
(172 )
(205 )
—
Gain on forfeited deposits
—
(250 )
—
Casualty loss (gain)
896
(2,842 )
(1,863 )
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
(4,010 )
(8,090 )
(10,651 )
Prepaid and other assets
(808 )
(15 )
(666 )
Operating liabilities
(6,583 )
4,706
4,442
Real estate taxes payable
(6,970 )
3,998
(5,950 )
Net cash provided by operating activities
73,573
96,581
79,096
Cash flows from investing activities
Net proceeds from sales of real estate
165,703
117,779
36,455
Forfeited deposits
—
250
—
Self-insurance paid for casualty loss
(179 )
(1,819 )
(1,819 )
Insurance proceeds received from casualty losses
2,352
6,713
5,957
Additions to real estate investments
(37,257 )
(71,415 )
(62,100 )
Acquisitions of real estate investments
—
415
(140,796 )
Net cash provided by (used in) investing activities
130,619
51,923
(162,303 )
Cash flows from financing activities
Mortgage proceeds received
1,433,889
42,788
885,825
Mortgage payments
(1,517,418 )
(98,580 )
(559,944 )
Credit facilities proceeds received
—
—
55,000
Credit facilities payments
(24,000 )
(50,500 )
(260,500 )
Deferred financing costs received (paid)
(5,400 )
1,001
(13,007 )
Interest rate cap fees paid
(1,556 )
(592 )
(3,925 )
Prepayment penalties on extinguished debt
(15,486 )
(2,370 )
(5,704 )
Proceeds from the issuance of common shares through at-the-market offering, net of
offering costs
—
—
3,969
Payments for taxes related to net share settlement of stock-based compensation
(1,510 )
(1,716 )
(3,119 )
Redemption of redeemable noncontrolling interests in the Operating Partnership
—
(70 )
—
Repurchase of common stock
(14,573 )
—
(11,127 )
Dividends paid to common stockholders
(49,304 )
(44,801 )
(40,639 )
Distributions to redeemable noncontrolling interest in the OP
(196 )
(184 )
(519 )
Net cash provided by (used in) financing activities
(195,554 )
(155,024 )
46,310
Net increase (decrease) in cash, cash equivalents and restricted cash
8,638
(6,520 )
(36,897 )
Cash, cash equivalents and restricted cash, beginning of year
45,279
51,799
88,696
Cash, cash equivalents and restricted cash, end of year
$
53,917 $
45,279 $
51,799
(1) $31.5 million with a related party for the year ended December 31, 2024 (see Note 10).
See Notes to Consolidated Financial Statements
F-9
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Supplemental Disclosure of Cash Flow Information
Interest paid
$
105,991 $
109,049 $
52,671
Supplemental Disclosure of Noncash Activities
Issuance of operating partnership units for purchase of noncontrolling interests
—
415
2,444
Adjustment to reflect redemption value of redeemable noncontrolling interests in
the OP
(843 )
592
2,740
Capitalized construction costs included in accounts payable and other accrued
liabilities
3,024
5,789
4,721
Change in fair value on derivative instruments designated as hedges
(29,265 )
(32,413 )
99,915
Other assets acquired from acquisitions
—
—
168
Liabilities assumed from acquisitions
—
—
358
Increase in dividends payable upon vesting of restricted stock units
486
377
170
Write-off of assets due to casualty losses
1,140
1,897
7,014
Write-off of fully amortized in-place leases
—
—
5,179
Write-off of deferred financing costs
8,465
483
1,961
See Notes to Consolidated Financial Statements
F-10
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014, and
has elected to be taxed as a real estate investment trust (“REIT”) and the Company believes the current organization and method of
operation will enable it to maintain its status as a REIT. The Company is focused on “value-add” multifamily investments primarily
located in the Southeastern and Southwestern United States. Substantially all of the Company’s business is conducted through
NexPoint Residential Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. The Company also
consolidates certain variable interest entities ("VIEs") in accordance with Financial Accounting Standards Board’s ("FASB")
Accounting Standards Codification ("ASC") 810 Consolidation. The Company controls and consolidates the OP as a VIE. The
Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiary (“TRS”). The OP owns
approximately 99.9% of the Portfolio; the TRS owns approximately 0.1% of the Portfolio. The Company’s wholly owned subsidiary,
NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of December
31, 2024, there were 26,053,988 common units in the OP (“OP Units”) outstanding, of which 25,951,154, or 99.6%, were owned by
the Company and 102,834, or 0.4%, were owned by noncontrolling limited partners (see Note 9 to our consolidated financial
statements).
The Company is externally managed by NexPoint Real Estate Advisors, L.P. (the “Adviser”), through an agreement dated
March 16, 2015, as amended, and renewed on February 24, 2025 for a one-year term (the “Advisory Agreement”), by and among
the Company, the OP and the Adviser. The Adviser conducts substantially all of the Company’s operations and provides asset
management services for its real estate investments. The Company expects it will only have accounting employees while the
Advisory Agreement is in effect. All of the Company’s investment decisions are made by the Adviser, subject to general oversight
by the Adviser’s investment committee and the Company’s board of directors (the “Board”). The Adviser is wholly owned by
NexPoint Advisors, L.P. (the “Sponsor”).
The Company’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. Consistent with the Company’s policy to acquire assets for both income and
capital gain, the Company intends to hold at least majority interests in its properties for long-term appreciation and to engage in the
business of directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component
in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States consistent with
its investment objectives. Economic and market conditions may influence the Company to hold properties for different periods of
time. From time to time, the Company may sell a property if, among other deciding factors, the sale would be in the best interest of
its stockholders.
The Company may allocate up to 30% of the Portfolio to investments in real estate-related debt and securities with the
potential for high current income or total returns. These allocations may include first and second mortgages and subordinated, bridge,
mezzanine, construction and other loans, as well as debt securities related to or secured by multifamily real estate and common and
preferred equity securities, which may include securities of other REITs or real estate companies.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements are presented in accordance with U.S. generally accepted accounting
principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent liabilities at the dates of the consolidated financial statements and the amounts of
revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant
intercompany accounts and transactions have been eliminated in consolidation. There have been no significant changes to the
Company’s significant accounting policies during the year ended December 31, 2024.
Principles of Consolidation
The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership
interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810,
Consolidation. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the
Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right
to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when
it controls the entity through ownership of a majority voting interest. The consolidated financial statements include the accounts of
the Company and its subsidiaries, including the OP and its subsidiaries.
F-11
Reclassification of Prior Year Activity on the Consolidated Statements of Cash Flows
Certain reclassifications have been made within the consolidated statements of cash flows to the changes in operating assets
and liabilities, net of effects of sales and acquisitions for the year ended December 31, 2022 to be comparative to the consolidated
statement of cash flows for the years ended December 31, 2024 and 2023.
Restricted Cash
The Company's restricted cash balance consist of security deposits, operating escrows and renovation reserves.
Revenue Recognition
The Company’s primary operations consist of rental income earned from its residents under lease agreements typically with
terms of one year or less. Rental income is recognized when earned. This policy effectively results in income recognition on the
straight-line method over the related terms of the leases. The Company records an allowance to reflect revenue that may not be
collectable. Resident reimbursements and other income consist of charges billed to residents for utilities, carport and garage rental,
and pets, administrative, application and other fees and are recognized when earned.
Purchase Price Allocation
Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total
consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets in
accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.
The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value
hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (“ASC 820”) (see Note 6 to our consolidated
financial statements), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all
available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related
information. The allocation of the total consideration to intangible lease assets represents the value associated with the in-place
leases, which may include lost rent, leasing commissions, legal and other related costs, which the Company, as buyer of the property,
did not have to incur to obtain the residents. If any debt is assumed in an acquisition, the difference between the fair value, which is
estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a
premium or discount and amortized as interest expense over the life of the debt assumed.
Operating Real Estate Investments
Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, and intangible lease assets are
stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate
assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. Real estate-
related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the
following table:
Land
Not depreciated
Buildings
30 years
Improvements
15 years
Furniture, fixtures, and equipment
3 years
Intangible lease assets
6 months
Construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is
complete, the historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation
project and is depreciated over the estimated useful lives as described in the table above.
Impairment
Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an investment may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the
expected holding period, estimated net operating income, and estimated capitalization rates. In such cases, the Company will evaluate
the recoverability of such real estate investments based on estimated future cash flows inclusive of the estimated liquidation value
of such real estate investments, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying
amount of the real estate investment. If impaired, the real estate investment will be written down to its estimated fair value. The
Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a
real estate investment may not be recoverable, including determining the period the Company will hold the rental property for, net
operating income, and the estimated capitalization rate for each respective real estate investment. For the years ended December 31,
2024, 2023 and 2022, the Company has not recorded any impairment on its real estate investments.
F-12
Held for Sale
The Company periodically classifies real estate assets as held for sale when certain criteria are met, in accordance with GAAP.
At that time, the Company presents the net real estate assets and the net debt associated with the real estate held for sale separately
in its consolidated balance sheet, and the Company ceases recording depreciation and amortization expense related to that property.
Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. As of
December 31, 2024 and 2023, there are zero and three properties held for sale, respectively. In addition to the net real estate and
mortgages payable held for sale, the consolidated balance sheet also includes approximately $0.0 million and $0.8 million of accounts
receivable and prepaid and other assets, and approximately $0.0 million and $4.9 million of accounts payable, real estate taxes
payable, security deposits, prepaid rents, and other accrued liabilities as of December 31, 2024 and 2023, respectively.
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the “Code”) commencing with its taxable year ended December 31, 2015, and expects to continue to qualify as a REIT.
To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to
distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders. As a REIT, the Company
will be subject to U.S. federal income tax on its undistributed REIT taxable income and net capital gain and to a 4% nondeductible
excise tax on any amount by which distributions it pays with respect to any calendar year are less than the sum of (1) 85% of its
ordinary income, (2) 95% of its capital gain net income and (3) 100% of its undistributed income from prior years. The Company
intends to operate in such a manner so as to qualify as a REIT, but no assurance can be given that the Company will operate in a
manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through TRSs and is subject to
applicable federal, state, and local income and margin taxes. The Company had no significant taxes associated with its TRSs for the
years ended December 31, 2024, 2023 and 2022.
If the Company fails to meet these requirements, it could be subject to U.S. federal income tax on all of the Company’s taxable
income at corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in
which it fails to qualify as a REIT. Additionally, the Company would also be disqualified from electing to be taxed as a REIT for
the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific
statutory provisions. As of December 31, 2024 and 2023, the Company believes it is in compliance with all applicable REIT
requirements.
The Company evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing
the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of
being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. The Company’s management is required to analyze all open tax years, as
defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Company has no
examinations in progress and none are expected at this time.
The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines
whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to
recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
The Company had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2024
and 2023. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of various state and local
jurisdictions. The 2023, 2022 and 2021 tax years remain open to examination by tax jurisdictions to which the Company and its
subsidiaries are subject. When applicable, the Company recognizes interest and/or penalties related to uncertain tax positions on its
consolidated statements of operations and comprehensive income (loss).
Segment Reporting
We adopted ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which
requires a public entity to disclose significant segment expenses and other segment items in interim and annual periods and expands
the GAAP disclosure requirements for interim periods. ASU 2023-07 also explicitly requires public entities with a single reportable
segment to provide all segment disclosures under GAAP. The Company identifies and discloses its reporting segment(s) in
accordance with ASC 280, Segment Reporting. In applying this guidance, the Company first identifies its operating segment(s) from
the component(s) where: (1) it engages in business activities from which it may recognize revenue and incur expenses, (2) its
operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to
the segment and assess its performance, and (3) its discrete financial information is available. Reportable segments are generally
F-13
those operating segments that meet certain quantitative thresholds. The Company has determined it has one reportable segment:
NXRT.
Recent Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024-03”). ASU
2024-03 requires disclosures of disaggregated information about certain income statement expense line items on an annual and
interim basis. The amendments are effective for fiscal years beginning after December 15, 2026, with early adoption permitted, and
should be applied prospectively, with the option to apply retrospectively. The Company is currently evaluating the impact of adopting
the amendments on its disclosures.
3. Investments in Subsidiaries
The Company conducts its operations through the OP, which owns properties through single asset limited liability companies
that are special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the
primary beneficiary. The Company controls and consolidates the OP as a VIE. In connection with its indirect equity investments in
the properties acquired, the Company, through the OP and the TRS, directly or indirectly holds 100% of the membership interests
in SPEs that directly own the properties. All of the properties the SPEs own are consolidated in the Company’s consolidated financial
statements. The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity
have no recourse to the assets of other entities or the Company.
Additionally, the Company has in the past and may in the future enter into purchase and sale transactions structured as reverse
like-kind exchanges (“Reverse 1031 Exchanges”) under Section 1031 of the Code. For a Reverse 1031 Exchange in which the
Company purchases a new property prior to selling the property to be matched in the like-kind exchange (the Company refers to the
new property being acquired in the Reverse 1031 Exchange prior to the sale of the related property as a “Parked Asset”), legal title
to the Parked Asset is held by an Exchange Accommodation Titleholder (“EAT”) engaged to execute the Reverse 1031 Exchange
until the sale transaction and the Reverse 1031 Exchange are completed. The Company, through a wholly owned subsidiary, enters
into a master lease agreement with the EAT whereby the EAT leases the acquired property and all other rights acquired in connection
with the acquisition to the Company. The term of the master lease agreement is the earlier of the completion of the Reverse 1031
Exchange or 180 days from the date that the property was acquired. The EAT is classified as a VIE as it does not have sufficient
equity investment at risk to finance its activities without additional subordinated financial support. The Company consolidates the
EAT as its primary beneficiary because it has the ability to control the activities that most significantly impact the EAT’s economic
performance and the Company retains all of the legal and economic benefits and obligations related to the Parked Assets prior to
completion of the Reverse 1031 Exchange. As such, the Parked Assets are included in the Company’s consolidated financial
statements as VIEs until legal title and control is transferred to the Company upon either completion of the Reverse 1031 Exchange
or termination of the master lease agreement, at which time they will be consolidated as wholly owned subsidiaries.
F-14
As of December 31, 2024 and 2023, the Company, through the OP and the wholly owned TRS, owned 35 and 38 properties,
respectively, through SPEs. The following table represents the Company’s ownership in each property by virtue of its 100%
ownership of the SPEs that directly own the title to each property as of December 31, 2024 and 2023:
Effective Ownership Percentage at
December 31,
Property Name
Location
Year Acquired
2024
2023
Arbors on Forest Ridge
Bedford, Texas
2014
100 %
100 %
Cutter's Point
Richardson, Texas
2014
100 %
100 %
The Summit at Sabal Park
Tampa, Florida
2014
100 %
100 %
Courtney Cove
Tampa, Florida
2014
100 %
100 %
Radbourne Lake
(1) Charlotte, North Carolina
2014
—
100 % (2)
Sabal Palm at Lake Buena Vista
Orlando, Florida
2014
100 %
100 %
Cornerstone
Orlando, Florida
2015
100 %
100 %
The Preserve at Terrell Mill
Marietta, Georgia
2015
100 %
100 %
Versailles
Dallas, Texas
2015
100 %
100 %
Seasons 704 Apartments
West Palm Beach, Florida
2015
100 %
100 %
Madera Point
Mesa, Arizona
2015
100 %
100 %
Venue at 8651
Fort Worth, Texas
2015
100 %
100 %
Parc500
West Palm Beach, Florida
2016
100 %
100 %
The Venue on Camelback
Phoenix, Arizona
2016
100 %
100 %
Old Farm
(1) Houston, Texas
2016
—
100 % (2)
Stone Creek at Old Farm
(1) Houston, Texas
2016
—
100 % (2)
Rockledge Apartments
Marietta, Georgia
2017
100 %
100 %
Atera Apartments
Dallas, Texas
2017
100 %
100 %
Versailles II
Dallas, Texas
2018
100 %
100 %
Brandywine I & II
Nashville, Tennessee
2018
100 %
100 %
Bella Vista
Phoenix, Arizona
2019
100 %
100 %
The Enclave
Tempe, Arizona
2019
100 %
100 %
The Heritage
Phoenix, Arizona
2019
100 %
100 %
Summers Landing
Fort Worth, Texas
2019
100 %
100 %
Residences at Glenview Reserve
Nashville, Tennessee
2019
100 %
100 %
Residences at West Place
Orlando, Florida
2019
100 %
100 %
Avant at Pembroke Pines
Pembroke Pines, Florida
2019
100 %
100 %
Arbors of Brentwood
Nashville, Tennessee
2019
100 %
100 %
Torreyana Apartments
Las Vegas, Nevada
2019
100 %
100 %
Bloom
Las Vegas, Nevada
2019
100 %
100 %
Bella Solara
Las Vegas, Nevada
2019
100 %
100 %
Fairways at San Marcos
Chandler, Arizona
2020
100 %
100 %
The Verandas at Lake Norman
Charlotte, North Carolina
2021
100 %
100 %
Creekside at Matthews
Charlotte, North Carolina
2021
100 %
100 %
Six Forks Station
Raleigh, North Carolina
2021
100 %
100 %
High House at Cary
Cary, North Carolina
2021
100 %
100 %
The Adair
Sandy Springs, Georgia
2022
100 %
100 %
Estates on Maryland
Phoenix, Arizona
2022
100 %
100 %
(1) Properties sold in 2024.
(2) Properties classified as held for sale as of December 31, 2023.
F-15
4. Real Estate Investments
As of December 31, 2024, the major components of the Company’s investments in multifamily properties were as follows
(in thousands):
Operating Properties
Land
Buildings and
Improvements
Construction in
Progress
Furniture,
Fixtures and
Equipment
Totals
Arbors on Forest Ridge
$
2,330 $
12,078 $
— $
2,553 $
16,961
Cutter's Point
3,330
14,777
—
6,954
25,061
The Summit at Sabal Park
5,770
15,138
26
3,088
24,022
Courtney Cove
5,880
15,217
71
4,493
25,661
Sabal Palm at Lake Buena Vista
7,558
45,175
—
5,709
58,442
Cornerstone
1,500
31,286
22
5,758
38,566
The Preserve at Terrell Mill
10,170
54,334
—
16,264
80,768
Versailles
6,720
22,977
—
6,504
36,201
Seasons 704 Apartments
7,480
16,241
15
4,561
28,297
Madera Point
4,920
18,390
—
4,031
27,341
Venue at 8651
2,350
19,953
1
4,961
27,265
Parc500
3,860
21,989
—
5,836
31,685
The Venue on Camelback
8,340
38,962
41
6,620
53,963
Rockledge Apartments
17,451
102,013
548
13,063
133,075
Atera Apartments
22,371
39,054
—
3,866
65,291
Versailles II
4,124
21,328
54
3,133
28,639
Brandywine I & II
6,237
75,329
—
10,385
91,951
Bella Vista
10,942
37,482
—
4,345
52,769
The Enclave
11,046
30,760
—
3,861
45,667
The Heritage
6,835
35,284
8
3,942
46,069
Summers Landing
1,798
19,218
—
1,774
22,790
Residences at Glenview Reserve
3,367
43,187
—
6,482
53,036
Residences at West Place
3,345
53,708
—
5,022
62,075
Avant at Pembroke Pines
48,436
287,102
78
24,956
360,572
Arbors of Brentwood
6,346
56,881
8
4,038
67,273
Torreyana Apartments
23,824
44,290
—
2,696
70,810
Bloom
23,803
83,832
14
6,269
113,918
Bella Solara
12,605
52,686
274
3,849
69,414
Fairways at San Marcos
10,993
73,175
—
4,795
88,963
The Verandas at Lake Norman
9,510
54,002
14
2,770
66,296
Creekside at Matthews
11,515
46,171
—
3,482
61,168
Six Forks Station
11,357
65,130
6
4,816
81,309
High House at Cary
23,809
68,654
87
4,019
96,569
The Adair
8,344
57,399
—
3,301
69,044
Estates on Maryland
11,553
65,475
—
3,833
80,861
$
359,819 $
1,738,677 $
1,267 $
202,029 $
2,301,792
Accumulated depreciation and
amortization
—
(351,780 )
—
(156,789 )
(508,569 )
Total Operating Properties
$
359,819 $
1,386,897 $
1,267 $
45,240 $
1,793,223
F-16
As of December 31, 2023, the major components of the Company’s investments in multifamily properties were as follows
(in thousands):
Operating Properties
Land
Buildings and
Improvements
Construction in
Progress
Furniture,
Fixtures and
Equipment
Totals
Arbors on Forest Ridge
$
2,330 $
11,874 $
78 $
2,301 $
16,583
Cutter's Point
3,330
14,622
—
6,760
24,712
The Summit at Sabal Park
5,770
14,663
—
2,746
23,179
Courtney Cove
5,880
15,099
12
3,837
24,828
Sabal Palm at Lake Buena Vista
7,558
45,023
—
5,040
57,621
Cornerstone
1,500
31,181
30
5,193
37,904
The Preserve at Terrell Mill
10,170
53,490
44
15,116
78,820
Versailles
6,720
22,048
587
5,586
34,941
Seasons 704 Apartments
7,480
15,585
25
4,025
27,115
Madera Point
4,920
18,330
—
3,771
27,021
Venue at 8651
2,350
19,720
374
4,688
27,132
Parc500
3,860
21,501
270
5,421
31,052
The Venue on Camelback
8,340
38,497
324
5,901
53,062
Rockledge Apartments
17,451
99,310
1,649
10,844
129,254
Atera Apartments
22,371
38,922
142
3,622
65,057
Versailles II
4,124
20,764
391
2,656
27,935
Brandywine I & II
6,237
73,895
—
9,541
89,673
Bella Vista
10,942
37,410
—
4,086
52,438
The Enclave
11,046
30,723
—
3,688
45,457
The Heritage
6,835
35,216
—
3,730
45,781
Summers Landing
1,798
18,955
2
1,589
22,344
Residences at Glenview Reserve
3,367
42,693
—
5,524
51,584
Residences at West Place
3,345
53,512
—
4,319
61,176
Avant at Pembroke Pines
48,436
284,582
85
21,681
354,784
Arbors of Brentwood
6,346
54,735
1,534
3,576
66,191
Torreyana Apartments
23,824
44,231
13
2,478
70,546
Bloom
23,803
83,440
8
5,638
112,889
Bella Solara
12,605
52,645
1,687
3,230
70,167
Fairways at San Marcos
10,993
73,068
—
4,443
88,504
The Verandas at Lake Norman
9,510
53,864
—
2,491
65,865
Creekside at Matthews
11,515
46,047
3
3,231
60,796
Six Forks Station
11,357
63,404
985
4,101
79,847
High House at Cary
23,809
68,263
62
3,501
95,635
The Adair
8,344
57,192
—
2,852
68,388
Estates on Maryland
11,553
65,360
17
3,229
80,159
$
359,819 $
1,719,864 $
8,322 $
180,435 $
2,268,440
Accumulated depreciation and
amortization
—
(287,963 )
—
(123,124 )
(411,087 )
Total Operating Properties
$
359,819 $
1,431,901 $
8,322 $
57,311 $
1,857,353
Held For Sale Properties
Old Farm
$
11,078 $
71,097 $
24 $
6,081 $
88,280
Stone Creek at Old Farm
3,493
19,689
—
1,465
24,647
Radbourne Lake
2,440
23,229
3
4,019
29,691
Accumulated depreciation and
amortization
—
(24,536 )
—
(7,335 )
(31,871 )
Total Held For Sale Properties
$
17,011 $
89,479 $
27 $
4,230 $
110,747
Total
$
376,830 $
1,521,380 $
8,349 $
61,541 $
1,968,100
Depreciation expense was $97.8 million, $95.2 million and $93.5 million for the years ended December 31, 2024, 2023 and
2022, respectively.
Amortization expense related to the Company’s intangible lease assets was $0.0 million, $0.0 million and $4.1 million for the
years ended December 31, 2024, 2023 and 2022, respectively.
F-17
Due to the six-month useful life attributable to intangible lease assets, the value of intangible lease assets on any acquisition
prior to June 30, 2024 has been fully amortized and the assets and related accumulated amortization have been written off as of
December 31, 2024.
Acquisitions
There were no acquisitions during the years ended December 31, 2024 and 2023.
Dispositions
The Company sold three properties during the year ended December 31, 2024, as detailed in the table below (in thousands).
Property Name
Location
Date of Sale
Sales Price
Net Cash
Proceeds (1)
Gain on Sale
of Real Estate
Old Farm
(2) Houston, Texas
March 1, 2024
$ 103,000 $
102,704 $
31,548
Radbourne Lake
Charlotte, North Carolina April 30, 2024
39,250
38,904
18,847
Stone Creek at Old Farm
Houston, Texas
October 1, 2024
24,500
24,095
3,851
$ 166,750 $
165,703 $
54,246
(1) Represents sales price, net of closing costs.
(2) Old Farm was sold to NexBank Capital. A director and officer of the Company also (i) is the beneficiary of a trust that indirectly
owns 100% of the limited partnership interests in the parent of the Adviser and directly owns 100% of the general partnership
interests in the parent of the Adviser and (ii) is a director of NexBank Capital. See Note 10.
The Company sold two properties during the year ended December 31, 2023, as detailed in the table below (in thousands).
Property Name
Location
Date of Sale
Sales Price
Net Cash
Proceeds (1)
Gain on Sale
of Real Estate
Silverbrook
Grand Prairie, Texas
September 22, 2023
$
70,000
$
69,431 $
43,107
Timber Creek
Charlotte, North Carolina
December 13, 2023
49,000
48,348
24,819
$ 119,000
$
117,779 $
67,926
(1) Represents sales price, net of closing costs.
NXRT Captive
On July 6, 2023, NexPoint Captive Insurance Company, Inc. (“NexPoint Captive”) was authorized to transact business in
the State of Montana as a captive insurance company. NexPoint Captive began providing rental insurance coverage to NXRT
properties and properties managed by affiliates of the Adviser on August 1, 2023. The OP purchased 100% ownership interest and
has the power to direct the activities of NexPoint Captive. NexPoint Captive is required to maintain a cash reserve of $250,000 to
fund potential claims, which is classified as restricted cash on the consolidated balance sheets. As of December 31, 2024 and 2023,
the Company had approximately $0.3 million and $0.1 million, respectively, accrued for case reserves which is reflected in accounts
payable and other accrued liabilities on the consolidated balance sheets. The Company consolidates NexPoint Captive in its
consolidated financial statements.
Casualty Losses
The Company experienced certain casualty events during the years ended December 31, 2024, 2023 and 2022. Certain
casualty proceeds from insurance are recorded in casualty gains (loss) on the consolidated statements of operations and
comprehensive income (loss) in relation to these events. Events that are considered to be small, standard and not extraordinary are
recorded through property operating expense. Insurance proceeds received from casualty losses are recognized on the Company’s
consolidated statements of cash flows as investing activities. The Company differentiates proceeds received from business
interruption and casualty gains (losses) in accounting for the transactions. Business interruption proceeds are specifically insurance
proceeds to recoup lost rents due to a qualifying event(s) (i.e., fires, floods, storms, water damage, etc.) as determined by the
insurance policy and are reflected as operating cash flows in the accompanying consolidated statements of cash flows. Business
interruption that has been accrued by the Company is presented in miscellaneous income in the accompanying consolidated
statements of operations and comprehensive income (loss). Casualty gains (losses) are distinctly attributable to damage and
subsequent write down of the property (loss), and the recoupment of funds from the insurance policy, as it relates to the damage.
Such proceeds received from the damage to the property are accounted for as a gain to the Company, and potentially offset losses
attributable to net write off of damaged assets.
During the years ended December 31, 2024, 2023 and 2022, the Company recognized $0.6 million in casualty loss, $0.9
million in casualty loss and $2.5 million in casualty gains, respectively, and $0.5 million, $1.2 million and $1.3 million in business
interruption proceeds on the consolidated statement of operations and comprehensive income (loss) due to casualty events,
respectively.
F-18
5. Debt
Mortgage Debt
The following table contains summary information concerning the mortgage debt of the Company as of December 31, 2024
(dollars in thousands):
Operating Properties
Type
Term (months)
Outstanding
Principal
Interest Rate (1)
Maturity Date
Residences at West Place
Fixed
120
$
33,817
4.24%
10/1/2028
Arbors of Brentwood
Floating
84
39,977
5.62%
10/1/2031
Avant at Pembroke Pines
Floating
84
248,185
5.62%
10/1/2031
Bella Vista
Floating
84
37,400
5.62%
10/1/2031
Brandywine I & II
Floating
84
59,526
5.62%
10/1/2031
Cornerstone
Floating
84
45,815
5.62%
10/1/2031
Estates on Maryland
Floating
84
37,345
5.62%
10/1/2031
High House at Cary
Floating
84
32,478
5.62%
10/1/2031
Residences at Glenview Reserve
Floating
84
33,271
5.62%
10/1/2031
Sabal Palm at Lake Buena Vista
Floating
84
56,220
5.62%
10/1/2031
Six Forks Station
Floating
84
30,430
5.62%
10/1/2031
Summers Landing
Floating
84
14,135
5.62%
10/1/2031
The Adair
Floating
84
33,229
5.62%
10/1/2031
The Enclave
Floating
84
33,440
5.62%
10/1/2031
The Heritage
Floating
84
29,810
5.62%
10/1/2031
The Venue on Camelback
Floating
84
36,465
5.62%
10/1/2031
The Verandas at Lake Norman
Floating
84
30,113
5.62%
10/1/2031
Versailles II
Floating
84
15,706
5.62%
10/1/2031
Arbors on Forest Ridge
Floating
84
17,307
5.62%
12/1/2031
Atera Apartments
Floating
84
38,555
5.62%
12/1/2031
Bella Solara
Floating
84
37,772
5.62%
12/1/2031
Bloom
Floating
84
60,848
5.62%
12/1/2031
Courtney Cove
Floating
84
31,596
5.62%
12/1/2031
Creekside at Matthews
Floating
84
28,703
5.62%
12/1/2031
Cutter's Point
Floating
84
18,994
5.62%
12/1/2031
Fairways at San Marcos
Floating
84
55,056
5.62%
12/1/2031
Madera Point
Floating
84
29,676
5.62%
12/1/2031
Parc500
Floating
84
30,012
5.62%
12/1/2031
Rockledge Apartments
Floating
84
78,444
5.62%
12/1/2031
Seasons 704 Apartments
Floating
84
33,960
5.62%
12/1/2031
The Preserve at Terrell Mill
Floating
84
74,341
5.62%
12/1/2031
The Summit at Sabal Park
Floating
84
26,735
5.62%
12/1/2031
Torreyana Apartments
Floating
84
43,153
5.62%
12/1/2031
Venue at 8651
Floating
84
24,620
5.62%
12/1/2031
Versailles
Floating
84
26,108
5.62%
12/1/2031
$
1,503,242
Fair market value adjustment
397
Deferred financing costs, net of
accumulated amortization of $1,113
(39,989 )
$
1,463,650
(1) Interest rate is based on a reference rate plus an applicable margin, except for fixed rate mortgage debt. The reference rates used
in our Portfolio is 30-Day Average Secured Overnight Financing Rate (“SOFR”). As of December 31, 2024, SOFR was 4.53%.
F-19
The following table contains summary information concerning the mortgage debt of the Company as of December 31, 2023
(dollars in thousands):
Operating Properties
Type
Term (months)
Outstanding
Principal
Interest Rate
Maturity Date
Arbors on Forest Ridge
Floating
120
$
19,184
6.89%
12/1/2032
Cutter's Point
Floating
120
21,524
6.89%
12/1/2032
The Summit at Sabal Park
Floating
120
30,826
6.89%
12/1/2032
Courtney Cove
Floating
120
36,146
6.89%
12/1/2032
The Preserve at Terrell Mill
Floating
120
71,098
6.89%
12/1/2032
Versailles
Floating
120
40,247
6.89%
12/1/2032
Seasons 704 Apartments
Floating
120
33,132
6.89%
12/1/2032
Madera Point
Floating
120
34,457
6.89%
12/1/2032
Venue at 8651
Floating
120
18,690
6.89%
12/1/2032
The Venue on Camelback
Floating
120
42,788
7.52%
2/1/2033
Sabal Palm at Lake Buena Vista
Floating
84
42,100
6.76%
9/1/2025
Cornerstone
Floating
120
46,804
7.43%
12/1/2032
Parc500
Floating
120
29,416
6.89%
12/1/2032
Rockledge Apartments
Floating
120
93,129
6.89%
12/1/2032
Atera Apartments
Floating
120
46,198
6.89%
12/1/2032
Versailles II
Floating
84
12,061
6.64%
10/1/2025
Brandywine I & II
Floating
84
43,835
6.64%
10/1/2025
Bella Vista
Floating
84
29,040
6.78%
2/1/2026
The Enclave
Floating
84
25,322
6.78%
2/1/2026
The Heritage
Floating
84
24,625
6.78%
2/1/2026
Summers Landing
Floating
84
10,109
6.64%
10/1/2025
Residences at Glenview Reserve
Floating
84
25,574
6.90%
10/1/2025
Residences at West Place
Fixed
120
33,817
4.24%
10/1/2028
Avant at Pembroke Pines
Floating
84
177,101
6.89%
9/1/2026
Arbors of Brentwood
Floating
84
34,237
6.89%
10/1/2026
Torreyana Apartments
Floating
120
50,580
6.89%
12/1/2032
Bloom
Floating
120
59,830
6.89%
12/1/2032
Bella Solara
Floating
120
40,328
6.89%
12/1/2032
Fairways at San Marcos
Floating
120
60,228
6.89%
12/1/2032
The Verandas at Lake Norman
Floating
84
34,925
7.19%
7/1/2028
Creekside at Matthews
Floating
120
29,648
6.89%
12/1/2032
Six Forks Station
Floating
120
41,180
7.06%
10/1/2031
High House at Cary
Floating
84
46,625
7.35%
1/1/2029
The Adair
Floating
84
35,115
7.31%
4/1/2029
Estates on Maryland
Floating
84
43,157
7.31%
4/1/2029
$
1,463,076
Fair market value adjustment
503
Deferred financing costs, net of
accumulated amortization of $3,763
(9,792 )
$
1,453,787
Held For Sale Properties
Old Farm
Floating
84
$
52,886
7.14%
7/1/2024
Stone Creek at Old Farm
Floating
84
15,274
7.14%
7/1/2024
Radbourne Lake
Floating
84
20,000
6.75%
10/1/2025
$
88,160
Deferred financing costs, net of
accumulated amortization of $528
(116 )
$
88,044
During the year ended December 31, 2024, the Company sold three properties and repaid the related mortgage loans that
encumbered the properties, as detailed in the table below (in thousands):
Property Name
Date of Sale
Type
Outstanding
Principal (1)
Old Farm
March 1, 2024
Floating
$
52,886
Radbourne Lake
April 30, 2024
Floating
20,000
Stone Creek at Old Farm
October 1, 2024
Floating
15,274
$
88,160
(1) Represents the outstanding principal balance when the loan was repaid.
F-20
The weighted average interest rate of the Company’s mortgage indebtedness was 5.56% as of December 31, 2024 and 6.90%
as of December 31, 2023. As of December 31, 2024, the adjusted weighted average interest rate of the Company’s mortgage
indebtedness was 2.96%. For purposes of calculating the adjusted weighted average interest rate of the outstanding mortgage
indebtedness, the Company has included the weighted average fixed rate of 0.98% for Adjusted SOFR on its combined $1.1 billion
notional amount of interest rate swap agreements, which effectively fix the interest rate on $1.1 billion of $1.5 billion of the
Company’s floating rate mortgage debt (see Note 6 to our consolidated financial statements).
Each of the Company’s mortgages is a non-recourse obligation subject to customary provisions. The loan agreements contain
customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants
contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the
property, whether junior or senior to the loan, and bankruptcy or other insolvency events. As of December 31, 2024 and 2023, the
Company believes it is in compliance with all provisions. During the fourth quarter of 2024, the Company completed a refinance on
34 of its properties, increasing outstanding principal on the mortgage debt from approximately $1.4 billion to $1.5 billion. The
Company accounted for each refinance as a debt extinguishment in accordance with ASC 470-50. As part of the refinance in the
fourth quarter of 2024, the Company paid $40.9 million in deferred financing cost, which is classified as mortgages payable, net on
the consolidated balance sheets. The Company incurred prepayment penalties of approximately $14.8 million, refinance expenses
of approximately $0.1 million, and wrote-off deferred financing costs of approximately $8.4 million in connection with the refinance
in the fourth quarter of 2024 which are included in loss on extinguishment of debt and modification costs in the consolidated
statements of operations and comprehensive income (loss).
Credit Facility
On June 30, 2021, the Company, through the OP, entered into a secured $250.0 million credit facility with Truist Bank (“Truist
Bank”), as administrative agent, and the lenders from time to time party thereto (as amended or modified, the “Corporate Credit
Facility”). In connection with entering into the Corporate Credit Facility, the Company, through the OP, terminated its $225.0 million
credit facility with Truist Bank, as administrative agent, and the lenders from time to time party thereto, prior to the maturity date of
January 28, 2022.
On September 9, 2021, the Company, through the OP, modified the Corporate Credit Facility to provide for an additional
$35.0 million term loan with a maturity date of December 31, 2021, increasing the Corporate Credit Facility from $250 million to
$285 million. In conjunction with the increase in the facility, the Company incurred costs of $0.3 million in obtaining the additional
financing through the modification. On December 6, 2021, the Company, through the OP, increased the amount of the Corporate
Credit Facility by $55.0 million, and incurred costs of $0.4 million of deferred financing costs in conjunction with the increase in
the facility.
On March 25, 2022, the Company entered into a loan modification agreement by and among the Company, the OP, Truist
Bank and the Lenders party thereto, which modified the Corporate Credit Facility. Subject to conditions provided in the Corporate
Credit Facility, the commitments under Corporate Credit Facility may be increased up to an additional $150.0 million if the lenders
agree to increase their commitments or if the lenders agree for the increase to be funded by any additional lender proposed by the
Company, through the OP. On March 25, 2022, the Company drew on $55.0 million of the Corporate Credit Facility. On October
24, 2022, the Company exercised its option to extend the Corporate Credit Facility with respect to the revolving commitments for a
single one-year term resulting in a maturity date of June 30, 2025. As of December 31, 2024 and 2023, there was $0.0 and $24.0
million, respectively, in aggregate principal outstanding on the Corporate Credit Facility and $350.0 and $326.0 million, respectively,
available for borrowing under the Corporate Credit Facility.
Advances under the Corporate Credit Facility accrue interest at a per annum rate equal to, at the Company’s election, either
Term SOFR plus a margin of 1.90% to 2.40%, depending on the Company’s total leverage ratio, and a benchmark replacement
adjustment of 0.1%, or a base rate determined according to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%,
(c) Term SOFR plus 1.0% or (d) 0.0% plus a margin of 0.90% to 1.40%, depending on the Company’s total leverage ratio. An
unused commitment fee at a rate of 0.15% or 0.25%, depending on the outstanding aggregate revolving commitments, applies to
unutilized borrowing capacity under the Corporate Credit Facility. Amounts owing under the Corporate Credit Facility may be
prepaid at any time without premium or penalty. The Corporate Credit Facility is guaranteed by the Company and the obligations
under the Corporate Credit Facility are, subject to some exceptions, secured by a continuing security interest in substantially all of
the assets of the Company. As of December 31, 2024 and 2023, the Company is in compliance with all of the covenants required in
its Corporate Credit Facility.
Deferred Financing Costs
The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans using
the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are
F-21
recorded as a reduction from the related debt on the Company’s consolidated balance sheets. As of December 31, 2024, the Company
had $3.0 million of deferred financing costs and $2.9 million of accumulated amortization related to the Corporate Credit Facility
classified in prepaid and other assets on the consolidated balance sheets. Upon repayment of or in conjunction with a material change
in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt and modification
costs (see “Loss on Extinguishment of Debt and Modification Costs” below). For the years ended December 31, 2024, 2023 and
2022, amortization of deferred financing costs of approximately $3.4 million, $2.9 million and $2.8 million, respectively, is included
in interest expense on the consolidated statements of operations and comprehensive income (loss).
Gain (loss) on Extinguishment of Debt and Modification Costs
Gain (loss) on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs incurred on
the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs
incurred in a debt extinguishment. Upon repayment of or in conjunction with a material change in the terms of the underlying debt
agreement, any unamortized costs are charged to loss on extinguishment of debt and modification costs. The following table contains
summary information concerning the loss on extinguishment of debt and modification costs for the years ended December 31, 2024,
2023 and 2022 (dollars in thousands):
For the Year Ended December 31,
2024
2023
2022
Prepayment penalties and defeasance costs
$
15,486 $
2,370 $
5,702
Write-off of deferred financing costs
8,465
483
1,961
Write-off of fair market value adjustment of assumed debt
—
—
(256 )
Debt modification and other extinguishment costs
53
(444 )
1,327
Total
$
24,004 $
2,409 $
8,734
Schedule of Debt Maturities
The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years
subsequent to December 31, 2024 are as follows (in thousands):
Operating
Properties
2025
$
—
2026
—
2027
—
2028
33,817
2029
—
Thereafter
1,469,425
Total
$
1,503,242
6. Fair Value of Derivatives and Financial Instruments
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or
liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the
reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own
assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy):
•
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has
the ability to access.
•
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well
as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that
are observable at commonly quoted intervals.
•
Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity’s own assumption,
as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based
on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair
value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
F-22
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
judgment and considers factors specific to the asset or liability. The Company utilizes independent third parties to perform the
allocation of value analysis for each property acquisition and to perform the market valuations on its derivative financial instruments
and has established policies, as described above, processes and procedures intended to ensure that the valuation methodologies for
investments and derivative financial instruments are fair and consistent as of the measurement date.
Derivative Financial Instruments and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company
principally manages its exposures to a wide variety of business and operational risks through management of its core business
activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount,
sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company may enter into
derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future
known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial
instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments
principally related to the Company’s borrowings. In order to minimize counterparty credit risk, the Company enters into and expects
to enter into hedging arrangements only with major financial institutions that have high credit ratings.
The Company utilizes an independent third party to perform the market valuations on its derivative financial instruments. The
valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis
on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest
rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments)
and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an
expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest
rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur
if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts
on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both the
Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In
adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered
the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair
value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates
of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has determined
that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was
based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s
derivatives held as of December 31, 2024 and 2023 were classified as Level 2 of the fair value hierarchy.
The Company’s main objective in using interest rate derivatives is to add stability to interest expense related to floating rate
debt. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk
management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the
Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The
interest rate swaps have terms ranging from four to five years. Interest rate caps involve the receipt of variable-rate amounts from a
counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. The interest rate caps
have terms ranging from three to four years. During the years ended December 31, 2024, 2023 and 2022, interest rate cap derivatives
were used to hedge the variable cash flows associated with a portion of the Company’s floating rate debt. The interest rate cap
agreements the Company has entered into effectively cap SOFR on the Company’s floating rate mortgage indebtedness at a weighted
average rate of 6.31%. The Company determined at inception of each of the interest rate caps that they do not meet the hedge
accounting criteria, and therefore the Company recognizes market-to-market movements of the interest rate caps against interest
expense on the consolidated statement of operations and in prepaid and other assets on the consolidated balance sheet. For any
interest cap that is designated as an effective hedge, the Company recognized mark-to-market movements in other comprehensive
income (loss) and in prepaid and other assets on the consolidated balance sheet.
In order to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness (without incurring
substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or
refinanced), the Company, through the OP, has entered into interest rate swap transactions with KeyBank National Association
(“KeyBank”) and Truist Bank. The interest rate swaps the Company has entered into effectively fix the floating interest rate with
respect to that amount with a weighted average fixed rate of 0.98%. The Company has designated these interest rate swaps as cash
flow hedges of interest rate risk.
F-23
LIBOR ceased publication on June 30, 2023. On July 1, 2023, LIBOR rates were replaced with SOFR as the reference rate
for most LIBOR debt and derivative instruments. For debt instruments that transitioned from LIBOR to SOFR, the adjustment
included an increase of 0.11448% to the all-in rate. For the Company's interest rate swaps, the reference transitioned from one-month
LIBOR to Adjusted SOFR.
As of December 31, 2024, the Company had the following outstanding interest rate swaps that were designated as cash flow
hedges of interest rate risk (dollars in thousands):
Effective Date
Termination Date
Counterparty
Notional Amount
Fixed Rate (1)
September 1, 2019
September 1, 2026
KeyBank
$
100,000
1.4620 %
September 1, 2019
September 1, 2026
KeyBank
125,000
1.3020 %
January 3, 2020
September 1, 2026
KeyBank
92,500
1.6090 %
March 4, 2020
June 1, 2026
Truist
100,000
0.8200 %
June 1, 2021
September 1, 2026
KeyBank
200,000
0.8450 %
June 1, 2021
September 1, 2026
KeyBank
200,000
0.9530 %
March 1, 2022
March 1, 2025
Truist
145,000
0.5730 %
March 1, 2022
March 1, 2025
Truist
105,000
0.6140 %
$
1,067,500
0.9807 % (2)
(1) The floating rate option for the interest rate swaps is Adjusted SOFR. As of December 31, 2024, Adjusted SOFR was 4.65%.
(2) Represents the weighted average fixed rate of the interest rate swaps.
As of December 31, 2024 and 2023, the Company had the following outstanding interest rate swap that was designated as
cash flow hedge of interest rate risk with a future effective date (dollars in thousands):
Future Swap
Effective Date
Termination Date
Counterparty
Notional Amount
Fixed Rate (1)
September 1, 2026
January 1, 2027
KeyBank
$
92,500
1.7980 %
(1) The floating rate option for the interest rate swap is Adjusted SOFR. As of December 31, 2024, Adjusted SOFR was 4.65%.
F-24
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate
movements but either do not meet the strict requirements to apply hedge accounting in accordance with FASB ASC 815, Derivatives
and Hedging, or the Company has elected not to designate such derivatives as hedges. Changes in the fair value of derivatives not
designated in hedging relationships are recorded directly in net income (loss) as interest expense.
As of December 31, 2024, the Company had the following interest rate caps outstanding that were not designated as cash
flow hedges of interest rate risk (dollars in thousands):
F-25
Properties
Type
Maturity Date
Notional
Strike Rate
High House at Cary
Floating
1/1/2025 $
46,625
2.74 %
Bella Vista
Floating
2/1/2025
29,040
5.18 %
The Enclave
Floating
2/1/2025
25,322
5.18 %
The Heritage
Floating
2/1/2025
24,625
5.18 %
Estates on Maryland
Floating
4/1/2025
43,157
3.91 %
The Adair
Floating
4/1/2025
35,115
3.91 %
Rockledge Apartments
Floating
12/1/2025
93,129
6.45 %
The Preserve at Terrell Mill
Floating
12/1/2025
71,098
6.45 %
Fairways at San Marcos
Floating
12/1/2025
60,228
6.70 %
Bloom
Floating
12/1/2025
59,830
6.70 %
Torreyana Apartments
Floating
12/1/2025
50,580
6.70 %
Cornerstone
Floating
12/1/2025
46,804
6.66 %
Atera Apartments
Floating
12/1/2025
46,198
6.45 %
Silverbrook
Floating
12/1/2025
46,088
6.45 %
Bella Solara
Floating
12/1/2025
40,328
6.70 %
Versailles
Floating
12/1/2025
40,247
6.45 %
Courtney Cove
Floating
12/1/2025
36,146
6.70 %
Madera Point
Floating
12/1/2025
34,457
6.70 %
Seasons 704 Apartments
Floating
12/1/2025
33,132
6.70 %
The Summit at Sabal Park
Floating
12/1/2025
30,826
6.70 %
Creekside at Matthews
Floating
12/1/2025
29,648
6.45 %
Parc500
Floating
12/1/2025
29,416
6.45 %
Cutter's Point
Floating
12/1/2025
21,524
6.45 %
Arbors on Forest Ridge
Floating
12/1/2025
19,184
6.70 %
Venue at 8651
Floating
12/1/2025
18,690
6.45 %
The Venue on Camelback
Floating
2/1/2026
42,788
6.07 %
Avant at Pembroke Pines
Floating
10/1/2027
248,185
8.16 %
Brandywine I & II
Floating
10/1/2027
59,526
8.16 %
Sabal Palm at Lake Buena Vista
Floating
10/1/2027
56,220
8.41 %
Cornerstone
Floating
10/1/2027
45,815
8.66 %
Arbors of Brentwood
Floating
10/1/2027
39,977
8.16 %
Bella Vista
Floating
10/1/2027
37,400
8.91 %
Estates on Maryland
Floating
10/1/2027
37,345
8.91 %
The Venue on Camelback
Floating
10/1/2027
36,465
8.16 %
The Enclave
Floating
10/1/2027
33,440
8.66 %
Residences at Glenview Reserve
Floating
10/1/2027
33,271
8.16 %
The Adair
Floating
10/1/2027
33,229
8.16 %
High House at Cary
Floating
10/1/2027
32,478
8.16 %
Six Forks Station
Floating
10/1/2027
30,430
8.16 %
The Verandas at Lake Norman
Floating
10/1/2027
30,113
8.16 %
The Heritage
Floating
10/1/2027
29,810
8.91 %
Versailles II
Floating
10/1/2027
15,706
8.16 %
Summers Landing
Floating
10/1/2027
14,135
8.66 %
Rockledge Apartments
Floating
12/1/2027
78,444
7.66 %
The Preserve at Terrell Mill
Floating
12/1/2027
74,341
7.66 %
Bloom
Floating
12/1/2027
60,848
7.66 %
Fairways at San Marcos
Floating
12/1/2027
55,056
7.66 %
Torreyana Apartments
Floating
12/1/2027
43,153
7.66 %
Atera Apartments
Floating
12/1/2027
38,555
7.66 %
Bella Solara
Floating
12/1/2027
37,772
7.66 %
Seasons 704 Apartments
Floating
12/1/2027
33,960
7.66 %
Courtney Cove
Floating
12/1/2027
31,596
7.66 %
Parc500
Floating
12/1/2027
30,012
7.66 %
Madera Point
Floating
12/1/2027
29,676
7.66 %
Creekside at Matthews
Floating
12/1/2027
28,703
7.66 %
The Summit at Sabal Park
Floating
12/1/2027
26,735
7.66 %
Versailles
Floating
12/1/2027
26,108
7.66 %
Venue at 8651
Floating
12/1/2027
24,620
7.66 %
Cutter's Point
Floating
12/1/2027
18,994
7.66 %
Arbors on Forest Ridge
Floating
12/1/2027
17,307
7.66 %
$
2,523,650
7.22 %
F-26
As of December 31, 2024, the Company had the following interest rate cap outstanding that was designated as a cash flow
hedge of interest rate risk (dollars in thousands):
Property
Type
Maturity Date
Notional
Strike Rate
The Verandas at Lake Norman
Floating
7/1/2025 $
34,925
3.40 %
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the
consolidated balance sheets as of December 31, 2024 and 2023 (in thousands):
Asset Derivatives
Liability Derivatives
Balance Sheet Location
December 31,
2024
December 31,
2023
December 31,
2024
December 31,
2023
Derivatives designated as hedging
instruments:
Interest rate swaps
Fair market value of
interest rate swaps
$
41,841 $
71,028 $
— $
—
Interest rate caps
Prepaid and other
assets
156
—
—
—
Derivatives not designated as
hedging instruments:
Interest rate caps
Prepaid and other
assets
1,073
2,988
—
—
Total
$
43,070 $
74,016 $
— $
—
The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of
operations and comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022 (in thousands):
Amount of gain
recognized in OCI
Location of gain
reclassified
from accumulated
Amount of gain
reclassified from
OCI into income
2024
2023
2022
OCI into income
2024
2023
2022
Derivatives designated as
hedging instruments:
For the year ended
December 31,
Interest rate swaps
$ 18,913 $ 15,304 $ 106,593
Interest expense
$
48,102 $
47,717 $
6,678
Interest rate caps
$
231 $
— $
—
Interest expense
$
307 $
— $
—
Location of gain
(loss) recognized
Amount of gain (loss)
recognized in income
in income
2024
2023
2022
Derivatives not designated as
hedging instruments:
For the year ended December 31,
Interest rate caps
Interest expense
$
593 $
(1,484 ) $
3,446
Other Financial Instruments Carried at Fair Value
Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such
value exceeds the carrying value of the redeemable noncontrolling interests in the OP (see Note 9 to our consolidated financial
statements). The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore,
is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on
observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the OP are
classified as Level 2 if they are adjusted to their redemption value.
F-27
Financial Instruments Not Carried at Fair Value
At December 31, 2024 and 2023, respectively, the fair values of cash and cash equivalents, restricted cash, accounts
receivable, prepaid and other assets, excluding interest rate caps, accounts payable and other accrued liabilities, accrued real estate
taxes payable, accrued interest payable, security deposits and prepaid rent approximated their carrying values because of the short
term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using
available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data
and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the
Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation
methodologies may have a material effect on the estimated fair value amounts.
Long-term indebtedness is carried at amounts that reasonably approximate their fair value. In calculating the fair value of its
long-term indebtedness, the Company used interest rate and spread assumptions that reflect current credit worthiness and market
conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments
utilize Level 2 inputs.
The table below presents the outstanding principal balances and estimated fair values of our debt at December 31, 2024 and
2023 (in thousands):
December 31, 2024
December 31, 2023
Outstanding Principal
Balance
Estimated
Fair Value
Outstanding Principal
Balance
Estimated
Fair Value
Fixed rate debt
$
33,817 $
32,073 $
33,817 $
31,950
Floating rate debt (1)
$
1,469,425 $
1,396,265 $
1,541,419 $
1,335,635
(1) Includes balances outstanding under our Corporate Credit Facility and held for sale debt.
Real estate investments are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an investment may not be recoverable. In such cases, the Company will evaluate the recoverability of such real
estate investments based on estimated future cash flows and the estimated liquidation value of such real estate investments and
provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate investment.
If impaired, the real estate investment will be written down to its estimated fair value. There can be no assurance that the estimates
discussed herein, using Level 3 inputs, are indicative of the amounts the Company could realize on disposition of the real estate
investment.
7. Stockholders’ Equity
Common Stock
During the years ended December 31, 2024, 2023 and 2022, the Company issued 167,902, 124,994 and 165,134 shares of
common stock pursuant to its long-term incentive plan (see “Long Term Incentive Plan” below) and zero, zero and 52,091 shares
pursuant to its at-the-market offering (see “At-the-Market Offering” below).
As of December 31, 2024 and 2023, the Company had 25,403,537 shares and 25,674,313 shares of common stock, par value
$0.01 per share, issued and outstanding.
Share Repurchase Program
On October 24, 2022, the Board authorized the Company to repurchase an indeterminate number of shares of our common
stock at an aggregate market value of up to $100.0 million during a two-year period that expired on October 24, 2024 (the “Share
Repurchase Program”). On October 28, 2024, the Board authorized the Company to repurchase an indeterminate number of shares
of our common stock at an aggregate market value of up to $100.0 million during a two-year period that will expire on October 28,
2026. This authorization replaced the Board’s prior authorization of the Share Repurchase Program. The Company may utilize
various methods to affect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including
market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s
common stock is trading at a significant discount to net asset value per share. Repurchases under this program may be discontinued
at any time.
During the year ended December 31, 2024, the Company repurchased 438,678 shares of its common stock, par value of $0.01
per share, at a total cost of approximately $14.6 million, or $33.19 per share on average. During the year ended December 31, 2023,
the Company did not repurchase any shares of its common stock. During the year ended December 31, 2022, the Company
repurchased 168,473 shares of its common stock for approximately $11.1 million, or $66.04 per share. Since the inception of the
F-28
Share Repurchase Program in June 2016 through December 31, 2024, the Company has repurchased 2,989,306 shares of its common
stock, par value $0.01 per share, at a total cost of approximately $86.9 million, or $29.07 per share on average.
Treasury Shares
From time to time, in accordance with the Company’s Share Repurchase Program, the Company may repurchase shares of
its common stock in the open market. Until any such shares are retired, the cost of the shares is included in common stock held in
treasury at cost on the consolidated balance sheet. The number of shares of common stock classified as treasury shares reduces the
number of shares of the Company’s common stock outstanding and, accordingly, are considered in the weighted average number of
shares outstanding during the period. During the years ended December 31, 2024, 2023 and 2022, the Company retired 438,678,
zero and 168,437 shares of common stock, respectively. As of December 31, 2024 and 2023, the Company did not have any shares
of common stock held in treasury.
Long Term Incentive Plan
On June 15, 2016, the Company’s stockholders approved a long-term incentive plan (the “2016 LTIP”) and the Company
filed a registration statement on Form S-8 registering 2,100,000 shares of common stock, par value $0.01 per share, which the
Company may issue pursuant to the 2016 LTIP. The 2016 LTIP authorizes the compensation committee of the Board to provide
equity-based compensation in the form of stock options, appreciation rights, restricted shares, restricted stock units, performance
shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common stock
or factors that may influence the value of the Company’s common stock, plus cash incentive awards, for the purpose of providing
the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s subsidiaries), and
potentially certain non-employees who perform employee-type functions, incentives and rewards for performance.
Restricted Stock Units.
Under the 2016 LTIP, restricted stock units may be granted to the Company’s directors, officers and other key employees
(and those of the Adviser and the Company’s subsidiaries) and typically vest over a three to five-year period for officers, employees
and certain key employees of the Adviser and annually for directors. Compensation expense is recognized on a straight-line basis
over the total requisite service period for the entire reward. Beginning on the date of grant, restricted stock units earn dividends that
are payable in cash on the vesting date. The following table includes the number of restricted stock units granted to its directors,
officers, employees and certain key employees of the Adviser under the 2016 LTIP:
Summary of Grants
February
March
May
Total
2019
186,662
—
—
186,662
2020
168,183
—
116,852
285,035
2021
204,663
—
—
204,663
2022
142,519
—
—
142,519
2023
—
260,709
—
260,709
2024
—
355,475
—
355,475
Total
702,027
616,184
116,852
1,435,063
As of December 31, 2024 and 2023, the Company had 754,329 and 620,137 unvested units under the 2016 LTIP, respectively.
The following table includes the number of restricted stock units granted, vested, forfeited and outstanding as of December
31, 2024:
2024
Number of Units
Weighted Average
Grant Date Fair Value
Outstanding January 1,
620,137
$
47.50
Granted
355,475
30.89
Vested
(217,731 ) (1)
45.32
Forfeited
(3,552 )
32.10
Outstanding December 31,
754,329
$
40.51
(1) Certain key employees of the Adviser elected to net the taxes owed upon vesting against the shares issued resulting in 167,902
shares being issued as shown on the consolidated statement of stockholders’ equity.
F-29
The following table contains information regarding the vesting of restricted stock units under the 2016 LTIP for the next five
calendar years subsequent to December 31, 2024:
Shares Vesting
February
March
May
Total
2025
96,937
136,024
21,617
254,578
2026
64,147
114,329
—
178,476
2027
26,283
114,329
—
140,612
2028
—
114,323
—
114,323
2029
—
66,340
—
66,340
Total
187,367
545,345
21,617
754,329
As of December 31, 2024 and 2023, the Company had issued 1,150,106 and 982,202 shares of common stock under the 2016
LTIP, respectively. For the years ended December 31, 2024, 2023 and 2022, the Company recognized approximately $10.5 million,
$9.3 million and $7.9 million, respectively, of equity-based compensation expense related to grants of restricted stock units. As of
December 31, 2024 and 2023, the Company had recognized a liability of approximately $2.6 million and $2.1 million, respectively,
related to dividends earned on restricted stock units that are payable in cash upon vesting which is included in accounts payable and
other accrued liabilities on the consolidated balance sheets. Forfeitures are recognized as they occur.
As of December 31, 2024 and 2023, the Company had total unrecognized compensation expense on restricted stock unit
awards of approximately $21.9 million and $21.5 million, and the expense is expected to be recognized over weighted average
vesting periods of 1.6 years and 1.5 years, respectively.
At-the-Market Offering
On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each
of Jefferies LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”), KeyBanc Capital Markets Inc. (“KeyBanc”)
and Truist Securities (f/k/a SunTrust Robinson Humphrey, Inc., “SunTrust,” and together with Jefferies, Raymond James and
KeyBanc, the “2020 ATM Sales Agents”), pursuant to which the Company could issue and sell from time to time shares of the
Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000 (the “2020 ATM
Program”). Sales of shares of common stock, were made in transactions that are deemed to be “at the market” offerings, as defined
in Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on the
New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common
stock, the Company entered into forward sale agreements with each of Jefferies, KeyBanc and Raymond James, or their respective
affiliates, through the 2020 ATM Program. The following table contains summary information of the 2020 ATM Program since its
inception:
Gross proceeds
$
62,310,967
Common shares issued
1,120,910
Gross average sale price per share
$
55.59
Sales commissions
$
934,665
Offering costs
1,353,015
Net proceeds
$
60,023,287
Average price per share, net
$
53.55
8. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted
average number of shares of the Company’s common stock outstanding, which excludes any unvested restricted stock units issued
pursuant to the 2016 LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive
effect of the assumed vesting of restricted stock units. During periods of net loss, the assumed vesting of restricted stock units is
anti-dilutive and is not included in the calculation of earnings (loss) per share.
The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic
and diluted earnings (loss) per share as the assumed conversion of these units would have no net impact on the determination of
diluted earnings (loss) per share. See Note 9 for additional information.
F-30
The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods presented (in
thousands, except per share amounts):
For the Year Ended December 31,
2024
2023
2022
Numerator for earnings (loss) per share:
Net income (loss)
$
1,114 $
44,433 $
(9,291 )
Net income (loss) attributable to redeemable noncontrolling
interests in the OP
4
169
(31 )
Net income (loss) attributable to common stockholders
$
1,110 $
44,264 $
(9,260 )
Denominator for earnings (loss) per share:
Weighted average common shares outstanding
25,516
25,654
25,610
Denominator for basic loss per share
25,516
25,654
25,610
Weighted average unvested restricted stock units
730
591
542
Denominator for diluted loss per share
(1)
26,246
26,245
25,610
Earnings (loss) per weighted average common share:
Basic
$
0.04 $
1.73 $
(0.36 )
Diluted
$
0.04 $
1.69 $
(0.36 )
(1) If the Company sustains a net loss for the period presented, unvested restricted stock units are not included in the diluted earnings
(loss) per share calculation.
9. Noncontrolling Interests
Redeemable Noncontrolling Interests in the OP
Interests in the OP held by limited partners are represented by OP Units. Net income (loss) is allocated to holders of OP Units
based upon net income (loss) attributable to common stockholders and the weighted average number of OP Units outstanding to
total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are
allocated to OP Units in accordance with the terms of the partnership agreement of the OP. Each time the OP distributes cash to the
Company, outside limited partners of the OP receive their pro-rata share of the distribution. Redeemable noncontrolling interests in
the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable
noncontrolling interests in the OP.
On April 1, 2022, the Company acquired The Adair and Estates on Maryland, from investors in a Delaware Statutory Trust
managed by an entity affiliated with the Adviser, for total consideration of $143.4 million (the “Purchase Price”). The Purchase Price
consisted of 31,071 OP Units (valued at $2.9 million) that were issued in connection with the acquisition and approximately $70.7
million in cash and debt. The fair value of the OP Units was determined based on the April 1, 2022 share price of NXRT as the OP
units are convertible to common stock on a one to one basis.
On June 30, 2017, the Company and the OP entered into a contribution agreement with BH Equities, LLC and its affiliates
(collectively, “BH Equity”), whereby the Company purchased 100% of the joint venture interests in the portfolio owned by BH
Equity, representing approximately 8.4% ownership in the portfolio (the “BH Buyout”), for total consideration of approximately
$51.7 million (the “Purchase Amount”). The Purchase Amount consisted of approximately $49.7 million in cash that was paid on
June 30, 2017 and 73,233 OP Units (initially valued at $2.0 million) that were issued on August 1, 2017. The number of OP Units
issued was calculated by dividing $2.0 million by the midpoint of the range of the Company’s net asset value as publicly disclosed
in connection with the Company’s release of its second quarter of 2017 earnings results, which was $27.31 per share.
In connection with the issuance of OP Units to BH Equity on August 1, 2017, the Company and the OP amended the
partnership agreement of the OP (the “Amendment”). Pursuant to the Amendment, limited partners holding OP Units have the right
to cause the OP to redeem their units at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership
agreement of the OP), provided that such OP Units have been outstanding for at least one year. The Company, through the OP GP,
as the general partner of the OP may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash
Amount or the REIT Share Amount (one share of common stock of the Company for each OP Unit), as defined in the partnership
agreement of the OP. Notwithstanding the foregoing, a limited partner will not be entitled to exercise its redemption right to the
extent the issuance of the Company’s common stock to the redeeming limited partner would (1) be prohibited, as determined in the
Company’s sole discretion, under the Company’s charter or (2) cause the acquisition of common stock by such redeeming limited
partner to be “integrated” with any other distribution of the Company’s common stock for purposes of complying with the Securities
Act. Accordingly, the Company records the OP Units held by noncontrolling limited partners outside of permanent equity and reports
the OP Units at the greater of their carrying value or their redemption value using the Company’s stock price at each balance sheet
date.
F-31
The following table sets forth the redeemable noncontrolling interests in the OP for the years ended December 31, 2024 and
2023 (in thousands):
Redeemable noncontrolling interests in the OP, December 31, 2022
$
5,631
Net income attributable to redeemable noncontrolling interests in the OP
169
Other comprehensive loss attributable to redeemable noncontrolling interests in the OP
(123 )
Distributions to redeemable noncontrolling interests in the OP
(184 )
Issuance of operating partnership units for purchase of noncontrolling interests
415
Redemption of operating partnership units of noncontrolling interests
(70 )
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP
(592 )
Redeemable noncontrolling interests in the OP, December 31, 2023
$
5,246
Net income attributable to redeemable noncontrolling interests in the OP
4
Other comprehensive loss attributable to redeemable noncontrolling interests in the OP
(115 )
Distributions to redeemable noncontrolling interests in the OP
(196 )
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP
843
Redeemable noncontrolling interests in the OP, December 31, 2024
$
5,782
Fees and Reimbursements to BH and its Affiliates
The Company has entered into Management Agreements with BH Management Services, LLC (“BH”), the Company’s
property manager and an independently owned third party, who manages the Company’s properties and supervises the
implementation of the Company’s value-add program. BH is an affiliate of BH Equities, LLC and its affiliates (collectively, “BH
Equity"), who was a noncontrolling interest member of the Company’s joint ventures prior to the purchase by the Company of 100%
of the joint venture interests in the portfolio owned by BH Equity, representing approximately 8.4% ownership in the portfolio (the
“BH Buyout") on June 30, 2017. Through BH Equity’s noncontrolling interests in such joint ventures, BH Equity was deemed to be
a related party. With the completion of the BH Buyout, BH Equity is no longer deemed to be a related party. BH Equity became a
noncontrolling limited partner of the OP upon execution of the Amendment. BH and its affiliates do not have common ownership in
any joint venture with the Adviser; there is also no common ownership between BH and its affiliates and the Adviser.
The property management fee paid to BH is approximately 3% of the monthly gross income from each property managed.
Currently, BH manages all of the Company’s properties. Additionally, the Company may pay BH certain other fees, including: (1)
a fee of $15-25 per unit for the one-time setup and inspection of properties, (2) a construction supervision fee of 5-6% of total project
costs, which is capitalized, (3) acquisition fees and due diligence costs reimbursements, and (4) other owner approved fees at $55
per hour. BH also acts as a paymaster for the properties and is reimbursed at cost for various operating expenses it pays on behalf of
the properties. The following is a summary of fees that the properties incurred to BH and its affiliates, as well as reimbursements
paid to BH from the properties for various operating expenses, for the years ended December 31, 2024, 2023 and 2022 (in thousands):
For the Year Ended December 31,
2024
2023
2022
Fees incurred
Property management fees
(1) $
7,446 $
8,051 $
7,606
Construction supervision fees
(2)
903
2,062
2,000
Design fees
(2)
19
67
198
Acquisition fees
(3)
(2 )
(83 )
45
Reimbursements
Payroll and benefits
(4)
18,837
18,809
21,310
Other reimbursements
(5)
3,564
8,001
4,695
(1) Included in property management fees on the consolidated statements of operations and comprehensive income (loss).
(2) Capitalized on the consolidated balance sheets and reflected in buildings and improvements.
(3) Includes due diligence costs. Acquisition fees are capitalized to real estate assets on the consolidated balance sheets.
(4) Included in property operating expenses on the consolidated statements of operations and comprehensive income (loss).
(5) Includes property operating expenses such as repairs and maintenance costs and certain property general and administrative
expenses, which are included on the consolidated statements of operations and comprehensive income (loss).
F-32
10. Related Party Transactions
Advisory and Administrative Fee
In accordance with the Advisory Agreement, the Company pays the Adviser an advisory fee equal to 1.00% of the Average
Real Estate Assets (as defined below). The duties performed by the Company’s Adviser under the terms of the Advisory Agreement
include, but are not limited to: providing daily management for the Company, selecting and working with third party service
providers, managing the Company’s properties or overseeing the third party property manager, formulating an investment strategy
for the Company and selecting suitable properties and investments, managing the Company’s outstanding debt and its interest rate
exposure through derivative instruments, determining when to sell assets, and managing the value-add program or overseeing a third
party vendor that implements the value-add program. “Average Real Estate Assets” means the average of the aggregate book value
of Real Estate Assets before reserves for depreciation or other non-cash reserves, computed by taking the average of the book value
of real estate assets at the end of each month (1) for which any fee under the Advisory Agreement is calculated or (2) during the year
for which any expense reimbursement under the Advisory Agreement is calculated. “Real Estate Assets” is defined broadly in the
Advisory Agreement to include, among other things, investments in real estate-related securities and mortgages and reserves for
capital expenditures (the value-add program). The advisory fee is payable monthly in arrears in cash, unless the Adviser elects, in
its sole discretion, to receive all or a portion of the advisory fee in shares of common stock, subject to certain limitations.
In accordance with the Advisory Agreement, the Company also pays the Adviser an administrative fee equal to 0.20% of the
Average Real Estate Assets. The administrative fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole
discretion, to receive all or a portion of the administrative fee in shares of common stock, subject to certain limitations.
The advisory and administrative fees paid to the Adviser on the Contributed Assets (as defined in the Advisory Agreement)
are subject to an annual cap of approximately $5.4 million (the “Contributed Assets Cap”) (see “Expense Cap” below).
Pursuant to the terms of the Advisory Agreement, the Company will reimburse the Adviser for all documented Operating
Expenses and Offering Expenses it incurs on behalf of the Company. “Operating Expenses” include legal, accounting, financial and
due diligence services performed by the Adviser that outside professionals or outside consultants would otherwise perform, the
Company’s pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead
expenses of the Adviser required for the Company’s operations, and compensation expenses under the 2016 LTIP. Operating
Expenses do not include expenses for the advisory and administrative services described in the Advisory Agreement. Certain
Operating Expenses, such as the Company’s ratable share of rent, telephone, utilities, office furniture, equipment, machinery and
other office, internal and overhead expenses incurred by the Adviser or its affiliates that relate to the operations of the Company,
may be billed monthly to the Company under a shared services agreement. “Offering Expenses” include all expenses (other than
underwriters’ discounts) in connection with an offering, including, without limitation, legal, accounting, printing, mailing and filing
fees and other documented offering expenses. For the years ended December 31, 2024, 2023 and 2022, the Adviser did not bill any
Operating Expenses or Offering Expenses to the Company and any such expenses the Adviser incurred during the periods are
considered to be permanently waived.
Expense Cap
Pursuant to the terms of the Advisory Agreement, expenses paid or incurred by the Company for advisory and administrative
fees payable to the Adviser and Operating Expenses will not exceed 1.5% of Average Real Estate Assets per calendar year (or part
thereof that the Advisory Agreement is in effect (the “Expense Cap”)). The Expense Cap does not limit the reimbursement of
expenses related to Offering Expenses. The Expense Cap also does not apply to legal, accounting, financial, due diligence and other
service fees incurred in connection with mergers and acquisitions, extraordinary litigation or other events outside the Company’s
ordinary course of business or any out-of-pocket acquisitions or due diligence expenses incurred in connection with the acquisition
or disposition of real estate assets. Also, advisory and administrative fees are further limited on Contributed Assets to approximately
$5.4 million in any calendar year. “Contributed Assets” refers to all Real Estate Assets contributed to the Company as part of its
Spin-Off. The Contributed Assets Cap is not reduced for dispositions of such assets subsequent to its Spin-Off. Advisory and
administrative fees on New Assets are not subject to the above limitation and are based on an annual rate of 1.2% on Average Real
Estate Assets, but are subject to the Expense Cap. New Assets are all Real Estate Assets that are not Contributed Assets.
For the years ended December 31, 2024, 2023 and 2022, the Company incurred advisory and administrative fees of $6.9
million, $7.6 million and $7.5 million, respectively. For the years ended December 31, 2024, 2023 and 2022, the Adviser elected to
voluntarily waive advisory and administrative fees of $21.3 million, $21.7 million and $21.0 million, respectively. The advisory and
administrative fees waived by the Adviser for the years ended December 31, 2024, 2023 and 2022 are considered to be permanently
waived for the periods. The Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving
fees on New Assets at its discretion.
F-33
Other Related Party Transactions
The Company has in the past, and may in the future, utilize the services of affiliated parties. For the years ended December
31, 2024, 2023 and 2022, the Company paid approximately $0.0 million, $0.2 million and $0.8 million, respectively, to NexBank
Title, Inc. (“NexBank Title”). NexBank Title provides title insurance and work related to providing title insurance on properties
related to acquisitions, dispositions and refinancing transactions. These amounts are either capitalized as real estate assets or deferred
financing costs, expensed as loss on extinguishment of debt and modification costs, or expensed as selling costs when determining
gain (loss) on sales of real estate, depending on the appropriate accounting as determined for each specific transaction. The Company
holds multiple operating accounts at NexBank Capital. A director and officer of the Company also (i) is the beneficiary of a trust
that indirectly owns 100% of the limited partnership interests in the parent of the Adviser and directly owns 100% of the general
partnership interests in the parent of the Adviser and (ii) is a director of NexBank Capital, which directly owns 100% of the common
stock of NexBank Title.
On July 30, 2021, three of our property-owning subsidiaries entered into agreements with NLMF Holdco, LLC, an entity
under common control with our Adviser and in which we own a 10% equity interest, to provide faster, more reliable and lower cost
internet to our residents. The lease of the fiber facilities and easement is between NLMF Holdco, LLC and NLMF Leaseco, LLC,
which is wholly and separately owned by NLMF Leaseco Owner, LLC, which is controlled by Matt McGraner, one of our officers.
The fiber management and internet services agreement is managed by NLMF Leaseco, LLC. The Company accounts for its interest
in NLMF Holdco, LLC using the equity method of accounting. As of December 31, 2024 and 2023, the Company has funded
approximately $0.7 million and $0.3 million to NLMF Holdco, LLC, respectively, which is included in prepaid and other assets on
the consolidated balance sheet of the Company. For the years ended December 31, 2024, 2023 and 2022, the Company recognized
$0.2 million, $0.2 million, and $0.0 million of NLMF Holdco, LLC net income in equity in earnings of affiliate on the consolidated
statement of operations and comprehensive income (loss). The Company incurred expenses of $2.6 million, $2.9 million and $0.1
million for fiber internet service to NLMF Leaseco, LLC for the years ended December 31, 2024, 2023 and 2022, respectively,
which is included in property operating expenses on the consolidated statement of operations and comprehensive income (loss).
On April 1, 2022, the Company acquired The Adair and Estates on Maryland, from investors in a Delaware Statutory Trust
managed by an entity affiliated with the Adviser, for total consideration of $143.4 million (the “Purchase Price”). The Purchase Price
consisted of 31,071 OP Units (valued at $2.9 million) that were issued in connection with the acquisition and approximately $70.7
million in cash and debt. The fair value of the OP Units was determined based on the April 1, 2022 share price of NXRT as the OP
units are convertible to common stock on a one to one basis.
NXRTBH Old Farm, LLC
On August 16, 2023, the Company entered into a Membership Interest Purchase Agreement (as amended, the “MIPA”)
between NXRTBH McMillan, LLC (a wholly owned subsidiary of the Company, the “Seller”) and NexBank Capital to sell all the
membership interests of NXRTBH Old Farm, LLC (“Old Farm subsidiary”). On March 1, 2024 (the “closing date”), in accordance
with the MIPA, the Seller sold the membership interests of the Old Farm subsidiary to NexBank Capital for $103 million.
Substantially all of the fair value of the disposed membership interests is concentrated in the property that is wholly owned by the
Old Farm subsidiary at the closing date. As such, the Company determined the Old Farm subsidiary is not a business, and the
membership interests represent an in-substance nonfinancial asset consistent with ASC 610-20, Gains and Losses from the
Derecognition of Nonfinancial Assets.
The membership interests sold represented 100% of the outstanding equity interests. Following the sale, the Company
determined it no longer holds a controlling financial interest in the Old Farm subsidiary and is no longer the primary beneficiary.
The Company deconsolidated the Old Farm subsidiary (including the property) as of March 1, 2024. Simultaneously with the sale,
the Seller, NexBank Capital and the Old Farm subsidiary entered into an Agreement Regarding Ownership of Bank Accounts, which
retained the bank account and its retained balance, along with all its respective rights, titles and interest in, to, and under, at the
Seller. Therefore, the $1.0 million retained cash balance as of the closing date was not deconsolidated along with the sale. The
Company recognized a gain on deconsolidation of $31.5 million which was recognized in gain on sales of real estate in the
consolidated statement of operation and comprehensive income (loss).
A director and officer of the Company also (i) is the beneficiary of a trust that indirectly owns 100% of the limited partnership
interests in the parent of the Adviser and directly owns 100% of the general partnership interests in the parent of the Adviser and (ii)
is a director of NexBank Capital, the holding company of NexBank, directly owns a minority of the common stock of NexBank, and
is the beneficiary of a trust that directly owns a substantial portion of the common stock of NexBank.
F-34
11. Commitments and Contingencies
Commitments
In the normal course of business, the Company enters into various rehabilitation construction related purchase commitments
with parties that provide these goods and services. In the event the Company were to terminate rehabilitation construction services
prior to the completion of projects, the Company could potentially be committed to satisfy outstanding or uncompleted purchase
orders with such parties. As of December 31, 2024 and 2023, management does not anticipate any material deviations from schedule
or budget related to rehabilitation projects currently in process.
The Company’s agreement with NLMF Holdco, LLC may result in additional funding requirements to cover future project
costs. The maximum exposure of potential commitments is expected to be no more than $4.0 million.
Contingencies
In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible
to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in
excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or
consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any
material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its
properties or subsidiaries.
Environmental liabilities could have a material adverse effect on the Company’s business, assets, cash flows or results of
operations. As of December 31, 2024 and 2023, the Company was not aware of any environmental liabilities. There can be no
assurance that material environmental liabilities do not exist.
Self-Insurance Program
On March 1, 2022, the Adviser entered into a self-insurance policy resulting in an aggregate amount of $2,497,500 (the “2022
Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $1.8 million being allocated
to the Company.
On April 1, 2023, the Adviser entered into a new self-insurance policy resulting in a new aggregate amount of $2,950,000
(the “2023 Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $2.1 million being
allocated to the Company.
On April 1, 2024, the Adviser entered into a new self-insurance policy resulting in a new aggregate amount of $2,950,000
(the “2024 Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $2.1 million being
allocated to the Company.
As of December 31, 2024 and 2023, the Company had funded its entire 2024 and 2023 Aggregate Amounts due and zero
remained in prepaid and other assets on the consolidated balance sheets. During the years ended December 31, 2024, 2023 and 2022,
the Company incurred $2.1, zero, and $3.9 million, respectively, in self-insurance expenses which is included in property operating
expenses on the consolidated statement of operations and comprehensive income (loss).
12. Segment Reporting
We have one reportable segment: NXRT. For a description of the types of products and services from which this single
reportable segment derives its revenues, see Notes 1 and 2. The accounting policies of the NXRT segment are the same as those
described in the Summary of Significant Accounting Policies. The chief operating decision maker assesses performance for the
NXRT segment and decides how to allocate resources based on net income that also is reported on the consolidated statements of
operations and comprehensive income (loss). The measure of segment assets is reported on the consolidated balance sheets as total
assets. The chief operating decision maker uses net income to evaluate profitability generated from the segment’s portfolio in
deciding whether to reinvest profits into new or existing investments or into other parts of the entity, such as for dividend amounts,
or deciding which investments to dispose. The chief operating decision maker manages the business on a consolidated basis, and
therefore the Company has identified NXRT as the one operating segment and the reportable segment. The Company’s chief
operating decision maker is the chief investment officer.
F-35
The significant segment expenses are computed in accordance with GAAP and are consistent with the financial information
presented in the consolidated statements of operations and comprehensive income (loss).
13. Subsequent Events
Dividends Declared
On February 24, 2025, the Company’s board of directors declared a quarterly dividend of $0.51 per share, payable on March
31, 2025 to stockholders of record on March 14, 2025.
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S-1
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2024
(in thousands)
Initial Cost to Company
Costs
Gross Amount Carried at
December 31, 2024
Accumulated
Property Name
Location
Encumbrances
(1)
Land
Buildings and
Improvements
(2)
Total
Capitalized
Subsequent to
Acquisition
Land
Buildings and
Improvements
Total
Depreciation
and
Amortization
Date
Acquired
Arbors on Forest Ridge
Bedford, Texas
$
17,307 $
2,330 $
10,475 $
12,805 $
4,468 $
2,330 $
14,631 $
16,961 $
(7,048 ) 1/31/2014
Cutter's Point
Richardson, Texas
18,994
3,330
12,515
15,845
9,568
3,330
21,731
25,061
(11,364 ) 1/31/2014
The Summit at Sabal Park
Tampa, Florida
26,735
5,770
13,280
19,050
5,376
5,770
18,252
24,022
(7,947 ) 8/20/2014
Courtney Cove
Tampa, Florida
31,596
5,880
13,070
18,950
7,142
5,880
19,781
25,661
(8,785 ) 8/20/2014
Sabal Palm at Lake Buena
Vista
Orlando, Florida
56,220
7,558
41,920
49,478
10,351
7,558
50,884
58,442
(19,602 ) 11/5/2014
Cornerstone
Orlando, Florida
45,815
1,500
30,050
31,550
7,910
1,500
37,066
38,566
(15,746 ) 1/15/2015
The Preserve at Terrell Mill
Marietta, Georgia
74,341
10,170
47,830
58,000
24,582
10,170
70,598
80,768
(31,717 ) 2/6/2015
Versailles
Dallas, Texas
26,108
6,720
19,445
26,165
10,617
6,720
29,481
36,201
(12,846 ) 2/26/2015
Seasons 704 Apartments
West Palm Beach,
Florida
33,960
7,480
13,520
21,000
7,698
7,480
20,817
28,297
(8,854 ) 4/15/2015
Madera Point
Mesa, Arizona
29,676
4,920
17,605
22,525
5,445
4,920
22,421
27,341
(9,470 ) 8/5/2015
Venue at 8651
Fort Worth, Texas
24,620
2,350
16,900
19,250
8,526
2,350
24,915
27,265
(10,455 ) 10/30/2015
Parc500
West Palm Beach,
Florida
30,012
3,860
19,424
23,284
8,892
3,860
27,825
31,685
(11,609 ) 7/27/2016
The Venue on Camelback
Phoenix, Arizona
36,465
8,340
36,520
44,860
9,826
8,340
45,623
53,963
(16,403 ) 10/11/2016
Rockledge Apartments
Marietta, Georgia
78,444
17,451
96,577
114,028
22,068
17,451
115,624
133,075
(35,594 ) 6/30/2017
Atera Apartments
Dallas, Texas
38,555
22,371
37,090
59,461
7,170
22,371
42,920
65,291
(13,162 ) 10/25/2017
Versailles II
Dallas, Texas
15,706
4,124
20,667
24,791
4,535
4,124
24,515
28,639
(7,002 ) 9/26/2018
Brandywine I & II
Nashville,
Tennessee
59,526
6,237
73,870
80,107
13,606
6,237
85,714
91,951
(24,392 ) 9/26/2018
Bella Vista
Phoenix, Arizona
37,400
10,942
37,661
48,603
5,085
10,942
41,827
52,769
(11,586 ) 1/28/2019
The Enclave
Tempe, Arizona
33,440
11,046
30,933
41,979
4,457
11,046
34,621
45,667
(9,857 ) 1/28/2019
The Heritage
Phoenix, Arizona
29,810
6,835
35,244
42,079
4,740
6,835
39,234
46,069
(10,732 ) 1/28/2019
Summers Landing
Fort Worth, Texas
14,135
1,798
17,628
19,426
3,897
1,798
20,992
22,790
(5,090 ) 6/7/2019
Residences at Glenview
Reserve
Nashville,
Tennessee
33,271
3,367
41,652
45,019
8,999
3,367
49,669
53,036
(12,905 ) 7/17/2019
Residences at West Place
Orlando, Florida
33,817
3,345
52,657
56,002
7,251
3,345
58,730
62,075
(13,589 ) 7/17/2019
Avant at Pembroke Pines
Pembroke Pines,
Florida
248,185
48,436
275,671
324,107
43,454
48,436
312,136
360,572
(71,470 ) 8/30/2019
Arbors of Brentwood
Nashville,
Tennessee
39,977
6,346
56,409
62,755
5,732
6,346
60,927
67,273
(13,444 ) 9/10/2019
Torreyana Apartments
Las Vegas, Nevada
43,153
23,824
44,560
68,384
3,627
23,824
46,986
70,810
(10,045 ) 11/22/2019
Bloom
Las Vegas, Nevada
60,848
23,803
83,290
107,093
8,676
23,803
90,115
113,918
(19,696 ) 11/22/2019
Bella Solara
Las Vegas, Nevada
37,772
12,605
54,262
66,867
3,706
12,605
56,809
69,414
(12,007 ) 11/22/2019
Fairways at San Marcos
Chandler, Arizona
55,056
10,993
73,785
84,778
5,860
10,993
77,970
88,963
(14,127 ) 11/2/2020
The Verandas at Lake Norman
Charlotte, North
Carolina
30,113
9,510
54,270
63,780
3,487
9,510
56,786
66,296
(8,458 ) 6/30/2021
Creekside at Matthews
Charlotte, North
Carolina
28,703
11,515
46,741
58,256
3,913
11,515
49,653
61,168
(8,099 ) 6/30/2021
Six Forks Station
Raleigh, North
Carolina
30,430
11,357
63,748
75,105
7,404
11,357
69,952
81,309
(10,270 ) 9/10/2021
High House at Cary
Cary, North
Carolina
32,478
23,809
69,793
93,602
4,343
23,809
72,760
96,569
(9,602 ) 12/7/2021
The Adair
Sandy Springs,
Georgia
33,229
8,344
57,156
65,500
3,544
8,344
60,700
69,044
(7,312 ) 4/1/2022
Estates on Maryland
Phoenix, Arizona
37,345
11,553
66,347
77,900
2,961
11,553
69,308
80,861
(8,284 ) 4/1/2022
$
1,503,242 $ 359,819 $
1,682,565 $ 2,042,384 $
298,916 $ 359,819 $
1,941,973 $ 2,301,792 $
(508,569 )
(1) Encumbrances includes mortgage debt.
(2) Includes gross intangible lease assets of approximately $42.1 million and buildings, improvements and furniture, fixtures and
equipment of approximately $1.6 billion, which includes total acquisition costs of approximately $7.7 million incurred on the
acquisitions and a fair market value adjustment, a premium of approximately $0.9 million, related to the assumption of debt.
S-2
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2024
A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2024, 2023 and 2022
is as follows (in thousands):
For the Year Ended December 31,
2024
2023
2022
Real Estate:
Balance, beginning of year
$
2,411,058 $
2,413,845 $
2,248,796
Additions:
Real estate acquired
—
—
143,400
Improvements
35,337
72,262
58,715
Deductions:
Real estate sold
(143,183 )
(72,958 )
(28,239 )
Write-off of fully amortized assets and other
(1,420 )
(2,091 )
(8,827 )
Balance, end of year
$
2,301,792 $
2,411,058 $
2,413,845
Accumulated Depreciation and Amortization:
Balance, beginning of year
$
442,958 $
371,293 $
287,096
Depreciation expense
97,762
95,186
93,499
Amortization expense
—
—
4,149
Accumulated depreciation on sales
(31,871 )
(23,327 )
(6,459 )
Write-off of fully amortized assets and other
(280 )
(194 )
(6,992 )
Balance, end of year
$
508,569 $
442,958 $
371,293
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