Earnings call transcript: Nexpoint Residential Trust Q2 2025 beats EPS expectations

Nexpoint Residential Trust (NXRT) reported a second-quarter net loss of $7 million, or $0.28 per diluted share, surpassing analyst expectations of a $0.33 loss. Revenue came in slightly below forecasts at $63.1 million. Despite the earnings beat, the company’s stock showed a modest pre-market decline of 0.82%, closing at $33.01, amidst broader market fluctuations. According to InvestingPro data, the stock currently trades below its Fair Value, with analysts setting price targets between $36 and $44.

Key Takeaways

• Nexpoint reported a smaller-than-expected loss, with EPS beating forecasts by $0.05.
• Revenue slightly missed expectations, but operational efficiencies were highlighted.
• The stock price declined by 0.82% pre-market despite the earnings beat.
• The company completed significant unit upgrades, enhancing rental income.
• New credit facility to support future growth and capital recycling initiatives.

Company Performance

In Q2 2025, Nexpoint Residential Trust demonstrated resilience by outperforming EPS forecasts, although revenue did not meet expectations. The company has been focusing on enhancing its property portfolio, completing 555 unit upgrades, which contributed to a $73 average monthly rent premium. Despite a slight decrease in same-store rent and occupancy, Nexpoint’s operational strategies, such as reducing marketing and payroll expenses, helped cushion the impact.

Financial Highlights

• Revenue: $63.1 million, slightly below forecast.
• EPS: -$0.28, beating forecasted -$0.33.
• Net Operating Income: $38 million from 35 properties.
• Core FFO: $18 million or $0.71 per diluted share.
• Dividend: $0.51 per share, with a coverage of 1.39x Core FFO.

Earnings vs. Forecast

Nexpoint’s EPS of -$0.28 exceeded the forecasted -$0.33, marking a surprise of 15.15%. This improvement is notable compared to previous quarters where the company often met or slightly missed expectations. Revenue, however, was slightly under the anticipated $63.31 million, missing by 0.33%.

Market Reaction

Despite the positive earnings surprise, Nexpoint’s stock price fell by 0.82% in pre-market trading, closing at $33.01. This places the stock closer to its 52-week low of $30.98, indicating cautious investor sentiment possibly due to revenue shortfalls and broader market conditions.

Outlook & Guidance

For the remainder of 2025, Nexpoint expects muted revenue growth but remains optimistic about maintaining an occupancy rate around 94%. The company plans to leverage its new $200 million revolving credit facility to pursue strategic acquisitions and dispositions, aiming to optimize its portfolio.

Executive Commentary

Matt McGraner, an executive at Nexpoint, emphasized a balanced approach: "We will continue to prioritize a balanced approach, driving occupancy, maintaining disciplined risk strategies." Bonner McDermott highlighted the company’s focus on smaller upgrades to achieve rental premiums, stating, "We’re doing smaller upgrades, trying to get a $20 premium."

Risks and Challenges

• Potential revenue stagnation in the second half of 2025.
• Occupancy challenges in specific markets like Phoenix and Las Vegas.
• Increased operating expenses, particularly in insurance and other overheads.
• Market saturation and supply pressures in the residential sector.
• Broader economic uncertainties impacting rental demand.

Q&A

During the earnings call, analysts inquired about the company’s capitalized maintenance expenditures and the acceleration of its rehabilitation program. Executives addressed concerns about occupancy challenges in Phoenix and Las Vegas, indicating strategic plans to manage these issues effectively.

Full transcript - Nexpoint Residential Trust Inc (NXRT) Q2 2025:

Kate, Conference Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NextPoint Residential Trust Q2 twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

Thank you. I would now like to turn the call over to Kristin Griffith, Investor Relations. Please go ahead.

Kristin Griffith, Investor Relations, NextPoint Residential Trust: Thank you. Good day, everyone, and welcome to NextMent Residential Trust conference call to review the company’s results for the second quarter ended 06/30/2025. On the call today are Paul Bridges, executive vice president and chief financial officer Matt McGraner, executive vice president and chief investment officer and Bonner McDermott, vice president asset investment management. As a reminder, this call is being webcast through the company’s website at nsrt.nextpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations, assumptions and beliefs.

Listeners should not place undue reliance on any forward looking statements and are encouraged to review the company’s most recent annual report on Form 10 ks and the company’s other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward looking statements. The statements made during this conference call speak only as of today’s date, and except as required by law, NXRT does not undertake any obligation to publicly update or revise any forward looking statements. This conference call also includes an analysis of non GAAP financial measures. For a more complete discussion of these non GAAP financial measures, see the company’s earnings release that was filed earlier today. I would now like to turn the call over to Paul Richards.

Please go ahead, Paul.

Paul Bridges, Executive Vice President and Chief Financial Officer, NextPoint Residential Trust: Thank you, Kristen, and welcome everyone joining us this morning. We appreciate your time. I’ll kick off the call and cover our q two results, updated NAV, and guidance outlook for the year and briefly touch on a few subsequent events. I will then turn it over to Matt to discuss specifics on leasing environment and metrics driving our performance and guidance. Results for Q2 are as follows: Net loss for the first quarter was $7,000,000 or a loss of $0.28 per diluted share on total revenue of $63,100,000 The $7,000,000 net loss for the quarter compares to net income of $10,600,000 or $0.40 earnings per diluted share for the same period in 2024 on total revenue of $64,200,000 For the 2025, NOI was $38,000,000 on 35 properties compared to $38,900,000 for the 2024 on 36 properties.

For the quarter, same store rent and occupancy decreased 1.30.8% respectively. This coupled with a decrease in same store revenues of 0.2% led to a decrease in same store NOI of 1.1% as compared to Q2 twenty twenty four. As compared to Q1 twenty twenty five, rents for Q2 twenty twenty five on the same store portfolio were up 0.3% or $4 We reported Q2 core FFO of $18,000,000 or $0.71 per diluted share compared to $0.69 per diluted share in Q2 twenty twenty four. During the second quarter for the properties in the portfolio, we completed five fifty five full and partial upgrades, leased three eighty one upgraded units achieving an average monthly rent premium of $73 and a 26% return on investment. Since inception, NXRT has completed installation of 9,113 full and partial upgrades, 4,870 kitchen and laundry appliances and 11,199 tech packages resulting in $165 $50 and $43 average monthly rental increase per unit and 20.8%, 64.237.2% return on investment respectively.

NXRT paid second quarter dividend of $0.51 per share of common stock on 06/30/2025. Since inception, we have increased our dividend 147.6%. For Q2, our dividend was 1.39 times covered by Core FFO with a 72.2 payout ratio of Core FFO. During the second quarter, the company repurchased 223,109 shares of its common stock, totaling approximately $7,600,000 at an average price of $34.29 per share. During the second quarter, the company entered into a new five year $100,000,000 SOFR swap at JPMorgan Chase with a fixed rate of 3.489%.

Turning to the details of our updated NAV estimate. Based on our current estimate of cap rates in our markets and forward NOI, we are reporting a NAV per share range as follows: $43.9 on the low end, dollars 56.73 on the high end, and $50.31 at the midpoint. These are based on average cap rates ranging from 5.25% at the low end to 5.5% at the high end, which remains stable quarter over quarter. Turning to full year 2025 guidance. NXRT is tightening 2025 guidance ranges for core FFO per diluted share and same store NOI while affirming the midpoint.

NXRT is revising 2025 guidance ranges for earnings and loss per diluted share, same store rental income, same store total revenue and same store total expenses, loss per share and core FFO ranges are as follows. For earnings loss per diluted share, 1.22 at the high end, dollars 1.4 at the low end with a midpoint of $1.31 and core FFO per diluted share, 2.84 at the high end, 2.66 at the low end with affirming the midpoint of $2.75 NXRT is also reaffirming acquisitions and disposition guidance. Lastly, I would like to take the time to discuss a few subsequent events which have occurred over the past few weeks. On 07/11/2025, the company entered into a $200,000,000 corporate revolving credit facility with JPMorgan Chase Bank, Raymond James Bank, RBC and Synovus. The credit facility may be increased by up to an additional $200,000,000 upon lender consent.

The credit facility will mature on 06/30/2028, unless the company exercises its option to extend for an additional one year term. The new credit facility spread has improved by 15 basis points compared to the prior corporate credit facility. On 07/28/2025, the company’s board approved a quarterly dividend of $0.51 per share, payable on 09/30/2025 to stockholders of record on 09/15/2025. This completes my prepared remarks, so I’ll now turn it over to Matt for commentary on the portfolio. Thank you, Paul.

Let me

Matt McGraner, Executive Vice President and Chief Investment Officer, NextPoint Residential Trust: start by going over our second quarter same store operational results. Same store total revenue was down 20 basis points with four out of our 10 markets averaging at least 1% growth, while our Atlanta and Florida while our Atlanta and South Florida markets led the way at 3.62.3% growth respectively. Notably, Atlanta’s positive results were driven in part by 1% bad debt expense versus 2024 bad debt expense of 4%. We’re also pleased to report some continued moderation in expense growth for the quarter. Seconds second quarter same store operating expenses were up just 1.5% year over year.

Marketing and payroll declined 4.72.8% respectively year over year and total controllable expenses are up just 50 basis points. Insurance is down 20% driven by a favorable market environment on the property casualty side. Second quarter same store NOI growth continues to improve in our markets with the portfolio averaging a negative 1.1%, a marketable improvement from negative 3.8% in the first quarter. Five out of our 10 markets achieved year over year NOI growth of 1% or greater with Raleigh and Atlanta leading the way with 6.84.4% growth respectively. Our q two same store NOI margin registered a healthy 60.9%.

The portfolio experienced improved revenue growth in q two twenty twenty five with four out of our 10 markets achieving growth of at least 1.2% or better. Our top our top four markets were Atlanta at 3.6%, South Florida at 2.3%, Raleigh at 1.5%, Charlotte at 1.2%. Renewal conversions for eligible eligible tenants were 54.2% for the quarter with seven out of our 10 markets executing renewal rate growth of at least 2.75%. Again, on the expense front, they continue to moderate and finish the quarter up only 1.5. Payroll declined 2.8% for this quarter and continues to trend downward as we implement centralized teams in AI technology.

Our centralized platforms for renewals, screening, and call centers alongside AI applications deployed across various aspects of the resident experience are driving greater efficiency and enabling reductions in off-site staffing, particularly within leasing offices. As mentioned previously, we are now focused on optimizing our maintenance operations to drive similar efficiencies across our markets. Again, marketing and insurance were the other categories that saw negative growth in the quarter. Turning to twenty twenty five second half guidance. Supply pressures have eased somewhat, but continue to present concentrated challenges in some of our submarkets.

According to RealPage, ’22 2q twenty twenty five marked the first quarterly drop of over 20 basis points in inventory growth in over fifteen years as new deliveries tapered after peaking in late twenty twenty four. Despite the slowdown, over 400,000 units were delivered in the trailing twelve months, sustaining elevated competition in lease ups. The upshot here is that after one more quarter of significant deliveries in March 2025, the national delivery outlook contracts to a GFC level output of just 77,000 units per quarter, which supports our thesis on accelerating fundamentals in 2026, ’27, and ’28. More positive news, demand outperformed expectations in the first half of the year. Net absorption surged, the nationals stabilized occupancy rate improved to 94.6% in July.

And XRT started the year off with nine at with occupancy at 94.7% and saw an opportunity to take advantage of our historically higher occupancy by upgrading units to market standards, completing seven sixty five units to date with an average ROI of 20.2% and pushing rent growth, which has increased 1% on average since the 2024, driven by stronger retention and renewal leasing activity. Front end pricing has improved from negative 4.73% in q one to 1.5 negative 1.5% in q two. And in late June and July, we have seen new lease growth slow modestly as operators remain defensive amid economic uncertainty and soft consumer sent sentiment. Renewal rent growth has been the strongest we’ve seen over the past twelve months and will and will remain a focus for the second half of the year. We see several markets continuing to see top line growth in the second half of this year and think Tampa, Dallas, Charlotte, and Las Vegas will all exceed our our revenue expectations by anywhere from 80 basis points on the low end to a 130 basis points on the high end.

On the flip side, we think South Florida, Orlando, and Atlanta will be modestly weaker in the second half of the year. South Florida is projected to finish the year at 1.8% top line growth versus our prior forecast of 2.6% growth. This remains our strongest market overall for rent growth, but our most optimistic expectations for growth have been tempered for now. Orlando, we expect to finish the year at negative 1% versus prior forecast of being flat. In Atlanta, to finish the year at negative 70 basis points versus our prior forecast of flat.

And while bad debt has improved significantly, we are feeling the pressure of new supply here, particularly in Cobb County. Due to supply pressures in these submarkets, we anticipate many of these headwinds to be short term as many of the lease ups are expected to achieve stabilization in the later part of 2025. Bad debt performance has continued to exceed expectations driven by a decline in evictions. The portfolio finished q February with only 50 basis points of net bad debt. We have continued to see bad debt stabilize and expect to hold bad debt between fifty and seventy five basis points for the remainder of the year.

We expect that the growth benefit of reduced bad debt to stabilizing in, the fourth quarter of this year and remain flat at pre COVID run rates going into ’26. Some of our revenue outlook, even though rents are decelerating from the 2025 modestly, we still expect to see some growth when compared to to the trough that occurred in the 2024. Occupancy will remain the focus, but our expectation is to average 94% in the 2025 versus 94.7%, which was achieved in the 2024. For this reason, we expect second half twenty twenty five revenue to be more muted than we initially thought. On expense front, controllable operating expenses have improved, supported by ongoing efficiencies through centralized operations and implementation of AI driven technologies.

Payroll has improved from our initial forecast, and we expect that we will lock in better performance in the second half of the year as we beat our first half forecast by just about 500,000 or 9.7%. We see salaries remaining stable in the second half of the year with an expectation that they remain flat. Repairs and maintenance costs have also moderated, particularly turn costs, which are trending down, and we expect to finish the year 3% below 2024 totals. Again, on our insurance renewal, it was very favorable, and the impact will be fully recognized in the 2025 to the tune of $600,000 a year in savings year over year. Collectively, these trends support maintaining our current same store NOI guidance at the midpoint of negative 1.5%, slightly softer revenue growth expect expectations fully offset by a fit efficient man efficient expense management.

And while rent growth has underperformed historical q two expectations, tightening supply demand fundamentals, stabilizing occupancy, improving collections, and continued expense discipline support maintaining the NOI outlook. The latest RealPage summary echoes the sent sentiment. Quote, momentum trails expectations, but fundamentals are affirming, and that’s what we’re seeing as well. Brief update on the transaction markets. We continue to actively monitor the sales markets for opportunities and stay close to many movements on cap rates.

Several recent portfolio processes in our markets were recently awarded in the five to 5.25 cap rate range, again supporting our NAV guide. We too are optimistic we’ll be able to recycle capital in the second half of the year with targeted acquisitions and dispositions to continue to replenish our rehab pipeline. In closing, in the near term, we will continue to prioritize the balanced approach, again, driving occupancy, maintaining disciplined risk strategies, and managing controllable expense expenses to support steady NOI growth despite the transitional operating environment. That’s all I have for prepared remarks. Thanks to our teams here at NextPoint and BH for continuing to execute.

Now we’d like to turn the call over to the operator to take your questions.

Kate, Conference Operator: Your first question comes from the line of Kyle Gatorensic with Janney Montgomery Scott. Your line is open.

Kyle Gatorensic, Analyst, Janney Montgomery Scott: Hey guys. How much of the $8,000,000 in recurring capitalized maintenance expenditures year to date are non revenue producing?

Bonner McDermott, Vice President Asset Investment Management, NextPoint Residential Trust: Good good question. As part of the refinancing activity last year, the the agencies looked at, you know, required CapEx, parking, pavement, siding, things like that. So we’ve have we a little bit of elevated spend this quarter over over the normal. We also have some more significant projects, particularly in Nashville. We’re doing two roof replacement projects in Nashville, some other some other chunkier spend.

So I I would say it’s it’s elevated certainly over run rate and and skewed a little bit more towards that nonrevenue generating today. I think as we work through that in the the third quarter, we’ll get you a more normalized run rate in q four. And I know Matt touched on, you know, the the increase in output of of renovations. That that’s really more focused on kind of the spoke, you know, 1 to $3,000 opportunities. So it’s it’s not been an an acceleration and all that much spend there.

That’s helpful.

Kyle Gatorensic, Analyst, Janney Montgomery Scott: Okay. And then on the rehab program, last quarter’s call, guys mentioned it would take probably a few quarters to get back to 400 units a quarter target. So what drove such a larger increase that allowed you guys to ramp up to the 500 plus units in the second quarter versus what you were thinking last quarter?

Bonner McDermott, Vice President Asset Investment Management, NextPoint Residential Trust: Yes. It’s certainly been a focus of ours going into the year. We we recognize, you know, there’s an opportunity. It it’s probably not, you know, ten to fifteen thousand a unit full upgrade that we’ve been doing. But where where we’ve seen opportunity, we’ve we’ve been able to, I think, deploy a little bit faster than we expected.

Credit credit to the VA construction team and the asset management folks here. We identified an opportunity, and and we’re attacking it full on.

Kyle Gatorensic, Analyst, Janney Montgomery Scott: And then last one on that. For the ROI on your post rehab units, what, like, is the useful life or tenure you usually use to calculate your ROI on those? And is there any difference between full and partial units?

Matt McGraner, Executive Vice President and Chief Investment Officer, NextPoint Residential Trust: No difference. And I think historically, it’s been seven years.

Kyle Gatorensic, Analyst, Janney Montgomery Scott: All right. Thanks, guys. Appreciate it.

Matt McGraner, Executive Vice President and Chief Investment Officer, NextPoint Residential Trust: Got it.

Kate, Conference Operator: Your next question comes from the line of Linda Tsai with Jefferies. Your line is open.

Linda Tsai, Analyst, Jefferies: Hi, good morning. Phoenix and Vegas saw bigger drops in 2Q occupancy of down three forty and two fifty basis points respectively. Could you just provide some color on what’s happening there? Does that have to do with value add? And then you also mentioned that Vegas should exceed expectations by year end.

Is the inflection in 3Q or 4Q?

Matt McGraner, Executive Vice President and Chief Investment Officer, NextPoint Residential Trust: Yeah. Hey, Linda. It’s Matt. Take Phoenix first. Phoenix is is perhaps the most the the most supply concern or supply driven market that we that we’re seeing right now.

Really, it’s it’s three properties in the second quarter that were surrounding, lease up deals, Enclave, Heritage, and Venue at Camelback. That’s where we saw the most new lease rate pressure, of kind of negative eight to to to negative 10% in terms of new leases. Again, as I mentioned in my prepared remarks, we expect this to subside in the third probably not the third quarter, but but fourth quarter and 2026. So we’re doing all we can to be defensive there, and that makes up some of the the occupancy loss. On the on the Vegas front, and, Barnard, correct me if if if you see anything different, but really it’s it’s targeted to one asset, Bella Silara, which which had a little bit more weaker traffic than, you know, than than we thought.

So that that makes up most of the loss. I wonder if you have anything to add to that.

Bonner McDermott, Vice President Asset Investment Management, NextPoint Residential Trust: Yeah. I would would say for for Phoenix, obviously, a large geographic concentration there. That that market being one of the the more recent peaks in supply Yeah. You’ve got more concession utilization in that market than we’ve been accustomed to. We we’ve had to adjust to that in the the second and going into the third quarter.

Overall, we think we’ll finish the year there actually, low 93 to, you know, high 92 is occupancy.

Paul Bridges, Executive Vice President and Chief Financial Officer, NextPoint Residential Trust: I I I think we’ll

Bonner McDermott, Vice President Asset Investment Management, NextPoint Residential Trust: be alright. We need to use a little bit more concessions to to buy some occupancy there, but feel okay. In Vegas, you know, Vegas, we’ve been seeing negative trade outs now for for a period of time. Our revenue our our, gross potential rent is actually better, on the outlook for the rest of the year than we had originally, envisioned for it. But we do see a little bit of softness in in occupancy that we’re working through to to match point.

Elspar, in particular, saw a decrease in traffic. It it only net resulted in about eight few releases for the second quarter, but it’s something we’re monitoring, and something we think we can do better upon. That’s another, you know, mid midpoint of our guidance there to finish the year at ninety two eight occupancy. We we certainly think we could do better and and hope to, but, you know, I think we’re, you know, being appropriately defensive at this point.

Linda Tsai, Analyst, Jefferies: Thanks. And then just one follow-up. What’s driving the lower churn costs?

Matt McGraner, Executive Vice President and Chief Investment Officer, NextPoint Residential Trust: Yeah. I I I think, you know, I think the the first and foremost thing was is higher retention. You know, we’re trying to to to close the back door and have focused on renewals. I really, you know, kind of proud of of the of the second quarter and into the third quarter, you know, renewal rates, and and so that’ll continue to be a focus. But

Paul Bridges, Executive Vice President and Chief Financial Officer, NextPoint Residential Trust: Yeah. We

Bonner McDermott, Vice President Asset Investment Management, NextPoint Residential Trust: we’re we’re also prioritizing in those, you know, mark market updates that we’re doing. You know, the the increase and and kind of partial renovations is targeted towards those potential heavy turns where, you know, maybe a unit we’ve already touched before and they have, you know, the majority of of kind of a a a modern update package, but we have an opportunity to go in, you know, add a hard hard hard surface counter, add a stainless steel appliance package, lighting package. We’re doing smaller upgrades, trying to get, you know, a $20 premium there, and then that goes into the the capital bucket. So the the increase, in value add is is offsetting some of that turn cost.

Kristin Griffith, Investor Relations, NextPoint Residential Trust: Thanks. Appreciate the color.

Matt McGraner, Executive Vice President and Chief Investment Officer, NextPoint Residential Trust: Thanks, Lu.

Kate, Conference Operator: I will now turn the call back to the management team for closing remarks.

Matt McGraner, Executive Vice President and Chief Investment Officer, NextPoint Residential Trust: Yeah. Well, thank you for everyone’s time this morning, and I look forward to talking to you again next quarter. Thanks.

Kate, Conference Operator: Ladies and gentlemen, that concludes today’s call. You can now disconnect. Thank you, and have a great day.

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