NXRT - NexPoint Residential Trust: Attractive Valuation Despite The Risks

2024-05-01 12:09:04 ET

Summary

• NexPoint Residential Trust reported Core FFO and NOI growth in the mid-single digits in Q1 2024.
• The full-year outlook remains more cautious, driven by expected elevated home deliveries in the remainder of the year.
• Management signals over 50% upside to their NAV estimate using cap rates of 5.5-6% and initiated a $25 million share buyback to help bridge the gap.
• I estimate a still attractive market cap rate of 6.9%, notwithstanding elevated administrative spending, partially justified by strong returns on renovations.
• NexPoint's occupancy of just 94.7% and high leverage are red flags, especially given the lack of stable fixed rate long term funding.

Introduction

NexPoint Residential Trust ( NXRT ) has strongly outperformed the Vanguard Real Estate Index Fund ETF ( VNQ ) so far in 2024, with the stock little changed from the beginning of the year:

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