NexPoint Residential Trust (NXRT) 8-K/A Financial Statements and Exhibits

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): November 22, 2019

NEXPOINT RESIDENTIAL TRUST, INC.

(Exact Name Of Registrant As Specified In Its Charter)

Maryland	001-36663	47-1881359
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

300 Crescent Court, Suite 700

Dallas, Texas 75201

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (972) 628-4100 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NXRT	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

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. ☐

Explanatory Note

In its Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 22, 2019 (the “Initial Report”), NexPoint Residential Trust, Inc. reported that it completed the acquisition of three multifamily properties located in Las Vegas, Nevada, from an unaffiliated third party for approximately $241 million. This Current Report on Form 8-K/A amends and supplements the Initial Report to provide the historical financial statements and unaudited pro forma information required by Item 9.01(a) and (b) of Form 8-K. This Form 8-K/A should be read in conjunction with the Initial Report.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statement.

Report of Independent Auditors	1
Historical Statement of Revenues and Certain Direct Operating Expenses for the nine months ended September 30, 2019 and for the year ended December 31, 2018	3
Notes to Historical Statement of Revenues and Certain Direct Operating Expenses	4

(b) Pro Forma Financial Information.

Unaudited Pro Forma Consolidated Financial Information	6
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2019	7
Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018	8
Notes to Unaudited Pro Forma Consolidated Financial Statements	10

(d) Exhibits.

Exhibit Number	Exhibit Description
23.1	Consent of Frazier & Deeter, LLC, dated January 8, 2020

INDEPENDENT AUDITORS’ REPORT

Tothe StockholdersandBoardof Directors

NexPoint ResidentialTrust,Inc.

We haveauditedtheaccompanying historicalstatementofrevenuesand certaindirectoperatingexpensesof The Vegas Portfolio(the"Properties")for theyearendedDecember 31, 2018,and therelatednotestothefinancialstatement.

Management's ResponsibilityfortheFinancialStatement

Managementisresponsiblefor the preparationandfair presentationof thefinancialstatementin accordance withaccounting principlesgenerally acceptedinthe United Statesof Americaandin accordance withapplicablerulesandregulationsof theSecuritiesandExchangeCommissionfor realestate propertiesacquired;thisincludesthe design, implementation,andmaintenanceof internalcontrolrelevanttothe preparationandfair presentationofa financialstatementthatis freefrom materialmisstatement, whether due tofraudorerror.

Auditors' Responsibility

Our responsibilityistoexpressanopiniononthe financialstatementbasedonour audit. We conductedourauditinaccordance withauditing standardsgenerallyacceptedinthe United Statesof America. Those standardsrequire thatwe planandperformthe audittoobtain reasonable assuranceaboutwhether the financialstatementisfreefrommaterialmisstatement.

Anauditinvolvesperforming procedurestoobtainauditevidenceaboutthe amountsand disclosuresinthe financialstatement. The proceduresselecteddependonthe auditors'judgment, including the assessmentof the risksof materialmisstatementof the financialstatement, whether due tofraudor error. Inmaking those riskassessments, the auditor considersinternalcontrol relevanttothe entity'spreparationandfair presentationof the financialstatementinorder to designauditproceduresthatareappropriate inthecircumstances, butnotfor the purpose of expressing anopiniononthe effectivenessof the entity'sinternalcontrol. Accordingly, we expressnosuchopinion. Anauditalsoincludesevaluating theappropriatenessof accounting policiesusedandthe reasonablenessof significantaccounting estimatesmade bymanagement,aswellasevaluating theoverallpresentationof the financialstatement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion

Inour opinion, thefinancialstatementreferredtoabove presentsfairly, inallmaterialrespects, the historicalrevenuesandcertaindirectoperatingexpensesof thePropertiesfor theyearended December 31, 2018, inaccordance withaccounting principlesgenerally acceptedinthe United Statesof Americaandinaccordance withapplicablerulesandregulationsof theSecuritiesand ExchangeCommissionforrealestate propertiesacquired.

EmphasisofMatter

We drawattentiontoNote2totheaccompanyingfinancialstatement, whichdescribesthatthe historicalstatementofrevenuesandcertaindirect operating expensesof thePropertieswas preparedfor the purposeofcomplying withtherulesof theSecuritiesandExchange Commission(for the inclusiononForm8-K/AofNexPoint ResidentialTrust,Inc.)andisnot intendedtobeacomplete presentationof theProperties'revenuesand expenses. Our opinion hasnotbeenmodifiedwithrespecttothismatter.

/s/ Frazier & Deeter, LLC

Atlanta,Georgia

January8, 2020

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THE LAS VEGAS PORTFOLIO

HISTORICAL STATEMENTS OF REVENUES AND CERTAIN

DIRECT OPERATING EXPENSES

	For the Nine Months Ended September 30, 2019		For the Year Ended December 31, 2018
	(Unaudited)
Revenues
Rental income	$	10,646	$	12,932
Other income		2,509		3,182
Total revenues		13,155		16,114
Certain direct operating expenses
Property operating expenses		2,137		2,758
Real estate taxes and insurance		752		936
Property management fees		329		403
Property general and administrative expenses		1,247		1,568
Total certain direct operating expenses		4,465		5,665
Revenues in excess of certain direct operating expenses	$	8,690	$	10,449

See accompanying notes to the historical financial statements

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THE LAS VEGAS PORTFOLIO

NOTES TO HISTORICAL STATEMENTS OF REVENUES AND CERTAIN

DIRECT OPERATING EXPENSES

Note 1. Business

On November 22, 2019, NexPoint Residential Trust, Inc. (the "Company"), through its operating partnership, NexPoint Residential Trust Operating Partnership, L.P. (the “OP”), acquired a three-property portfolio in Las Vegas, Nevada for $241.0 million (the “Portfolio”). The accompanying historical statements of revenues and certain direct operating expenses ("Historical Summary") include the revenues and certain expenses of the Portfolio. See the table below for further detail of each property in the Portfolio:

Property Name	Location	Purchase Price (in thousands)		# Units
Bella Solara	Las Vegas, Nevada		66,500		320
Bloom	Las Vegas, Nevada	$	106,500		528
Torreyana	Las Vegas, Nevada		68,000		315
		$	241,000		1,163

Note 2. Basis of Presentation

The accompanying Historical Summary has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (the “SEC”), and is not intended to be a complete presentation of the Portfolio’s revenues and expenses.

The accompanying historical statements of revenues and certain direct operating expenses are presented in conformity with generally accepted accounting principles in the United States of America (“GAAP”) and in accordance with the provisions of Rule 3-14 of Regulation S-X promulgated by the SEC. Accordingly, the statements exclude historical income and expenses that are not comparable to the proposed future operations of the Portfolio such as ancillary income, depreciation, amortization, interest and corporate expenses. Therefore, the statements will not be comparable to the statements of operations of the Portfolio after their acquisition by the Company and are not intended to be a complete representation of the Portfolio’s revenues and expenses.

Note 3. Unaudited Interim Information

The Historical Summary for the nine months ended September 30, 2019 has been prepared in accordance with GAAP for interim financial information. In the opinion of the Portfolio’s management, all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation (in accordance with Basis of Presentation as described in Note 2) have been made to the accompanying unaudited amounts for the nine months ended September 30, 2019.

Note 4. Significant Accounting Policies

Revenues

The Portfolio contains apartment units occupied under various lease agreements with residents, typically with terms of 12 months or less. All leases are accounted for as operating leases. Rental income is recognized as earned over the life of the lease agreements on a straight-line basis. Some of the leases include provisions under which the Portfolio is reimbursed for certain operating costs. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to residents pursuant to the lease agreements. Other rental income consists of charges billed to residents for utilities reimbursements, administrative, application, and other fees and is recognized when earned.

Certain Direct Operating Expenses

Certain direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Portfolio. Operating costs includes property staff salaries, marketing, utilities, landscaping, repairs and maintenance, and other general costs associated with operating the Portfolio. Costs such as depreciation, amortization, interest and corporate expenses are excluded from the Historical Summary.

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THE LAS VEGAS PORTFOLIO

NOTES TO HISTORICAL STATEMENTS OF REVENUES AND CERTAIN

DIRECT OPERATING EXPENSES

Use of Estimates

The preparation of financial statements, as described in Note 2 and in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Note 5. Commitments and Contingencies

Litigation

The Portfolio may become party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition.

Other Matters

The Company is not aware of any material environmental liabilities relating to the Portfolio that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environment laws and regulations or other environmental conditions with respect to the Portfolio could result in future environmental liabilities.

Note 6. Subsequent Events

In preparation of the accompanying Historical Summary, subsequent events were evaluated for recognition or disclosure through January 8, 2020, which is the date the Historical Summary was issued.

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NEXPOINT RESIDENTIAL TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma information should be read in conjunction with the Company’s historical consolidated financial statements and the notes thereto as filed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 19, 2019, and the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2019, which was filed with the SEC on November 7, 2019. In addition, this unaudited pro forma information should be read in conjunction with the historical statements of revenues and certain direct operating expenses and the notes thereto of the Portfolio, which are included herein.

The following unaudited pro forma consolidated balance sheet as of September 30, 2019 has been prepared to give effect to the acquisition of the Portfolio, which occurred on November 22, 2019, as if the acquisition occurred on September 30, 2019.

The following unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 has been prepared to give effect to the acquisition of the Portfolio as if the acquisition occurred on January 1, 2018.

These unaudited pro forma consolidated financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition of the Portfolio been consummated on January 1, 2018 or September 30, 2019.

In the opinion of the Company’s management, all adjustments necessary to reflect the effect of the transaction described above have been included in the pro forma consolidated financial statements.

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NEXPOINT RESIDENTIAL TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2019

(in thousands, except share and per share amounts)

	NXRT (Historical) (a)			Purchase of Portfolio (b)			Pro Forma Total
ASSETS
Operating Real Estate Investments
Land	$	261,592		$	60,234		$	321,826
Buildings and improvements		1,316,087			175,536			1,491,623
Intangible lease assets		10,897			4,210			15,107
Construction in progress		1,598			—			1,598
Furniture, fixtures, and equipment		69,417			2,363			71,780
Total Gross Operating Real Estate Investments		1,659,591			242,343			1,901,934
Accumulated depreciation and amortization		(138,210	)		—			(138,210	)
Total Net Operating Real Estate Investments		1,521,381			242,343			1,763,724
Real estate held for sale, net of accumulated depreciation of $33,305		32,635			—			32,635
Total Net Real Estate Investments		1,554,016			242,343			1,796,359
Cash and cash equivalents		20,373			(144	)		20,229
Restricted cash		41,108			206			41,314
Accounts receivable		3,567			234			3,801
Prepaid and other assets		5,218			472			5,690
TOTAL ASSETS	$	1,624,282		$	243,111		$	1,867,393
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable, net	$	1,027,947		$	131,914		$	1,159,861
Mortgages payable held for sale, net		26,616			—			26,616
Credit facilities, net		106,034			110,545			216,579
Accounts payable and other accrued liabilities		13,314			374			13,688
Accrued real estate taxes payable		17,742			—			17,742
Accrued interest payable		3,111			—			3,111
Security deposit liability		2,732			259			2,991
Prepaid rents		1,500			19			1,519
Fair market value of interest rate swaps		2,051			—			2,051
Total Liabilities		1,201,047			243,111			1,444,158
Redeemable noncontrolling interests in the Operating Partnership		3,424			—			3,424
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; 23,895,442 shares issued and outstanding		247			—			247
Additional paid-in capital		337,694			—			337,694
Accumulated earnings less dividends		84,924			—			84,924
Accumulated other comprehensive income		(3,054	)		—			(3,054	)
Total Stockholders' Equity		419,811			—			419,811
TOTAL LIABILITIES AND EQUITY	$	1,624,282		$	243,111		$	1,867,393

See accompanying notes to the unaudited pro forma consolidated financial statements

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NEXPOINT RESIDENTIAL TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2019

(in thousands, except share and per share amounts)

	NXRT (Historical) (a)			Purchase of Portfolio (b)				Pro Forma Total
Revenues
Rental income	$	114,861		$	10,646			$	125,507
Other income		16,529			2,509				19,038
Total revenues		131,390			13,155				144,545
Expenses
Property operating expenses		31,256			2,137				33,393
Real estate taxes and insurance		18,053			752				18,805
Property management fees (related party)		3,939			329				4,268
Advisory and administrative fees (related party)		5,613			—		(c)		5,613
Corporate general and administrative expenses		7,313			—				7,313
Property general and administrative expenses		4,973			1,247				6,220
Depreciation and amortization		45,692			5,166		(d)		50,858
Total expenses		116,839			9,631				126,470
Operating income before gain on sales of real estate		14,551			3,524				18,075
Gain on sales of real estate		127,700			—				127,700
Operating income		142,251			3,524				145,775
Interest expense		(26,638	)		(7,521	)	(e)		(34,159	)
Loss on extinguishment of debt and modification costs		(2,869	)		—				(2,869	)
Net income (loss)		112,744			(3,997	)			108,747
Net income attributable to redeemable noncontrolling interests in the Operating Partnership		338			—				338
Net income (loss) attributable to common stockholders	$	112,406		$	(3,997	)		$	108,409
Other comprehensive income (loss)
Unrealized gains on interest rate derivatives		(20,161	)		—				(20,161	)
Total comprehensive income (loss)		92,583			(3,997	)			88,586
Comprehensive income attributable to redeemable noncontrolling interests in the Operating Partnership		278			—				278
Comprehensive income (loss) attributable to common stockholders	$	92,305		$	(3,997	)		$	88,308
Weighted average common shares outstanding - basic		23,793							23,793
Weighted average common shares outstanding - diluted		24,280							24,280
Basic loss per share	$	4.72						$	4.56
Diluted loss per share	$	4.63						$	4.46

See accompanying notes to the unaudited pro forma consolidated financial statements

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NEXPOINT RESIDENTIAL TRUST, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2018

(in thousands, except share and per share amounts)

	NXRT (Historical) (f)			Purchase of Portfolio (b)				Pro Forma Total
Revenues
Rental income	$	127,964		$	12,932			$	140,896
Other income		18,633			3,182				21,815
Total revenues		146,597			16,114				162,711
Expenses
Property operating expenses		35,824			2,758				38,582
Real estate taxes and insurance		20,713			936				21,649
Property management fees (related party)		4,382			403				4,785
Advisory and administrative fees (related party)		7,474			—		(c)		7,474
Corporate general and administrative expenses		7,808			—				7,808
Property general and administrative expenses		6,134			1,568				7,702
Depreciation and amortization		47,470			11,098		(d)		58,568
Total expenses		129,805			16,763				146,568
Operating income		16,792			(649	)			16,143
Interest expense		(28,572	)		(11,216	)	(e)		(39,788	)
Loss on extinguishment of debt and modification costs		(3,576	)		—				(3,576	)
Gain on sales of real estate		13,742			—				13,742
Net loss		(1,614	)		(11,865	)			(13,479	)
Net loss attributable to redeemable noncontrolling interests in the Operating Partnership		(5	)		—				(5	)
Net loss attributable to common stockholders	$	(1,609	)	$	(11,865	)		$	(13,474	)
Other comprehensive income
Unrealized gains on interest rate derivatives		1,931			—				1,931
Total comprehensive income (loss)		317			(11,865	)			(11,548	)
Comprehensive income attributable to redeemable noncontrolling interests in the Operating Partnership		1			—				1
Comprehensive income (loss) attributable to common stockholders	$	316		$	(11,865	)		$	(11,549	)
Weighted average common shares outstanding - basic		21,189							21,189
Weighted average common shares outstanding - diluted		21,667							21,667
Basic loss per share	$	(0.08	)					$	(0.64	)
Diluted loss per share	$	(0.08	)					$	(0.62	)

See accompanying notes to the unaudited pro forma consolidated financial statements

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NEXPOINT RESIDENTIAL TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Balance sheet adjustments

a) Represents the unaudited historical consolidated balance sheet of the Company as of September 30, 2019. See the historical consolidated financial statements and notes thereto included in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2019.

b) Represents the acquisition of the Portfolio as if it occurred on September 30, 2019.

Income statement adjustments

a) Represents the unaudited historical consolidated operations of the Company for the nine months ended September 30, 2019. See the historical consolidated financial statements and notes thereto included in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2019.

b) Represents the historical operations of the Portfolio acquired by the Company. See the historical statements of revenues and certain direct operating expenses and the notes thereto of the Portfolio, which are included herein.

c) Advisory and administrative fees related to the Portfolio that may have been payable to the Company’s advisor in connection with the acquisition were assumed to be waived, as these fees were actually waived during the third quarter of 2019.

d) Represents depreciation and amortization expense (not reflected in the historical consolidated statements of operations of the Company) as if the Portfolio was acquired on January 1, 2018. Real estate-related depreciation and amortization are computed on a straight-line basis over the respective estimated useful lives of the assets.

e) Represents interest expense (not reflected in the historical consolidated statements of operations of the Company) as if the borrowings attributable to the Portfolio were borrowed on January 1, 2018. In connection with the acquisition of the Portfolio, the Company:

• Originated an approximately $36.6 million first mortgage for Bella Solara, which has a current annual interest rate of one-month LIBOR plus 1.70% and an 84-month term; and

• Originated an approximately $58.9 million first mortgage for Bloom, which has a current annual interest rate of one-month LIBOR plus 1.70% and an 84-month term; and

• Originated an approximately $37.4 million first mortgage for Torreyana, which has a current annual interest rate of one-month LIBOR plus 1.70% and an 84-month term; and

• Drew approximately $111.0 million on its corporate credit facility, which currently has an annual interest rate of one-month LIBOR plus 2.25%.

Additionally, the adjustment reflects the amortization of deferred financing costs incurred in connection with the aforementioned loan.

f) Represents the audited historical consolidated operations of the Company for the year ended December 31, 2018. See the historical consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

NEXPOINT RESIDENTIAL TRUST, INC.
By:	/s/ Brian Mitts
	Name: Brian Mitts Title: Chief Financial Officer, Executive VP-Finance, Secretary and Treasurer

Date: January 8, 2020

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