NXRT

NexPoint Residential Trust ($NXRT) Officer Buys $195K After Stock Plunge, But 97% Profit Decline and 350% Debt Ratio Cast Shadows

04/09/2025 20:23

An officer at NexPoint Residential Trust Inc ($NXRT) has made a significant stock purchase following a recent sharp decline in share price, drawing investor attention. Paul Richards acquired 5,814 shares at $33.62 per share on April 7, representing a total investment of approximately $195,466. This purchase came immediately after $NXRT's stock plummeted about 8% in just three days, falling from $38.62 on April 3 to $33.19 on April 7. Notably, the transaction was executed pursuant to a Rule 10b5-1 trading plan, indicating it was pre-arranged rather than a spontaneous decision. NexPoint Residential Trust operates as a real estate investment trust (REIT) focused on multifamily properties, primarily in the Sun Belt region of the United States. The company currently maintains a portfolio of 35 properties with an impressive 94.7% physical occupancy rate and average monthly rent of $1,491 per unit. Central to its strategy is a value-add approach, having completed 388 unit upgrades in 2024 that achieved a 24.7% return on investment and generated $153 in average monthly rent premiums. However, the company's financial performance has faced several challenges recently. Revenue declined to $259.87 million in 2024 from $277.5 million in 2023. More concerning is the dramatic drop in net income, which fell from $44.3 million in 2023 to just $1.11 million in 2024, attributed to reduced gains on property sales and increased debt-related losses. A significant concern for $NXRT is its high debt-to-equity ratio of 351.7%, indicating substantial leverage in its asset acquisition and operations, which could present vulnerabilities in changing interest rate environments. While the dividend yield of 5.2% appears attractive, the payout ratio of 111% suggests current earnings aren't fully covering dividend payments, raising questions about long-term sustainability. Quarterly results paint a clearer picture of recent performance trends. In July 2024, the company reported second-quarter adjusted earnings of 40 cents per share, an improvement year-over-year, though revenue decreased by 7.7%. October's third-quarter results showed an adjusted loss of 35 cents per share with an 8.2% revenue decline. February 2025 brought more troubling news with fourth-quarter adjusted losses widening to $1.03 per share. Given this backdrop, Richards' purchase takes on particular significance. It suggests he may believe the company's stock is undervalued or that he has strong confidence in future business prospects. Looking at insider trading patterns, another officer, Brian Mitts, sold 2,000 shares at $39.40 per share in June of last year. Following that sale, the stock price increased approximately 15% by late August. The real estate market, particularly the multifamily housing sector, has experienced volatility due to interest rate conditions and economic uncertainties. However, the Sun Belt region continues to be viewed favorably due to population influx and economic growth. $NXRT's portfolio concentration in this area could prove advantageous long-term. Analysts maintain an average 'buy' rating on $NXRT with a 12-month price target of approximately $47.50, significantly higher than current trading levels. While recent revenue slightly exceeding market expectations in earnings reports provides some optimism, declining profitability and high debt levels remain concerns. Investors might view Richards' purchase as a positive signal but should closely monitor the company's financial health and profitability recovery. Key observation points include debt management strategies and quarterly performance improvements. The success of the value-add strategy across the property portfolio will also serve as an important indicator. With a market capitalization of approximately $1 billion, $NXRT represents a small-cap REIT that may appeal to dividend-focused investors. However, high leverage and deteriorating profitability trends remain risk factors that warrant caution, despite Richards' recent vote of confidence through his share purchase.

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