Harvey Could Be A Catalyst For NexPoint

On March 31, 2015, NexPoint Credit Strategies Fund (NYSE:NHF) spun off NXRT to create a pure-play multi-family REIT. In Q3-15, NHF acquired its first apartment community (in Dallas), and NXRT has since grown to 36 multi-family properties encompassing 12,027 units of apartment space.

Summary

  • Last week, we saw devastating news in Houston as Hurricane Harvey reaped havoc on America’s fourth-largest city.
  • "The catastrophe from Harvey will produce a ripple throughout the Houston economy" - Matt Warner.
  • "I would expect occupancy to rise among self-storage, apartment, and hotel properties" - Matt Werner.
  • It’s likely that this small-cap REIT will generate favorable growth in 2018 and 2019.

This article was published over 24 hours earlier on my REIT Beat forum. I will provide updates on this article after speaking with NexPoint Residential Trust's management team.

In January, I decided to initiate research coverage on NexPoint Residential Trust Inc. (NYSE:NXRT), and I concluded that the “balance sheet is getting stronger and the recycling efforts should allow the company to generate stronger returns.

The favorable markets (southeast and southwest) also provide NXRT with a steady pool for fishing out new product and the resurgence in manufacturing should serve as a catalyst for Class B apartment landlords. Although we're not going "all in" for any small-cap REIT, I find NXRT to be one of the safest bets with the best runway for growth.”

Then in June, I wrote a follow-up article and explained:

“NXRT is no longer the screaming bargain it was over a year ago, but the company still has room to run. The management team, although externally-advised, provided me with comfort and based on my analysis and research I am initiating a position within my Small Cap REIT portfolio.”

Last week, we saw devastating news in Houston as Hurricane Harvey reaped havoc on America’s fourth-largest city (after NYC, LA, and Chicago). According to REIT analyst, Matt Werner (with Chilton):

“It will likely overtake Chicago soon given the trajectories of the cities. Houston was a leader in job growth among the top 20 MSAs for several years coming out of the recession, as it was one of the first to regain its peak employment post-2009.
However, the oil downturn starting in late 2015 made it the worst job producer over the past 18 months. Importantly, as oil has stabilized, Houston is showing greenshoots in the form of accelerating job growth, while many other cities are decelerating.”

Werner adds that “the catastrophe from Harvey will produce a ripple throughout the Houston economy. I would expect occupancy to rise among self-storage, apartment, and hotel properties. Pre-Harvey, all three of these property types were overbuilt, so this will help current owners, assuming the property is not damaged or destroyed.”

NexPoint has outsized exposure in Houston, representing ~10% of NOI:

Prior to Harvey, NexPoint was planning to rehab all three of its Houston properties. I’m not sure what damage these properties suffered, I did not see any press releases issued by the company (I will reach out on Tuesday):

It’s likely that the Houston properties will see robust rent growth as a result of Harvey. Let’s take a deeper dive.

NexPoint: The Sunbelt REIT

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