Item 9.01.
|
Financial Statements and Exhibits.
|
2
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of
NexPoint
Residential Trust, Inc.
We have audited the accompanying Historical Statement of Revenues and Certain Direct Operating Expenses of Rockledge Apartments
(the Property) for the year ended December 31, 2016.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of this financial statement in accordance with accounting principles generally accepted in
the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of this financial statement that is free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is
to express an opinion on the financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statement. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In
making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the Historical
Statement of Revenues and Certain Direct Operating Expenses referred to above presents fairly, in all material respects, the revenue and certain direct operating expenses described in Note 2 of the financial statement for the year ended
December 31, 2016, in accordance with accounting principles generally accepted in the United States.
Emphasis of Matter
The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission as
described in Note 2 and is not intended to be a complete presentation of the Propertys revenues and expenses. Our opinion is not modified with respect to that matter.
/s/ Aprio, LLP
Atlanta, Georgia
June 8, 2017
3
ROCKLEDGE APARTMENTS
HISTORICAL STATEMENTS OF REVENUES
AND CERTAIN DIRECT OPERATING EXPENSES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
March 31, 2017
|
|
|
For the Year Ended
December 31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
2,227
|
|
|
$
|
8,686
|
|
Other income
|
|
|
264
|
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,491
|
|
|
|
9,756
|
|
|
|
|
|
|
|
|
|
|
Certain direct operating expenses
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
563
|
|
|
|
2,451
|
|
Property taxes and insurance
|
|
|
361
|
|
|
|
1,011
|
|
Management fees
|
|
|
71
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
Total certain direct operating expenses
|
|
|
995
|
|
|
|
3,739
|
|
|
|
|
|
|
|
|
|
|
Revenues in excess of certain direct operating expenses
|
|
$
|
1,496
|
|
|
$
|
6,017
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to historical financial statements
4
ROCKLEDGE APARTMENTS
NOTES TO HISTORICAL STATEMENTS OF REVENUES
AND CERTAIN DIRECT OPERATING EXPENSES
Note 1. Business
The accompanying
historical statements of revenues and certain direct operating expenses (Historical Summary) include the revenues and certain expenses of Rockledge Apartments (the Property), with 708 units, located in Marietta, Georgia.
NexPoint Residential Trust, Inc. (the Company) acquired the Property on June 30, 2017.
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 and is not intended to be a complete presentation of the Propertys revenues and expenses.
A Historical Summary
is being presented for the most recent year available instead of the 3 most recent years based on the following facts: (1) the Property was acquired from an unaffiliated party; and (2) based on the due diligence of the Property conducted
by the Company, except as disclosed in these Notes to Historical Summary, management is not aware of any material factors related to the Property that would cause this financial information not to be indicative of future operations.
Note 3. Unaudited Interim Information
The unaudited Historical Summary for the three months ended March 31, 2017 has been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information. In the opinion of the Propertys 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 three months ended March 31, 2017.
Note 4. Significant Accounting Policies
Revenues
The Property 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 Property 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 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 Property.
Property operating costs includes property staff salaries, marketing, utilities, landscaping, repairs and maintenance, and other general costs associated with operating the property. Costs such as depreciation, amortization, interest, and
professional fees are excluded from the Historical Summary.
5
Use of Estimates
The preparation of the financial statements, as described in Note 2 and in conformity with accounting principles generally accepted in the
United States, 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 Property 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 Property 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 Property 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 June 8,
2017, which is the date the Historical Summary was issued.
6
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma information should be read in conjunction with the Companys historical consolidated financial
statements and the notes thereto as filed in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016, which was filed with the SEC on March 15, 2017, and the Companys
Quarterly Report on Form
10-Q
for the three months ended March 31, 2017, which was filed with the SEC on May 2, 2017. 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 Property, which are included herein.
The following unaudited pro forma consolidated balance sheet as of March 31, 2017 has been prepared to give effect to the acquisition of
the Property, which occurred on June 30, 2017, as if the acquisition occurred on March 31, 2017.
The following unaudited pro
forma consolidated statements of operations for the three months ended March 31, 2017 and for the year ended December 31, 2016 have been prepared to give effect to the acquisition of the Property as if the acquisition occurred on
January 1, 2016.
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 Property been consummated on January 1, 2016.
In the opinion of the Companys management, all adjustments necessary to reflect the effect of the transaction described above have been
included in the pro forma consolidated financial statements.
7
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2017
(in thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NXRT, Inc.
Historical (a)
|
|
|
Purchase of
Rockledge
Apartments (b)
|
|
|
Pro Forma Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Real Estate Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
166,985
|
|
|
$
|
17,451
|
|
|
$
|
184,436
|
|
Buildings and improvements
|
|
|
739,099
|
|
|
|
92,240
|
|
|
|
831,339
|
|
Intangible lease assets
|
|
|
5,581
|
|
|
|
3,021
|
|
|
|
8,602
|
|
Construction in progress
|
|
|
2,895
|
|
|
|
|
|
|
|
2,895
|
|
Furniture, fixtures, and equipment
|
|
|
39,361
|
|
|
|
1,316
|
|
|
|
40,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Operating Real Estate Investments
|
|
|
953,921
|
|
|
|
114,028
|
|
|
|
1,067,949
|
|
Accumulated depreciation and amortization
|
|
|
(70,551
|
)
|
|
|
|
|
|
|
(70,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Operating Real Estate Investments
|
|
|
883,370
|
|
|
|
114,028
|
|
|
|
997,398
|
|
Real estate held for sale (net of accumulated depreciation of $7,714)
|
|
|
96,904
|
|
|
|
|
|
|
|
96,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Real Estate Investments
|
|
|
980,274
|
|
|
|
114,028
|
|
|
|
1,094,302
|
|
Cash and cash equivalents
|
|
|
27,741
|
|
|
|
(1,913
|
)
|
|
|
25,828
|
|
Restricted cash
|
|
|
26,001
|
|
|
|
518
|
|
|
|
26,519
|
|
Accounts receivable
|
|
|
2,252
|
|
|
|
84
|
|
|
|
2,336
|
|
Prepaid and other assets
|
|
|
3,733
|
|
|
|
92
|
|
|
|
3,825
|
|
Fair market value of interest rate swaps
|
|
|
13,424
|
|
|
|
|
|
|
|
13,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
1,053,425
|
|
|
$
|
112,809
|
|
|
$
|
1,166,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable, net
|
|
$
|
366,926
|
|
|
$
|
67,711
|
|
|
$
|
434,637
|
|
Mortgages payable held for sale, net
|
|
|
69,311
|
|
|
|
|
|
|
|
69,311
|
|
Credit facilities, net
|
|
|
324,768
|
|
|
|
|
|
|
|
324,768
|
|
Bridge facility, net
|
|
|
29,969
|
|
|
|
44,500
|
|
|
|
74,469
|
|
Accounts payable and other accrued liabilities
|
|
|
5,036
|
|
|
|
12
|
|
|
|
5,048
|
|
Accrued real estate taxes payable
|
|
|
4,640
|
|
|
|
433
|
|
|
|
5,073
|
|
Accrued interest payable
|
|
|
1,117
|
|
|
|
|
|
|
|
1,117
|
|
Security deposit liability
|
|
|
1,475
|
|
|
|
106
|
|
|
|
1,581
|
|
Prepaid rents
|
|
|
1,875
|
|
|
|
47
|
|
|
|
1,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
805,117
|
|
|
|
112,809
|
|
|
|
917,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NexPoint Residential Trust, Inc. 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; 21,293,825 shares issued
|
|
|
213
|
|
|
|
|
|
|
|
213
|
|
Additional
paid-in
capital
|
|
|
242,058
|
|
|
|
|
|
|
|
242,058
|
|
Accumulated deficit
|
|
|
(22,924
|
)
|
|
|
|
|
|
|
(22,924
|
)
|
Accumulated other comprehensive income
|
|
|
9,998
|
|
|
|
|
|
|
|
9,998
|
|
Common stock held in treasury at cost; 250,156 shares
|
|
|
(4,587
|
)
|
|
|
|
|
|
|
(4,587
|
)
|
Noncontrolling interests
|
|
|
23,550
|
|
|
|
|
|
|
|
23,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
248,308
|
|
|
|
|
|
|
|
248,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
1,053,425
|
|
|
$
|
112,809
|
|
|
$
|
1,166,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma consolidated financial statements
8
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2017
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NXRT, Inc.
(Historical) (a)
|
|
|
Purchase of
Rockledge
Apartments (c)
|
|
|
Pro Forma
Total
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
31,908
|
|
|
$
|
2,227
|
|
|
$
|
34,135
|
|
Other income
|
|
|
5,083
|
|
|
|
264
|
|
|
|
5,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
36,991
|
|
|
|
2,491
|
|
|
|
39,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
9,871
|
|
|
|
518
|
|
|
|
10,389
|
|
Real estate taxes and insurance
|
|
|
4,965
|
|
|
|
361
|
|
|
|
5,326
|
|
Property management fees (related party)
|
|
|
1,113
|
|
|
|
71
|
|
|
|
1,184
|
|
Advisory and administrative fees (related party)
|
|
|
1,825
|
|
|
|
|
(d)
|
|
|
1,825
|
|
Corporate general and administrative expenses
|
|
|
1,333
|
|
|
|
|
|
|
|
1,333
|
|
Property general and administrative expenses
|
|
|
1,586
|
|
|
|
45
|
|
|
|
1,631
|
|
Depreciation and amortization
|
|
|
12,443
|
|
|
|
915
|
(e)
|
|
|
13,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
33,136
|
|
|
|
1,910
|
|
|
|
35,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,855
|
|
|
|
581
|
|
|
|
4,436
|
|
Interest expense
|
|
|
(7,159
|
)
|
|
|
(1,078
|
)(f)
|
|
|
(8,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,304
|
)
|
|
|
(497
|
)
|
|
|
(3,801
|
)
|
Net income attributable to noncontrolling interests
|
|
|
312
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(3,616
|
)
|
|
$
|
(497
|
)
|
|
$
|
(4,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains on interest rate derivatives
|
|
|
1,046
|
|
|
|
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
(2,258
|
)
|
|
|
(497
|
)
|
|
|
(2,755
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
412
|
|
|
|
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to common stockholders
|
|
$
|
(2,670
|
)
|
|
$
|
(497
|
)
|
|
$
|
(3,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
21,044
|
|
|
|
|
|
|
|
21,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - diluted
|
|
|
21,293
|
|
|
|
|
|
|
|
21,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.220
|
|
|
|
|
|
|
$
|
0.220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited pro forma consolidated financial statements
9
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2016
(in thousands, except per share amounts)
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NXRT, Inc.
(Historical) (b)
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Purchase of
Rockledge
Apartments (c)
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Pro Forma
Total
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Revenues
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Rental income
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$
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115,419
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$
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8,686
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$
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124,105
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Other income
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17,429
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1,070
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18,499
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Total revenues
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132,848
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9,756
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142,604
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Expenses
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Property operating expenses
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38,236
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2,189
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40,425
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Acquisition costs
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386
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386
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Real estate taxes and insurance
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16,062
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1,011
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17,073
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Property management fees (related party)
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3,983
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277
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4,260
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Advisory and administrative fees (related party)
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6,802
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(d)
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6,802
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Corporate general and administrative expenses
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4,014
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4,014
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Property general and administrative expenses
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5,877
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262
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6,139
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Depreciation and amortization
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35,643
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6,680
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(e)
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42,323
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Total expenses
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111,003
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10,419
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121,422
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Operating income (loss)
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21,845
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(663
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)
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21,182
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Interest expense
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(21,889
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(4,313
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)(f)
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(26,202
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Gain on sales of real estate
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25,932
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25,932
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Net income (loss)
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25,888
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(4,976
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20,912
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Net income attributable to noncontrolling interests
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4,006
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4,006
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Net income (loss) attributable to common stockholders
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$
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21,882
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$
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(4,976
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$
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16,906
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Other comprehensive income
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Unrealized gains on interest rate derivatives
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10,833
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10,833
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Total comprehensive income (loss)
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36,721
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(4,976
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31,745
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Comprehensive income attributable to noncontrolling interests
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5,090
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5,090
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Comprehensive income (loss) attributable to common stockholders
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$
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31,631
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$
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(4,976
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$
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26,655
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Weighted average common shares outstanding - basic
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21,232
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21,232
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Weighted average common shares outstanding - diluted
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21,314
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21,314
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Basic earnings per share
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$
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1.03
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$
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0.80
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Diluted earnings per share
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$
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1.03
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$
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0.79
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Dividends declared per common share
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$
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0.838
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$
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0.838
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See accompanying notes to the unaudited pro forma consolidated financial statements
10
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet adjustments
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(a)
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Represents the unaudited historical consolidated balance sheet of NexPoint Residential Trust, Inc. and subsidiaries (the Company) as of March 31, 2017. See the historical consolidated financial
statements and notes thereto included in the Companys Quarterly Report on Form
10-Q
for the three months ended March 31, 2017.
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(b)
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Reflects the acquisition of the Property as if it occurred on March 31, 2017.
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Income statement
adjustments
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(a)
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Represents the unaudited historical consolidated operations of the Company for the three months ended March 31, 2017. See the historical consolidated financial statements and notes thereto included in the
Companys Quarterly Report on Form
10-Q
for the three months ended March 31, 2017.
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(b)
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Represents the audited historical consolidated operations of the Company for the year ended December 31, 2016. See the historical consolidated financial statements and notes thereto included in the Companys
Annual Report on Form
10-K
for the year ended December 31, 2016.
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(c)
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Represents the historical operations of the Property acquired by the Company. See the historical statements of revenues and certain direct operating expenses and the notes thereto of the Property, which are included
herein.
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(d)
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Does not include advisory and administrative fees that may have been payable to the Companys advisor in connection with the acquisition had the Property been acquired on January 1, 2016.
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(e)
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Represents depreciation and amortization expense (not reflected in the historical consolidated statements of operations of the Company) as if the Property was acquired on January 1, 2016. Real estate-related
depreciation and amortization are computed on a straight-line basis over the respective estimated useful lives of the assets.
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(f)
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Represents interest expense (not reflected in the historical consolidated statements of operations of the Company) as if the borrowings attributable to the Property were borrowed on January 1, 2016. In connection
with the acquisition of the Property, the Company:
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originated a $68.1 million first mortgage, which has a current annual interest rate of
one-month
LIBOR plus 1.57% and an
84-month
term;
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drew $44.5 million on its 2017 Bridge Facility, which has a current annual interest rate of
one-month
LIBOR plus 4.00%; and
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Additionally, the adjustment reflects the amortization of deferred financing costs incurred in connection with the aforementioned loans.
11