NexPoint Residential Trust Maintains Dividend Amid Mixed Q1 Results: Is the Pay Out Sustainable?

NexPoint Residential Trust, Inc. (NYSE: NXRT) has kept its quarterly dividend at $0.51 per share, payable on June 30, 2025, to shareholders of record as of June 16. This decision comes amid a challenging first quarter for the company, marked by declining financial metrics and operational headwinds. Below, we dissect the drivers behind the dividend sustainability, evaluate NXRT’s performance, and assess risks to its growth trajectory.

Financial Performance: A Net Loss, But Non-GAAP Metrics Hold Steady

NXRT reported a Q1 2025 net loss of $6.9 million, compared to a net income of $26.3 million in the prior-year period. The loss stemmed from the absence of a $31.7 million gain on real estate sales in 2024, which had skewed results upward. Excluding such one-time items, NXRT’s non-GAAP metrics provide a clearer picture:
- FFO (Funds from Operations): $17.4 million ($0.68 per share), down 8.4% from $0.72 in Q1 2024.
- Core FFO: $19.1 million ($0.75 per share), a 1.7% decline year-over-year.
- AFFO (Adjusted Funds from Operations): $21.6 million ($0.84 per share), 1.8% lower than $0.83 in Q1 2024.

While these metrics show modest declines, AFFO coverage remains 1.65x, comfortably above the 1.25x threshold typically considered sustainable for REIT dividends. This supports the decision to maintain the $0.51 dividend, which represents a 10.3% increase from its Q1 2024 payout of $0.46.

Dividend Sustainability: Coverage and Yield

NXRT’s dividend yield of 4.8% (based on its recent stock price of $17.50) positions it attractively for income-seeking investors. However, the AFFO-to-dividend ratio has dipped from 1.80x in Q1 2024 to 1.65x, signaling tighter margins. Key factors influencing sustainability include:
- Value-Add Initiatives: Upgrades to units generated a 16.1% ROI in Q1, with cumulative improvements yielding an average $172/month rent premium. These programs could boost long-term NOI and AFFO.
- Debt Management: A new $100M SOFR interest rate swap fixes borrowing costs at 3.49%, shielding against rising rates. The company’s leverage ratio improved to 59% (down from 64% in 2024), reflecting disciplined balance sheet management.

Operational Strengths and Challenges

NXRT’s portfolio of 12,984 units across 35 properties in high-growth Southeastern and Southwestern U.S. markets faces both opportunities and risks:
- Occupancy: A 94.4% physical occupancy rate remains robust, though it dipped 30 basis points year-over-year due to competitive pressures.
- Rental Rates: Average effective rent per unit fell 1.3% to $1,495, reflecting softness in markets like Austin and Phoenix, where oversupply has driven rent declines of 5.4% and 3.0%, respectively.
- Portfolio Risks: 36 units are temporarily out of service due to fires at two properties, though this is a minor issue relative to the overall portfolio.

Strategic Outlook and Risks

NXRT’s revised 2025 Core FFO guidance of $2.61–$2.89 per share signals confidence in its value-add strategy and operational improvements. However, risks loom:
- Market Softness: High supply growth in key markets (e.g., Austin’s 5.0%+ inventory increase) could prolong rent declines and occupancy pressures.
- Economic Uncertainty: Elevated unemployment in certain Sun Belt regions or policy shifts (e.g., immigration reforms) could disrupt tenant demand.
- Execution Dependence: The success of upgrades hinges on tenant willingness to pay premium rents amid economic volatility.

Conclusion: A Dividend Worth Holding, But Monitor Closely

NXRT’s decision to maintain its $0.51 dividend is defensible given its 1.65x AFFO coverage and improving leverage ratios. The company’s value-add initiatives and disciplined capital allocation provide a path to stabilize FFO and AFFO growth. However, investors must remain vigilant about macro risks, including oversupply in key markets and potential interest rate hikes.

With a 4.8% dividend yield and exposure to multifamily housing—a sector benefiting from long-term demand trends—the stock offers a compelling risk-reward trade-off. That said, we recommend pairing NXRT with broader REIT diversification to mitigate market-specific risks.

Final Take: Hold NXRT for its income profile, but prepare for volatility tied to regional market dynamics.

Data as of Q1 2025. Always consult financial advisors before making investment decisions.