I got the following numbers from the July 2025 REIT Watch report pg -32
(Note report shows Debt Ratio (%) at 63% which is still quite high)
I put your observations to GOOGL Gemini AI
You're absolutely right to be concerned about NXRT's debt level and to think about what it would take to bring it down. Your method of comparing debt to market capitalization for multi-family REITs is a very good one for understanding relative leverage within the sector.
Let's re-evaluate your numbers with the most current data available (as of late July/early August 2025 where possible) and refine the analysis.
Updated NXRT Figures:
- Market Capitalization: As of July 29, 2025, NXRT's market capitalization is around $845.78 million (from public.com and Simply Wall St). Other sources show slightly different figures, but let's use this as a working average.
- Total Debt:
- Q1 2025: $1,503.242 million (Total Mortgage Debt, from their Q1 2025 report).
- Q2 2025: While a "Total Debt" figure isn't explicitly broken out in the Q2 2025 earnings release, their "Total Mortgage Debt" for Q1 was around $1.5 billion, and they just entered a new $200 million credit facility. It's safe to assume their total debt is still in the $1.5 billion to $1.7 billion range. Let's use $1.5 billion for this exercise, as it's the more clearly stated recent number.
- Shares Outstanding: Approximately 25.40 million (diluted weighted average for Q2 2025). Your figure of 25.6 million is very close.
- Annual Dividend Per Share: $2.04 (annualized based on their $0.51 quarterly dividend in Q2 2025).
- Annual Dividend Cost: $2.04/share * 25.40 million shares = $51.816 million per year. Your $52 million is spot on.
Re-calculating NXRT's Current Debt/Market Cap:
- Debt/Market Cap = $1,500,000,000 / $845,780,000 ˜ 1.77x
Industry Comparison (MAA, CPT, UDR):
You're right that MAA, CPT, and UDR generally have lower Debt/Market Cap ratios. Based on quick searches for their market caps and debt figures (which can fluctuate), their ratios often sit in the 0.3x to 0.7x range. For example:
- MAA: Total Debt $4.57B / Market Cap $15.4B ˜ 0.30x (from Macrotrends/Tickeron)
- CPT: Total Debt $3.72B / Market Cap $10.5B ˜ 0.35x (from Tickeron)
- UDR: Total Debt $5.99B / Market Cap $12.1B ˜ 0.49x (from Tickeron)
So, your observed range of 0.3 to 0.4 is a good general benchmark for these larger, more established multi-family REITs.
Your Scenario Analysis for NXRT's Debt Reduction:
Let's assume an "industry normal level" for Debt/Market Cap of 0.4x.
To reach this, with NXRT's current market cap of $845.78 million, their target debt would be:
- Target Debt = 0.4 * $845,780,000 = $338,312,000
Your figure of $300 million is also a reasonable target within this desired range. Let's use the calculated target for precision.
Debt Reduction Needed:
- Current Debt: $1,500,000,000
- Target Debt: $338,312,000
- Debt Reduction Needed = $1,500,000,000 - $338,312,000 = $1,161,688,000 (approximately $1.16 billion)
How to Achieve This Reduction through Dividend Cuts:
You proposed reducing debt by $1.2 billion over 10 years, which is $120 million per year.
- Annual Debt Reduction Target: $1,161,688,000 / 10 years = $116,168,800 per year (approximately $116.2 million)
Compare this to their current annual dividend cost: $51.816 million.
Your assessment is correct: The annual debt reduction needed ($116.2 million) is more than twice their current annual dividend cost ($51.8 million).
If they cut the dividend to zero:
- If NXRT were to eliminate its dividend entirely, they would free up approximately $51.8 million per year (assuming FFO/AFFO covers the dividend and that cash could be redirected).
- To reduce $1.16 billion in debt by only using the dividend savings, it would take: $1,161,688,000 / $51,816,000 per year ˜ 22.4 years.
Conclusion on Your Method and Insights:
Your numbers are very close, and your overall conclusion is sound.
- This method absolutely means something. It highlights the scale of the challenge NXRT faces in deleveraging to industry norms, especially if they primarily rely on retaining cash that would otherwise go to dividends.
- Yes, this is considered a very high debt load compared to its multi-family REIT peers like MAA, CPT, and UDR. Their debt-to-market cap ratio of ~1.77x is significantly higher than the 0.3x-0.7x range you identified for those companies.
- The implications of this high debt are significant:
- Financial Flexibility: High debt limits a company's ability to borrow more for growth, acquisitions, or to weather economic downturns.
- Interest Expense: A larger debt load generally means higher interest payments, which eat into FFO/AFFO and thus reduce cash available for dividends or other investments. (Note that NXRT recently reported a net loss for Q2 2025, partly due to higher interest expenses and other factors).
- Risk Profile: It increases the overall risk profile of the company for investors. In a rising interest rate environment or if property values decline, a highly leveraged company is more vulnerable.
- Dividend Sustainability: As your calculation shows, retaining significant cash to pay down debt would require a substantial and prolonged dividend cut or elimination, which would likely be very unpopular with REIT investors who rely on consistent income.
Ways to Reduce Debt (Beyond Dividend Cuts):
While dividend cuts are one way, companies typically use a mix of strategies to reduce debt:
- Asset Sales: Selling off properties, especially non-core or lower-performing ones, can generate significant cash for debt repayment.
- Equity Issuance: Issuing new shares (though this dilutes existing shareholders and can be challenging with a depressed stock price).
- Retained Earnings (from operations): Generating strong operational cash flow (FFO/AFFO) beyond dividend payments and reinvesting it into debt reduction rather than new acquisitions or share buybacks.
- Refinancing at better terms: While challenging in a high-rate environment, favorable refinancing of existing debt could free up cash flow.
Given NXRT's current situation, a multi-pronged approach would likely be necessary. The comparison you made powerfully illustrates the magnitude of the deleveraging task. It's a key factor for any investor to consider when evaluating this REIT.
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This metric is concerning
Debt Ratio (Debt-to-Assets):
- Average for REITs: Some sources suggest that "the best REITs keep the debt to assets under 40%," while "some good REITs keep a close to 50%." If it's "more than 70%, the REIT is either in trouble or have recently become a REIT."
- NXRT's 78% Debt-to-Assets ratio is higher than the commonly cited "good" or "average" ranges for REITs and could be considered a high debt load by some. However, it's important to note that REITs often utilize leverage due to the capital-intensive nature of real estate.
I think I agree w/ you on this high leveraged debt position. I need to review total debt when evaluating these REITs. As you know too much debt can blow up when stressed. |
