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NexPoint A Buy With 'Middle-America' Holdings

NexPoint A Buy With 'Middle-America' Holdings
Benzinga's Top Upgrades, Downgrades For October 26, 2017

NexPoint Residential Trust Inc (NYSE: NXRT) is poised for solid NOI and FFO growth in the near and medium terms, on account of its value-creating renovation strategy, Canaccord Genuity’s Ryan Meliker said in a report. He initiated coverage of the company with a Buy rating and a price target of $20.

Value-Creating Strategy

NexPoint has the “right strategy in the right markets,” analyst Ryan Meliker commented, adding that it creates value while also fueling “outsized growth.” The company purchases B-quality multifamily in Southeastern and Southwestern markets across the US and has a renovation strategy that increases rents and lowers exit cap rates.

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Meliker expects the strategy to generate robust same-store NOI and FFO growth versus peers. He estimated 2016 same-store NOI growth at 15.4 percent versus the guidance across the multifamily REIT sub-sector of 6.3 percent. The 2015-2018 CAGR is estimated at 14 percent versus consensus expectations across the multifamily REIT sub-sector of 5 percent.

Stock Upside

“We estimate the remaining renovations left to be completed will increase NAV by $7.37 (in present value), highlighting our view that, even maintaining the current valuation discount, NXRT's value creation could drive just over 40% upside to the stock,” the analyst wrote.

While NexPoint’s shares trade at a discount to peers, this gap is expected to continue to narrow, “driven by outsized growth, coupled with a better understanding of the investor alignment in NXRT's external management structure,” Meliker added.

Latest Ratings for NXRT

Oct 2017FBR CapitalInitiates Coverage OnBuy
Sep 2017Janney CapitalInitiates Coverage OnNeutral
Sep 2016Compass PointInitiates Coverage onBuy

View More Analyst Ratings for NXRT
View the Latest Analyst Ratings

Posted-In: Canaccord GenuityAnalyst Color Long Ideas REIT Initiation Analyst Ratings Trading Ideas Real Estate Best of Benzinga


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