NexPoint Real Estate Finance Q4 2024 Earnings Report

NexPoint Real Estate Finance EPS Results

• Actual EPS: $0.79
• Consensus EPS: $0.77
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

NexPoint Real Estate Finance Revenue Results

• Actual Revenue: $21.69 million
• Expected Revenue: $11.38 million
• Beat/Miss: Beat by +$10.31 million
• YoY Revenue Growth: N/A

NexPoint Real Estate Finance Announcement Details

• Quarter: Q4 2024
• Date: 2/27/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 27, 2025
• Conference Call Time: 11:00AM ET

NexPoint Real Estate Finance (NYSE:NREF) operates as a commercial mortgage real estate investment trust in the United States. It focuses on originating, structuring, and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties, and common equity investments, as well as multifamily and single-family rental commercial mortgage-backed securities securitizations, multifamily structured credit risk notes, and mortgage-backed securities or target assets. The company has elected to be taxed as a real estate investment trust (REIT) and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. NexPoint Real Estate Finance, Inc. was incorporated in 2019 and is based in Dallas, Texas.

NexPoint Real Estate Finance Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Real Estate Finance Q4 twenty twenty four Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. I would now like to turn the call over to Kristin Griffith, Investor Relations. Please go ahead.

[Kristen Griffith, Investor Relations at NexPoint Residential Trust]

Thank you. Good day, everyone, and welcome to NexPoint Real Estate Finance conference call to review the company's results for the fourth quarter ended 12/31/2024. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer and Matt McGranger, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at inrep.nextpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs.

[Kristen Griffith, Investor Relations at NexPoint Residential Trust]

Listeners should not place undue reliance on any forward looking statements and are encouraged to review the company's annual report on Form 10 ks and the company's other filings with the SEC for a more complete discussion of risk and other factors that could affect forward looking statements. The statements made during this conference call speak only as of today's date and except as required by law, NREPP does not undertake any obligation to publicly update or revise any forward looking statements. This conference call also includes an analysis of non GAAP financial measures. For a more complete discussion of these non GAAP financial measures, see the company's presentation that was filed earlier today. I would now like to turn the call over to Matt Negreiner.

[Kristen Griffith, Investor Relations at NexPoint Residential Trust]

Please go ahead, Matt.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Thank you, Kristin. And before we dive into our prepared remarks, I want to take a moment to congratulate Brian Mitts on his well earned retirement, which officially took effect on 12/31/2024. We're incredibly grateful for his years of dedication, the countless long days he put in and the instrumental role he played in shaping NREF into what it is today. While Brian has stepped back from the day to day operations, we're fortunate that he remains a valued member of our board, continuing to provide guidance and insight as we move forward. And at the same time, I'm pleased to officially welcome Paul Richards as our new CFO.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

While most of you on the phone already know his capabilities, having worked closely with Brian and me for over a decade, Paul deeply understands our strategy and our approach to execution. He is a strong leader and I have full confidence in his ability to continue to drive sector leading long term results for NREF shareholders. With that, I'll turn the call over to Paul to walk us through our fourth quarter and full year twenty twenty four financial results and to discuss the portfolio.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Thanks, Matt. Thank you, Kristin, and welcome to everyone joining us this morning. I'm going to briefly discuss our quarterly and year to date results, move to our balance sheet and lastly provide guidance for the next quarter before turning it over to Matt for a detailed commentary on the portfolio and the macro lending environment. Q4 results are as follows. For the fourth quarter, we reported net income of $0.43 per diluted share compared to net income of $0.73 per diluted share for the fourth quarter of twenty twenty three.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

The decrease in net income for the quarter was due to unrealized loss on our common stock investments and a decrease in change in net assets on CMBS VIEs between the fourth quarter twenty twenty four and the fourth quarter of twenty twenty three. Interest income decreased by $15,400,000 to $32,300,000 in the fourth quarter twenty twenty four from $16,900,000 in the fourth quarter twenty twenty three. The increase was driven by an increase in interest income driven by higher rates. Interest expense decreased $2,500,000 in the fourth quarter twenty twenty four compared to the same period in the prior year from the deleveraging that occurred in the first quarter of this year. Earnings available for distribution were $0.83 per diluted common share in Q4 compared to $0.44 per diluted common share in the same period of 2023.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Cash available for distribution was $0.47 per diluted common share in Q4 compared to $0.51 per diluted common share in the same period of 2023. The increase in earnings available for distribution was driven by the increase in net income for the quarter. We paid a regular dividend of $0.5 per share in the fourth quarter and the Board has declared a dividend of $0.5 per share payable for the first quarter of twenty twenty five. Our dividend in the fourth quarter was 0.94 times covered by cash available for distribution. Book value per share increased full basis points from Q3 twenty twenty four to $16.97 per diluted common share with the increase being primarily due to unrealized gain on our preferred stock investments.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

During the quarter, we funded $16,700,000 on a life science development property in Cambridge, Massachusetts and we redeemed $9,500,000 of mortgage backed securities. During the fourth quarter, we sold 1,700,000.0 shares of our Series B cumulative redeemable preferred for net proceeds of 38,800,000.0. Full year results are as follows. For the full year 2024, we reported net income of $1.02 per diluted share compared to net income of $0.6 per diluted share for the year ended 2023. The increase in net income for the year was primarily due to an increase in net interest income.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Interest income increased by 4,200,000.0, 70 2 point 5 million for the year ended 2024 from 68,400,000.0 for the year ended 2023. The increase was driven by an increase in interest income driven by higher rates. Also interest expense decreased during the year from the deleveraging event that occurred in the first quarter. Earnings available for distribution was $1.78 per diluted share year to date compared to $1.88 per diluted share in the same period of 2023, for a decrease of 5.3%. Cash available for distribution was $2.42 per diluted share year to date, compared to $2.05 per diluted share in the same period of 2023 for an increase of 18.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Moving to the portfolio and balance sheet. Our portfolio is comprised of 83 investments with an outstanding balance of $1,200,000,000 Our investments are allocated across sectors as follows: 15.5% single family rental, 49.7% multifamily, 31% life sciences, one point five % self storage, 1.8% specialty manufacturing and lastly, 60 basis points of Mirena. Our fixed income portfolio is allocated across investments as follows: 10.5% senior loans, 29.3% CMBS B pieces, 19.5% preferred equity investments, 23.7% mezzanine loans, 3.9% IO strips, 12.9% revolving credit facilities and 30 basis points promissory notes. The assets collateralizing our investments are allocated geographically as follows: 15% Texas, twenty five % Massachusetts, eight % California, six % Georgia, four % Florida, four % Maryland, with remaining across states less than 4% exposure, reflecting our heavy preference for some belt markets with the Massachusetts and California exposure heavily weighted towards a life science. The collateral on our portfolio is 76.5% stabilized with a 59.2% loan to value and a weighted average DSCR of 1.32 times.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

We have $799,300,000 of debt outstanding. Of this, $400,900,000 or 50.2% is short term. Our weighted average cost of debt is 6% and has a weighted average maturity of one point four years. Our debt is collateralized by $862,800,000 of collateral with a weighted average maturity of one year. Our debt to equity ratio is 1.39 times.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Guidance. Moving to guidance for the first quarter, we are guiding to earnings available for distribution and cash available for distribution as follows. Earnings available for distribution of $0.45 per diluted common share at the midpoint with a range of 0.4 on the low end and $0.5 on the high end. Cash available for distribution of $0.5 per diluted common share at the midpoint with a range of $0.45 on the low end and $0.55 on the high end. Now I'd like to turn it over to Matt for a detailed discussion of the portfolio and markets.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Thank you, Paul. We continue to be pleased with our differentiated results for the quarter and in a year in which there were many challenges in the commercial real estate sector. Our underlying credit profile of the portfolio remains very strong and there is reason for more growth and optimism in 2025. For one, multifamily fundamentals continue to improve. Most industry participants, including us, are expecting an inflection as supply continues to wane.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Q4 starts were just 37,000 units for the quarter, the lowest level since Q4 of twenty eleven. We're expecting new lease growth to turn positive in the second half of the year, which should drive more transaction activity, liquidity and opportunity to put capital to work. Indeed, you will likely see growth in our multifamily portfolio in the next couple of quarters across construction financing, Freddie K deals and high quality mezz opportunities. Our storage exposure also remains very compelling with same store NOIs flat to slightly positive. Like the multifamily market, we expect more growth in rates in the back half of the year.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

And here recently, we have built a quality pipeline of construction financing opportunities with attractive yields on costs and repeat sponsors from the Jernigan capital days. We expect these opportunities to reach approximately $75,000,000 over the next couple of quarters. Life science tour activity and capital planning have also picked up, and we're seeing a flurry of activity recently, especially on the advanced manufacturing and GMP sides. We are actively underwriting $300,000,000 of opportunities across infrastructure and pharmaceutical manufacturing today. We've liked the reshoring of supply chain story for a while now and the recent tariff threats that may have sparked billions of reshoring by Apple, Lilly and others should exacerbate this trend going forward.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Finally, we're pleased with the capital options available to us to fund this growth. With where we are in the balance sheet and the success we're having with the Series B rates, we have we still have multiple accretive avenues to fund growth, including a note warehouses and even a bond rated deal a rated bond deal. To close, we are excited about the company's prospects in 2025 and the continued stability of our portfolio and, of course, the opportunity to go on offense in this environment. As always, I want to thank the team here for their hard work. And now we'd like to turn the call over to the operator for questions.

[Operator]

Your first question comes from the line of Stephen Laws with Raymond James. Please go ahead.

[Stephen Laws, Managing Director at Raymond James Financial]

Hi, good morning.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Good morning.

[Stephen Laws, Managing Director at Raymond James Financial]

Matt, you may have touched on this. You did touch on it a second ago with your comment on, you said construction, Freddie K are likely to be kind of new investments near term. Can you talk about the returns you're seeing on those new investments, how that compares to other things in your pipeline? And how you think about the how accretive new investments are compared to the cost of the Series B capital as you raise more?

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Yes, it's a good question. On the Freddie K, we're hearing from Freddie we're most likely going to get a five year fixed deal here in the second quarter, be anywhere from $30,000,000 to $50,000,000 in gross value. We would plan to lightly repo that, expect the yields to be in the 8% to 9% range. So getting with a little bit of accretive leverage more kind of low to mid teens type of returns. So that still remains attractive, especially given the credit profile of Freddie K deals and deals originated in 2025.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

So the risk reward there, we view as very attractive. On the construction side, we're seeing really high quality assets and developments with well heeled developers that we can do a 60% loan to cost, 300 to 400 spread, and then we have accretive A note lenders at the same time. So that capital takes longer to put out, but we do have some attractive A note opportunities against Series B that we would use to fund. So I like both of those investments.

[Stephen Laws, Managing Director at Raymond James Financial]

Great. And then can you touch maybe a little bit on the life sciences investments and performance there? I mean, any key metrics or attachment points, performance, that's grown materially over the past year as a percentage or your mix of the portfolio. What's the best way for us to monitor that as we look at the metrics that you release in your public filings?

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Yes, it's a good question. Yes, it's chunky in terms of the two main life science investments. Let me start with the Massachusetts loan in Alewife. It's a $220,000,000 commitment, of which we funded roughly $175,000,000 The detachment point on a loan to cost basis for that asset is roughly 25% loan to cost. Stabilized debt yield for rents in just the 80s for that deal would be 30 plus percent.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

More importantly though, we've the buildings or the that development has three buildings, 395,000 square feet today. All of them are topped out skinned and amenities and spec suites are going in. There's, like I said in the prepared comments, a flurry activity on that asset in particular. And most importantly, I have a bid for that loan far south of where we have or where our interest rate is. It's over plus $900,000,000 So, feel really good about that exposure.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

And then across the rest of the loan portfolio, we really haven't seen the type of leasing activity in quite some time in the past eighteen months or so. That the remainder of the facility are kind of detached with points in the, I'd say, 40% to 50% range, somewhere in the avenue of $800 to $900 a foot, detachment point where these assets are $1,600 17 hundred dollars 18 hundred dollars a foot to build and these assets are first to fill. So really think that what we're doing there is pretty smart and I think will be proven right.

[Stephen Laws, Managing Director at Raymond James Financial]

Great. And finally, update on loan performance, any delinquent or defaulted loans or any watchlist loans? I know you guys have very few of those, if any, historically curious for update at your end.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Yeah. Hey, Steve. This is Paul. We have a few in our CMBS portfolio that we're keeping an eye on. But as you know, with these Freddie K deals, we call them bulletproof paper, but we have our eye on a few watch list loans.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

In terms of a few prep deals, there's refinancing activity for one of these package deals that we have in our backyard and we're giving time for one of the sponsors to go through a refinancing. And so we expect that refinancing to happen, I would say Q2, maybe Q3, but I think it's probably going to be a Q2 event on a refinancing for a few of those prep deals. But overall, extremely strong portfolio performance and extremely happy with the results.

[Stephen Laws, Managing Director at Raymond James Financial]

Great. Appreciate the comments this morning. Thank you.

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Thanks, David.

[Operator]

Your next question comes from the line of Jade Rahmani with KBW. Please go ahead.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thank you. On the Cambridge deal, is that purely spec since it's so large wondering if there's an anchor tenant or any initial leasing? When do you expect to be able to provide an update as to how that's going?

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Yes. We expect to have or the developer expects to have the CFO in Q3. There is pre leasing activity right now. Like I said, I think I mentioned upwards of 300,000 square feet on a total build of 395,000 square feet. The developer is seeing both 25,000 to 50,000 square foot chunks, but there is a couple of larger requirements in the West And East Cambridge areas floating around right now that are actively touring the asset and are looking for a Q3 or Q4 Q3 or Q4 move in.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

So I would expect by then we'll have some pretty good traction and some good news to report.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

And just to clarify, is it a spec development?

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Yes, it is spec.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Because all the data from the brokerage firms and also some of the mortgage REITs that have life science exposure has not been good in terms of leasing. I mean, I think in aggregate, the sector seems to be entering the beginnings of stabilization. VC funding is picking up and you're seeing some of the large pharma companies make some leasing decisions. But by and large, we're still missing a lot of the nascent players in the space that drove some of the leasing in spec development.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

So I guess, what gives you confidence that this asset in particular will be able to buck the trend of oversupply that we're seeing?

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

A couple of takes because most of the literature written as far as supply is wrong. I think ARE put out the true competitive supply to a new purpose built life science facility. In Boston, I think you would hear quotes and maybe this is what we're referring to of like 16,000,000 square feet of new supply coming online. The reality is in the core kind of three markets where you want to be, There's less than $2,000,000 and probably 50% of that isn't going to be delivered. At the same time, you're having, and I'm seeing it, multiple requirements in tours for this facility in particular.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

And then notwithstanding any of the first two reasons that I think will be successful. Again, I have a bid for the loan and we're 25% loan to cost, which is less than land value and across 27.5 acres in Cambridge. So pretty comfortable.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

And who's the bid for the loan from? I mean, you don't have to name who, of course, but the type of entity, is that private credit, like a debt fund or some other entity of that kind?

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

It's a strategic REIT.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Got it. And then the language that says no you always say no loans in forbearance. I guess that's not true because of Paul's comments that there's a couple of deals on the watch list right now?

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Yes. It's not necessarily they're on the watch list. It's the borrower is refinancing into a, into a recap loan and we're just giving him a ninety day period in which we'll pick the interest so he can, you know, so he doesn't have to pay a current so we can get paid off.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Do you happen to know what the delinquency rate is in the Freddie Mac K Series portfolio?

[Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust]

Overall, the delinquency rate is extremely small. Off the top of my head, I couldn't tell you, but I'll tell you that there's probably out of the seven B pieces that we have or eight B pieces, there's maybe two loans that are thirty days or sixty days delinquent. So it's extremely small subset.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. That's great. Thanks so much.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Thanks, Jared.

[Operator]

I will now turn the call back to the management team for closing remarks.

[Matt McGraner, EVP and CIO at NexPoint Real Estate Finance]

Yes. Thank you very much for dialing in and appreciate the opportunity to report our results. I'm looking forward to the second quarter and or the first quarter results here in a few months. Thank you very much.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you and have a great day.

Participants

Executives

• Matt McGraner, EVP and CIO

Analysts

• Kristen Griffith, Investor Relations at NexPoint Residential Trust
• Paul Richards, CFO, Executive VP-Finance, Treasurer and Assistant Secretary at NexPoint Residential Trust
• Stephen Laws, Managing Director at Raymond James Financial
• Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)