NexPoint Real Estate Finance, Inc. Price & Performance (NREF)

The statements made during this conference call speak only as of today's date and except as required by law, InReff 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 Grayner. Please go ahead, Matt.

Thank you, Kristen.

Before we dive into our prepared remarks, I want to take a moment to congratulate first quarter of twenty twenty. Effect on 12/31/2024. Incredibly grateful for his years of dedication, the countless long days he put in, and the instrumental role he played in shaping ENDRAF 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. But at the same time, I'm pleased to officially welcome Paul Richards, as our new CFO. While most of you on the phone already know of 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 term results for InReF shareholders. With that, I'll turn the call over to Paul to walk us through our fourth quarter and full year 2024 financial results and to discuss the portfolio. Thanks, Matt. Thank you, Kristen, 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 MAC 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 twenty twenty three. The decrease in net income for the quarter [indiscernible] and a decrease in change in net assets on CMBS VIEs between the fourth quarter of twenty twenty four and the fourth quarter of twenty twenty three. Interest income decreased by 15,400,000.0 to 32,300,000.0 the fourth quarter twenty twenty four from $16,900,000 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 the same period of 2023.

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 twenty twenty five. Our dividend in the fourth quarter was 0.94x covered by cash available for distribution book value per share increased four 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, During the quarter, we funded $16,700,000 on a life science development property in Cambridge, Massachusetts and we redeemed 9,500,000.0 of mortgage backed security. 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 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 the year ended 2023, The increase in net income for the year was primarily due to an increase in net interest income.

Interest income increased by $4,200,000 $72,500,000 for the year ended 2024 from 68,400,000.0 for the year ended 2023. The increase is driven by an increase in interest income driven by higher rates. Also interest expense decreased during the year that occurred in the first quarter, Earnings available for distribution was $1.78 per diluted share year to date compared to $1.88 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%. 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% 1.5% self storage, 1.8% specialty manufacturing, lastly 60 basis points of Marina, 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, [indiscernible] 12.9% revolving credit facilities and 30 basis points promissory notes. The assets collateralizing our investments are allocated geographically as follows: 15% Texas, 25% Massachusetts, 8% California, 6% Georgia, 4% Florida, 4% Maryland, with remaining across states less than 4% exposure.

Reflecting our heavy preference for Sunbelt markets, with the Massachusetts and California exposure heavily weighted towards the life science. The collateral on our portfolio is 76.5% stabilized with a 59.2% loan to value and a weighted average DSTR of 1.32 times, 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% has a weighted average maturity of one point four years. Our debt is collateralized by $862,800,000 of collateral with a weighted average of one year. Our debt to equity ratio is 1.39 times 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 the 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 end markets. Thank you, Paul.

We continue to be pleased with our differentiated results for the quarter and 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. 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 Like the multifamily market, we expect more growth in rates in the back half of the year And here recently, we have built a quality pipeline of construction financing opportunities with attractive yields on costs and repeat sponsors from the Determine and 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 pharmaceutical manufacturing today.

We've We've liked the reshoring of supply chain story for a while now and the recent tariff threat that may have sparked billions of reshoring by Apple, Lilly and others should should exacerbate this trend going forward.

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 still have multiple accretive avenues to fund growth. Including a no warehouses and even a bond rated deal, a rated bond deal. To close, we are excited about the company's prospects in 2025 and 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 Now we'd like to turn the call over to the operator for questions.

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

Hi, good morning.

Good morning. Matt, you may have touched on this, you did talk on it a second ago with your comment 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 how accretive new investments are compared to the cost of the Series B capital as you raise more? 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 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 return. So that still remains attractive, especially given the credit profile. Of Freddie K. Deals and deals origination [indiscernible] we view is very very attractive. On the construction side, we're seeing really high quality assets [indiscernible] well heeled developers that we can do a 60% loan to cost 300 to 400 spread, and then we have accretive A and O lenders at the same time. So that capital takes longer to put out but we do have some attractive A Note opportunities against the Series B that we would use to fund. So like both of those those investments. [indiscernible] 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 the metrics that you release in your public filings? Yes. It's a good question. Two main life science investments. Let me start with the Massachusetts loan in ALY, 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 and just the 80s for that deal would be 30 plus percent More importantly though, we've the buildings [indiscernible] that development has has three buildings, 395,000 square feet today, all of them are topped out, skinned and amenities and inspect suites are going in. There's like I said in the prepared comments of flurry activity and that has asset in particular. And most importantly, I have a bid for that loan, Farris South of where where we have or where our interest rate is. And so for plus 900. So feel really good about that exposure. 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 detachment points in the I'd say 40% to 50% range, somewhere in the avenue of 800 to $9 a foot detachment point where these assets are $1,600 $1,700 $1,800 a foot to build and these assets [indiscernible] what we're doing there is is pretty smart and I think we'll be proven right.

And finally, update on loan performance. Any delinquent or defaulted loans or any watch list loans? I know you guys have very few of those, if any, historically curious for updated year end. Yes. 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 Freight K deals, we call them bulletproof paper, but we have our eye on a few watch list loans In terms of a few craft 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 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 Great. Appreciate the comments this morning. Thank you.

Thanks, Steven.

Your next question comes from the line of Jade Rahmani with KeyBanc Capital Markets.

Please go ahead. 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 Yes, we expect to have for 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 twenty five fifty thousand square foot chunks, but there is a couple of larger requirements in the 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. So I would expect by then we'll have some pretty good traction and some good news to report.

And just to clarify, is it a spec development?

Yes. It is spec 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 and spec development. 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.

A couple of things because most of the the literature written as far as supplies 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 you're referring to. Of like 16,000,000 square feet of new supply coming online. But the reality is in the core kind of three markets where you want to be, there's 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 and tours for this facility in particular, 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 And who's the bid for the loan from? I mean, you don't have to name who, of course, but the type of type of entity, is that private credit like a debt fund or some other entity of that kind?

It's a strategic 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 WAS list right now.

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

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

Overall, the delinquency rate is certainly 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 Okay.

That's great. Thanks so much. Thanks, Sharon. Will now turn the call back to the management team.

For closing remarks.

Yes. Thank you very much for dialing in and appreciate the second quarter and or the first quarter results here in a few months.

Thank you very much.

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