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, NREP does not undertake any obligation to publicly update or revise any forward looking statements. The 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 Paul Richards. Please go ahead, Paul.

Thank you, Kristen, and welcome everyone joining us this morning. I'm going to briefly discuss our quarterly results move to our balance sheet, and lastly, guidance for the next quarter before turning it over to Matt for detailed commentary on the portfolio and the macro lending environment. Q1 results are as follows. For the first quarter, we reported net income of $0.70 per diluted share compared to a net loss of $0.83 per diluted share for the first quarter twenty twenty four. The increase in net income for the quarter was due to an increase in interest income between the first quarter of twenty twenty five and the first quarter of twenty twenty four. Interest income increased $23,600,000 to 22,000,000 in the first quarter of twenty twenty five from a net loss of $1,600,000 in the first quarter of twenty twenty four. The increase was driven by an uptick in interest income, driven by higher rates. Interest expense decreased $700,000 in the first quarter twenty twenty five compared to the same period in the prior year from the deleveraging that occurred in the first quarter of twenty twenty four. Earnings available for distribution was $0.41 per diluted common share in Q1 compared to negative $0.46 per diluted share.

In the same period of 2024. Cash available for distribution was $0.45 per diluted common share in Q1 compared to $0.60 per diluted common share in the same period of 2024. The increase in earnings available for distribution was driven by an increase in net income for the quarter. We paid a regular dividend of $0.50 per share in the first quarter and the Board has declared a dividend of $0.50 per share payable for the second quarter of twenty twenty five. Our dividend in the first quarter was 0.9 times by cash available for distribution, Book value per share increased 1.47% from Q4 twenty twenty four to $17.22 per diluted common share. With the increase being primarily due to unrealized gain on our preferred stock investments. During the quarter, we funded $55,000,000 on a life science preferred and we purchased a $50,000,000 CMBS IO strip with a bond equivalent yield of 722%. During the first quarter, we sold 1,800,000.0 shares of our Series B cumulative redeemable preferred for net proceeds of $44,700,000 Moving to our portfolio and balance sheet. Our portfolio is comprised of 85 investments, with a total outstanding balance of 1,200,000,000.0 Our investments are allocated across the sectors as follows. 49.4% multifamily, 31.9% life sciences, 15.6% single family rental, 1.6% storage, point 9% specialty manufacturing and point 6% marina.

Our portfolio is allocated across investments as follows. 28.4% CMBS BPs, 24.7% mezzanine loans, 19% preferred equity investments, 12.9% revolving credit facilities, 10.4% senior loans, 4.2% IO strips, and 0.3% promissory notes. The assets collateralizing our investments are allocated geographically as follows. 26% Massachusetts, 16% Texas, 7% California, 6% Georgia, 5% Maryland, 4% Florida, with the remaining across states with less than 4% exposure. Reflecting our heavy preference for Sunbelt markets with the Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 75.2 stabilized with 58 point cent loan 58.7% loan to value a weighted average DSCR of 1.46 times. We have $831,500,000 of debt outstanding, Of this 433,600,000.0 or 52.1% of short term debt. Our weighted average cost of debt is 6%, has a weighted average maturity of one point two years. Our debt is collateralized by 8 and $62,800,000 of collateral with a weighted average maturity of four years. Our debt to equity ratio is 1.33 times. Moving on to guidance for the second quarter. We are guiding earnings available for distribution and cash available for distribution as follows. Earnings available for distribution of $0.43 per diluted common share at the midpoint with a range of $0.38 on the low end and $0.48 on the high end.

Cash available for distribution of $0.48 per diluted common share at the midpoint with a range of $0.43 on the low end and $0.53 on the high end. Now, I'd like to turn it over to Matt for a detailed discussion of the portfolio and markets. Thank you, Paul. And as he just mentioned, we're pleased to report another strong quarter amidst a challenging macro backdrop. I'd like to spend a few minutes this morning here discussing our verticals and what we're seeing. On the life science front, lab leasing generally continues to be challenging. Particularly given the tariff and NIH funding uncertainty under the new administration. This uncertainty has, in our view, delayed capital allocation decisions temporarily, but we do expect those decisions to eventually be made in the near term. Even amidst this uncertainty, we still see green shoots. Including at our own projects, most notably our Alewife project. The sponsor is negotiating leases now on two thirds of the project which they're optimistic will be inked in the second quarter. These leases would result in a 10 plus percent debt yield for again just two thirds of the project. We also remain bullish on CGMP and advanced manufacturing assets as the reshoring of supply chain wave accelerates.

Indeed, contrary to what has happened in the lab market, the new administration and its policies have catalyzed many high profile announcements to build manufacturing plants on US soil. Most recently by Apple, Roche, Novartis, Intel, and Lilly, to name a few. We are seeing an uptick in built to suit requirements across the board, from semiconductors, nutrition and pharmaceutical manufacturing, and expect this trend to continue over the near term. On the resi front, after a record year of absorption in 2024 six hundred and sixty seven thousand multifamily units, we saw continued strong demand in the first quarter. Nationally, over 138,000 units were absorbed, another record first quarter of lease and demand performance. There is strength across the board, even with with even Sunbelt markets capturing a vast majority of the top 10 markets for Q1 absorption. And with tepid new starts and a worsening housing affordability picture, we believe the rental resi sector has bottomed and believe there's optimism for rental growth and increased transaction volume in the coming quarters. Indeed, in our own portfolio in our own in our own owned rental portfolio, we have seen positive new lease growth across 40% of our portfolio, and that's up from just 5% in q four of twenty twenty four.

Prospective purchasers can now underwrite positive rental growth again for the first time in many quarters, which in our view will lead to increased liquidity and stable if not increasing, valuations. Again, our goal is to do as much as we can in the resi sector this year. As we said last quarter on the self storage front, we've been able to source, underwrite, and commit to four very attractive self storage development opportunities. These projects range from an 8.1% to 8.5% yield on cost are geographically diversified and sponsored by a developer that we have successfully completed over $250,000,000 of deals with. After utilizing reasonable A Note leverage, we our returns on these assets to be approximately 18 and a half percent. In addition, we're actively marketing several equity investments to monetize this quarter and hopefully throughout the rest of the year. Which would generate approximately $75,000,000 of new to relever and deploy into income producing assets. Given these assets do not earn a yield today, the potential for cat accretion resulting from our efforts quite promising. Again, we're very pleased with the quarter, the progress on the life sciences side and the backdrop for residential assets over the near and intermediate term.

We remain active and open for business across our key verticals and look forward to continued growth in the coming quarters. As always, I want to thank the team here for their hard work, and now we'd like turn the call over to the operator for questions.

At this time, if you would like to ask a question, press press followed by the number one. Your first question is from the line of Jade Rahmani with Cape KBW. Thank you very much. Can you comment as to what you're seeing on the credit [indiscernible] There was a notable credit loss provision Wondering if that pertains to specific assets [indiscernible] more broadly, have you seen any impact from macro uncertainty?

Hey, Jade. Yeah, great question. This is Paul. So, for the last quarter, we implemented a weighted average base case and downside scenario for CECL reserve. That was part of it. And then there was also a private preferred that we've had our eye on that we decided to be proactive. And apply a reserve for. So that's where you see the uptick. Overall, still, very, very low CECL reserve amongst our peers, just given our credit profile and multifamily a foreign storage and our life science. But overall, I'll let Matt speak after me, but it's been a very sturdy portfolio with we've seen great performance overall.

On the on the broader question, Jade, I think yeah, the as I said in the prepared remarks, the life science sector and other, I would say, tariff based you know, portions of the economy are seeing, I think, a temporary halt We don't expect that to continue, you know, beyond, I think, the latest resolutions are planned June or July. But there is liquidity for most assets. Or most property types, including and especially on the residential front. We've seen probably only increased interest. Tariffs aren't really pausing anything on the residential sector In fact, they're just making, you know, housing affordability decisions either be delayed causing the rental sector to be stronger. And we do really believe the this setup for for residential assets over the next, you know, two, three years is gonna be pretty special. So, yeah, short term blip, but but overall, no real impact.

And what was the breakout between the weighted average base case downside scenario and the private preferred. Was it evenly split between the two or was it more weighted to one or the other?

It was about fiftyfifty.

Okay. And then in terms of the life science, after the positive leasing momentum you cited, what what percentage leased will that project be or pre leased will it be is it a multi tenant project, or is it single tenant? Can you give any more color on that?

Yeah. It'll be two thirds leased, in the in that that income from the two you know, the those leases for the two thirds of the project would be result in a 10, almost 11% debt yield. And it's it's across two tenants.

And how much, is there left to be funded?

Left to be funded on that project.

About 40,000,000.

Okay.

That's NREP's commitment.

Yes. That's correct.

Wow. So that's that's really good news because life science leasing has been extremely weak. Including in that market. So it sounds like it's a pretty special asset.

It is. Yeah. We agree.

And then just broadly in the environment, what are you seeing in terms of interesting opportunities Are you going to be focused on the residential space doing preferreds? Or will you be ramping up CMBS B pieces? What's going be the plan going forward?

I think the latter two know, we're we're gonna participate and have been actively participating in the k deals with Freddie. And then on the some of this uncertainty and delay has caused some stretched senior opportunities in what I would describe as you know, the CFO or the multifamily pre leasing deals that have come out of the ground. They've gotten a certificate of occupancy. But they're not primed for agency financing, but they're past their bank life, so to speak. Or their construction loan life. So we think there's a lot of interesting opportunities that we're underwriting in that kind of shorter term stretch senior to get these assets stabilized and to facilitate the lease up on the resi front. We think that you can earn a two fifty to three fifty spread on those assets at a reasonable detachment point. Spending a lot of time there and hope to transact on like I said, after re leverage 150 ish million of those opportunities, along with those four developments of self storage, which will take longer to materialize, but they're still really good investments.

Thanks very much. Thanks, Joe.

At this time, there are no further questions. I will now hand the call back over to management for closing remarks.

Thank you very much. I appreciate everyone's time this morning and look forward to speaking to you next quarter. Thanks again. Goodbye.

This concludes today's call. Thank you for joining. You may now disconnect your lines.