Earnings call transcript Q1 2023

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Operator

Good morning. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Real Estate Finance Quarter One 2023 Conference Call. Today’s conference is being recorded. [Operator Instructions] Kristen Thomas, you may begin your conference.

Kristen Thomas

you. Thank and the Real first company’s March XXXX. everyone, call Finance quarter to XX, review to results welcome day, Estate NexPoint conference ended Good for the

and are President President, Vice Chief Originations Richards, and Investment Senior Executive On Asset McGraner, Goetz, and Brian Matt and President, call Officer; Matt investments. today Vice the Vice President Vice Chief Officer; Management; Financial Executive Paul Mitts, Investment and

this call at is being the through website reminder, webcast invest.nexpoint.com. company’s a As

discussion company’s like of to contains that would The that everyone filings during of that more and SEC and the speak forward-looking Form XX-K Before annual management’s assumptions beliefs. of call I current any should we and on Securities XXXX only the any complete remind this conference a Act today’s reliance statements financial company’s as call date, undertake forward-looking does also statements. forward-looking not This risks meaning the as or to not an forward-looking begin, publicly factors expectations, law, with encouraged for are place other based are of statements on conference update the within statements Litigation includes report analysis undue and affect NREF the except call required revise conference of other on Listeners by measures. any this review the made could and obligation Private Reform statements. non-GAAP to

For earlier the today. these a company’s presentation financial complete more tent was filed of that non-GAAP see measures,

Brian. over Mitts. to call go to ahead, now like would I Brian turn the Please

Brian Mitts

the did lending see in we’re things and our over for I the the of by us Kristen. world some everyone of the about briefly things quarter, that, the into environment. for going we for will in team and in the for seeing the and quarter, guidance go joining you then QX today. then I’ll Thank you to you and get started results today some it turn through talk Thank what

So starting with results. QX

$X.XX first prepayments – ‘XX. $X.XX the For first lower of compared share diluted year-over-year per income of net QX net quarter of for of in per to $X.XX result a share in as the diluted net quarter, we XXXX. Decrease income reported income

If prepayments first had first $X.XX distribution quarter. in quite to a in share we you year, quarter share was in particularly compared the recall, in available last per few XXXX. Earnings diluted per the same $X.XX period the diluted for

Again, of QX each diluted dividend first quarter, The result same $X.XX in dividend a quarter. for declared share a also to Cash the available in and $X.XX $X.XXX $X.XX declare the net lower paid for were income, quarter cash of share the earnings the $X.XX for available year. per Board distribution this has special period of in Board dividends intend quarter to a per for for of and as was XXXX. this share compared special and $X.XXX of prepayments share dividend payable remainder in we per as in of the quarter, second We for first per the again year. year-over-year has with diluted second for a share the per lower distribution available of distribution declared

is cash available quarter in dividend for distribution. by Our distribution for available first by and covered the X.Xx X.XXx covered earnings

the on $XX.XX adjustments and to Book value special due mark-to-market our share, per share per decreased to common stock investments. dividend diluted primarily X.X% quarter-over-quarter

of combined the current with yield During million XX.X%. principal originated $XX.X outstanding investments with X quarter, a we of

for to During that had one the quarter, we investment redeem $XX.X redeemed $XX.X and million for partially of principal another investment outstanding million. fully

end with – per for guidance distribution available high guiding available to $X.XX of on for of the diluted Decrease range multifamily flow diluted the distribution and distribution on gain for distribution, guiding the $X.XX in next Cash $X.XX $X.XX distribution. deconsolidation for the move end low the share driven again, $X.XX and by midpoint earnings for midpoint the is for is for – for $X.XX property quarter we’re of low and now Earnings available we’re or to on from cash on the the range consolidated by then available and end. to a share me at first XXXX. that on let high at end. So the cash for with distribution per earnings driven we a available the quarter, onetime sorry, of the primarily

So team for commentary. with it additional I’ll to the that, over turn

Matt Goetz

Thanks, Brian.

multifamily, to $X.X billion continued coverage single-family is portfolio of composed service in by CMBS. loan average principal. XX.X% investments invested loan total Loan is remaining outstanding X.Xx. currently of is the an average term XX% XX% The XX rental self-storage. and quarter, loan-to-value with weighted primarily individual the of the is X% sciences debt via collateralized residential investment is of stabilized XX% ratio XX% life perform agency strongly and a as remaining in portfolio’s The and average approximately book and of During years loans with portfolio X.X

Southeast is Georgia a Florida Texas, basis. portfolio exposure for with and Southwest diverse a The combined geographically geographic approximately our XX% on and bias towards the of markets,

build-to-rent current investments of combined As $XX.X with partially investment principal $XX.X million we of of $XX.X Brian a million The redeemed Forney, Texas One the Dallas, million $XX investment of equity a X with and with repeat mentioned, the X well-heeled in principal million. suburb preferred during one new yield consisted quarter, investments from portfolio for XX.X%. a outstanding redeemed in sponsor. originated investment outstanding fully of

XX%. rate fixed The of return preferred a has of

by project was for rate Richmond, an We follow-on management a investment on average portfolio build-to-rent equity the rate is for of fixed $X.X of another return the and a upside. of rate with additional is Houston, a and common also for owned preferred XX%. made XX%. million Two Virginia. of follow-on country. equity located life XX% million sciences $XX.X in located Sam with additional and fixed One repeat $XXX,XXX into million upside. has a made invested have also were units investment investment sponsor of in sponsor across XX,XXX under made of a An has in $X.X return The included Texas for The the preferred property $XXX,XXX common investments was total return of and multifamily fixed

a We sponsor. preferred $XX maturity in of investment quarter XX.X%. also X a consisted investment redemption made equity purchased of The the stabilized full years yield $XX.X million a into floating Las of million approximately quarter located until amount with a a equity of in or rate mezzanine in million. of rate Angeles, fixed BP Vegas, of the return project a preferred the of has $XX outstanding mixed-use in to with partial left redemption CGMP current $XX.X California Los the XX%. we preferred After on for a The with repeat Temecula, equity located approximately property ended, a redemptions million principal and California Nevada, of an facility multifamily balance X and

to now the find we asset opportunities call with value I throughout to Paul over attractive summary, Richards. delivering classes, opportunities like goal and continue and investment In markets target the to our shareholders. of to continue hand would evaluate our to we’ll these

Paul Richards

Matt. Thanks,

X.X%. and agency the during by underwrite CMBS first acquire We’ve discussed, attractive stressed splitter, seasoned company providing source, a portfolio BP able rates entire previously again quarter, was shocking last to SOFR to yields very yield As declined a the half close the value interest plus $XXX implied value marks $XXX to of how million the market as represents at determine have a in book difference equal value. far would between decline and night. fall and the market of million of our

great types these experienced almost the doubling of decline by than residential to multifamily on is of current The safety the which the crisis. and firmly investments sales inflationary stress test be performance equivalent was and in yields the underlying verticals. in the value to implied any over in would fueled plus approximately as family XX% believe of and realized decrease a property CMBS the resiliency worse a in or environment of values These XX% financial We real what evidenced a space the to impairment. result recognize these the portfolio par XX%, losses during in

continue our continuous quarter and We of finance at on the the state our be approximately end to XX% with partners and financing a portfolio. levered lending on market repo prudently repo dialogue the LTV at

continued Lastly, performance loan SFR our of the touching on pool.

DSCRs Our the not did SFR loans growth as currently to strong demand performing NOI the portfolio during in show for SFR continues the SFR displaying and portfolio paydown first quarter. The are strength. have great an

to it for over remarks finalize like McGraner. I’d Matt it questions, our To over turn to we before turn prepared

Matt McGraner

backed for distribution REIT our property and Thank in storage was designed it to types, life cash outperform base in of NREF’s doing our Paul. quality produce SFR stable the continue earnings by a resilient providing business consistent Underlying yields stabilized assets embedded highest science stream for other to sector. do, and you, is collateral, what multi investors durable mortgage commercial flow a exactly investors. to namely our the NOIs

loans to investments pleased CECL residential about and CGMP for you not of quality morning be watch to We’re other dividends, unrivaled quality and special this lists. and speaking and originations reserves credit office

source high-quality in we double-digit and I and On origination mezz opportunities for to the into capital robust the quarters. front, want the expect and continue have sectors the low SFR CGMP thank these to to yielding recycle a to in team preferred and continuing of monitor investments. investments coming pipeline

the turn the to call to questions. like we’d that, with for over operator And

Operator

line the Love from of from Piper Crispin comes question first Your Instructions] [Operator Sandler.

line is open. Your

Crispin Love

morning, And everyone. good Thanks.

credit Just made, be caution a some on to the first to of properties the just I NREF on in off industry related that your in Recently, an on but defaults looking you more not comments multifamily credit but just news, others. with little bit Paul, I’m And broadly there the appreciate for update just seems quality. outlook.

especially thoughts next your continue of where in could multifamily environment quarters So loans just over be default have curious few or kind current of you we and headed as the on the SFR, no forbearance? credit in to on and kind

Matt McGraner

Matt yes. McGraner. it’s I’d say Chris,

quality that to of something caps, to vintage and coverage a CRE well that in you’re going Walker or were deals the extended I plus mentioned, think, Dunlop a – fine. like like XXXX, a like are fund XXXX CD covering of refinance positive I a at X.X As or we like portfolio be CRE caps, or producing debt in CLOs NOIs, struck Most are least vanilla valuation those, low by said, Where have or underlying CLO caps at that’s largely scenario. are X.X X conjunction Freddie. that, problems, sort and a or debt with a see the just servicer our X from underwriting fund. ratio plus I seeing service cash of that a are NOI, Most to multifamily & our still a sophisticated underwritten the are debt

we So assets. exposure any type don’t to those have of

underwrite to elsewhere Freddie continue source will that we where leave Paul, and one on on side is struck the position the the to to problems add have just the do think you those SFR? deals. I So K anything those

Paul Richards

plan. No, same

Crispin Love

have there. this the in that. investment XX-K. on then sounds think that missed the the I prepared to that deconsolidate material update triggered Thanks, helpful just I were the an And remarks, you weakness might Vegas multifamily able It like but Las in

I into bit deeper Can think gain? event? I that heard was in dig that one-time you there gain. a quarter little that first a Was mention that quarter? just second Is one-time the you a

Brian Mitts

Yes, it’s Brian.

So issue a the is recorded we which It’s all the intent investment. now investment, along. the correct did with preferred

auditors there through deconsolidating the the in closely happened first that. that And we’re obviously was quarter. so gain a But in process. with that And

something expect don’t in and make to also material the issues closely taking other any measures happen that expect then the and with And this I from which to so like to that them we sure remediate weakness, Board year more avoid that working obviously future. that,

Crispin Love

Thanks, was that Alright. And how Brian. large gain?

Paul Richards

million. $X.X

Brian Mitts

million. $X.X

Crispin Love

questions. Thank it. Appreciate taking my much you for so

Brian Mitts

Sure.

Operator

Your of the from next Laws question James. Stephen from comes line Raymond

open. Your line is

Stephen Laws

Hi, good morning.

investment netting then, a to of growth how new than And from investment standpoint But investments seeing guys prep is opportunity pipeline, are the of do maybe you but peers, about than have your talk most assigned. recent many narrow much range flexibility CRE little best to where focus broader mortgage the the know out, through of a You more work? can your a a REITs. you’re appetite new new of activity and we I think do Kind other And all flat? appetite investment of couple for or of your investments, standpoint that sort of Matt, ran for to kind from do is net a but redemptions a investments? net about what put couple money you maybe property

Matt McGraner

Yes, Steve, morning. good

a focus especially makes really will I continue The in anywhere, right the for space, to And lack bank just think is specialty in other because this wave sector. environment, and coming lack with the with to work manufacturing of of opportunity. attractive pharmaceutical a opportunistic activity an tremendous coupled even manufacturing, put there the general primary reshoring money it verticals. back, of liquidity now to is our CGMP the focus non-bank time in normalized in pretty us banking be a

of lot that gain, source those a Freddie users and CDMOs Spread will try love spending think And it’s we’re to non-bank. space to with time continue leasebacks So it. understand on sale continue provide and to we opportunities an – we will and source K, I we investments. attractive of from

some Paul asset unlevered a the yield in as great Xx You’re credit mentioned, cases, earning and position.

will be I spaces for mean, continue think those two me I So to attractive.

Stephen Laws

– quickly touch on Great. loss. wanted unrealized the Thanks. Brian, And ask I to

from have mainly common for unrealized the you a related think security remarks, mark that? stock, I do your in breakout was mentioned it was but to the what versus on common prepared you

Brian Mitts

to that? have you the on frank get we Steve. on that, back to Yes, Do details

Stephen Laws

allocated at common think ones, about expectations debt And ones are flow relate Follow-up there. versus two stock you to that your kind talk the capital investments, recently you cash outlook? what can guess But investment? When and allocation monetization about and you talked look the about. bigger capital how the of pref-equity I return you small the to

Matt McGraner

big the and Matt. mean I ones, Yes. it’s Steve,

ton lease investments, exposure out assets The the view, portfolio in in quality investment to Miami. and NexPoint a of Storage portfolios GLR, a there, of Partners one in take Florida, – reverse ground storage is them storage kind the highest Our our lot the or order. storage of

largest fact, the In owner in self-storage might we I Miami be think now.

like So, long-term. investment that we

not because get it’s deal. monetize the that we think that the to some of values I the life time albeit right and one from of lack addressing recent liquidity, EXR

we from GLR time I that When to it’s it’s share like right book – share is said, good also equity I more So, investment we to one. value are gains accretion. the we attractive just value that’s investment, $X but monetize Obviously, that another a it’s $X $X bond-like investment. do, of a looking feel at and The it. a investment, book not think really or have but about of also, think I $X

two these a when like this total our for return obviously, think differentiate a book we We think from monetize together $X can So, of we portfolio yield. get I the aspects, just that these investments accretion. steady $X share investments that value or

Stephen Laws

color on that. for the for time. your Thanks Thanks

Brian Mitts

You bet.

Operator

next from comes Jade from Your question the of line Rahmani KBW.

Your line is open.

Jade Rahmani

Thanks very much.

a So, on as follow-up the it credit stands today, question.

pressure just You deals on many the magnitude seeing, going that default are pressures. any by with necessity we increases that rate be it are expecting not meeting of there rate interest performance. I seems deterioration caps are eventually the mean to multifamily of

So, what are expectations? your

Matt McGraner

can a investments underlying deal, a multifamily a Matt it’s not McGraner our We – to in over and of don’t is investments. Yes. any at those are in or investment our equity that a have think structure case our credit space management there is of we experience underwritten Jade, aware basis operating the multifamily any our again. and we that underwritten the we prudently. of that or default, preferred in take in very extent have and issues partnerships And given preferred position such their

the that issues you quality recap to So, that of But over there I those it again, well And extent for Paul, will with equity are extent the issues. are the there some are issues. we the that deals repeat all them have were kick then there sponsors, sponsors to no performing were securitization. could to

Paul Richards

rate originated deals investments, back debt. type rate the ‘XX, ‘XX, in fixed also in X%, all rental all of too, family X% where struck Yes. back those were And fixed single

those growing NOI been So, DSCRs has are as aspects. great those growth on for investments specific well.

securitizations increasing. isn’t in floaters and people getting SFR of seen we are [ph] ‘XX, stress side. going the anywhere float, where ‘XX, still our consist were on as terms there haven’t much the caps, and new stress of And the So, as up, performing, DSCRs or both ‘XX, are BPs finishes fixed far much etcetera, go, fairly from ‘XX,

securitization really feels good So, throughout performance as like well. it the book

Brian Mitts

Yes. public the would and I multifamily thing give question update earlier. it’s one And to an positive. REIT been world reported is pretty on I and of then far, thus will Stephen’s add Most

the is expected they question I to low not NSP platform well are that performing and or SFR to recent that CMBS industry think the report was And down of we just were I million, So the was was is remainder $XXX,XXX obviously, GLR the public of the multifamily apples-to-apples, Stephen, have some pretty loss sponsors still compared that the your then to think kind it’s when pretty work sector similar levered down fundamentally, $X the book. with the CapStack, in shown they answer markets. of directly, in storage results from overall.

Jade Rahmani

if On the question, I follow-up can ask.

Matt McGraner

Yes, Jade. go ahead,

Jade Rahmani

debt what know side? Mac Freddie is the BP on you coverage Do the service ratio

Matt McGraner

portfolio entire And it wrong number. technology the is to is Freddie Our side, from Mac on X.X%.

on combined follow-up aggregate we to exact internal the by get back will our because it notes, can pool and we that so and down you. We break loan

Jade Rahmani

Third and percentage you slide, rate rate floating caps? debt do know deals the of have interest what

Matt McGraner

some that sort because And roughly are of now, that of all right would some X-year ‘XX, for course, are have X-year, and ‘XX, the we some are usually caps. are have floaters and are securitization So, four some would in of B-pieces those the caps ‘XX, vintages differ cap.

at times. different come they up So,

of casting it’s be when replaced. steady a those So, of more wave

Matt Goetz

Hey is Jade. Goetz. This

super rate of unless or all floating it’s leverage. those caps required Freddie debt So, purchase any borrowers low to

Jade Rahmani

that? but and floating rate what know the have side, preferred have floating percent interest and – percentage you not not done, multifamily So, debt underlying on the deals preferred do preferred, caps the of the what what side, BP you the

Matt Goetz

Yes.

preferred on not have prefs of have They that done. deals floating done them. rate All have we the been may

Jade Rahmani

to was the it’s floating? of I going say, debt most underlying

Matt Goetz

and majority it’s to exact find have I floating. the go I say would breakout. probably

you. get we to So, back can

Jade Rahmani

taking Alright. questions. the Thanks for

Matt McGraner

answer of Jade, And it’s to the X.Xx. your what DSCR question is the floating rate about securitization,

Jade Rahmani

Good. Great. coverage. That’s Okay. good

for thanks that. So,

Matt McGraner

course. Of

Operator

turn I are questions this Instructions] further Mr. Mitts, over you. at will the no to Brian [Operator There back time. call

Brian Mitts

Yes. Thanks.

one XX% Just stock versus we look the mentioned where fundamentals go. the underlying want portfolio, trading I including to test of mention if dividends. the did the think to had And almost before thing at sort the we is internally. not you yield, stress Paul the of highlight special

think see this quarter that Hopefully, have investors of strong that we sort said from and it’s guidance next and everyone’s the value. value for time pretty will Having and questions. and participation proposition. I appreciate results issued I see see a the that in quarter that,

get some information here. that with quarter. back you thank you that We and to will we see of couldn’t next on that, you answer we But will

Operator

conference concludes This today’s call.

You now disconnect. may

NexPoint Real Estate Finance (NREF) 27 Apr 232023 Q1 Earnings call transcript