Earnings call transcript Q2 2023

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Operator

Hello and welcome to NexPoint Real Estate Finance Q2 2023 Conference 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 Instructions]

I will now turn the conference over to Kristen Thomas. ahead. go Please

Kristen Thomas

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

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

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

I to Private the XXXX like that Reform current conference begin, and everyone we within Before expectations, of statements call would beliefs. management’s meaning this remind that based Act contains Securities on forward-looking assumptions are the of Litigation

read the annual Form not company’s filings factors and of on place other forward-looking company’s the reliance affect XX-K other and should discussion the that more forward-looking complete undue could a to the SEC statements risks for with any report Listeners encouraged on and are statements.

this only update also or NREF analysis forward-looking statements any financial an publicly does to conference law, non-GAAP The This conference obligation statements. call measures. not by of today’s during as date, revise except required speak includes made undertake as and call of any

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

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

Brian Mitts

provide for and I’ll get the by discussing turn of prepared started then it our their then over for Kristen. you, to quarter to the us everyone rest comments. Appreciate second for I’m Thank it the team and quarter, today. join results third guidance

investments share the period per per quarter per compared in second XXXX. was share in income income share CMBS in reported $X.XX for the the the result of as the of increase share available Earnings follows: as compared QX diluted results are distribution we quarter, same The income diluted of diluted our quarter to in quarter $X.XX net $X.XX $X.XX for net diluted ‘XX. performance in of a to of net second improved second of per XXXX. second

was prior second for new available available distribution in stock driven in as in share and distribution investments. share decrease earnings available the partially the cash as compared for $X.XX from Cash on diluted $X.XX to diluted common share same in of period distribution XXXX. per per weighted year The a by was two for counts higher loss our of component well the average quarter

share Board $X.XX intend of second quarter we quarter. also The declared dividend third of in per third the the payable for $X.XXX $X.XXX the special and share a a per well. quarter, as a of paid $X.XX Board declared of the same and We has for special dividend share the quarter, the per fourth share pay dividend for per to dividend

available the X.XX for for second available Our earnings dividend by times distribution quarter distribution. and covered covered for X.XX times was cash by

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

of XX.X%. million $XX During redeemed for million. $XX.X investments investment principal had blended fully principal redeem yield and loans We senior outstanding a with quarter, for of the $X.X with X all-in one outstanding originated two partially to that million we of

quarter. for Moving to guidance the third

with cash We’re end the diluted per available available as on at $X.XX low $X.XX range guiding available on distribution share $X.XX end. high the for earnings and a for Earnings of and to midpoint distribution for follows: of distribution the

the is the by a preferred second the of for $X.XX distribution $X.XX and diluted driven on investments Cash made new of available at in low with the the available The primarily end. share distribution in midpoint for quarter a second distribution cash of high $X.XX range equity on from per end increase quarter. the impact for

Goetz Matt to I’d now his comments. it like turn over for to

Matt Goetz

Brian. Thanks,

quarter, the with total perform approximately portfolio principal. to loan billion $X.X individual XX composed of the outstanding investments and is currently During strongly of continued

XX% is loan average sciences in CMBS. loan loan-to-value by portfolio’s an multifamily, and the residential weighted remaining and invested book X% is The X% term average service self-storage. of The is in life with via is The as X.X stabilized XX% X.XX loans and of ratio debt XX% coverage years XX.X% portfolio primarily collateralized of agency XX% a single-family average investment times. rental

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

yield redeemed an fully quarter, X and with XX.X%. with the $X.X we with SFR $XX.X partially combined two One paid off. of originated current of investment of were investments principal loans million During a estimated for of outstanding million principal new total million $XX.X outstanding

lease The repeat $X.X Woodlands, X in and extensive sponsor headquarters preferred sciences a in the estate experience located their of investments with a Houston, signed of well-heeled client and consisted redevelopment long-term property. Texas in million is to investment The completion Houston. Southern California life the relocating life of new sciences is also suburb the tenant from the The upon a chapter. has real

estimated of The a current investment XX%. yield has

investment of has Houston, a California in long-term facility lease another from also the XX.X%, their has Temecula, preferred a signed a We made Texas. operations of as with current $XX million also yield into preferred XXX% repeat agreement tenant relocating sponsor. estimated a equity CGMP The a

Mac in million from off Arizona redemptions of of return full loans investment portfolio quarter The made XX.X%. of The an paid XX.X%. a in $XX.X Phoenix, consisted estimate in build-the-rent Their preferred was $X.X A achieved of in the loans IRR XXXX. were million a rental has two preferred average single repeat family equity of two purchased current Freddie with sponsor. that

opportunities with and delivering we asset target we’ll attractive shareholders. markets summary, continue opportunities evaluate of to our throughout continue In to to these value and goal classes, our investment find the

now hand to would like call over I Richards. to Paul the

Paul Richards

to and to at value identify market to yields have to In the decline need the and in assess We the interest for our account portfolio, extent reflects potential implied close a million $XX need changes rise of Matt. impact of stress decrease This our of market portfolio marks CMBS to which previous million Thanks, the night. order the the $XX test. value. rate conducted book difference we variance were between would value on

conducting to were portfolio XX% value. Upon increase by implied stress yields a that overall CMBS test, need result around decrease a the we in to observed XX% in

to recognize during challenges single the note will essential importantly, or such to More a be is decline great need be and that underlying it multifamily financial crisis. to over impairment, XX% property to loses faced surpass any real in values, there the comparable of family difficulty] [technical substantial

be strong of environment, resilience multifamily in investments especially Despite the residential vertical as performance. by the family the the properties the historical of stress industry belief test current results, we sector, single the consider demonstrated a these we in the safe to and maintained in

consistently At approximately the leverage We of XX% a refinanced LTV. and with our partners, standing status the communication end conditions REPO we repo our the maintained quarter, at marketing portfolio. discussing lending CMBS financing with cautious a approach engaging of to the

ongoing that service to The income performance to pay They during SFR pleased SFR SFR the approximate of second also and XX%. downs there quarter, loans debt notable combined report I’m net generating of the IRR growth. remains well. currently pool, were I’d contributing operating highlight robust portfolio the positive strong, two demand exhibit SFR loan a for like strength. the within coverage are ratios Regarding exceptionally have to experienced the performing that all

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

Matt McGraner

our types, a you, continue Thank SFR investors. our providing to multi other and outperform embedded to in and resilient storage Paul. property earnings Underlying distribution of collateral, NOIs stabilized for life yields science stable base

to or mortgage highest investments watch ratios, quality lists. coverage believe REIT evidenced continue has We reserve collateral stabilized the in by NREF the sector, on strong and no values commercial

storage origination still some volumes assets. X.XX in range we are for relatively rate transaction the the multifamily X front, were On but cap seller capitulation to muted, seeing to

pipeline We for and originations, particularly a our private multifamily expect to refis cash operators. stable – for provide preferred multifamily business our of

As of of the a stack laid out over XX% yields the default. take the to to low asset double-digit XX% here generally a reminder, been and capital we with ability generate

that agency attractive tests. many quite over bridge maturing two need this years active will multifamily be expect refi We the cap next meet to would business as loans financing

work. structured close, To rate. stacks continued for board stability. would team to their or risk-free equity opportunities the in quarters Beyond and mezz up I’d as rather preferred community excited investors for more stable than financing about the comp thank coming capital the hard capital. multifamily, the with searches opportunities we’re investment across seeing always, like to a Particularly these And company’s shore pleased as seek we’re the as

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

Operator

Sandler. Your Instructions] Crispin Please Thank of ahead. comes Piper go first you. Love from question the [Operator line with

Crispin Love

details common two you I stock provide call. early If on just right, heard little morning. a the Good mentioned those in you on losses more investments? the Can investments Thanks.

Brian Mitts

Yeah.

preferred two there to costs partnering of as does some increase those interests accounted And have controlling FIFO investments I are those So and one we as that investments are we those our it them. deals investments. components a mentioned stock associated we have think that was common don’t their of and about with startup those

zero essentially expenses investments. to mark-to-market marking first gain have stock a expected these common first the quarter, although were when to down in So and we we our it but exit position allocated a this

Paul Richards

Yeah. development it a was deal. Crispin,

the just because expenses as of development a not these se, and it’s just works. So the accruing way their accounting per it’s stuff true loss they are mentioned,

Crispin Love

Okay.

that Okay, seeing of this speak in then, you multifamily life can there in is just other demand a be than right reasons just of or of a life sciences that just to to of sense. the and you rate now you kind out now? I’ve just of more release just sector have kind a kind attractive life heard right given rather guys less calling drivers of called to why kind some key the out sciences for other quarter. new of – deal kind do I sciences makes right on for the environment sectors the And kind But or you big view now with

Matt McGraner

It’s McGraner. Matt sure. Yeah,

manufacturing we’re manufacturing the multifamily good the first side see specifically, over well life and and life size sheer more next practices. I months. of pharmaceutical, the virtue I more think going opportunities sciences CGMP it’s other that XX we guess, of sciences I all, a to of in of like by and as market particular, just the But, think

stated the we sector banks, at in anyway to from hard non-bank it’s wave so sector for the right calls, chains offshore hard like constraints make and restoring is this As banks supply a loans lot of the for moment, most we reasons, now. most for prior particularly then generally

XX to completely see we over this assets And and But more front as opportunities view they particularly even just next it as many nature, can as giant kind of mortgage industrial the mission as tenant X know by we REITs debt again critical that we but base. a the in commercial banks and years basis. wave because or the view in for like you to understand of get played these we’re it, can that the FF&E other underwriting funds really to catching the it’s

it. and great we we it And more, of over I’d two growth have to want and So like will areas next years. the why for – the strongest grow sciences the just couple within life our that’s probably say two of sector relationships multi be but

Crispin Love

sense. makes you That’s questions. all me. That Appreciate taking from Great. my

Matt McGraner

a lot. Thanks

Operator

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

Stephen Laws

Hi, good morning.

Matt Goetz

morning. Good

Stephen Laws

has but to I on one the life But you guess Crispin’s on pretty know Temecula. kind question of touched term, one there, two I know I sciences. short it’s remaining the in wanted investments a follow-up

talk that? you like investments might that know see something know more is that and short like we you can you to duration So as

Paul Richards

it nature the one was for just specifically, itself. kind facility Yeah, be of of Stephen, extended, it that the will

that term So there. most would assume out out or probably the likely it’s will or year XXXX – so it investments. Yes, extend type a I short

Stephen Laws

look at this Okay, that quarter? to off so I paying don’t need

Paul Richards

so. don’t think I

Stephen Laws

talk there volumes you know you’re in housing Okay. going Matt we But that across in and can bit a a the maybe Freddie cap Maybe you of saying with that’s talk about on multi kind you talk year-to-date what about and can program know and affordable you bigger know workforce multifamily? rates limits. seeing the know you have about you your workforce well know bigger little Can in in are McGraner, affordable those we’re done. what you you where picture pretty what’s performance know picture I

Matt McGraner

Yeah.

Of to. love I’d course,

up I in pretty think know has B multifamily held Class generally the you range well.

here X%, approaching earning – that same experienced lease the know with your benefit rents. trade that seeing double-digit some but year time tough experienced X% that’s rents a outs were saw May X%, able we We’re thing. you some strong see most we XXXX new from are ago sector in a comps in we what Today, you’ll to operators increases you drive in

Renewals occupancies of a kind stable. then little generally the and in are are X% bit X%, stronger range

You the winds transaction in you’re deals the bit you know I down. see summer little Day know think after I expect more starting that sales, on hiccup in and the purchases transaction to of volume really side, – you kind know Labor a a after

Here X% feels like around underwrite bit of range have the debt underwriting answer you you that the little leverage. can know is growth, comps given cap positive right – if a your rate you’re still if can generally of or you X%, you if some

challenges seeing and be cap the generally think that’s new you’re That to today. speaking, called or kind some multifamily some is up shore to I of There think have financing articles some sector about. won’t be do will CLOs at But I that real of these there the So, here written is normal some deals. that’s with those least thing the capital CRE, healthy.

But everything you I especially just great know know – is don’t business, not and Fed I crisis affordable the multifamily important. is make that think work done the there’ll think the sector all everything you with you be B a in through able know we’re to going more housing banking to

Stephen Laws

Thank comments the this you. morning. Appreciate Great.

Matt McGraner

Thanks, Stephen.

Operator

[Operator line Please the Instructions] question Jade go Your ahead. comes next Rahmani of KBW. of from

Jade Rahmani

takeout, loans LTV need about you get very it’s a XX% see some below multifamily in a the DSC coverage times Thanks know of where really like on these a LTV, you have you debt to deal something much. think service starting to a and service coverage. Are bridge pickup I X.X flow to debt

relationship the mortgage going there? have are pillar mezzanine as think increase Mac starting REITs in offering given opportunities. that exposure well as equity think the would NXRT I a you be be know capital and flow So, to platform Freddie cases, Are you an to could providing with interest strong that pick in preferred gap big would deal see I that some

Matt McGraner

Fannie XXXX-XXXX. we touched is concert and a prepared remarks are, briefly started the great in business that with Yeah, and That’s really and Jade. I this in Freddie we in when the on point back

flex the of bit So, with been it and to here would work there for take sponsor has a allow had comprise as document to we’re able over that them to ability asset a a our default.

or there the were to we’re able Agree they’re kind be of plus originated with loans that two and there a you years one agency that in love in I were business not that that meet going that come, million of tests two ’XX a bridge dollar and not ’XX $XXX offer gross to said the a be dollar amount. to will we wave it little opportunity. just will lot a from over like investment And investment we’d than but net this it

So, about really excited for opportunity this sure.

Jade Rahmani

deals of know de or going you’re acquisition primary regular with do of way source deals And financing to think see plan? to rescue that you’ll novo are going those the opportunities be you you

Matt McGraner

it’s I know longer think going we where a you think the to [inaudible] the I cost then debt it both be is financing thing. of is indeed know to are Yeah sponsors going from with you if for higher and cap be

think biggest I seeing next as great pie next But already the the deal piece XX opportunities and probably mezz with new those our for it I yeah – are appearing. great the this We’re certainly see sponsors, and over months. even construction over the do of

Jade Rahmani

expectation range defaults you be that there to you occur? up for do or are to as pools, Mac some there on meaningful and And expect it the need refinance. Is loans maturity reasonable naturally your would CMBS won’t think that Freddie come

Matt McGraner

given think work these of through over of program I of acceptable done you is a losses I to the particularly they’ve you [cumulative] the deals points a – to there and know Yeah outcome history basis good with extent problem to that’s job [ph] of ourselves DCH XX in like is servicers everyone. the know special in K the know this how the reaching the not program you the and think history defaults

about look Georgia. news the at Florida country of and through operate are loans of where and biggest loans are The and – highly defaults own know parts Texas know loans in you diversified the the the that we you these most we and or

think will So we there pain. be some

private virtue I anywhere be market. I wouldn’t the expect the than it in of be to CRE, but near any through work CLO, program sort by the will think easily more conduit issues K

Now, if in of sponsor, Fannie in you issues part be business. customer out have kicked you and you’re want and Freddie a then don’t a as that certainly the program

Jade Rahmani

Thanks for taking questions. the

Matt McGraner

Jade. Thanks,

Operator

no further call team the turn There are management to this the I for will back time. at questions remarks. closing

Brian Mitts

in time. next everyone’s get quarter. appreciate We’ll We Thank touch back you.

Operator

This concludes for Thank conference you today’s joining. call.

You line. your may disconnect now

NexPoint Real Estate Finance (NREF) 27 Jul 232023 Q2 Earnings call transcript