NREF - Earnings call 3 2023 | NexPoint Real Estate Finance, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. My name is Sara, and I will be your conference operator today.

At this time, I would like to welcome everyone to NexPoint Real Estate Finance Conference Call. [Operator Instructions]

I would now like to turn the call over to Kristian Thomas. ahead. go Please

Kristen Thomas

Thank you.

to review call the the ended XX, welcome NexPoint Estate third and September Real the company's XXXX. conference everyone, to Finance day, quarter Good results for

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

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

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

also financial This measures. includes non-GAAP call analysis of conference

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

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

Brian Mitts

appreciate I everyone's Kristen. Thanks, today. participation

balance on then over team I'm updated briefly to and our results, environment. quarter a discuss to next discuss portfolio macro lending me year-to-date portfolio Matt Joining it Paul sheet detailed provide for turning off kick quarterly today are and call commentary the the the for and and the going guidance before McGraner and Richards. our

which results, follows. with as we'll start QX are So

decrease XXXX. QX investments provision For in the by to on compared we CECL. a was largely per quarter a share of in a driven $X.XX quarter, common share for diluted we net mark-to-market as for third of in to transition stock diluted 'XX third loss net losses reported The income of 'XX and per loss credit net adjustments $X.XX the our higher

Net per in interest increase last in was share diluted from $X.XX to investments 'XX. 'XX per yield compared the of same quarter $X.XX and more driven equity income than quarter primarily the third QX distribution $X.XX million higher for of third in 'XX available quarter of quarter by third $X.X the million costs period third originations in to per in 'XX. per in diluted of $X.XX and year share the and XXXX in in to the Cash slightly XX.X% per the financing higher for period in was with share per increased same $X.X The quarter of $X.XX diluted second share in distribution the was partially offset by a $X.XX Earnings diluted 'XX. available share diluted compared diluted share 'XX. preferred

dividend fewer a year in per has quarter. of the investment of board per a was We per $X.XXX and earnings dividend cash driven regular share $X.XXX The deconsolidation payable share of a in special regular distribution Hughes partially and fourth and the the increase per share quarter. for the in special declared $X.XX prior $X.XX The for third of realized dividend share available a by available dividend and distribution of from paid losses.

the distribution, the and dividend earnings by and that's available by was for available Our for third covered in cash X.XXx dividend, regular covered quarter distribution. X.XXx

special primarily dividend $XX.XX adjustments. to due the per and Book year-over-year XX.X% per to decreased value share share mark-to-market quarter-over-quarter and X.X% diluted

X with $X investments equity outstanding have XX.X%. principal principal. During blended These yield and a preferred million $XX.X of with X quarter, loan investments all-in the we X of outstanding of originated million

We of had sold also $X.X principal one We investment preferred X securities that redeemed $X.X million for X purchased $XX outstanding million. common for CMBS million. equity piece for

Moving 'XX. decrease primarily million diluted SFR higher compared loans for of credit fewer decrease diluted XXXX. provision a decreased and in income prepayments by from in year-to-date on the net in reported driven $XX.X was per financing the as for of XX.X% period The to income same largely in and higher The in same 'XX. 'XX unrealized share was year-to-date. losses driven Net to net by net per $X.XX $X.XX loss million to $XX period our higher We costs interest 'XX. to in 'XX share a income losses 'XX in compared

available Earnings the share first available distribution -- same in in for per compared per prior on 'XX in distribution for distribution sorry, by 'XX. distribution diluted $X.XX diluted 'XX. same counts partially available was decrease cash SFR $X.XX The well in X per quarter in diluted year-to-date prepayments Cash 'XX. share share diluted or average the for year $X.XX third per lower for was loans share and of period earnings to as to period available $X.XX months the the our driven higher in weighted for share in compared was as

per through are cash redeemable sold the equity we his detail holders see redeemable be will Redemptions to Series X. in the in The to Proceeds accretive by take Today, offering initiated Matt the advantage retail common of X% year will for discuss we and holder penalties investment will million redemption opportunities be issuer, which at The be There or in prepared Series the market, team. launch or X% prior total the stock redeeming our limited offering. used Series more B comments. a discretion. $XXX of X% announced our of month, of are the issuer also per may XX% quarter distribution the in is us. outstanding preferred option sole B B per year. The in

portfolio. our to Moving

XX of a billion. with total investments outstanding $X.X comprised of is portfolio balance Our

single follows: and Our investments sciences multifamily, sectors sectors X.X% XX.X% in XX.X% that involved in in across rental, life are which in in storage, we are platform. allocated our represent across X.X% family as

loans, investments loans across follows: remainder XX.X% CMBS as X.X% allocated equity mortgage-backed is XX.X% portfolio deferred XX.X% X.X% is B-Pieces, the and and in in senior strips Our in securities. mezzanine IO investments, in

as our than Belt XX% is with Sun our located investments Florida, XX% average XX% DSCR XX% and average in Georgia; The California across X.XXx. stabilized a collateralizing with and XX.X% XX% are remaining of follows, weighted focus geographically collateral weighted less the in our a in Assets in reflecting states Texas on portfolio with on X% markets. exposure, X% loan-to-value

or of the form in approximately repurchase short-term million $X.X We debt have agreements billion XX% only is debt Of outstanding. roll of monthly. that this, $XXX

average cost weighted and average Our X.X maturity weighted X.XX% has of debt years. a is of

value weighted Our our average with debt maturity debt-to-equity years, is book X.XXx and $X.X collateralized X.X of of is by value. ratio a billion

quarter. Moving to for guidance fourth the

share the distribution as available with in $X.XX per We high earnings share and $X.XX end. end on XX% the end diluted at available for on end. with high range follows: of a midpoint for at of distribution $X.XX of low the Cash of $X.XX the $X.XX on range diluted earnings are guiding midpoint the low and a the

our turn over to our lending I'll Dean it and now environment. portfolio discuss So to

Paul Richards

Thanks, Brian.

investment asset each The of third most portfolio. to performance our notably continue classes, strong throughout quarter in results B-Pieces our show

ability the believe have both with and the our relative owning lender throughout to leverage our stack We we experience operating an capital allows investments advantage continue in due to to information real where goal operator us to owner focus real value risk-adjusted verticals we returns. from on and commercial an delivering estate, higher-than-average to commercial investment being find of estate

focusing shareholders. on assets, provide consistent We stabilized continue conservative leverage in to sponsors with credit our to strategy healthy and value investments investment at believe low underwriting stable our and will

portfolio quarter, the total strongly tough amidst loan currently Florida portion be is of of XX%. markets. to $X.X perform towards to portfolio portfolio billion During approximately the the and continued principal. a individual bias backdrop Texas, outstanding XX at is Georgia geographically of the with the our largest Southeast and diverse and continue Southwest assets with comprised approximately The third

$XX.X make follow-on to investments preferred investments quarter all-in of XX.X%. were beginning the through we today, of with the existing able of From third million yield to an equity

$XX return the avoided possibility a delivered return saw We that which post million solid was gross repo refinance and of B-Piece, disposing levered to the also short approximately of opportunity B-piece an this We of risks. wrapper approximately on XX%. a of value-add received dated any after a in

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

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

More especially importantly, there current be performance. multifamily the over stress these properties XX% consider of a results, verticals real be in these maintain in and substantial resilience to decline a to the strong in multifamily in investments any single-family historical values. of will rate in Despite the recognize single-family safe residential the demonstrated the belief need test to and property by underlying our as sector, interest We impairment, we environment.

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

loans positive They of and for exhibit Regarding pleased SFR notable NOI this that I'm SFR experienced very remain trend. portfolio all to robust the the continues performing to ongoing demand performance The currently growth. to are loan DSCRs contributing well. strong, SFR pool, the have report within

to classes. continue opportunities find In asset throughout summary, investment and target we markets attractive our

continue value will goal to these of evaluate shareholders. the delivering with to opportunities We our

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

Matthew McGraner

you, Thank Paul.

despite continues credit our record rates a performed during up well in mentioned, just he reference quarter. to and longer-term rise very the hold portfolio As

healthy CMBS sciences multifamily cGMP investments. as and and our remain loan SFR Our as life well portfolios

modestly $X.XX opportunistic investments this fully to $X.XX and source monetized. of While delivering common special in a of CAD potentially stock mark-to-market once a liquidity, additional situation environment, our annual remain

opportunities of outlined week, CBRE near-term with billion funding for over to ability past existing meeting relationship GAAP CB advantage assets, our criteria. This these immediately maturities need positioned a In sample cadence And Freddie, of the XX% to -- take to we and/or this in that XX% quarter, the of outlined are confirming yields. report, published opportunity provide report with Fannie set namely and last we and in facing refinancing. our $XX all-in multifamily in given a maturities

this announced the the demonstrates end, and some that firm a as we've morning we resources on exciting news umbrella. working that To of been NexPoint

issue NREF various to capital utilize B advisers. mentioned, while attractive we deploy to believe and security institutional We providing our us sales preferred RIA NexPoint Brian to this and with Series dislocated this investors team market. plan internal As into accretive to talented distribution provides to yields retail

endless. test originate face seemingly down. our with are as in gap cash opportunities of XXXX believe is Liquidity negative is risk. CBRE to couple GAAP refinancings interest multifamily $XX billion the that In can it we near-term And funding recent its liquidity, refi Again, assets we structure, have mid-teens, upwards downside in funding reserves the scarce shut all requires to The with analysis, is if leverage sector. of there or in mitigate but the that in in yields loans profiles. originated and banking as this XXXX still environment, totaling most all guarantees indicated sector will from

we be stock additional over to deploy CAD earnings opportunities All life do any If north pipeline $XXX science, told is and of capital, the powerful. we increase multifamily XX% of can yields. next we cGMP, common first million, include and per mortgages all-in assuming years. will and science and dislocated and million. deploying again, we're the our Collectively, XX% purchases raise and B-note life believe by investments is CMBS, XX% successful raising without in Invest was, current $XXX near-term Other we year to believe this accretion X leverage,

in opportunities on go in to with the continued the To quarters opportunity the and close, pleased stability and we're environment. coming these about excited company's this offense

thank As work. always, their I for the want team to hard

operator the And now over questions. I'd to like to turn the call for

Operator

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

Crispin Love

that and this on the preferred were first announced off, just you about. Just morning talking continuous

thinking do dollar amount basis, bit a can a preferreds. additional about talk you you any potential your a definitely high just But have there on little So And of more there? capital get the targets of timing time capital on you'd be you how that of want of to to much percent as like when would done. your preferreds base kind a and over total

Matthew McGraner

question. Yes. Matt. Thanks it's for Chris, the

that's the on we diluted around I aspect think we or $XXX That's intentional mark-to-market $XXX set at it left think a of but because we million had the market is our number coincidence, is fully shelf. on what cap million basis. the so

$XXX we makes so pairing sense. million think And of additional preferred this

As to in, and ramp December trickle year. timing to first it's going in of relates raise, at it November, the of we the the the then think, really

sales similar cadence month, million that $XX dollars a a product, -- kind throughout a Our as that's has those pipeline with million, in. product fund million $XX investments trickle the team that moved we we'll XXXX. And then they have to and of match expect $XX

Crispin Love

Okay.

month is $XX a amount in dollar you're So million, maybe $XX million what thinking?

Matthew McGraner

Yes, it's monthly run a good rate.

next that's conservative for that year. I think

Crispin Love

Okay.

in the remarks, helpful. That's just good. loans And forbearance. I on comments Sounds credit your and prepared no quality, heard then

$X.X to is of quarter, drivers all CECL? Is there? else anything the there million the there? of provision the just on some in can Or talk you that Just

Brian Mitts

Yes, it's Brian.

this quarter, rating of risk principal. rating we've from The we X on rating, the $XX then which is to to about we've X of representing -- principal. of X our lowered we've a $X.X rating And X X, So the a loans. risk from do one, -- moved moved million million way loans of

So less lot as drove it. conversion And is to of of the CECL our ones total well. in outstanding. than of those That particular. it But obviously, X% part a

Matthew McGraner

qualitative I'll the in $X.X And particular. put wrapper on a million

those in did Atlanta -- in asset A- our good in couple we the do the backlog better. has issues sector and stabilize pocket, BH, had years this addictions. the getting when through few So in well months in any multifamily of of Atlanta hit call, But these in of like we this deal. in in sponsor big pocket. was over jump last skips it, we arise, a Thankfully, as again, our an air is last manager, sponsor air a deal, in installed on deal Atlanta and asset. think particular, a the deal an kind worked preferred with the really [indiscernible] we to The jump multifamily Fulton we it's County issues the we in reported of pretty And and of multifamily property and recently can

operate don't, that belief will the take it is it. My But they sponsor we'll defend asset. the and if

any on again, and sponsor a But the jump So defend we in fully one good can asset it's Atlanta it. to expect we and through work issues.

Operator

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

Stephen Laws

you're deploy -- then company at And generally where around of expenses that Matt, the can level you points? factors talk bigger picture property Obviously, talk on view mortgage about and can multifamily, but from not and moving new capital how supply you just where view tailwind taking of you're different multifamily, are, thoughts attachment there? goes and as you rates your of points seeing a different that different opportunities long. a or lot away things too the

Matthew McGraner

question. great a That's Yes.

general, up. in or on the merchant leased next, on Belt few whole Kind probably X have probably A think sandbox tough multifamily operators aggressive last years and or is in is X and the said, quarters net getting A I'd of say, being I'd X run So keeping the builders to as concessions, that rates seen deals market Smile we've in our as under rates That supply B. rate. the gotten period be The the a are interest the X, toughest. absorption migration in near and the spike really, absorbed and pretty at whether months Sun say, will this their in it's good really term, saw last

or to sell can to they're it because refi they not, if spike But really A, enough occupancy driven. IRR it XX-year has hopefully the activity. the in driven concession So generate some

news of And are B The of so shifted you some power, renters is good move C it's and up of you renters And the or balance they're deal. that's to A if kind regardless a that demanding now has concessions. to an whether B. will, seeing deal

investments. really then but and near cliff focus cliff quarters off, the latter the half already think be -- fall dramatically is Bs off have and X, we will our challenging the again, But going credit and and we term in to 'XX starts so And equity where that's X continue stabilize, the primarily a fallen in a deliveries fall really, starts early off well, of 'XX. to

then not the rates And then is so leverage still sledding north negative lot commercial tough and for us -- you or kind the X%. agency going sub There's to banking is excuse there's -- have cap X still opportunity liquidity is maturities. next quarters, in the regional of sub-X% be me, what because And the of of space. are in X a financing there if

it about of excited then asset why the kind take already underwrite you because mezzanine in refinancing a CRE, gap X So of step need, and certainly both to it. come that's CLO preferred we're the the and we're as going in there's be in, lot a we going if agency been and opportunity those And work has take front. dynamics and properties to this own can dislocation in, But done. and the on

good and we some think and good can structure some outsized over we the really So year. next get returns terms

but a kind it's little of it's my view. Sorry, long-winded,

Stephen Laws

Difficulty] your [Technical That's about. Great. hear thoughts

to -- I we there do that Or moving in appreciate the moving touch any for onetime base item forward. elevated So comments. line operating of how quarter? wanted Brian, the And think I or items expenses, that

Brian Mitts

Yes.

the were legal third little in a figures elevated So quarter.

that Just deconsolidation, that to with the some dealing we're ratings risk of converting CECL the around we're just and Hughes dealing these issues various with.

firm fees accounting some that as well of -- outside we've the So as got.

and a long-term impact. to the to that go back fourth not expect be quarter in normal really We

Operator

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

now may go ahead. You

Jade Rahmani

to you opportunities today multifamily pieces? would Is the most what capital? returns? deploy think be in are equity interesting What and mezz target those preferred your it levered within And do

Matthew McGraner

Jade. Thanks, Yes.

ultimately, an I down units owner we're this of XX,XXX the and kind the it's of where think is infrastructure near-term wave that's I a have GAAP already line. it's coming refi funding and multifamily. a then opportunity. see mean, and that And

I'd able probably the think yields asset all-in that. The jump we that That's we'll so double favorite. are, unlevered yield. on And my be to say,

does the probably targeting to we points and to be structure again some legal XX% value of allow stack, But be XX%, points if asset, bad. XX%, anything for we'll then out in to today. the take we'll maybe searching in in XX% the So documents and is believe us go what

Jade Rahmani

Mac Freddie any the by In been but It's of spotty, average varies loan what a BP you there indications on are there size, pools are you seeing own, lot credit? and deterioration? it

Matthew McGraner

own I think had a germane over 'XX rates specifics it of kick we sold X.X%, the rates. [ because -- cap to deals at are kind lot I'll for of off I to ] of we KELs cap going where during X% think 'XX, do it's in run-up this quarter. But that think I pre what Paul most our you

of of more lot ] the a a what do little of a issues. those of the own, time, different but bit trouble. [ they lot any bonds at KELs don't we that there have have potentially are we So some that a -- They're underwritten

expand to do But that? want Paul, you on

Paul Richards

this type plus type duration that -- Yes. X X value-add plus plus terms. past or quarter a was X X wrapper and or it X we underlying plus was sold loan X like one The a deal

really levered in could some near-term delivered we could we the -- incoming be on XX% or on And good par bid there there so it, got issues that future, where IRR refinanced So or risks. one and had we near year a a be call we've saw bond. that

appropriate an that investments. in was it other to bond time it our of specific since did CRE redeploy and that of thought we a capital into mimic get way a out types CLO So high-yielding

Jade Rahmani

portfolio from had Freddie rates be? you or to now, will months default if you do what a guess, So venture in Mac say, think, X your BPs delinquency

Matthew McGraner

of near don't meaningful our points the be and defaults, I think, is, will or it think average portfolio, basis think is -- I back. mean not probably that's first I to losses. Multifamily so the at In all. snap long-term XX whatever I

tell some violently do multifamily in that first lot COVID it's if answer think you'll months, will longer, the my expect And curve, the short the the But market I if what relief liquidity activity. snap welcome you a you to potentially That's example. rates me back on always So to we if and pretty market and in see the during of liquidity we And get pretty X do of refinance get for return. the might relief higher quickly. as in saw end an end, are short to if some think I back be change. I the

Operator

the further no at will team. questions call to turn are this I now the over time. There management back

Brian Mitts

Appreciate it.

I I Thank we'll think appreciate up time participation, that everyone's and wraps be touch. questions, us today. and you. in for

Operator

you, ladies today's and conference concludes gentlemen. This call. Thank

now You may disconnect.

NexPoint Real Estate Finance (NREF) 2 Nov 232023 Q3 Earnings call transcript