NexPoint Real Estate Finance, Inc. (NYSE:NREF) Q1 2024 Earnings Release Record May 4, 2024
NexPoint Real Estate Finance, Inc. wasn't among the 30 most popular stocks among hedge funds at the end of the third quarter ( see the details here ).
Operator: Good morning. I'm Dee, your conference operator today. Thank you for joining us for NexPoint Real Estate Finance's Q1 FY24 earnings call. All lines are muted to prevent background noise. We will now open for questions after the speaker has spoken. [Operator Instructions] Now I'd like to hand the baton over to our head of investor relations, Kristen Thomas. Please go ahead.
Kristen Thomas: Thank you. Good afternoon, everyone, and welcome to NexPoint Real Estate Finance's conference call to review our first quarter financial results ending March 31, 2024. Joining us on today's call are Brian Mitts, Executive Vice President and Chief Financial Officer; Matthew McGraner, Executive Vice President and Chief Investment Officer; and Paul Richards, Vice President, Origination and Investments. The call will be webcast on our website at nref.nexpoint.com. Before we begin, I want to inform you that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions and beliefs.
Listeners should not place undue reliance on forward-looking statements and are encouraged to review the Company's Annual Report on Form 10-K and other filings by the Company with the SEC for a more complete discussion of risks and other factors that may affect forward-looking statements. Statements made during this call represent views only as of the date hereof, and NREF undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. This call also includes an analysis of non-GAAP financial measures. Please see the Company's presentation filed today for a more complete discussion of these non-GAAP financial measures. I would now like to hand the call over to Brian Mitts.
Go ahead, Brian.
Brian Mitts: Thank you, Kristen. Thanks to everyone for joining us today. Brian Mitts here. I'll start by providing a quick rundown of our quarterly results and then provide an outlook for the next quarter. Then I'll hand it over to Matt and Paul to talk about our portfolio and the macro lending environment. First, here's our first quarter results. We had a net loss per diluted share of $0.83 in the first quarter and net income per diluted share of $0.37 in the first quarter of 2023. The decrease in net income was primarily driven by accelerated premium amortization on the $508.7 million SFR loan that was prepaid on January 25th. Net interest income decreased from positive $3.9 million in the first quarter of 2023 to negative $12.8 million in the first quarter of 2024.
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The decrease was primarily due to the $25 million premium written off in the first quarter due to the prepayment of the SFR loan previously discussed. Distributable earnings were negative $0.46 per diluted share in the first quarter, compared to positive $0.52 per diluted share in the same period in 2023 and positive $0.44 per diluted share in the fourth quarter of 2023. Again, the negative results are due to the acceleration of the premium on the prepaid SFR loan. Distributable cash was $0.60 per diluted share in the first quarter, compared to $0.55 per diluted share in the same period in 2023. The increase in dividend cash flow from the prior year was due in part to prepayment penalties due to the repayment of the SFR loan. The Company paid an ordinary dividend of $0.50 per share in the first quarter, and the Board of Directors has declared a dividend of $0.50 per share to be paid in the second quarter of 2024.
The regular dividend in the first quarter was 1.2 times covered by distributable cash. Book value per share was $16.69 per share, down 14.8% from Q1'23 and 6.9% from Q4'23. The decrease was primarily due to repayments of SFR loans. During the quarter, the company contributed $11.5 million of unpaid principal to six preferred equity investments at a weighted average yield of 10.8% and originated one loan for $44.6 million of unpaid principal at a rate 900 basis points above SOFR. It also sold 1.2 million shares of Series B cumulative redeemable preferred stock for net proceeds of $27.7 million. One senior loan was redeemed with an outstanding principal amount of $508.7 million and a prepayment penalty of $8.9 million was received.
Our portfolio consists of 90 investments with a total outstanding balance of $1.2 billion. The sector allocation of our investments is 47.2% multifamily, 46% lump sum rental, 5.2% life sciences and 1.5% self storage. Our portfolio is 43.3% CMBS B pieces, 18.3% preferred equity investments, 15.2% mezzanine loans, 11.6% senior loans, 6.3% mortgage-backed securities, 4.4% I/O strips and 0.9% MSCR notes. The assets secured by our investments are geographically allocated as follows: Texas 90%, Florida 9%, California 8%, Georgia 6%, Maryland 5%, Washington 4%, Colorado 3%, with the remainder in states with less than 2.5% exposure. This reflects the company's strong preference for investing in the Sunbelt region.
Our portfolio is 86.6% secured, with a LTV of 68.5% and a weighted average DSCR of 1.72x. We have $843 million of outstanding debt. Of that amount, $342 million, or 41%, is short-term debt. Our weighted average cost of debt is 5.9% and our weighted average maturity is 1.7 years. Our debt is secured by $1.2 billion of collateral and has a weighted average maturity of 5.3 years. And we have a debt-to-equity ratio of 2.04x. Moving on to guidance, our distributable earnings are expected to be $0.45 per diluted share at the midpoint, $0.40 per diluted share at the low end and $0.50 per diluted share at the high end. Cash available for distribution is $0.40 per diluted share at the midpoint, $0.35 per diluted share at the floor and $0.45 per diluted share at the ceiling.
Senior banker signs loan documents, highlighting the company's mortgage lending capabilities.
Now, I will hand over to the team for detailed discussion.
Paul Richards: Thank you, Brian. Our first quarter results demonstrated solid performance across all investment sectors, particularly in our CMBS B-piece portfolio. Our approach is focused on areas where our expertise in both owning and operating commercial real estate gives us a distinct advantage. By acting as both owner and lender, we aim to effectively leverage information to assess and identify value across the entire capital stack and deliver above-par risk-adjusted returns. Our investment strategy continues to prioritize prudent underwriting, minimal leverage and a moderate debt base, with an emphasis on stable or near-stable credit investments and assets. We also emphasize lending to reputable sponsors that have consistently delivered reliable value to shareholders.
Despite challenging commercial real estate market conditions in the first quarter, our loan portfolio remains stable at approximately $1.2 billion in aggregate principal outstanding, consisting of 90 individual assets. The portfolio is geographically diversified with a bias towards Sun Belt markets. From the beginning of the first quarter to date, we have been very active in underwriting and allocating capital. We completed two purchases: a newly issued 5-year fixed note (the latest closed last Tuesday) which is a Freddie Mac B-piece opportunity with very attractive metrics. Both securitizations have high LTVs at 50%, DSCRs of over 1.30x, are well sponsored and geographically diversified. These B-pieces pay all-in unleveraged fixed interest rates of 9.75% and 9.5%, respectively.
We also expect that moderate leverage will generate leveraged returns in the mid-teens on a highly desirable collateral pool. We also purchased approximately $44 million aggregate of newly issued SFR ABS paper, leveraging prudently to achieve low to mid double digit returns and strong cash flows, stabilizing the SFR collateral pool. On the disposal loan repayment side, we received approximately $508 million gross and approximately $50 million net as the largest SFR loan in our portfolio was fully repaid, as previously discussed. As of the end of the quarter, leverage remained at 60% in the LTV (loan-to-value) range, and we continued to maintain a cautious approach to repo financing and strengthened our CMBS book by acquiring accretive AAA newly issued CMBS paper.
We are in constant communication with our repo lenders to discuss market conditions and the status of our funded CMBS portfolio. In summary, we continually identify attractive investment opportunities across our target markets and asset classes. We are focused on closely evaluating these opportunities to enhance shareholder value. We have high confidence in the resilience of the residential sector, especially given the current interest rate environment. Our investments in the multifamily and single family verticals are considered safe as evidenced by historical performance and current buy-to-rent trends, which provide a tailwind for the sector over the long term. Additionally, we remain very enthusiastic about our investment pipeline in the life science CDMO sector.
Before we move to questions and answers, I would like to hand the baton over to Matt McGraner to conclude his prepared remarks.
Matthew McGraner: Thank you, Paul. As I said, we remain pleased with our strong performance in the first quarter. Especially on a relative basis. Our portfolios continue to perform very well. And despite near-term challenges in multifamily supply, the fundamental performance in multifamily SFR, self-storage and life sciences remains relatively stable. From a capital markets perspective, we are seeing improved liquidity, led by the CMBS market, along with risk-on signals from spreads. Continued significant inflows to fixed income investors should further support spread compression in the near term, offsetting some of the secular high interest rate shock. The distress we are seeing in the residential space is primarily in the 2021-2022 vintage non-agency floating rate bridge loan market.
We believe financing for these underlying properties will be challenging over the next 12 months or so. However, deliveries should begin to taper off rapidly thereafter, creating a supply-demand balance favorable to landlords. That being said, capital in residential assets remains plentiful in real time. In the past 60 days, private equity investors have aggressively priced residential product with cap rates below 5. Meanwhile, over $240 billion of private equity dry powder is still waiting to be pumped. We continue to scale our Series B preferred equity raise at a good clip, and expect the pace to be $15-20 million per month in the second quarter. Proceeds will continue to be allocated to our $220 million life sciences loan in Cambridge, as well as additional Freddie KB pieces.
Additionally, we are currently underwriting over $250 million of special transactions across our residential and life sciences segments. If any of these were to materialize, we would consider modestly rebalancing our balance sheet through short-term matching note offerings or longer-term matching to lock in our spreads. Given all this positive activity, we expect our current capital base, including SFR loan repayments, to be reallocated in the second quarter and continue at our normal CAD rate run rates (our CAD run rate range) and accretive through the second half of the year. Finally, we look forward to these opportunities in the coming quarters and feel good about our continued stability and the opportunity to be aggressive in this environment.
As always, I want to thank the team for their efforts and now I'd like to hand over to our operator for any questions.
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