Q2 2022 Nexpoint Real Estate Finance Inc Earnings Call
Please stand by. Good day and welcome to the next point real estate play next Q2 2022 conference call. The company minder today's conference is being recorded.
Thank you. Good day everyone and welcome to Nextpoint Real Estate Finance's conference call to review the company's results for the second quarter ended June 30, 2022. On the call today are Matt MacRainer, Executive Vice President and Chief Investment Officer, David Willmore, Vice President Finance, Matt Goetz, Senior Vice President Investments and Asset Management, and Paul Richards, Vice President Originations and Investments. As a reminder, this call is being webcast through the company's website at nref.
for a more complete discussion of risks and other factors that could affect the board's statements.
The statements made during this conference call speak only of a state state and accept as required by law and rest does not undertake any obligations to publicly update or revise any for the statements.
This conference call often 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 Matt McGriner. Please go ahead, Matt. Thank you, Jackie, and appreciate everyone joining us today. I'll start by addressing second quarter highlights and then turn it over today to review the financial results followed by Matt and Paul's comments. Thank you.
on the portfolio and new investments.
First, NREFS credit investments in primarily stabilized shorter-term lease duration assets with lower CapEx have and should continue to maintain dynamic pricing power in today's inflationary environment.
Underlying NOIs embedded in our stabilized SFR multi and storage collateral continue to outperform other property types, providing a resilient base of earnings for distribution to provide stable yields to our investors.
We believe our two special situation investments converted equity and next point storage partners in our ground lease investment, roughly 80 million of national value provide a differentiated total return profile compared to our commercial mortgage repairs, insulating and enhancing book value growth in the coming years, and when monetized and redeployed significant cash growth. We can redeploy significant cash growth.
Though the capital markets were volatile during the quarter, we didn't sit still.
The team originated 11 new investments, telling 150 million all of which were with institutional and or repeat sponsors in SFR, MULTI and self storage, as Matt will detail in his prepared remarks.
Finally, it's an exciting time for our business. We believe our portfolio's credit profile is second to none and positioned in the most enviable property types, again, providing a stable and transparent earning stream for the next five plus years.
NextPoint's relationships across multi, SFR, storage, ground leases, and life sciences continue to provide steady deal flow. Indeed, today our pipeline consists of over 150 million of new investments across Freddie K and preferred in CGMP multi and storage, all at attractive and accretive yields.
Now I'd like to turn the call over to Dave to review and revs financial highlights for the quarter. Dave. Thank you, Matt. I'm going to briefly discuss our results for the quarter and the year, provide guidance for the third quarter, and then turn it over to the team for detailed commentary on a portfolio and a linear environment.
For the second quarter, we reported net income of 34 cents per diluted share, compared to net income of 58 cents per diluted share for the second quarter 2021, a decrease of 41% on a per share basis. G
Interest in the time increase is 37% over Q2 in 2021. Triple by 41 basis point increase in average yields on investments.
Interest expense increased 20% driven by $125.6 million of additional borrowings and a 49 basis point increase in average rate.
Overall, that interest income increased 61% over 22-21.
Ernie's available for distribution was 56 cents per diluted share in T2 compared to 41 cents per diluted share in the same period of 2021 and increased the 36.9% on a per share basis.
Cash available for distribution was $0.63 for Luded Shared in Tutu compared to $0.47 for Luded Shared in the same period of 2021, and increased to 34.3% on a per share basis.
We paid a dividend of 50 cents per share in the second quarter, and the board has declared a dividend of 50 cents per share payable for the third quarter. Our dividend in the second quarter was 1.12 times covered by earnings available for distribution and 1.26 times covered by cash available for distribution.
Book value per share decreased 0.9% quarter over quarter to $21.59 per diluted share.
During the quarter, we originated or purchased aid investments with 82.7 million of outstanding principles with a combined current yield of 6.1%.
Two investments were redeemed with 13 million of up to 10 in principle for a total gain of 1 million. One investment was converted from a note to equity at a 12.5% discount, valued at 25 million.
For the six months and is June 30, 2022, we recorded net income attributable to common shareholders of $1.14 per deleted share. Compare the net income of $1.83 per deleted share for the same period of 2021.
Earnings available for distribution was $1.78 per diluted share a year-to-date compared to 83 cents per diluted share in the same period of 2021 an increase of 113.28%. Earnings available for distribution was $1.48 per diluted share a year-to-date compared Earnings available for distribution was $1.48 per diluted share a year-to-date compared
Cash available for distribution was $2.21 per deluded share year-to-date compared to 94 cents per deluded share in the same period of 2021 an increase of 170.7 percent.
Our dividend in the year was 1.78 times covered by earnings available for distribution and 2.21 times covered by cash available for distribution.
Book value for share increased 5.9% year-over-year to $21.59 per polluted share.
Moving to guidance for the third quarter, we are guidance to earning available for distribution and cash available for distribution. And that's all of...
Earnings available for distribution of $0.44 per diluted share at the midpoint with a range of $0.39 on the low end and $0.49 at the high end, and cash available for distribution of $0.51 per diluted share at the midpoint with a range of $0.46 on the low end and $0.56 at the high end. The decrease in cash available for distribution and earnings available for distribution from the second quarter is driven primarily by non-recurring pre-payment penalties from SFR loan, a preferred investment, and an interest-only straddle.
Now I'd like to turn it over to the team for a detailed discussion on originations and the portfolio.
Thanks, David.
The first quarter continued to show strong performance across each of our investments and asset classes. As of today, the portfolio is currently comprised of 75 individual investments with approximately $1.6 billion of total outstanding principal. The loan portfolio is 98% residential with 44% invested in senior loans collateralized by single-family rental and 54% invested in multifamily, primarily via agency CMBS. The remaining 2% of the loan book is life sciences and self-storage. The portfolio's average remaining term is 6.4 years, is 94% stabilized.
and still run $152 million with weighted average on number yield of 7 and 3.4% average lever yield of 11.3%
During the quarter, we originated an $8.9 million preferred equity investment collateralized by three stabilized cell source properties located in central coastal Texas with a none-lovered yield 10.5%
We also originated a 9 million, or we purchased $9 million of MSCR notes with an average on leverage yield of 8.5% and leverage yield of 13.6%.
We purchased $26 million of single family rental debt that is curisations with an average unlovered yield of 8% of 11.6%
Originally, the $4.5 million per product reinvestment, collateralized by the stabilized plastic multi-family, property and Rogers Arkansas at 1.1, so for plus 1070.
We also purchased, or today we purchased Freddie Mac floating rate K-series VPs at Sofa plus 525 say 1av and I bought the ones on German
for a purchase price of $70 million. In summary, we continue to find attractive investment opportunities throughout our target market and asset classes. It will continue to evaluate these opportunities with the goal of delivering value to our shareholders.
I would now like to hand it over to Paul Richards to discuss the bond market repo financing in SFR portfolio. Thanks, math. During the second quarter, the company was active in the secondary bond market, sourcing a $41 million Freddie Mac small balance loan needs fees, which has an unlevered ultimate surety of approximately 8%, and the leverage yield in the low-to-mid-teams, which is provenly levered via track-to-ly price repo financing. As Matt discussed, the company also closed on a new issue Freddie Mac clothing rate of EPs for approximately $70.5 million dollars just as past afternoon.
The bond yielded 30 a day at a time of over plus 5.4%. And we were able to finance the bond via cash on balance sheet and then track the rebate financing.
The Bonkbos is a great geographical present.
The bond owes a great geographical present, a prudent underlying loan leverage, and as always excellent sponsorship. Lastly, through syndication process, the company bid on Freddie Mac risk transfer certificates and were allocated roughly $9 million of the B1 and M2 bonds, boasting attractive yields of 30 days sober, plus $950 and $650 respectively.
As discussed in the previous floor of the commentary, the market continues to experience inflation tendons, along with the Fed continuing its rate height and cycle, though it's previously mentioned there is an intacial demand for residential and therefore heightened demand for pretty much EVD bonds. We continue to be sensibly levered on a refoccily at roughly 60% LTBA quarter end. Lastly, it wants to briefly touch on continued performance of the SFARLONE school and the Q2 2022 loan paydowns. All SFARLONE are current, performing, and demonstrating strong metrics in terms of right growth in our community.
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad.
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We'll take our first question from Steven Laws with Raymond James.
I get afternoon.
Um
You know,
Matter or Brian , I guess the start, can you talk about what type of return you're seeing on new investments versus three or six months ago, given the dislocation of the markets and where spreads and rates have moved? And when you think about your pipeline,
You know, what pockets look most attractive on a relative basis that we should expect to see, you know, new investments in during the second half. You know, you know, some new investments in during the second half.
Yeah, hey Stephen, good afternoon. The returns on new investments during the quarter and then what our pipeline is that the amount alluded to, we're getting probably another two to three percent more in yield right now in the current environment. In the pipeline, we have coming up and this goes to your second question, what kind of new opportunities.
We're having a lot of success sourcing CO preferred or preferred in CGMP facilities, you know, the pharmaceutical manufacturing facilities, where we, you know, basically provide financing at certificate of occupancy for new bills with well-heeled sponsors. That to us is a great place to be. It's a two to three year kind of money.
and it's usually kind of 10 to 12 percent yields and again in life sciences and the reshoring of pharmaceutical manufacturing. We just like that space a lot.
The second kind of area where we're doing a lot of work and seeing a lot of work is on on the Storage sides. We're originating kind of private preferred And then we'll will be probably in the market purchasing a new issue Storage B pieces as well That you know that type of credit is so for plus kind of six seven hundred at the moment and so we You know we like that space as well
The team is also doing a great job of continuing to source the multifamily private preferred. Obviously with negative leverage in the market, kind of second chance opportunities, retrades, LTV tests not hitting with the agencies. We are seeing a lot of gap financing opportunities, and those are probably going to come fast and furious in the third and the fourth quarter, as well as transaction volumes pick up, and the agencies aren't quite there.
you know, certainly slowing around the SFR. Can you talk about what your expectations are there and kind of how you saw that slaughter in the quarter?
I see it's all. Yeah, during the quarter, we saw the one loan paydown. I think what you're still seeing though is, you still have higher rates on or high highest rates on the SFOR loan book and that HPA buildup from 2018 to 2019, Originations. So what you're seeing or could continue to see are kind of the smaller loan balances, a lot of these operators printing a real-life gain on those. And the pre-payment penalty might not be, you know, as...
You know, that's sticking for them to you know, rack up an HPA and realize those games So I don't think it's out of question to you know, maybe see some of these smaller loans pay off and his operators do You know, fiving up a good game for them for the year. So that's how we kind of see that's a far more low book right now.
Great. I appreciate the talk today. Thank you.
And we'll take our last question today from Jade Romani with Keith, Bruyette, and Woods.
Thank you very much. Can you quantify the impact in multifamily, single-family rental and self-sourage from higher rates to cap rates and overall valuations?
Either currently so far, I know it's slow moving, feels take time to close, what's your expectation for range of move and cap rates?
Yeah, good question. Jay, we filled it. Field is the same on the NXRT coffee days ago. Roughly today, spot cap rates in multi-family are for most property types. Or excuse me, for class B class A, have risen about 40 to 60 basis points, called 50 basis points, translating into a decrease in values on average from 10 to 15%.
There's some capitulation in the market from sellers around the 4% cap rate on multi-family. You know, that we've seen where you're starting to see some deals get done in the recent weeks. So that's multi-sourge. It is almost identical to multi. You know, I'd say that cap rates there have moved the same range. And then the SFR cap rates are at least the SFR cap rates that...
So, on average, kind of 10% to 15% retracement values on a spot basis as we sit here today.
And in terms of performance of the company and the recession, you know, what do you think the impact would be? Would it be loans and forbearance? Would it be slightly lower, you know, more moderate, rank growth and expected, different occupancy? But since you're primarily in the debt capital structure, what would be the impact? And also maybe if you could touch on either the B-T, exposure or preferred after these programs.
Thanks a lot.
Yeah, you bet. Good question. I think that the best kind of recent test of the credit profile and the performance of the portfolio during tough times is obviously COVID, during which the business did exactly what it was designed to do in these property types that we think continue to be resilient and outperform. Like I said in my prepared remarks, at present,
Although a recession, consumer-led recession, perhaps, may be coming, our NOIs across our own portfolio and SFR multi-family and self-storage are growing around 7 to 10 to 15%. So I present their performing well, but in a downturn, I think we didn't have.
Any losses, we had a couple deals go into four variants in the Freddie K and those were, those ended up performing just fine. On the preferred side, on the multi-family side, I think it's almost kinda insulated by the mechanisms within our JV structures with our borrowers and our sponsors.
To extend you had an issue, we have the ability to take over the asset and wipe the equity clean and on the asset at our basis. Kind of an extra built-in risk mitigation tool in a dire situation, but again, that portfolio performed exceptionally well also during COVID. So, never say never, but again, I think our credit portfolio or the credit profile of our portfolio.
today and look forward to discussing key three earnings with you here in a few months. Thanks, have a great day.
Thank you and that does conclude today's teleconference. We do appreciate your participation. He may not disconnect.
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