Q1 2025 NexPoint Real Estate Finance Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the next point real estate by natural first quarter 2025 earnings Conference call.
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Speaker Change: I'll now hand, todays call over to Christian Griffith Investor Relations. Please go ahead.
Speaker Change: Thank you good day, everyone and welcome to next week Real estate Finance Conference call to review the company's results for the first quarter ended March 31st 2025 on the call today are Paul Richards Executive Vice President and Chief Financial Officer, and Matt Mcgrew, Our executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast.
Speaker Change: The company's website at <unk> Dot next white Dot com before we begin I would like to remind everyone that this conference 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.
Speaker Change: Listeners should not place undue reliance on any forward looking statements and are encouraged to review the company's airport on Form 10-K, and the company's other filings with the SEC.
Speaker Change: More complete discussion of risks and other factors that could affect forward looking statements.
Speaker Change: Statements made during this conference call speak only as of J&J and except as required by law I'd graph does not undertake any obligation to publicly update or revise any forward looking statements.
Speaker Change: The conference call also includes an analysis of non-GAAP financial measures framework in place discussion of these non-GAAP financial measures see the company's presentation that was filed earlier today.
Speaker Change: Now, let me turn the call over to Bob Archer. Please go ahead, Paul Thank you Christian and welcome everyone. Joining us this morning, I'm going to briefly discuss our quarterly results move to our balance sheet and lastly provide guidance for the next quarter before turning it over to Matt for a detailed commentary on the portfolio and the macro lodging environment.
Speaker Change: Q1 results are as follows for the first quarter, we reported net income of seven cents per diluted share compared to a net loss of 83 cents per diluted share for the first quarter of 2024. The increase in net income for the quarter was due to an increase in interest income between the first quarter of 2025 in the first quarter 2024 interest income increased two.
Speaker Change: $3 6 million to $22 million in the first quarter of 2025 from a net loss of $1 6 million in the first quarter of 2024. The increase was driven by an uptick in interest income driven by higher rates.
Speaker Change: Interest expense decreased <unk> 7 million in the first quarter 2025 compared to the same period in the prior year from the deleveraging that occurred in the first quarter 2020 for.
Speaker Change: Earnings available for distribution was 41 cents per diluted common share in Q1 compared to negative 46 cents per diluted share.
Speaker Change: In the same period of 2020 for cash available for distribution was 45 cents per diluted common share in Q1 compared to 60 cents per diluted common share in the same period of 2024. The increase in earnings available for distribution was driven by an increase in net income for the quarter. We paid a regular dividend of <unk> 50 cents per share in the first quarter and the board has declared a.
Speaker Change: Dividend of 50 cents per share payable for the second quarter of 2025.
Speaker Change: Or did it in in the first quarter was one nine times covered by cash available for distribution.
Speaker Change: Book value per share increased 1.47% from Q4 2024 to $17.22 per diluted common share with the increase being primarily due to the unrealized gain on our preferred stock investments during.
Speaker Change: During the quarter, we funded $55 million on a lifestyle preferred and we purchase a $50 million see MBS Io strip with a bond equivalent yield of 722%.
Speaker Change: During the first quarter, we sold $1 8 million shares of our series B cumulative redeemable preferred for net proceeds of $44 $7 million.
Speaker Change: Moving to our portfolio and balance sheet.
Speaker Change: Our portfolio is comprised of 85 investments with a total outstanding balance of $1 2 billion.
Speaker Change: Our investments are allocated across the sectors. This fall's 49.4, multifamily 31, 9% life Sciences, 15, 6% single family rental, 1.6% storage, 0.9% specialty manufacturing and <unk>, 6% Marina.
Speaker Change: Our portfolio was allocated across investments as follows 28, 4% MBS B piece.
Speaker Change: Four 7% mezzanine loans, 19% preferred equity investments 12, 9% revolving credit facilities at 10, 4% senior loans, 4.2% Io strips and 0.3% promissory notes the assets collateralized and our investments are allocated geographically a solid 26%, Massachusetts, 16%.
Texas, 7%, California, 6%, Georgia, 5%, Maryland, 4%, Florida with the remaining across days with less than 4% exposure, reflecting our heavy preference with sunbelt markets with the Massachusetts, and California exposure heavily weighted towards life science.
Speaker Change: Collateral on a portfolio of 75.2 stabilized with 58 point that London, 58, 7% loan to value and a weighted average D. S yard 146 times.
Speaker Change: We had $831 5 million of debt outstanding of this $433 6 million or 52 point, what percentage of short term debt. Our weighted average cost of debt is 6% and has a weighted average maturity 1.2 years.
Speaker Change: That is collateralized by 862.
Speaker Change: $8 million of collateral with a weighted average maturity of four years, our debt to equity ratio was 133 times.
Speaker Change: Moving on to guidance for the second quarter, we are guiding earnings available for distribution and cash available for distribution as follows.
Matt McGrew: Earnings available for distribution of 43 cents per diluted common share at the midpoint with a range of 38 cents on the low end and 48 cents at the high end cash available for distribution of 48 cents per diluted common share at the midpoint with a range of 43 cents on the low end and 83 cents on the heightened now I would like to turn it over to Matt for a detailed discussion of the <unk>.
Speaker Change: <unk> end markets. Thank.
Matt McGrew: Thank you Paul and as he just mentioned we're pleased to report another strong quarter amidst the challenging macro backdrop.
Matt McGrew: I'd like to spend a few minutes. This morning here discussing our verticals and what we're seeing.
Matt McGrew: On the life Science front lab leasing generally continues to be challenging, particularly given the tariff and an NIH funding uncertainty under the new administration.
Matt McGrew: This uncertainty has in our view delayed capital allocation allocation decisions temporarily but we do expect those decisions to eventually be made in the near term.
Matt McGrew: Even amidst this uncertainty we still see green shoots including at our own projects, most notably our L. L Y project. The sponsors negotiating leases now on two thirds of the project, which they are optimistic will be inked in the second quarter. These.
Matt McGrew: These leases would result in a 10 plus percent debt yield for again, just two thirds of the project.
Matt McGrew: We also remain bullish on cgmp and advanced manufacturing assets as the re shoring of supply chain wave accelerates. Indeed, contrary to what has happened in the Ohio market. The new administration and its policies have catalyze many high profile announcements to build manufacturing plants on U S soil. Most recently by Apple Road.
Matt McGrew: Novartis, Intel and literally to name a few.
Matt McGrew: We are seeing an uptick in built to suit requirements across the board from semiconductors nutrition and pharmaceutical manufacturing and expect this trend to continue over the near term.
Matt McGrew: On the resi front after a record year of absorption in 2024 of 667000 multifamily units. We saw continued strong demand in the first quarter.
Matt McGrew: Actually over 138000 units were absorbed another record first quarter leasing and demand performance there was strength across the board, even with with even sunbelt markets, capturing a vast majority of the top 10 markets for Q1 absorption.
Matt McGrew: And with tepid new starts in a worsening housing affordability picture, we believe the rental resi sector has bottomed and believes there is optimism for rental growth and increased transaction volume in the coming quarters.
Matt McGrew: Indeed in our own portfolio and our own and our own owned rental portfolio. We have seen positive new lease growth across 40% of our portfolio and that's up from just 5% in Q4 of 2024 prospective purchasers can now underwrite positive rental growth again for the first time in many quarters, which in our view will lead to increase liquidity and stable.
Matt McGrew: If not increasing valuations.
Matt McGrew: Our goal is to do as much as we can in the resi sector. This year.
As we said last quarter on the self storage front, we've been able to source underwrite and commit to for very attractive self storage development opportunities. These projects range from an $8 one to eight 5% yield on cost are geographically diversified and sponsored by a developer that we've successfully completed over $215 million of deals with NAFTA.
Matt McGrew: Are you utilizing reasonable leverage we expect our returns on these assets to be approximately 18, 5%.
Matt McGrew: In addition, we are actively marketing several equity investments to monetize this quarter and hopefully throughout the rest of the year, which would generate approximately $75 million of new equity to re lever and deploy into income producing assets. Given these assets do not already yield today the potential for CAD accretion, resulting from our efforts is quite promising.
Matt McGrew: Again, we're very pleased with the quarter the progress on the life science side and the backdrop for residential assets over the near and intermediate term, we remain active and open for business across our key verticals and look forward to continued growth in the coming quarters as always I want to thank the team here for their hard work and now we would like to turn the call over to the operator for questions.
Speaker Change: At this time, if you would like to ask a question press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue Press star followed by the number one.
Matt McGrew: Well pause for just a moment to compile the Q&A roster.
Matt McGrew: Yeah.
Speaker Change: Your first question is from the line of Jade Rahmani locate BW.
Speaker Change: Thank you very much can you comment as to what you're seeing on the credit side. There was a notable credit loss provision wondering if that pertains to specific assets.
Speaker Change: And more broadly have you seen any impact from macro.
Speaker Change: Certainty.
Paul Richards: Hey, Jade Yeah, Great question. This is Paul.
Speaker Change: For the last quarter, we implemented a weighted average base.
Speaker Change: This case and a downside scenario for seasonal reserve that was part of it and then there was also a private preferred that we've had our eye on that we decided to be proactive and apply apply a reserve for so that's where you see the uptick overall.
Speaker Change: Overall still a very very low seasonal reserved.
Speaker Change: Amongst our peers, just given our credit profile and multifamily as a foreign storage and our life science, but overall.
Speaker Change: I'll, let Matt speak after me, but it's been a very steady portfolio with you know we're seeing great performance overall.
Speaker Change: On the other broader question Jade I think.
Speaker Change: As I said in the.
Speaker Change: The prepared remarks.
Speaker Change: Life Science sector.
Speaker Change: Other I would say.
Tariff space.
Speaker Change: Portions of the economy are seeing I think a temporary halt we don't expect that to continue.
Speaker Change: Beyond I think the latest resolutions are play in June or July but.
Speaker Change: Yes, there is liquidity for most assets.
Speaker Change: Are most property types, including and especially on the residential front, we had so we have seen.
Speaker Change: Probably only increased interests tariffs aren't really.
Speaker Change: Really pausing any anything on the residential sector in fact, they're just making housing affordability decisions either be delayed.
Speaker Change: Causing the rental sector to be stronger and we do really believe the set up for for residential assets over the next.
Two or three years is going to be pretty special so.
Speaker Change: Yes, short term blip, but but overall no no real impact.
Speaker Change: Yeah.
Speaker Change: And what was the breakout between the weighted average base case downside scenario and the private preferred was it evenly split between the two or was it more weighted to one or the other.
Speaker Change: It was about 50 50.
Speaker Change: Okay.
Speaker Change: And then in terms of the life science after the leasing the positive leasing momentum you cited what.
What percentage leased will that project b or pre leased will it be a is it a multi tenant project or is it single tenant can you give any more color on that.
Speaker Change: Yes, it'll be two thirds leased than.
Speaker Change: And then that that income from the two yeah. It.
Speaker Change: Those leases for the two thirds of the project would be resulted in a 10 almost 11% debt yield.
Speaker Change: And it's across two tenants.
Speaker Change: And how much is there left to be funded.
Speaker Change: Love to be funded on that project about $40 million.
Speaker Change: Okay.
Speaker Change: That's <unk> commitment.
Speaker Change: Yes, that's correct.
Speaker Change: Wow. So that's that's really good news because life science leasing has been extremely weak.
Speaker Change: Including in that market. So it sounds like it's a special asset.
Speaker Change: It is now we agree.
Speaker Change: And then just broadly in the environment what are you seeing in terms of interesting opportunities.
Speaker Change: Are you going to be focused on the residential space doing preferreds or will you be ramping up.
C N B S. B piece is you know, what's what's going to be the plan going forward.
Speaker Change: I think the latter two.
Speaker Change: We're going to participate and have been actively participating in the K deals with Freddie.
Speaker Change: And then on the.
Speaker Change: Some of this uncertainty and delay has caused some stretch senior opportunities in the.
Speaker Change: And what I would describe as the CFO or the multifamily pre leasing deals that have come out of the ground they've gotten a certificate of occupancy.
Speaker Change: But theyre not prime for yes.
Speaker Change: For agency financing, but Theyre pass there.
Speaker Change: Bank life, so to speak of a construction loan life. So we think theres a lot of interesting opportunities that we are underwriting in that.
Speaker Change: And the kind of shorter term stretch senior to get these assets stabilized and to facilitate the lease up on the resi front. We think that you can earn a $2 50 to $3 50 spread on those assets at a reasonable detachment point, so spending a lot of time, there and hope to transact on.
Speaker Change: As I said after after re leverage $158 million of those opportunities.
Speaker Change: Along with those four developments of self storage, which will take longer to materialize, but there's still really good investments.
Speaker Change: Thanks very much.
Joe: Thanks, Joe.
Joe: As a reminder to ask a question press star followed by the number one on your telephone keypad.
Joe: Okay.
Joe: Okay.
Speaker Change: At this time there are no further questions I will now hand, the call back over to management for closing remarks.
Speaker Change: Thank you very much I appreciate everyone's time this morning, and look forward to speaking to you next quarter. Thanks again goodbye.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: [music].