NexPoint Real Estate Finance, Inc. (NYSE:NREF) is a commercial mortgage real estate investment trust (REIT) that has established itself as a leading player in the commercial real estate finance market. With a diverse portfolio of investments spanning multiple asset classes and a strong management team, NREF is well-positioned to capitalize on the evolving trends in the commercial real estate industry.
For the fiscal year ended December 31, 2023, NREF reported annual net income of $13,975,000, annual revenue of $109,164,000, annual operating cash flow of $31,556,000, and annual free cash flow of $29,742,000. These robust financial results demonstrate the company's ability to generate consistent returns for its shareholders.
In the first quarter of 2024, NREF reported a net loss of $14.6 million, or $0.83 per diluted share, compared to net income of $9.4 million, or $0.37 per diluted share, in the same period of 2023. The decrease in net income was primarily driven by the accelerated amortization of a $25 million premium associated with the prepayment of a $508.7 million senior loan. Net interest income decreased to negative $12.8 million in the first quarter of 2024, down from positive $3.9 million in the same period of 2023, also due to the loan prepayment.
Earnings available for distribution (EAD) was negative $0.46 per diluted share in the first quarter of 2024, compared to positive $0.52 per diluted share in the same period of 2023. Cash available for distribution (CAD) was $0.60 per diluted share in the first quarter of 2024, up from $0.55 per diluted share in the same period of 2023. The company paid a regular dividend of $0.50 per share in the first quarter, which was 1.2x covered by CAD.
Book value per share decreased 14.8% from the first quarter of 2023 and 6.9% from the fourth quarter of 2023 to $16.69 per diluted share, primarily due to the impact of the senior loan prepayment.
Business Overview
NexPoint Real Estate Finance is focused on originating, structuring, and investing in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties, and common equity investments, as well as multifamily and single-family rental (SFR) commercial mortgage-backed securities (CMBS) securitizations, multifamily structured credit risk notes (MSCR Notes), and mortgage-backed securities. The company primarily targets investments in real estate sectors where its senior management team has deep operating expertise, including the multifamily, SFR, self-storage, life science, and hospitality sectors, predominantly in the top 50 metropolitan statistical areas (MSAs).NREF's investment strategy focuses on credit investments and assets that are stable or nearly stabilized, prioritizing careful underwriting, minimal leverage, and a moderate debt basis. The company also emphasizes lending to reputable sponsors and consistently providing dependable value to its shareholders.
As of March 31, 2024, NREF's portfolio consisted of 90 investments with a total outstanding balance of $1.2 billion. The portfolio is geographically diverse, with a bias towards the Sun Belt markets, and is allocated across the following sectors: 47.2% multifamily, 46% single-family rental, 5.2% life sciences, and 1.5% self-storage.
Investments and Acquisitions
During the first quarter of 2024, NREF contributed to 6 preferred equity investments totaling $11.5 million in outstanding principal at a weighted average yield of 10.8%. The company also originated one loan for $44.6 million in outstanding principal at a rate of 900 basis points over SOFR.Additionally, NREF sold 1.2 million shares of its Series B cumulative redeemable preferred stock for net proceeds of $27.7 million. The company used the proceeds to fund its investments, including a $208 million commitment to the Alewife Loan, a mezzanine loan to IQHQ-Alewife Holdings, LLC, which is solely owned by IQHQ, LP.
In the first quarter, NREF had one senior loan redeemed for $508.7 million in outstanding principal, receiving $8.9 million in prepayment penalties. The company's management team has been actively underwriting and deploying capital, including the purchase of two new-issue, 5-year fixed Freddie Mac B-Piece opportunities with attractive metrics, as well as the acquisition of a new-issue single-family rental (SFR) asset-backed securities (ABS) paper.
Liquidity
As of March 31, 2024, NREF had $19.3 million in cash and cash equivalents and $5.8 million in restricted cash. The company's debt portfolio consisted of $843 million in outstanding debt, of which $342 million, or 41%, was short-term debt. The weighted average cost of debt was 5.9%, and the weighted average maturity was 1.7 years.NREF's debt-to-equity ratio was 2.04x as of March 31, 2024. The company's collateral portfolio had a weighted average maturity of 5.3 years and was 86.6% stabilized, with a 68.5% loan-to-value ratio and a weighted average debt service coverage ratio of 1.72x.
Guidance and Outlook
For the second quarter of 2024, NREF provided the following guidance: - Earnings available for distribution (EAD) of $0.45 per diluted share at the midpoint, with a range of $0.40 to $0.50 per share. - Cash available for distribution (CAD) of $0.40 per diluted share at the midpoint, with a range of $0.35 to $0.45 per share.The company's management team remains optimistic about the investment opportunities in the current market environment, particularly in the multifamily, single-family rental, and life sciences sectors. NREF is actively underwriting over $250 million worth of special situation opportunities across these sectors and expects to continue deploying capital in the coming quarters.