• Net Income: $0.40 per diluted share, up from $0.33 per diluted share in Q2 2023.
• Net Interest Income: Increased by $2.5 million to $6.7 million from $4.2 million in Q2 2023.
• Earnings Available for Distribution: $0.68 per diluted share, compared to $0.50 per diluted share in Q2 2023.
• Cash Available for Distribution: $0.64 per diluted share, compared to $0.53 per diluted share in Q2 2023.
• Dividend: Regular dividend of $0.50 per share, 1.28 times covered by cash flow available for distribution.
• Book Value Per Share: Decreased 1.1% from Q1 2024 to $16.51 per diluted share.
• Portfolio Investments: 85 investments with a total outstanding balance of $1.2 billion.
• Debt Outstanding: $861 million, with a debt-to-equity ratio of 1.78 times.
• Weighted Average Cost of Debt: 6.2% with a weighted average maturity of 1.6 years.
• Guidance for Next Quarter: Earnings available for distribution $0.50 per diluted share at midpoint; Cash available for distribution $0.45 per diluted share at midpoint.

• Warning! GuruFocus has detected 3 Warning Sign with NREF.

Release Date: August 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• NexPoint Real Estate Finance Inc (NYSE:NREF) reported an increase in net income to $0.40 per diluted share for Q2 2024, up from $0.33 per diluted share in Q2 2023.
• Net interest income rose by $2.5 million to $6.7 million in Q2 2024, driven by higher interest income and lower interest expenses due to deleveraging.
• Earnings available for distribution increased to $0.68 per diluted share in Q2 2024, compared to $0.50 per diluted share in the same period of 2023.
• The company paid a regular dividend of $0.50 per share in Q2 2024, which was 1.28 times covered by cash flow available for distribution.
• NexPoint Real Estate Finance Inc (NYSE:NREF) successfully originated $200 million worth of deals across multifamily and life science verticals, showcasing active investment activity.

Negative Points

• Book value per share decreased by 1.1% from Q1 2024 to $16.51 per diluted share, primarily due to a decrease in fair value marks on common stock investments.
• The company has a significant portion of its debt, $281 million or 32.6%, in short-term debt, which could pose refinancing risks.
• The weighted average cost of debt is relatively high at 6.2%, with a weighted average maturity of only 1.6 years.
• Despite improvements, the commercial real estate market conditions remain less than ideal, impacting investment opportunities.
• The multifamily sector faces challenges with negative leverage and muted deal flow, affecting potential growth in this segment.

Q & A Highlights

Q: How does the capital raising with the perpetual Series B align with the funding of life sciences investments, and what is the plan for redeploying capital from large repayments? A: Matthew Mcgraner, Executive Vice President and Chief Investment Officer, explained that the capital raising through Series B is aligning well with the life sciences investment funding, with approximately $15 million raised monthly matching the drawdowns. The company is also reviewing capital market options to re-lever the balance sheet and match new investments with opportunities, while the Series B helps in redeploying capital efficiently.

Q: Can you discuss the shift in the portfolio strategy and where you see the most attractive risk-adjusted returns? A: Matthew Mcgraner noted a strategic shift towards the life sciences sector due to a retrenchment of lenders and growth opportunities. The company is capitalizing on financing market inefficiencies, particularly in life sciences, where they can fund projects at favorable terms. In multifamily, liquidity is high, and spreads have narrowed, indicating a focus on sectors with less competition.

Q: What are you observing in terms of multifamily deal flow and agency behavior? A: Matthew Mcgraner highlighted that multifamily deal flow remains muted due to negative leverage and high cap rates. Agencies are not being overly conservative but are limited by the lack of product. Paul Richards added that new originations are more focused on shorter-term fixed rates, and treasury rate movements could influence future deal flow.

Q: How does the NXRT refinancing impact the weighted average cost of capital, and what are the expectations for rate moderation? A: Matthew Mcgraner explained that the NXRT refinancing is accretive due to existing swaps, keeping borrowing costs low. The flexibility of floating rates allows for strategic refinancing without penalties. The agencies are working closely with select sponsors to provide tailored solutions.

Q: Is there an update on the book value per share post-quarter, and how does it compare with quarter-end values? A: Matthew Mcgraner mentioned a recent uptick in book value due to treasury rate movements and mark-to-market improvements in CMBS. Additionally, the storage portfolio is expected to accrete value with upcoming refinancing, contributing to a positive outlook for book value.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.