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NREF NexPoint Real Estate Finance

Participants
Jackie Graham Investor Relations
Brian Mitts Executive Vice President and Chief Financial Officer
Matt McGraner Executive Vice President and Chief Investment Officer
Matt Goetz Senior Vice President-Investments & Asset Management
Paul Richards Vice President-Originations & Investments
Stephen Laws Raymond James
Amanda Sweitzer Baird
Jade Rahmani KBW
Call transcript
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Operator

Good day and welcome to the NexPoint Real Estate Finance Third Quarter 2020 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Jackie Graham. Please go ahead, ma’am.

Jackie Graham

Thank you. welcome the Real third company’s September and call Finance’s quarter everyone, XX. review to results day, to Estate NexPoint conference ended Good for the

Chief Mitts, call President, President Vice Originations Richards, & Investment Senior Vice are Asset the Goetz, Chief and Brian & Matt President, On President McGraner, Investments. today and and Vice Vice Financial Officer; Executive Management; Officer; Matt Paul Executive Investments and

this call at is being the through website reminder, webcast www.nexpointfinance.com. company’s a As

like to contains current would that everyone that the Before of call I we on Securities expectations, XXXX remind this conference beliefs. Act forward-looking meaning management’s begin, and are based of within statements assumptions Litigation the Private Reform

do the the undue review SEC. on reliance place any coverage company’s Listeners of expressions, risks, could forward-looking XXXX. financial with can quarter yields. the quarter and S-XX not LTVs registration for those are capitalization core business and identified not results Forward-looking to often subject including They actual cause and company’s unlevered include, as the company’s those statements guarantees by company’s the or per dividend to fourth forward-looking be and are expect, negatives the IRRs, statement earnings, are statements statements for words. uncertainties, from and for other regarding such general, to, future of statements. not and activity, limited share estimated encouraged expressed dividend industry These common statements words are ratio and Pro that in forma results of investment variations XXXX, including but similar on anticipate, any forward-looking Form results to assumptions materially and filings differ the and in guidance of intend, fourth

conference analysis any does other This to of computed to includes be This a revise and affect financial is update publicly a for measure. by a also NREF supplement GAAP. or forward-looking accordance law, as that risks not could in complete core net of discussion loss forward-looking undertake and the non-GAAP not substitute should any measure statements, as call non-GAAP a For which except factors of earnings, statements. used required income more obligation

complete earlier core that I like presentation to would more the the a to ahead. earnings, see discussion was For Brian. of today. company’s turn call over filed Go now

Brian Mitts

par cover turn and take to million. you, everyone Jernigan the purchased joining XXXX quarter for where we Capital a Finance opportunities and quarter million Jackie, Series the We’ll transaction XXB XXIO in On to B XXA, the to closed KXXX and of BP’s On Mac closed found the the third raise Matt of highlights quarter. Freddie the McGraner for give Estate the we XX, market. our third advantage financial July Matt quick $XXX year-to-date. on X, Real recent for strategy update welcome on and we’ll Goetz guidance, and and August then on Mac for we and estate highlights call $XX performance quarter conclude the the was and acquisition portfolio the activity credit of on million. Freddie I’ll again million strips also pipeline. a with And some capitalization, XXXX $XX with KFXX $XX capital start second it we comments Overall, some earnings value. announced Richards third busy highlights remarks call. we the way quarter in our and us over the Thank earnings our call. real prepared NexPoint for Today I’ll to markets, from the discuss Paul

before the as our common mezzanine pool, financing $XXX third stack Loans. XX, quarter, average of times debt a levered October weighted of repurchase of low facility plenty term equity, agreements, is $XXX repo margin subsequent And of As to of The providing $XX movement million only $XX million XX.X%, X.X million of with the of for facility on million of million of with to we play preferred and levered mark-to-market. interest. XX, third Also The capital at $XX of subject quarter; notes the of on cost we SFR our call. consisted X.X a that are weighted equity X.XX% a non-controlling down cushion XX.X% mark-to-market loan-to-value of October our unsecured Overall, at we’re is subsequent the $XX.X debt-to-equity. million to our purchased years. million $XXX lines average which redeemable

closed also ample opportunities XX. October to the the ways to on quarter, of $XX end of balance raise sheet we of million with Subsequent as sourcing to capital liquidity continue have find transactions. put quarter, third We by fourth we’ve unrestricted work the in to Thus following the the and creatively far to cash investments.

Freddie X.X%, of In XX% facility pooled credit loans the at for $XX internal target Net portfolio at The of extended million, was for million. unsecured a we loan-to-value five-year, Freddie used priced mentioned, mezzanine conjunction with return achieve Mac that Mac approximately par. rate $XX that to purchase previously $XX.X priced was purchase, to by a from million. XX.X%. that of were As closed offering originated XX.X% proceeds note

income million year-to-date or share. diluted share share. for $X.XX is to per common results third diluted income per the earnings $X.X the net million $X.X third year-to-date. move Core million to Year-to-date share. per $X.X third per $X.X attributable or me quarter for was to quarter for $X Net was $X.XX diluted attributable and shareholders $X.XX XXXX shareholders or the diluted common million quarter and the Let or

$XX.XX share. increased We $XX.XX, share per from value our book a to have

provision a in $XXX,XXX The third we quarter and a and gain $XX,XXX year. loan for loss year-to-date, recorded third quarter reserve the of a

of As $XX.XX We an value average repurchased book at representing at paid shares, to price of Monday, October $X.XX the per on the December of quarter. payable of XXX,XXX $X.XX dividend in declared dividend a of share of share, third record we of XX%. a shareholders had current XX per to per Board XX, share approximately discount a December XX. And the $XX.XX as

We core the fourth high-end for per follows: XXXX on on $X.XX low-end share. are as earnings diluted for a issuing the $X.XX mid-point $X.XX share, share, diluted quarter diluted per per the guidance of

So acquisition let me to the with Paul of and Richards turn that, call portfolio details over our discuss to Matt in Goetz the pipeline.

Matt Goetz

Brian. Thanks,

collections COVID. gateway and in continue of on same-store populated our by into Francisco, move Angeles, the are level gateway to markets, we the property future and COVID-XX trend classes. more single-family believe markets, pandemic. Los Our markets located to sectors of the on strengthen the throughout growth, Miami, estate who Multifamily, terms typically equity rental third impacted seen States NOI which all quarter should the less believe thesis in be real continue the The workforce focus Southeast in results housing rental storage as most more their targeted also commercial our New more strengthen near underlying negatively compared resilient as and asset specifically, in to sectors densely continue have York, market which to A best two to all peers, such cycles. Class types residents strength performing who this and property of Southwest in will San and relative United what We look collections appeared been have and the at throughout to has

to storage outcome equity COVID-XX, with predict total and billion collateralized and is namely space. coming have rental in value third performance is both atypical opportunities principal. real quarter preferred in like of geographically the And residential, residential portfolio weighted diverse the can’t times. able approximately and and senior are and we portfolio’s portfolio average investment XX% agency invested shareholders. investments comprised current CMBS, eight remaining stabilized and has stable and debt. sector, our loans Southwest of mezzanine underwriting a term few ratio were low with take multifamily advantage service $X.X invested effects to with in the years, X.X is our loan-to-value XX is single-family we believe said, REIT on sponsors strategy, the we’d believe minutes in immediately and the we commercial by a bias outstanding should XX.X% the in markets. future thereafter. the our and to at average is average The XXX% XX% coverage which with investments While via of is XX% credit and spend The of stabilized, debt assets, investments consistent portfolio provide portfolio leverage individual a might mortgage election, well-healed The XX% of path the Southeast of estate weighted a The of commercial towards the current. current That discussing of portfolios’ defensive conservative The we

single the property earnings, consolidated nine at our X. on loans one rental forbearance, investment versus total in August mentioned As our currently none family of are representing forbearance, underlying loans portfolio multifamily in X% of and

reference, slightly $X.X quarter. with For XX, the principal Freddie balance has entered or by the X.X% billion September roughly forbearance, on securitized, since report into metrics as the Mac, Freddie forbearance unpaid, of total Mac both published improving second

was year. mezzanine investments, of $X.XX of investment South IRR. and return used it outstanding Charleston, capital million XX% Carolina, for months redeemed One times, X of August X.XX an XX our and Creek, in And respectively. The this Palmetto located on in

no no land heavy reminder, and loans. a no construction As zero for loans, we have sale transitional loans, loans

take to of during Moving immediately to we the able the an quarter. advantage third were opportunities, active

we mentioned, securitization remaining of coverage in Brian a debt the million basis price X.X for floating bonds $X.X and July X.X million has of On up XXX value securitized of just of unsecured our par par XX, a The years XX.X%. $X.X X.X principal K-Series XX X.X The XX%. into loans K-Series August for been we and As billion. ratio. value we A plus B-Piece LIBOR a million X, our Mac purchased weighted balance made have XX.X%, investment only approximately stakeholders. of ratio month is accretive to Preferred an years term Series and interest approximately unpaid of total total value value yield service a loan has of has with notes of $XXX bond times of a D all and representing of a of rate proceeds Freddie coverage Freddie of Tranche a and remaining loan to to times. $XX offering fixed service one deploy rate average of from term of Mac The debt to investments with On the equivalent purchased able value B-Piece $XX total points. purchase B-Piece associated price The goal billion yield

to purchased we bonds purchased investment pieces accrued yield interest-only and portfolio and estimated $XXX,XXX. As interest the XX of these We three X,XXX average portfolio we loans levered XX% The X.X%. of with XX% by plus XX.X%. approximately of million On occupancy of $XX XX a financing multi-family of the value October our of total shareholders. for also throughout is last investment capital underwritten the XX, service our financing market received to current of to asset billion. individual to properties seeing we’ll collateralized continue to X.X classes. of goal estimated loans in The with just dollar implied is I’d now stabilized dollar separate we IRR interest-only ratio an with rate over million comprised price for times. these a coverage our in of And interest Paul mez mentioned, In equates The $X attractive provide an portfolio price bond last target is a mez the cap are delivering debt hand properties total The repo units last purchase XX.X% seller the total weighted has our Richards is stack. mezzanine of rental find consists multi-family total mezzanine individual of the evaluate single $XX portfolio. our The family to call of underlying of and like average of summary, through opportunities to the what discuss we mez continue rate the weighted X.X%. to X.X%. on value markets opportunities currently dollar of

Paul Richards

Thanks, Matt.

up mentioned. saw Strips previously Mac this new rate continues thesis purchases even pricing healthy that on bonds our thesis to on B-Piece quarter. pricing and B-Piece was moving as the floating XXXX. and in as sorry, During able new B-Pieces world has – into expect our the as We spreads squeeze in made not floating and gains repo attractively initial specific are and tightening rate fixed Brian LTV mark-to-market appreciation issue as approximately normalize during and of agency financing, on pre-COVID XXX would trend we the more Matt recent the Expanding second to active a XXXX I’m third Freddie near were in repo comments priced were company The regarding additional into issue purchases the capital our market application on imply quarter portfolio. as Brian’s our than ground continue those as of a bond maintaining fact as issue purchase excited entered we Management future pricing. the year. deploy of conservative possibly new these the the points original further the wider of upon while track the rate agency’s this in financing, CMBS basis company Due to I/O embedded the quarter, the B-Pieces significant secondary to our

To decline pre-COVID movement it implies take this before current on million value over $XX basis an valuations. a market value CMBS our to XX%. approximate increased bond value is LTV would prudently spreads market levered take further, implying on million are loan in a which our it downward step portfolio at widening points XX% of priced repo We XX.X using XXX book, $XXX and

merger the SFR but loan for want news and the Management then recent company, into Pretium a believe that a entering positive the in that rather touch credit company Front all, negative, affect but definitive Sloan of to the large does at at not pool. Residential be possibly and buyer’s given could Yard the to on with we Lastly, how Ares a briefly agreement the be terms remarks, of finalize our and principal footprint To Matt for we large million real not like turn to I’d in given unpaid loan it experience to approximate estate We $XXX turn balance of the roughly will do believe of sector. the prepared McGraner. over the underlying it repaid with or questions, the the extensive defeasance associated debt. XX% loans over before

Matt McGraner

other continued self and attractive storage and have Paul. sourcing much than sites. say great has do Thanks, the core our team job in residential investments don’t I a to property execute credit affordable

We’re pleased expected instead in adjusted deals to large assets generating markets. you or credit to losses or and attractive exposure excited to speaking of about reserves today single risk be gateway

the Capital credit that We’re also continue credit NexPoint to excited in team validate during and and benefit. will nerve and QX about especially verticals Jernigan throughout here end, our including to our investment in risk their self the here and expect outperform welcoming investments continue to at to the affordable times. To network storage all investments housing family attractive expertise in NexPoint generate these credit frankly to that resilient thesis to inform will cycles, difficult and remain various

to for we for and the operator the questions. prepared call to turn I So would like have remarks over

Operator

Thank Laws you, question sir. will Instructions] Stephen [Operator come James. Our from Raymond with first

Stephen Laws

morning. good Hi,

there. million new investing congrats kind what looks along roughly and $XXX as at about target returns. talk impressive accretive your off, the about, standpoint a from mez of like investment, of what’s clearly, looks pipeline And you with today like First on look can seller to a existing nice quarter those investments the from forward. you you talk Can guide lines, did leverage and financing remaining in investment new you you place certainly

Matt McGraner

the Steve. kind is of in Mac. Matt This we going two B-Pieces Yes, from Hey, three we’re XXXX or year Freddie McGraner. get to coming think so

of but little expect source can a especially, still term going Series be a that’s investment a we preferred. so and of match bit if A or tightening And loan with there, to opportunities attractive and very

we that a like perpetual did something So earlier.

or focus to to going think the leverage to on going ratio. continue to defer that’s Mitts the stay think, we’re I’ll the at try I – but stay same same primary financing, and be that’s ratio I to So

Brian Mitts

think Yes, raise to at capital obviously down stock in is we that’s the equity obviously, think and get book here I And trying our and look value with we’re I our accretively. ways to do right. some some issue road. interim, But the deploy price line in found point to

part as of to there’s aware number raising, covenants of a that of – have we’ve now. capital nowhere we been So we near our be

think leverages plenty and level would saw our We IPO during where of and I since we’d current telegraph roadshow we then. largely keep the room. So

Stephen Laws

of With we And when gives in think XX among current say QX to visibility new days and QX, have than there unique items the $X.XX that know given is investments just quarter the even? mez the portfolio be guidance, said, stability the of lot for going there room for you a is – is better I in your the about one-time because the I first really sector didn’t QX. involved that higher Great. from in the portfolio peers. and duration a this of kind Are midpoint

Brian Mitts

Yes.

are there no $X.XX, in one-time So that Steven. items

as in the we pretty investment investment, the far mez As quarter. close the early

So quarter, time. the first be there pick will little additional of bit but up not in at a

single-family things hard as is side are looking other that. some We at rental pretty the the to of do financing space is

So we’re to looking of any think pretty kind without the formal do things issuing there. a XXXX is But I number. aside $X.XX that, from yes, at guidance solid

Stephen Laws

repurchase? somewhat to shares. you buy liquidity underpaying buy in is the dividend return maybe and Great. dividend back increased return level do give distribution shareholders between to to we able do clearly, I to requirements. others below how roughly you – the year, guidance, shareholders dividend to stock a in chance. have and that current And you’re given look what capital at But back know we think way when the hop lastly, back QX X.XX think the How the you start based But you’re at dividend dividend million best in next I’ll queue about the short-term versus stock? when on the about order limited been versus increasing to and the think some an about

Brian Mitts

Yes.

talked done. of then when code ultimately, in the board are. XXXX, then we’ve different than on invest the lever public about what little And Obviously, we the was to policy and to look do bit sheet. starting the planned, of and to kind dividend where in we as capital the the through it’s but disclosures, to idea on at start kind readjust sense what think to we a originally our road for the different first this. and we’re dividend and balance IPO I

to quarter payout. next in because is that, we’re we’re think talk think in to We I taken some given at $X.XX. just we’re the we’re our increase, core be obviously the have of looking board in is kind out work good XX% of aware and the currently shape but status gone and shape a do at look but I potentially, think I XXXX reach good of of the portfolio order and going just earnings about forward. paying we’re of just where that go to and

So, on the yeah, I that’s think idea the dividend.

I question there was didn’t.. part the another Sorry, of

Stephen Laws

repurchase limited and but stock you’re liquidity, Did around somewhat with thoughts that?

Brian Mitts

Yes.

could I the great more, the is this the buying stock that’s in investment. that’s stock obviously, limits in fine. itself repurchase, to The a from here think the done we’ve and just at our So, but formats. that us XX% before other have problem liquidity sock buy discount, if to we keep we but

ton value not XX% a it think I and buying adding lot a we’re at of of of capital. it’s

we’re up against I So, covenants. think pushing our any of liquidity constraints really for don’t

Stephen Laws

speaking you investments great and soon. look attractive Great. to and Well, then forward on with new again, quarter congratulations a

Matt McGraner

Thanks, Stephen.

Operator

you. Thank

from question Amanda comes with Our Baird. Sweitzer next

Amanda Sweitzer

Thanks. Good morning, guys.

if you’d this the And prepared your BP you’re I think Following do remarks, where that earmark do additional something update that outcome talking of use you it put into missed proceeds, the or investment? investments preferred it on your JCAP self-storage that most and kind but likely for that is then apologies investments of is redeemed, if about? for capacity in have most the that likely on an up you you’d

Matt McGraner

Yes. thanks, Amanda. I’m Matt McGraner.

recently, self-storage outcome in days a Blackstone likely evidence in there’s platform. the of is of our most investments, most out acquisition the that’ll taken few capital then that be a XXXX. at Brookfield [indiscernible] ago from and some point tremendous view So, seeking amount probably XXXX,

utilize I approach that’s and accretive a So, here to They in we’re be monetizing – and of you’re have senior investment syndicate team knowledge mentioned half package have think I network we’ll in that space we’ll shareholders. of a you capital we opportunities. us and that loans see great in and this for a a and first QX. And of thoughtful wealth I this VPs. that think then adding network return, could generating the hold could seeing generate next in lot the to the our year

I own plus $XX so the sector. And million that in BPs of and would in storage ideally kind self-storage our stay we have think

Brian Mitts

preferred, any Brian, just note it’s of investments Amanda, we’ve earnings JCAP one the guidance a the common. And that. and the assumes $X.XX thing so we Yeah. from current converted that midpoint stripped that that a the from issued out it’s

redeploy can So to the $X.XX. to capital, that’ll extent, that that be sell creative then and we that that

Amanda Sweitzer

of your forward, And geographic of the traditional Okay. to portfolio opportunity mez that you’re then be assets? That’s the expand that with on mez this or you Would you’ll invest outside seems opportunity. Sunbelt the the think and on helpful. do targets is comfortable you kind like guys side, Certainly, preferred and sleep you some one-off saw? a willing going geography an of then interesting how get exposure just of did purchase, that those

Matt McGraner

– actually order. in taking those reverse I’ll So answer

borrowers amount agreement will mez financing These mandate they affordable number of a a certain on years, CPI units if a of to kind further just signed actually are opportunity their a just It an an property continue the raise additional housing. CPI of all by above above we rent the portfolio, not to program on portion of of for find This where think they to Freddie I was would to opportunities. originated part give was mez Mac. a loans. purchase for

coverage because answer typically COVID. get we pretty the then looked on aren’t just yes, we question we and that at markets debt even in, first how service your ratios high So do comfortable So, to comfortable? the of through got –

X.X is times. So times. is Florida X.XX Delaware coverage currently ratio

and invested Georgia geographical there that XRT with X.X Management times. they the management SFR our times. surrounding properties times. Maryland just company, in. which own It’s And based portfolio. BH is presence X.X we both Iowa, large is a Des in Illinois property times. X.X actually in in X.X Moines. have We property

on And Pennsylvania, lowest Pennsylvania of see presence and the Nevada times. dipped New geographical believe and two issues and the that Jersey Nevada to there XXX, has are have this X.X coming I X.XX of Pennsylvania. times. reopening. year we smallest XRT and COVID within is times. The Nevada X.X obviously its out down But largest loan market rebounding.

So that equity we our – of coverage and made Texas times Seattle Washington got pretty strong underwriting at outside comfortable And then one. looking obviously portfolio over X.X our which is is times. just portfolio extremely when in is X.X

Paul Richards

Maryland said, well-healed it That financing think all exposures just I’d The and buyer, then and what paper Mac add is to of sort those again, to through just made the has coupled providing investment. unicorn worth Freddie together I them match that. Freddie being things sponsor, Matt with financing. able seller repeat a is

Amanda Sweitzer

data. from Yes, That’s that that makes Thanks sense. for me. it all

Operator

Thank you.

next comes question with KBW. Our from Jade Rahmani

Jade Rahmani

subordinate mezzanine you REITs or space, maybe very some could in mortgage into position, often you do particular? leverage these a Philosophically, Thank Yes. don’t so positions on on you the putting how putting that? BP leverage see about companies REIT think We in commercial much. insight give mortgage

Matt McGraner

McGraner. Matt It’s Jade. Yes,

redevelopment that properties is see don’t cash probably can’t. as reason There doing investments just stabilize loans I on think, because they’re the you often and multifamily, flow. they’re generating is transitional not no rather it

But with harder. experience so that B-Pieces, property not with are quality cash of comfortable have you durable of stabilized been of that that run liquidity our and the the credit for the decades. flows Here, properties XX% a durability of the to I the long occupied investing think the investment cash in particularly And stuff. XX%, types and the duration mention credit can we’re the XX%, the leverage nature program, multifamily little I think the primarily flows in

Jade Rahmani

Thank you.

front that market rental very repay? recent securitizations still the Do the in is improvement some unlikely had you With levels. attractive to the believe market yard the in loan securitization and single-family

Paul Richards

X% $XXX even it savings Hey, Jade; Yes, loan recoup to discussing even it’s did a was penalty. defeasance defeasance interest that remarks, the million calculation the sub Paul. XX we roughly years at at and the penalty, of roughly refinancing of plus looking take would the type

fact comfortable that don’t So be repaid the we’re loan pretty with would we that believe the

Jade Rahmani

$XX perhaps that defeasance portion And something range. be Is believe the, would of million the correct? of I that in $XXX million

Paul Richards

We exact approximately That’s number correct. It’d the of book be the the top point portion I that to is receive of can’t I to million, a – a gain, would Yes. got massive $XXX point. your off think head, remember. my value

Jade Rahmani

refinance a JCAP book the gain? be Would value

Paul Richards

the is think prefer a conversion I is there’ll so at there Yes, value takeout there. be – the – or the on book XXX, the slight gain

five points… So

Jade Rahmani

shareholders. book I an think would accretive points, value, Five be Yes, good you’ve above I Right. these that for mean, it’s okay. gains created optionality in investments which generate to

availability the terms of is investment current new capacity? capital what in just Lastly,

Matt McGraner

under goes recover, reopen that did the can potential. I time. can that Well, that, did the note values now, our any as to like sort to offering is XX%. that go Same we our keep in for right we repo and we line lower it up would of than think just increases we We And July. at then preferred XX%

So we weren’t that previously able have we’re both a tap capacity unsecured to but it’s that institutions invested note the we certain equity, that, in amount of depending preferred on in pull the and can in. on some the markets, obviously

balance right earlier, now there that approximately mentioned cash I we we And the $XX on we sheet good expand in million. as have then some opportunities think tap those. to can is

stock book I value. we even So think have with a trading the lot to avenues below there, get of

Jade Rahmani

much. very Thanks

Matt McGraner

Thanks, Jade.

Operator

the At closing showing call I’ll and turn I over queue this in remarks. the time. am for questions no back

Matt McGraner

us. forward Yes, everyone’s I to for and think I quarter. appreciate speaking does next that participation it look

Operator

today’s Thank concludes disconnect. This and you you, ladies may gentlemen. teleconference, now