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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 Fourth Quarter Conference Call. Today’s conference is being recorded. At this time, I would like to turn the presentation over to Ms. Jackie Graham. Please go ahead, ma’am.

Jackie Graham

you. Thank and the Real fourth company’s December everyone, call Finance’s quarter to XX. review to results welcome day, 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 t company’s nref.nexpoint.com. a As

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

publicly similar core expressions, variations of results can risks, financial forward-looking dividend include, could differ They company’s in share, distribution actual for XXXX including the words. available discussion forward-looking with cash that the risks subject place registration filings as are factors results be the as from in of for NREF These of could net materially on non-GAAP are to company’s to and that to negatives expressed measures often accordance of statements IRRs, company’s a revise encouraged and These by first common identified per CAD, earnings, activity, forward-looking law, these and of other except should industry not ratio conference undue statement also and This guarantees call more earnings for for statements future other for affect not the on a and any forward-looking or quarter and estimated statements used net those of and dividend core non-GAAP are first S-XX review statements. are GAAP. are general, financial uncertainties, reliance computed for XXXX. includes to not the undertake statements assumptions any measures. loss analysis required complete and SEC to a coverage such Listeners regarding be should any statements investment any the to, cause of and estimated substitute statements. quarter not obligation and income, update does results as business limited not but forward-looking in words Form which or the Forward-looking intend, by expect, supplement the company’s anticipate, guidance income

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

Brian Mitts

Thank to you, I’ll Goetz Jackie, capitalization, discuss actions and call just remarks call. some everyone then for the QX Real Matt joining Finance during the Estate Paul and fourth We’ll XXXX us welcome XXXX closing to NexPoint guidance and and of Matt our the Richards from over opportunities portfolio financial highlight earnings our we year to quickly performance, with the McGraner. comments prepared see. for turn and quarter conclude

[Indiscernible] a call although had stocks including margin lines. net launched in repo employing per and that an markets share, that’s NREF per preferred per mid-March, of and make equity $XX.XX share repo increasing of a pay with share REIT signs February, we began raising July higher adverse lines approximately second result In as quarter. attractive of NREF had private time. were Freddie offering net million end the the the start October value of our panic recover, proceeds low markets multifamily dropped raising to In creating to gross million mezzanine me we in gross low trade then of NREF to Mac. $XX In of loans Let completed effect our two financing. proceeds proceeds mortgage to financing to purchase a $XX.X PA. using last credit highlights up XXX% no launched offering we from million. $XXX at we used and to notes on on investments our to drew May using XXXX. of pandemic [Ph]of In The at more raising the increases. IPO $XX repo on $XX.XX unsecured proceeds $X.XX stock gross In Book pool net This dropped acquire a proceeds proceeds of down froze to

equity facility XX, of at roughly facility REPO Each mezzanine million of a one $XXX on of yield of December the million equity, preferred the on X.XX% against facility points loans. financing, notes, credit The of rates. the remaining $XX interests. underlying million $XXX the on loans, half SFR The is throughout another $XX and and mortgages million facility has X.X% by collateralized $XX.X average of at. X.X December $XX.X is XXX a duration million non-controlling weighted SFR in stack fixed million redeemable or fixed is is rate million by XX $XXX cost is with portfolio $XX.X our of As has at collateralized million the construction weighted the years. common The mezzanine pool, basis on average term multifamily million unsecured facility million million $XXX consisted max in SFR of capital $XX $XXX

of annualized. by balance both, carrying remaining average $XXX is debt. $XXX a interest December or average basis weighted a XXX rate at million at the the the the In average LTV X.XX% XX is facility X.X weighted cost The assets our fits against XX, term on of As of points X.XXX and years. prior on weighted XX% million yield or securitizations for the basis the collateralized repurchase of REPO underlying of points

of to December the For the cost million $XX level of average years We weighted to ample as liquidity X.X term our XX% mark-to-market. raised XX, of at unrestricted X.XX% to financing is December equity. subject debt XX. low debt of X.XX times with of of The average and

public since share. for per common XXXX, We short to had For $X.XX $XXX,XXX. net we went February, of per reported earnings $X.X a we million early attributable Core million, income of loss $X.X the loan provision share. which $X.XX was or or a shareholders year in year

increase As average of price repurchased price at share a We Board a XX fourth shares XX.X March Monday, per a cents the dividend it’s of XX $X.XX current share representing an XX, in XX%. $XX.XX March quarter on as share dividend representing of of dividend. we paid December the record declared for to at of payable discount XXX,XXX per of shareholders in and XX.X% per

low share on midpoint, are per high core the million For $X.XX – low core with on high on the or the issuing And With million XX.X coverage. $X.X end, of and guidance on discuss that the times the Richards covers $X to a cents the That end midpoint, diluted share share per and the will that me end. equate guidance range Paul over good million earnings portfolio. per to to turn quarter, and end. at $X.X on X.XX give we Goetz it midpoint let at a first the $X.XX the us diluted Matt $X.XX

Matt Goetz

Brian. Thanks,

and markets, throughout we resilient into more and strengthen continue and continue move which our more to commercial year to continue asset targeted near real property all We residents and to underlying types quarter the gateway market what in strength growth full densely as should this and is most to cycles. look believe future classes. believe fourth results trend populated a favor estate will less Our

strategy, underwriting VPs and like is XX immediately our predict of portfolio’s - fixed at estate in are across defensive is multi-family investments. commercial approximately a minutes Southwest to spend pre-COVID residential XX.X% able the well outstanding – comprised the in leverage While by a equity sector, transacted with future fourth we quarter service in to diverse strength with recent XXX% senior investment can’t XX% securitization Mac CMBS, current. in coverage investments the the effects average provide as is as our with levels advantage residential portfolio’s the of with space. believe to yields ratio value floating and Southeast commercial in described real the average current low of billion was weighted XXX is That portfolio The a loans, path invested of principal. investments Strong weighted portfolio potential we via at a portfolio and The invested XX.X% said, might we and we’d total conservative debt investments XX% and opportunity well-healed and stabilized each loan preferred and thereafter. of namely should in term loans consistent on our current mortgage stabilized few performance assets, legislation Freddie last with portfolio is discuss The $X.X shareholders. the and X.XX and rentals sponsorships basis take COVID-XX, The are which have to discussing storage our of stable debt. XXX% development collateralized and individual evidenced XXX agency on credit points mezzanine The at average $X X.X times. with single-family by geographically remaining towards markets and years billion the bias REIT value rate

slightly forbearance the $X.X into similar of securitized of Freddie Freddie reference Mac principal entered Mac’s in since portfolios third billion in quarter forbearance October X.X% balances XX, are as underlying is both As or the the earnings, roughly improving metrics currently to our mentioned on last loans none forbearance, by total report quarter. unpaid

the you backed As moratoriums portfolios rated June extended the of year. for of more has mortgages federally administration until new know, this forbearance in XXth

we outstanding X.X portfolios’ portfolios coverage months Columbus loan service an impact One and X.XX X.X% respectively. or mezzanine was IRR ROC the As don’t strength ratio The for million leveraging $XX XX. now, debt to by investment times December expect in our located to investments, XX material and sponsorships. the used in strong redeemed at of of times, it any evidenced and

construction heavy for loans. land a reminder, loans and loans, zero we have transitional sale no not loans, As no

an Moving to to during take the able quarter. opportunities, advantage of immediately we’re the after fourth

with senior IRR And with multifamily of Los XX, the to properties stabilized the On portfolio. investment into find evaluate bond by for of XXXX, from asset portfolio received accruing now we the accretive multibillion January mezzanine providing of and asset and collateralized opportunities approximately On classes. Richards a we target mentioned, the a I’d been notes able multifamily redemption October value continue we stakeholders. closed XX, we delivering to all Brian us unsecured million XX% individual these investments for to deploy bond underwritten like to purchased for seeing shareholders. from We our Angeles, offering $XX markets As dollars XX.X%. of plus proceeds mezzanine currently XX to financing have our interest. throughout and investments what summary, in our California. portfolio XX.X the to we loans discuss redevelopment In continue to opportunities Paul call we’ll and hand in the are to repo our goal over market attractive sponsorship financing

Paul Richards

Matt. Thanks,

fourth quarter, or from loans financing deploy both since company Freddie secondary During active that we issue in the mentioned. market Matt attractive loan accretive capital and – was agency not as equally purchasing CMBS the was and new mezzanine the able to as from Mac issue are Brian to

quarter agency New bond of pricing tighter fourth value. bonds up gotten both beginning and the with issue XXXX in of came rate continued and to through floating in the

rate floating pricing. on high as basis both Since as the continued spreads we – management expected rate slightly tighten listed spreads new mentioned and QX culture As the have a this the from was to seen points to call, bonds fixed XXX earnings the plus stability. on on – retail world

increase. application starting the markets seen listed into markets pricing fully to seeing value XXXX and of and floating QX expect new against Now we base the have these book

further, taking XX% step XX% would pricing. market the this value widening imply current on increase of are at increase at on market book the CMBS We REPO these portfolio downward million REPO movement in XX% quarter spreads of decline LTV million implying value before approximately basis $XXX on continue to it market and end $XX levers we LTV points roughly taking XXX our issue one new

over into entering over transactions want to closed we performance on pool. positive of on with as how McGraner. its before still Residential these this this questions, touch turn news in the like for it remarks, finalize for prepared we a recent agreement Lastly, definitive as optimal view and it Front our entire Ares turn merger a Matt to January and year. Pretium We briefly credit for I’d to and just the to company expect To be Yard

Matt McGraner

I’d like to Thanks, brief a end thoughts. with Paul. couple

market The this First team’s as credit with and already dislocation I of increase am on last generated the conditions. bearing the team the in in we quarter. ability can proud significant in capitalize book the year value results the fruits operating to a and XXXX you see tough is

deliver expectations our ideal for We proud on appreciate trust. to your and also investors. to the are our year We

substantially as We by true maintaining pleased proud dividend coverage and another promise are a while yet Brian our shareholders. on double-digits delivering increase mentioned to to the

we XXXX, opportunities residential to in what we’ve been that the attractive get and asset we core classes. to to expect is to As commercial in continue doing leveraging source continue to forge verticals and do

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

Operator

from And James. will Stephen we Instructions] Raymond question Laws [Operator with our take first

Stephen Laws

you the given strong But, also capacity guess, maybe on morning. bit in good you dividend you are wanting all see doing investments, of nice Brian, a shifting course where to you you I portfolio guess, and for now get do leverage the moving? quarter fact increase. I to can weather. And while about Hi, discussion, of maybe changed and mix first off, good on over touch that sequentially new XXXX? that to talk see the it’s congrats the part a good mix where

Brian Mitts

the pull cover in then through We question I’ll in that go yield that the there market mix and sort of the outsize the where with half jump and it Matt, there. in capital big from a and and pretty raising Matt equity, recovered. year out portfolio that then unsecured using is deferred notes And seems REPO future. last Yes. creating of the I’ll success had your

in quarter So continue July the we lot we we communities higher than did and prices October. of and in probably think

And can the fund I down. frame comes have that and but are sourcing you would at things to and of I proactive about think ability so, those that number we a think are about looking that we I you anything talk

Matt McGraner

Yes. Hey, this is Stephen, McGraner.

closely Freddie mortgage-backed security They are year. it These know the like created in see also because multifamily Mac will be them know, been the the the space. you you our that significant investment we are ones on think close with work see, mezzanine the made. we primarily we commercial I in probably we’ll and – you opportunities investments this like – first and in

we were in in And so portion book. that’s the where focused multifamily resulting on probably the of increase

of our what primarily time spending – be where that’s now. So, we we will most

Matt Goetz

for earnings stock up of further in are sort continue increase - of to January we And up you getting last one in that investments. numbers had with – and book price get above things in pricing and helpful Steve, and decline February, all been indicates keeping as into we that, the value on up we using But good book having increase. up and it IPO, patient and then very, happened the was to above put what we value very in value said talking book a CMBS mentioned, we’ve book to the terms that – the COVID, stock during Matt what expect declines the in take the year, being is making priorities book price fit initially about thoughtful and can

common that So, to to was what both. like asking – we may equity and to in say raise you

Brian Mitts

he the wealth still One, place trading asked in today. for that’s

Stephen Laws

investments tightening where Sure, on a I those investment we sure. competition seeing to you sourcing touched a other in little returns follow-up, you Paul today I spreads looking to new investments guess, this market, back you think, on Can talk just the add? bit and to seeing competition are see – on CMBS and levels. new also pre-COVID mezz on the new for are are at you bit about the little type

Matt Goetz

Goetz. Yes, it’s

its last a basis inside repeats points XXX basis toward XXX I the like CMBS points are, at I said, front, went are which low above off the and our the purchases strengths On transactions on yes, think XX level.

and a in competition Mac Freddie because the the for bar it’s terms rendered set that for select of space still becoming just repeat it sponsor the In of CMBS bids. high BTH hit,

loans. to XX we So the bidders twice reconnecting give the quarter state you In mezz or they players auction on $X and an spikes. are a million $X are Southeast or the $XX in in with that maybe Southwest. and play active or the we asset bigger is have money We space that that then and doing our due up competition. put debt world, spend probably are and funds, million investment a the looking about multifamily million but $XX don’t more really more it to ton in securitization our The mezz once not it’s after in on you a of to million time worth lot

Stephen Laws

today. comments the Appreciate Great.

Brian Mitts

Thank you.

Operator

Amanda our Sweitzer take question now Baird. next will with from we And

Amanda Sweitzer

have Thanks. that stock be on Good your for any source investment? potential can And you morning plan share the Do common this self-storage year? of update you a all. funds could

Matt McGraner

There a Yes. of recap we’ve Hey highly for XXXX that that. McGraner. working a is source number you – sure. can actively It’s to that likely or can funds that Amanda. number of funds, a been with be Matt working do We think funds

Amanda Sweitzer

And the largest about of investment a Okay. where can different that’s than the little investing mezz that how talk portion bit for you bit slightly past higher That’s helpful. up then made January, LTV in the got investment? and comfortable following where then with you in just more on you you’ve exposure,

Matt McGraner

Yes.

at us, terms for and think markets I gateway not in a gateway market fan. of we markets huge are

a COVID. the really you and in And bucket As back over – across for during been we’ve your year. in a multifamily then mezzanine underlying, different think [Indiscernible] terms from the that of pool I LA know, this coverage it’s spectrum certainly watching

think us with book during through we the with put of ultimately performance course the been back of COVID can to enough whole it years save XX pool right kind things. on and XX of put watching close and Mac. months we’ve the the we COVID and So through They But we of this Freddie we then up. negotiating on lot to working monitored excited – that through were comfortable that it on

Amanda Sweitzer

And small, is redemption quarter? realized but helpful. of loss your quarter. then, the it’s the share fourth preferred Is in that something noted during bridge book related per you That’s in or else Georgia equity $X.XX value the to

Matt McGraner

we disappeared a spin premium. the It’s bought that a to flow due out at

lots. So we premium into that felt put

Amanda Sweitzer

comments. That makes the all for Thanks sense.

Brian Mitts

Thanks, Amanda.

Operator

[Operator Instructions] with Jade Rahmani We’ll take question next from now our KBW.

Jade Rahmani

you Thank much. very

a be have value do up to Given Should the book perhaps is credit of XX.XX the assuming in might we CMBS something where your around provide? are be spreads mark-to-market you space, able range you X%?

Paul Richards

Paul. say brokers it’s that’s would to at Jade, January’s be on I come where but be to given X% the that’s with Hey, yes, higher Yes, think increase seen would I and looking pricing start our could before numbers, X% that, fair and that correct March to in February, March, it a out where be still gets assessment.

Jade Rahmani

on What available should and capital equity deployment in quarterly those of pace annual you. an how from Thank either there this cash to investments? the new or into expect we deploy year basis terms capital of is

Matt McGraner

Hey, McGraner. it’s Yes.

is we them. us. so for funnel and other an what we million would saw which once and And discussed million while optimistic targeting goal $XXX are the year it’s actively opportunities be preferred are sourcing further quarter think $XX you longer a doable that as I each this earlier and we with think

Jade Rahmani

Thank you.

which of NREF in portfolio would difference Can proportion forbearance. securitized talk is you credit collateralized when in Mac overall the and forbearance, or clear greater is have come XXXX front, what that the cite a in Mac’s or $X.X loans On explain you are billion increase Freddie Mae, Freddie about EPB portfolio for X.X% at book? that in that I of portfolio of yes, Mac loans securitized there versus the about in loans about no there Fannie between of look the Freddie noticeable it’s the NREF November,

Brian Mitts

Yes.

the So, repeats fortunate reserves the was the think – having obviously but this underwriting interest since has first additional and get purchased repeats much stronger mezz was repeats all credit through was I securitization. three portfolio NREF so and the we the the three - s book different, bought and

Matt McGraner

common everybody And accrual insurance through reserves stack and then aren’t implemented this before the is that preferred. our and

Jade Rahmani

no about forbearance? is but the So even There Mac in loans pools owns. X.X% there though – the that Freddie Mac within in securitized are NREF is forbearance, those in are still of portfolio, loans portfolios repeats Freddie there that

Matt Goetz

were a That’s correct. second in have quarter, portfolio of the and forbearance. Those portfolio in were forbearance. in loans exited there Back BP number the the that in

have point forbearance one anymore. at we loans So, we but in don’t did

Jade Rahmani

you for Thank that. Great.

thought the debt ultimately refinance On capitalize believe if they portfolio, resi Pretium the to is could I perhaps tenancy some other which I wondering either it’s your expectation am resi XX%. securitization which that and plan Ares and through means, that

higher a you capitalize earnings a eventually And a go will graceful higher the a a if though they So, of – that’s on cheaper capitalize piece to the be exit able they create do have higher exit debt cost exit. ROE stream, to and to forward more basis stream to a that probably could then interest, refinance show earnings plan that. and

expectation to investment? So, what that with respect your

Brian Mitts

discussing Yes. here, to we that with they watch. indicated they’ve intend don’t you Hey, the through were the sit it’s we’ll and actual once get and then but, and Paul, in let refinance about detail don’t Brian. numbers Pretium I’ll talk Paul numbers

Paul Richards

With prepayment now. XX% given to $XXX the the as loan. have If roughly trying. we when are yield breakeven. right use you to deepen. Hey, to sense have XX% get rates are Jade. the they we those million break would even toward I’ve [Indiscernible] breakeven We It’s Yes, for where so calculated provide that we yes, – roughly of to it penalties actual example, at numbers. given million to that, XXX can make

Jade Rahmani

up, penalty happen? the good that if happen, Okay. new deploy – were able seems that to it would of sort and call to gain that’s you to that it elsewhere that be I get that assume it value if huge did book to item, season And prepayment a

Paul Richards

Expecting to occur.

Jade Rahmani

much. Thank you very

Brian Mitts

Thanks, Jade.

Operator

remarks. I’d our additional appears it And questions. Instructions] no presenters are over telephone to for [Operator to conference turn further closing back or there like any the

Brian Mitts

reiterate on that call. you I And thank closing join for Yes, everybody comments. the

with perform road we XXXX as were IPO during to our happy to doing happy that and said were we we close show XXXX. that into able are and We

talk thank So and next time. you we’ll

Operator

your that again, you We participation. once thank for And does all conclude conference. today’s

You disconnect. now may