NexPoint Real Estate Finance, Inc. Q4 FY2024 earnings call

• Congratulated Brian Mitts on retirement and welcomed Paul Richards as new CFO.
• Fourth quarter and full-year 2024 financial results discussed, including net income, interest income/expense, earnings and cash available for distribution.
• Investment activities: funded $16.7 million on life science development in Cambridge, MA; redeemed $9.5 million of mortgage-backed security; sold 1.7 million shares of Series B cumulative receivable preferred for $38.8 million net proceeds.
• Portfolio composition: 83 investments with $1.1 billion outstanding; fixed income allocation and geographic collateral allocation discussed.
• 2025 outlook: multifamily fundamentals improving, storage exposure strong, life science activity picking up, multiple capital options available for growth

For the fourth quarter, net income was $0.43 per diluted share vs $0.73 per diluted share in Q4 2023. Interest income in Q4 2024 was $32.3 million vs $16.9 million in Q4 2023, decreased by $15.4 million. Interest expense decreased by $2.5 million. Earnings available for distribution in Q4 was $0.83 per diluted common share vs $0.44 in Q4 2023. Cash available for distribution in Q4 was $0.47 per diluted common share vs $0.51 in Q4 2023. Full-year 2024 net income was $1.02 per diluted share vs $0.60 in 2023. Interest income in 2024 was $72.5 million vs $68.4 million in 2023, increased by $4.2 million. Earnings available for distribution year-to-date 2024 was $1.78 per diluted share vs $1.88 in 2023, a decrease of 5.3%. Cash available for distribution year-to-date 2024 was $2.42 per diluted share vs $2.05 in 2023, an increase of 18%. Portfolio allocation: Sectors - single-family rental 15.5%, multifamily 49.7%, life sciences 31%, self-storage 1.5%, specialty manufacturing 1.8%, merino 0.6%. Fixed income - senior loans 10.5%, CMBS B pieces 29.3%, preferred equity investments 19.5%, mezzanine loans 23.7%, IO strips 3.9%, revolving credit facilities 12.9%, promissory notes 0.3%. Geographic - Texas 15%, Massachusetts 25%, California 8%, Georgia 6%, Florida 4%, Maryland 4%, others <4%

• Guiding for first quarter: earnings available for distribution at midpoint $0.45 per diluted common share, range $0.40-$0.50; cash available for distribution at midpoint $0.50 per diluted common share, range $0.45-$0.55

• Monitoring CMBS portfolio, a few watch list loans; borrower refinancing on some prep deals, expecting refinancing in Q2 or Q3

Q: Matt, you may have touched on this. You did touch on it a second ago with your comments that construction, Freddie K are likely to be kind of new investments near term. Can you talk about the returns you're seeing on those new investments, how that compares to other things in your pipeline? And you know, how you think about how accretive new investments are compared to the cost of the Series B capital as you raise more?

A: It's a good question. On the Freddie K, we're hearing from Freddie we're most likely going to get a five-year fixed deal here in the second quarter. Be anywhere from $30 to $50 million in gross value. We would plan to lightly repo that and expect the yields to be in the 8% to 9% range. So, you know, getting with a little bit of accretive leverage, we're kind of, you know, low to mid-teens type of return. So that still remains attractive, especially given the credit profile of Freddie K deals and deals originating in 2025. So the risk-reward there, we view as very, very attractive. On the construction side, we're seeing really high-quality assets in developments with well-heeled developers that we can, you know, do a 60% loan to cost, you know, 300 to 400 spread. And then we have accretive A-note lenders at the same time. So that capital takes longer to put out, but we do have some attractive A-note opportunities against Series B that we would use to fund. So like both of those investments Q: On the Cambridge deal, is that purely spec since it's so large, wondering if there's an anchor tenant or any initial leasing, when do you expect to be able to provide an update as to how that's...

A: Yeah. We expect to have or the developer expects to have the CFO in Q3. There is preleasing right now, like I said, I think I mentioned upwards of 300,000 square feet on a total build of 395,000 square feet. You know, the developer is seeing both, you know, 25,000 to 50,000 square foot chunks, but there are a couple of larger requirements in the West and East Cambridge areas floating around right now that are actively touring the asset and are looking for a Q3 or Q4 move-in. So I would expect by then, we'll have some pretty good traction and some good news to report