Earnings call transcript: Nexpoint Q1 2025 beats EPS forecast, stock dips

Nexpoint Real Estate Finance Inc (NREF) reported its first-quarter 2025 earnings, surpassing analyst expectations with earnings per share (EPS) of $0.70, compared to the forecasted $0.4776. Despite this positive earnings surprise, Nexpoint’s stock declined by 3.73% in pre-market trading. According to InvestingPro data, the company maintains a robust dividend yield of 13.67% and trades at an attractive P/E ratio of 14x. The company highlighted strong performance in its multifamily and life sciences sectors, although challenges persist in certain areas.

Key Takeaways

• Nexpoint’s Q1 2025 EPS exceeded forecasts by 46.6%.
• Stock dropped 3.73% pre-market, reflecting mixed investor sentiment.
• The company reported a significant increase in interest income and a decrease in interest expenses.
• Strategic investments in life sciences and multifamily sectors were highlighted.

Company Performance

Nexpoint demonstrated a robust performance in Q1 2025, with net income reaching $0.70 per diluted share, a significant turnaround from a loss of $0.83 per share in the same quarter last year. The company benefited from increased interest income, which rose to $22 million from a negative $1.6 million in Q1 2024. InvestingPro analysis indicates the company’s strong financial position, with liquid assets exceeding short-term obligations and a healthy current ratio of 13.12. Additionally, Nexpoint’s strategic portfolio management, particularly in the multifamily and life sciences sectors, contributed to its improved financial standing.

Financial Highlights

• Revenue: Not specified, but interest income increased to $22 million.
• Earnings per share: $0.70, up from a loss of $0.83 in Q1 2024.
• Book value per share increased by 1.47% to $17.22.
• Regular dividend of $0.50 per share was maintained.

Earnings vs. Forecast

Nexpoint’s EPS of $0.70 significantly outperformed the forecast of $0.4776, marking a 46.6% positive surprise. This marks a notable improvement from previous quarters and suggests effective cost management and revenue generation strategies.

Market Reaction

Despite the earnings beat, Nexpoint’s stock price fell by 3.73% pre-market, a move that may reflect investor caution regarding the broader market environment or specific company challenges. The stock’s decline positions it closer to its 52-week low of $12.14, contrasting with a high of $18.09. InvestingPro analysis suggests the stock is currently undervalued, with additional ProTips and detailed valuation metrics available to subscribers. The company’s Fair Value assessment and comprehensive Pro Research Report, part of InvestingPro’s coverage of 1,400+ US stocks, provides deeper insights into this potential opportunity.

Outlook & Guidance

For Q2 2025, Nexpoint projects earnings available for distribution to range from $0.38 to $0.48 per diluted share, with a midpoint of $0.43. The company remains focused on expanding its residential and self-storage investments, with potential for $75 million in new equity from asset monetization. InvestingPro data shows strong revenue growth of 73.65% over the last twelve months, though analysts anticipate some moderation in the current year.

Executive Commentary

Chief Investment Officer Matt McGriner expressed optimism about the rental residential sector, stating, "We believe the rental resi sector has bottomed and believe there’s optimism for rental growth." CFO Paul Richards highlighted the portfolio’s stability, noting, "Our portfolio is very sturdy with great overall performance."

Risks and Challenges

• Market volatility and economic uncertainty could impact investor sentiment.
• The challenging leasing environment in the life sciences sector presents a risk.
• High short-term debt levels (52.1% of total debt) may pose refinancing challenges.
• Potential macroeconomic pressures could affect the multifamily market.

Q&A

During the earnings call, analysts inquired about Nexpoint’s credit loss provisions and the leasing potential of its life sciences projects. The company emphasized its focus on exploring opportunities in stretched senior multifamily financing, reflecting its strategic priorities in the current market landscape.

Full transcript - Nexpoint Real Estate Finance Inc (NREF) Q1 2025:

Conference Operator: As a reminder, today’s call is being recorded. I will now hand today’s call over to Kristin Griffith, Investor Relations.

Please go ahead.

Kristin Griffith, Investor Relations, NexLint Real Estate Finance: Thank you. Good day, everyone, and welcome to NexLint Real Estate Finance conference call to review the company’s results for the first quarter ended 03/31/2025. On the call today are Paul Richards, executive vice president and chief financial officer, and Matt McGriner, executive vice president and chief investment officer. As a reminder, this call is being webcast through the company’s website at nrep.nextpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations, assumptions and beliefs.

Listeners should not place undue reliance on any forward looking statements and are encouraged to review the company’s annual report on Form 10 ks and the company’s other filings with the SEC for a more complete discussion of risks and other factors that could affect forward looking statements. The statements made during this conference call speak only as of today’s date, and except as required by law, NREP does not undertake any obligation to publicly update or revise any forward looking statements. The conference call also includes an analysis of non GAAP financial measures. For a more complete discussion of these non GAAP financial measures, see the company’s presentation that was filed earlier today. I would now like to turn the call over to Paul Richards.

Please go ahead, Paul.

Paul Richards, Executive Vice President and Chief Financial Officer, NexLint Real Estate Finance: Thank you, Kristin, and welcome everyone joining us this morning. I’m going to briefly discuss our quarterly results, move to our balance sheet, and lastly, guidance for the next quarter before turning it over to Matt for detailed commentary on the portfolio and the macro lending environment. Q1 results are as follows. For the first quarter, we reported net income of $0.70 per diluted share compared to a net loss of $0.83 per diluted share for the first quarter of twenty twenty four. The increase in net income for the quarter was due to an increase in interest income between the first quarter of twenty twenty five and the first quarter of twenty twenty four.

Interest income increased $23,600,000 to $22,000,000 in the first quarter of twenty twenty five, from a net loss of $1,600,000 in the first quarter of twenty twenty four. The increase was driven by an uptick in interest income driven by higher rates. Interest expense decreased $700,000 in the first quarter of twenty twenty five compared to the same period in the prior year from the deleveraging that occurred in the first quarter of twenty twenty four. Earnings available for distribution was $0.41 per diluted common share in Q1 compared to negative $0.46 per diluted share in the same period of 2024. Cash available for distribution was $0.45 per diluted common share in Q1 compared to $0.60 per diluted common share in the same period of 2024.

The increase in earnings available for distribution was driven by an increase in net income for the quarter. We paid a regular dividend of $0.50 per share in the first quarter, and the board has declared a dividend of $0.50 per share payable for the second quarter of twenty twenty five. Our dividend in the first quarter was 0.9 times covered by cash available for distribution. Book value per share increased 1.47% from Q4 twenty twenty four to $17.22 per diluted common share, with the increase being primarily due to unrealized gain on our preferred stock investments. During the quarter, we funded $55,000,000 on a life science preferred, and we purchased a $15,000,000 CMBS IO strip with a bond equivalent yield of 7.22%.

During the first quarter, we sold 1,800,000 shares of our Series B cumulative redeemable preferred for net proceeds of $44,700,000 Moving to our portfolio and balance sheet. Our portfolio is comprised of 85 investments with a total outstanding balance of $1,200,000,000 Our investments are allocated across the sectors as follows: 49.4% multifamily, 31.9% life sciences, 15.6% single family rental, 1.6% storage, 0.9% specialty manufacturing, and 0.6% marina. Our portfolio is allocated across investments as follows: 28.4% CMBS BPs, 24.7% mezzanine loans, 19% preferred equity investments, 12.9% revolving credit facilities, 10.4% senior loans, 4.2% IO strips, and 0.3% promissory notes. The assets collateralizing our investments are allocated geographically as follows: 26% Massachusetts, sixteen % Texas, seven % California, six % Georgia, five % Maryland, four % Florida, with the remaining across states with less than 4% exposure, reflecting our heavy preference for Sunbelt markets with the Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 75.2 stabilized with 58.7% loan to value and a weighted average DSCR of 1.46 times.

We have $831,500,000 of debt outstanding. Of this, 433,600,000.0 or 52.1% of short term debt. Our weighted average cost of debt is 6% and has a weighted average maturity of one point two years. Our debt is collateralized by $862,800,000 of collateral with a weighted average maturity of four years. Our debt to equity ratio is 1.33 times.

Moving on to guidance for the second quarter, we are guiding earnings available for distribution and cash available for distribution as follows. Earnings available for distribution of $0.43 per diluted common share at the midpoint, with a range of $0.38 on the low end and $0.48 on the high end. Cash available for distribution of $0.48 per diluted common share at the midpoint, with a range of $0.43 on the low end and $0.53 on the high end. Now I’d like to turn it over to Matt for a detailed discussion of the portfolio and markets.

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: Thank you, Paul. And as he just mentioned, we’re pleased to report another strong quarter amidst a challenging macro backdrop. I’d like to spend a few minutes this morning here discussing our verticals and what we’re seeing. On the life science front, lab leasing generally continues to be challenging, particularly given the tariff and NIH funding uncertainty under the new administration. This uncertainty has, in our view, delayed capital allocation decisions temporarily, but we do expect those decisions to eventually be made in the near term.

Even amidst this uncertainty, we still see green shoots, including at our own projects, most notably our Alewife project. The sponsor is negotiating leases now on two thirds of the project, which they’re optimistic will be inked in the second quarter. These leases would result in a 10 plus percent debt yield for, again, just two thirds of the project. We also remain bullish on CGMP and advanced manufacturing assets as the reshoring of supply chain wave accelerates. Indeed, contrary to what has happened in the lab market, the new administration and its policies have catalyzed many high profile announcements to build manufacturing plants on US soil, most recently by Apple, Roche, Novartis, Intel, and Lilly, to name a few.

We are seeing an uptick in build to suit requirements across the board from semiconductors, nutrition and pharmaceutical manufacturing, and expect this trend to continue over the near term. On the resi front, after a record year of absorption in 2024 of 667,000 multifamily units, we saw continued strong demand in the first quarter. Nationally, over 138,000 units were absorbed, another record first quarter of leasing and demand performance. There is strength across the board, even with with with even Sunbelt markets capturing a vast majority of the top 10 markets for q one absorption. And with tepid new starts and a worsening housing affordability picture, we believe the rental resi sector has bottomed and believe there’s optimism for rental growth and increased transaction volume in the coming quarters.

Indeed, in our own portfolio in our owned in our own owned rental portfolio, we have seen positive new lease growth across 40% of our portfolio, and that’s up from just 5% in Q4 of twenty twenty four. Prospective purchasers can now underwrite positive rental growth again for the first time in many quarters, which in our view will lead to increased liquidity and stable, if not increasing, valuations. Again, our goal is to do as much as we can in the resi sector this year. As we said last quarter on the self storage front, we’ve been able to source, underwrite, and commit to four very attractive self storage development opportunities. These projects range from an 8.1 to 8.5% yield on cost, are geographically diversified, and sponsored by a developer that we’ve successfully completed over $215,000,000 of deals with.

After utilizing reasonable A Note leverage, we expect our returns on these assets to be approximately 18 and a half percent. In addition, we are actively marketing several equity investments to monetize this quarter and hopefully throughout the rest of the year, which would generate approximately $75,000,000 of new equity to relever and deploy into income producing assets. Given these assets do not earn a yield today, the potential for cat accretion resulting from our efforts is quite promising. Again, we’re very pleased with the quarter, the progress on the life sciences side and the backdrop for residential assets over the near and intermediate term. We remain active and open for business across our key verticals and look forward to continued growth in the coming quarters.

As always, I want to thank the team here for their hard work, and now we’d like to turn the call over to the operator for questions.

Conference Operator: Your first question is from the line of Jay Ramani with KBW.

Jay Ramani, Analyst, KBW: Thank you very much. Can you comment as to what you’re seeing on the credit side? There was a notable credit loss provision. Wondering if that pertains to specific assets. And more broadly, have you seen any impact from macro uncertainty?

Paul Richards, Executive Vice President and Chief Financial Officer, NexLint Real Estate Finance: Hey, Jade. Yeah, great question. This is Paul. So, for the last quarter, we implemented a weighted average base case and downside scenario for CECL reserve. That was part of it.

And then there was also a private preferred that we’ve had our eye on that we decided to be proactive and apply a reserve for. So, that’s where you see the uptick. Overall, still, very, very low CECL reserve amongst our peers, just given our credit profile and multifamily as a foreign storage and our life science. But overall, I’ll let Matt speak after me, but it’s been a very sturdy portfolio with know, we’ve seen great performance overall.

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: On the on the broader question, Jade, I think, yeah, the as I said in the prepared remarks, the life science sector and and other, I I would say, tariff based portions of the economy are seeing, I think, a temporary halt. We don’t expect that to continue beyond, I think, latest resolutions are planned June or July. But there is liquidity for most assets or most property types, including and especially on the residential front. We’ve seen probably only increased interest. Tariffs aren’t really pausing anything on the residential sector.

In fact, they’re just making housing affordability decisions either be delayed, causing the rental sector to be stronger. And we do really believe this setup for residential assets over the next two, three years is gonna be pretty special. Short term blip, but overall, no real impact.

Jay Ramani, Analyst, KBW: And what was the breakout between the weighted average base case downside scenario and the private preferred? Was it evenly split between the two, or was it more weighted to one or the other?

Paul Richards, Executive Vice President and Chief Financial Officer, NexLint Real Estate Finance: It was about fiftyfifty.

Jay Ramani, Analyst, KBW: Okay. And then in terms of the life science, after the leasing, the positive leasing momentum you cited, what percentage leased will that project be or pre leased will it be? Is it a multi tenant project, or is it single tenant? Can you give any more color on that?

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: Yeah. It’ll be two thirds leased, and then then that that income from the two you know, the those leases for the two thirds of the project would be result in a 10, almost 11% debt yield, and it’s it’s across two tenants.

Jay Ramani, Analyst, KBW: And how much, is there left to be funded?

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: Left to be funded on that project?

Paul Richards, Executive Vice President and Chief Financial Officer, NexLint Real Estate Finance: About 40,000,000.

Jay Ramani, Analyst, KBW: Okay. That’s NREF’s commitment.

Paul Richards, Executive Vice President and Chief Financial Officer, NexLint Real Estate Finance: Yes. Correct.

Jay Ramani, Analyst, KBW: Wow. So that’s that’s really good news because life science leasing has been extremely weak, including in that market. So it sounds like it’s a pretty special asset.

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: It is. Yeah. We agree.

Jay Ramani, Analyst, KBW: And then just broadly in the environment, what are you seeing in terms of interesting opportunities? Are you gonna be focused on the residential space doing preferreds, or will you be ramping up CMBS B pieces? You know, what’s what’s gonna be the plan going forward?

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: I think the latter two, you know, we’re we’re gonna participate and have been actively participating in the K deals with Freddie. And then on the some of this uncertainty and delay has caused some stretched senior opportunities in what I would describe as the CFO or the multifamily pre leasing deals that have come out of the ground. They’ve gotten a certificate of occupancy, but they’re not primed for agency financing, but they’re past their bank life, so to speak, or their construction loan life. So we think there’s a lot of interesting opportunities that we’re underwriting in that kind of shorter term stretch senior to get these assets stabilized and to facilitate the lease up on the resi front. We think that you can earn a 2 50 to three fifty spread on those assets at a reasonable detachment point.

Spending a lot of time there and hope to transact on, like I said, after re leverage 50 of of of those opportunities, along with those four developments of self storage, which, you know, will take longer to materialize, but they’re still really good investments.

Jay Ramani, Analyst, KBW: Thanks very much.

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: Thanks, Jay. Thanks, Jay.

Conference Operator: Joe. At this time, there are no further questions. I will now hand the call back over to management for closing remarks.

Matt McGriner, Executive Vice President and Chief Investment Officer, NexLint Real Estate Finance: Thank you very much. Appreciate everyone’s time, this morning and look forward, to speaking to you next quarter. Thanks again. Goodbye.

Conference Operator: This concludes today’s call. Thank you for joining. You may now disconnect your lines.

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