Thank you. Good day, everyone. And welcome to NexPoint Real Estate Finance conference call to review the company’s results for the third quarter ended September 30, 2022. On the call today are Matt McGraner, Executive Vice President and Chief Investment Officer; Brian Mitts, Executive Vice President and Chief Financial Officer; Matt Goetz, Senior Vice President, Investments and Asset Management; and Paul Richards, Vice President, Originations and Investments. As a reminder, this call is being webcast through the company’s website at nref.nexpoint.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-K and the company’s other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward-looking statements. The statements made during this conference call speak only as of today’s date and except as required by law, NREF does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion on these non-GAAP financial measures, see the company’s presentation that was filed earlier today. I would now like to turn over to Matt McGraner.

Actually, it will be, Brian. Thanks, Kristen, and I appreciate everyone joining today. I am going to kick things off going through our Q3 and year-to-date results and then I will touch on guidance for the fourth quarter and then turn it over to the team for some detailed commentary. Q3 results are as follows; third quarter, we reported a net loss of $0.54 per diluted share, compared to net income of $1.17 per diluted share for the third quarter of 2021. The decrease in net income is a result of lower prepayments in Q3 and mark-to-market adjustments on the CMBS portfolio. Interest income increased 14% over Q3 2021, driven by a 76-basis-point increase in average yield on investments. Interest expense increased 37%, driven by $102 million of additional borrowings and a 98-basis-point increase in average rate. Earnings available for distribution was $0.48 per diluted share in Q3, compared to $0.51 per diluted share in the same period of 2021. Cash available for distribution was $0.50 per diluted share in Q3, compared to $0.62 per diluted share in the same period of 2021. The decrease in earnings available for distribution and cash available for distribution was the result of lower prepayments in Q3. We paid a dividend of $0.50 per share in the third quarter and the Board has declared a dividend of $0.50 per share for the fourth quarter. Our dividend in the third quarter was 0.96 times covered by earnings available for distribution and 1 time covered by cash available for distribution. Book value per share decreased 4.2% quarter-over-quarter to $20.68 per diluted share, partially as a result of the mark-to-market adjustments in the CMBS portfolio. During the quarter, we originated or purchased nine investments with $113 million of outstanding principal with a combined current yield of 8.3%. Four investments were redeemed or sold with $27.5 million of outstanding principal for a total net loss of $731,000. Year-to-date results are as follows; for the nine months ended September 30, 2022, we reported net income attributable to common shareholders of $0.71 per diluted share, compared to net income of $3.02 per diluted share for the same period of 2021. This decrease is largely driven by mark-to-market adjustments in our CMBS portfolios. Earnings available for distribution was $2.25 per diluted share year-to-date, compared to $1.35 per diluted share in the same period of 2021, an increase of 67.5%. Cash available for distribution was $2.69 per diluted share year-to-date, compared to $1.57 per diluted share in the same period of 2021, an increase of 72.1%. Higher year-over-year earnings available for distribution and cash available for distribution for the year were driven by higher prepayments and requisite prepayment penalties in the first and second quarters. Our dividend for the year was 1.5 times covered by earnings available for distribution and 1.8 times covered by cash available for distribution. Now let’s move to guidance for the fourth quarter. For the fourth quarter, we are guiding to earnings available for distribution and cash available for distribution as follows; earnings available for distribution of $0.53 per diluted share at the midpoint, with a range of $0.48 on the low end and $0.58 on the high end. Cash available for distribution of $0.52 per diluted share at the midpoint, with a range of $0.47 on the low end and $0.57 on the high end. The increase in cash available for distribution and earnings available for distribution from the third quarter is driven primarily by new investments in the portfolio. So, with that, let me turn it over to the team for the detailed commentary.

Thanks, Brian. The third quarter continued to show strong performance across each of our investments and asset classes. As of today, the portfolio is currently comprised of 83 individual investments, with approximately $1.7 billion of total outstanding principal. The loan portfolio is 96% residential, with 42% invested in senior loans collateralized by single-family rentals and 54% invested in multifamily, primarily via Agency CMBS. The remaining 4% of the loan book is life sciences and self-storage. The portfolio’s average remaining term is 5.6 years, is 93% stabilized, has a weighted average loan-to-value of 68.1%, and an average debt service coverage ratio of 1.76 times. The portfolio is geographically diverse with a bias towards the Southeast and Southwest. Texas, Georgia, and Florida combined for approximately 49% of our exposure on a geographic basis. All of our investments are current. Moving to the opportunities we were able to take advantage of during this quarter and shortly thereafter. As of today, we were able to close 11 new investments totaling $132 million, with a weighted average unlevered yield of 9% and an average levered yield of 11.2%. $9 million of mezzanine investments were made, collateralized by a stabilized self-storage property located near Miami, Florida, with an unlevered yield of 11%. $21.5 million in three separate preferred equity investments collateralized by stabilized multifamily properties located in Plano and Fort Worth, Texas, and Parkland, Washington, at a weighted average estimated yield of 13.3%. A $15 million preferred equity investment also closed, collateralized by a stabilized life sciences CDMO property outside of Minneapolis, Minnesota, yielding 10%. The tenant is a well-capitalized group that signed a long-term lease at the property. $1.5 million of MSCR notes with an estimated leverage yield of 13.8% closed, and $85.1 million of CMBS, including the Freddie Mac B-Piece, with an average unlevered yield of 7.6% and levered yield of 12.9% closed shortly after the quarter. In summary, we continue to find attractive investments throughout our target markets and asset classes, and we will continue to evaluate these opportunities with the goal of delivering value to our shareholders. I’d now like to hand the call over to Paul Richards.

Thanks, Matt. During the third quarter, the company was active in the primary bond market and was awarded a $70.5 million Freddie Mac floating-rate B-Piece, which has an attractive yield at SOFR + 525 and levered yields in the low to mid-teens, prudently leveraged via attractive price repo financing. The bond boasts a great geographical presence, prudent underlying loan leverage and, as always, excellent sponsorship. We struck the entire CMBS portfolio by shocking cap rates and NOI growth to determine how far our cap rates could theoretically widen and interest rates could rise until the bond performance would deteriorate. The results were somewhat as expected. The vast majority of the portfolio has shown strong NOI growth over the past few years and refi risk is minimal even at these stressed rates. We continue to be sensibly leveraged on the repo at roughly 60% LTV at quarter end and have constant dialogue with our great repo lending partners on the state of the market and the repo CMBS portfolio. Lastly, touching on the continued performance of the SFR loan pool in the Q3 2022 loan pay down. All SFR loans are currently performing and demonstrated strong metrics in terms of rent growth in occupancies as the demand for single-family rental growth is still red-hot. The portfolio had one SFR loan payoff in the third quarter, which generated an IRR of 22% as compared to the original underwritten IRR of only 9%. Due to the early prepayment penalty, the investment was able to generate outsized net proceeds over the original underwriting, ending roughly one-third of the original investment time horizon. To finalize our prepared remarks before we turn it over to questions, I’d like to turn it over to Matt McGraner.

Thank you, Paul. As the team has mentioned, NREF’s credit investments, and primarily stabilize shorter-term lease duration assets with lower CapEx, had and should continue to maintain dynamic pricing power in today’s inflationary environment. Underlying NOI embedded in our stabilized SFR, multi-, and storage-collateral continues to outperform other property types, providing a resilient base of earnings for distribution and stable yields to our investors. Though moderately decelerating from historical peaks earlier this year, same-store NOI growth in multifamily, SFR, and storage is still pushing high single to low double digits. On the origination front, the team continues to put capital to work in our core property types at accretive yields. In addition, we believe this market is ripe for us to generate more of our special situation, tactical type of investments for well-yield sponsors to take advantage of the lack of liquidity in the private markets, especially as it relates to multifamily portfolio transactions and single-family rental, particularly in the build-to-rent space. We are also pleased with the lack of transitional assets or business plans within our portfolio. Indeed, we are thankfully not speaking to you today discussing transitional business plans on office or other longer-term duration assets. Finally, it’s an exciting time for our business and that our portfolio enjoys a stable and transparent earnings stream for the next five-plus years, from which we can utilize our deep relationships, and frankly, our own investment platforms across multifamily, SFR, storage, and life sciences to continue to generate outside risk-adjusted returns for our investors. That is all I have for prepared remarks. Now we would like to turn the call over to the Operator to answer any of your questions.

Thank you. And we will first hear from Stephen Laws of Raymond James.

Hi. Good morning.

Hi, Steve.

Good morning.

I guess maybe Matt McGraner, maybe start with a bigger picture question, with mortgage rates going to 7%, where they are. Can you talk about what impact you expect that to have on your SFR and multifamily kind of as this rolls through? Do you expect higher renewal rates? How do you expect to look at occupancy or expect increases there? Maybe talk about buying a home becoming less affordable and how that benefits your SFR and multifamily investments?

Yes, you're right. Everything happening now is making home affordability more challenging for multifamily loan growth and our equity portfolio. We are observing retention rates increasing from 40% to 50%, specifically moving up to 55% and 56% in the affordability workforce sector, which is a significant part of our CMBS portfolio. The same trend is evident in our SFR platform, where volume growth and retention rates remain high, particularly in the affordable sector. Given the scarcity of construction financing, we expect supply will decline for developers. New construction has significantly dropped in the latter half of the year, and we anticipate that multifamily supply will peak in late 2023. The years 2024 and 2025 are likely to be favorable for both equity investors and credit in this sector.

Great. Thanks, Matt. When we think about new investments, when you look at things on a relative attractiveness, money going to work in mezz, I appreciate, Matt, Goetz highlighting the new investments, some new private equity investments, preferred equity investments too, I think. But can you talk about how those stack up from a return standpoint versus considering stock repurchases, just given the weakness here ahead of the quarter and where book value came in north of 20%?

Yeah. I think the idea is probably to balance it in a barbell strategy and do both. Thankfully, as you might recall in Q2, we had $150 million of pipeline for the rest of the year; roughly $115 million of that has been soaked up. And so we are pretty pleased with the growth profile over the next 12 months from external investments. So, to the extent that we stay at 75% of book value, that might be our first use of free cash flow on the margin, but otherwise, I think it would be a barbell.

Great. And my last question for now. On the two common stock investments, can you give us an update on those and how you are thinking about the investment timeline and returns or considerations of reallocating anything into cash flowing debt investments?

Yeah. I will start with the storage piece and I will kick it to Paul to talk about the ground lease investments. So on the storage side, we are seeing within our own portfolio, pretty dramatic same-store NOI growth, eclipsing 25%-plus. In 2022, 2023, we think could see low-teens as well, rents kind of in the same realm. We just closed on the senior side of the portfolio at SASB right after Labor Day with JPMorgan at accretive levels. So we were sorting out the capital stack. That was the first piece. The second piece is ongoing with Extra Space discussions in terms of deleveraging their preferred. I would expect that we would have a resolution there by year-end at an accretive level for the common equity. So pretty pleased with how the portfolio is performing and also pleased with the cap stack maneuvering that we have been able to achieve so far this year in this environment. Paul will talk about the ground.

Yeah. Definitely, Matt. On our ground lease investment, right now they are rolling on all cylinders. They have dry powder that they are deploying at 4.5%-plus cap rates on stabilized ground leases. So, it’s stabilized assets. They have a very good runway to take advantage of what’s going on in the marketplace, which is a lack of liquidity on the credit side. I think it’s a great time to be in this investment. So I think in terms of exit, call it two to four years, but there’s also a market possibly for an exit too, since we have such a small piece of the equity as well.

Yeah. Particularly just to add to that, Stephen. These are both kind of bite-sized check sizes and really great portfolios to the extent that we found the special sit or other use of proceeds that we thought was more accretive. We have a number of external parties, quite frankly, internal parties to monetize these two assets, so pretty good optionality.

Great. Really appreciate the color on both of those investments. Thank you.

Thanks, Steve.

Next we will hear from Steve DeLaney of JMP Securities.

It was nice to be on the call and engage from a research perspective. I noticed you have a strong track record with the Freddie K-Series. Recently, we have been following the challenges in the CLO market and saw that Freddie is starting the Q-Series again with multifamily bridge loans. Are you considering this? I know you prefer stabilized properties over transitional ones, but as this evolves, could you see yourselves getting involved in the Q-Series in addition to the successful K-Series?

Yeah. Thanks, Steve. This is Matt McGraner and great pleasure to talk to you and appreciate the coverage. We have had a long history, as you noted, with Freddie and have iterated with them on a number of entrepreneurial and creative things that they try to do. We will continue to do that with the Q-Series. I think it’s in the early stages. So to the extent that we think it’s an attractive investment for this portfolio, we will look at it. But on the other things that we are doing with them, I think we still prefer large property types in the K-Series.

Got it. And with the K-Series, obviously, those are fixed-rate term loans, mostly 10 years, I guess, in this move up in coupons. I suspect when we see reports from Walker & Dunlop, Arbor Realty, et cetera, that we are going to see a dramatic slowdown. So is it your expectation when you are looking at the portfolio out into 2023, anyway, that there’s going to be a big drop in issuance?

Yeah. I think that largely the K-Series that we have done have been floating. So we are actually benefiting from the SOFR rate...

Yeah. Okay.

Yeah. A lot of it is from this project. You are right; you hit on the team that’s going on right now. So to the extent that there’s refi activity or purchase activity, most sponsors are floating today...

Yeah.

...given that they don’t want to put on fixed-rate debt at 5.5% to 6% levels and that’s pretty material negative leverage if you believe cap rates are still sub-5%, 4.5% to 5%, which we do. So most of the product, I think, over the next six to nine months will be skewed towards the floating side, would be my guess.

Yeah. Makes sense. And it depends on your view on the Fed, but our thinking here is that we are going to get a pivot sometime in the second half of 2023 and we will just then see how far we move back down the hill, so to speak.

Yeah.

Just one last quick question. We are experiencing a significant disruption as we've discussed. We're unsure about the duration of this situation, but if it persists throughout 2023, do you think there could be scenarios where borrowers might need rescue financing or banks might have to sell some loans at attractive discounts? I know we aren't at that point yet, but would you consider taking advantage of such opportunities if the situation worsens?

Yeah. So, if you go back to COVID, there was a great opportunity that lasted about three weeks to buy assets dislocated...

Yes.

...securities, and we did as much as we possibly could, but there was just so much capital on the sidelines that soaked up pretty quickly.

Yeah.

I do think an interesting research project for someone would be to go pull gateway office assets that are 40 years old or longer that are held by either CMBS or banks at the basis of whatever the per square foot basis of the loan is that, I think, probably are in trouble or will be in trouble. That could be an interesting set of weakness. But I don’t think you will see us dip into that space, but I do think that’s probably where the size of the trust will first illuminate.

Yeah. That’s where we are seeing all the 4 and 5-rated loans with the commercial mortgage REITs, that’s for sure is the office space.

Yeah.

Awesome. Thank you so much for the comments this morning.

Thanks, Steve.

Next we hear from Jade Rahmani of KBW.

Thanks very much. Do you have any view on home prices and where you think they will go in 2023? What would your guess or estimate be for the magnitude of home price decline?

Yeah. Hey, Jade. It’s Brian Mitts. From an SFR perspective, I think you got to distinguish it from housing itself. Obviously, housing prices, I think, are going to decline or decelerate in growth, if not decline. But I think from the SFR perspective, we are seeing really strong rent growth and high occupancies. I think Invitation has already reported, but as Matt mentioned, within our private portfolio, which is quite large, we haven’t seen a deceleration of rents. We have seen good NOI growth. So I think we are not going to see the same type of decline in asset values in that context. So I think SFR has still got great fundamentals. I think if you look across our loan portfolio at the underlying assets, that’s very similar. So we may see a little retracement just depending on kind of where cap rates go, and where they are at is kind of anyone’s guess at this point. Just the transaction volume is pretty thin across really all sectors. But it certainly hasn’t moved in tandem with interest rates and I think that you are not going to see the same type of value degradation in SFR on housing in general.

Okay. They did report Invitation Homes and their stock is down 8.5% today, just...

Yeah. Their expenses, I think, were quite high and surprised to the downside on core FFO or FFO decrease in our guidance. But I think the public markets and private markets, so far, are very disconnected as well.

Okay. Where do you think multifamily either prices in absolute nominal terms or cap rates to go also, similar prices?

Hey, Jade. Yeah. It’s Matt McGraner. I think, so we are marketing ourselves on the equity side portfolio, Sunbelt portfolio today, and bids are coming in and spot cap rates around 4.5% levels. There are a couple of data points out in the market on larger portfolios, $500 million plus that are non-Sunbelt or partially Sunbelt that are eclipsing 5% today. So kind of taking those two data points from what we see, there’s not a lot of transaction activity as you know. But if you got to sell, it’s probably a 4.5% to 5% cap rate today and then the bid sheets aren’t as deep as they were certainly in the first half of the year.

Okay. And so to finance that you would be in the 6s on a cost of debt or high 5s?

It depends if you go fixed or floating. If you go floating, you are probably 200 over the SOFR rate, so yeah, on a floating basis. And then on a fixed-rate basis, the spreads to the 10-year have largely been 150 to 175 is what we are seeing. Commissioning business on the Agency side, they will tight spreads probably 20 to 30 basis points on both floating and fixed.

20 to 30 basis points?

Yeah.

Okay. And so what do you think the IRR is on those kinds of deals?

On a leveraged basis, it is likely high-single digits over a five-year hold if growth is present. If growth is absent, the return is definitely lower. The multifamily sector currently faces significant negative leverage, indicating that adjustments are necessary on an unlevered basis. We anticipate most of the activity will occur in either the latter half of this year or the first half of next year. Core funds that are investing in core-plus products are projecting an unlevered return of approximately 6% to 7% over a 10-year hold.

Operator, are there any other questions?

There are no further questions at this time. I will turn the call back over to our presenters for any additional or closing comments.

Yeah. I appreciate everyone’s participation today and I look forward to speaking to you next quarter. If you have any other questions, feel free to reach out to the team here and we will be happy to answer them. Thank you.

That does conclude today’s conference. Thank you all for your participation. You may now disconnect.