Operator
Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Next Point Real Estate Finance Q2 2025 earning call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star followed with the number one on your telephone keypad if you would like to withdraw your question press star one again thank you i would now like to turn the call over to kristen griffith investor relations please go ahead thank you good day everyone and welcome to next point real estate finance conference call to review the company's results for the second quarter ended june 30th 2025. on the call today are paul ridgis executive vice president and chief financial officer and Matt McGranner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at nref.nextpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meetings 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 10k and the company's other filings of the sec for more complete discussion of risk and other factors that could affect the forward-looking statements the statements made during this conference call speak only of today's date and accept as required by law and rec 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 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 thank you kristen and welcome everyone joining us this
morning i'm going to briefly discuss our quarterly quarterly results move to our balance sheet and lastly provide guidance for the next quarter before turning it over to matt for detailed commentary on the portfolio and the macro lending environment q2 results results are as follows for For the second quarter, we reported a net income of 54 cents per diluted share compared to net income of 40 cents per diluted share for the second quarter 2024. The increase in net income for the quarter was due to an increase in interest income between the second quarter 2025 to the second quarter 2024. Interest income increased by 4.6 million to 22.8 million in the second quarter of 2025, from 18.2 million in the second quarter of 2024. The increase was driven by an uptick in interest income driven by increased income from investments. Interest expense decreased $700,000 in the second quarter of 2025 compared to the same period in the prior year from the deleveraging that occurred in the second quarter of 2024. Earnings available for distribution was $0.43 per diluted common share in Q2 compared to $0.68 per diluted common share in the same period of 2024. Cash available for distribution was $0.46 per diluted common share in Q2, compared to $0.64 per diluted common share in the same period of 2024. The increase in earnings available for distribution was driven by the increase in net income for the quarter. We paid a regular dividend of $0.50 per share in the second quarter, and the Board has declared a dividend of $0.50 per share payable for the third quarter of 2025. Our dividend in the second quarter was 0.92 times covered by cash available for distribution. Book value per share increased 1% from Q125 to $17.40 per diluted common share, with the increase being primarily due to unrealized gain on the preferred stock investments. During the quarter, we funded $39.5 million on Life Science Preferred, and we purchased $15.3 million CMBS I-O strip with a bond equivalent yield of 7.24%. Moving to our balance sheets and portfolio. Our portfolio is comprised of 86 investments with a total outstanding balance of $1.1 billion. Our investments are allocated across the sector as follows. 49.5 multifamily, 32.7 life science, 15.5% single-time rental, 1.6% storage, 0.7% marina, and 0.1% specialty manufacturing. Our fixed income portfolio is allocated across investments as follows. 28.3 CMBSBPs, 24.9% MEDS loans, 18.7% preferred equity investments, 12.9% revolving credit facilities, 10.4% senior loans, 4.5% IO strips, and 0.1% promissory notes. The assets collateralizing our investments are allocated geographically as follows. 27% Massachusetts, 15% Texas, 6% California, 6% Georgia, 4% Maryland, 4% Florida, with the remainder across states with less than 4% exposure, reflecting our heavy presence and preference for Sunbelt markets, with the Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 74% stabilized with a 58.5% loan-to-value and a weighted average DSDR of 1.44 times. We have 815.6 million of debt outstanding with a weighted average cost of 5.9%. Our debt is collateralized by 865.4 million of collateral with a weighted average maturity of 3.8 years. Our debt-to-equity ratio is 1.14 times. Moving to our guidance for the third quarter, we are guiding to earnings available for distribution and cash available for distribution as follows. Earnings available for distribution of $0.42 per diluted common share at the midpoint with a range of 37 cents on the low end and 47 cents on the high end. Cash available for distribution of 50 cents per diluted common share at the midpoint with a range of 45 cents on the low end and 55 cents on the high end. Now I'd like to turn over to Matt for a detailed discussion of the portfolio and markets. Matt.
Thank you, Paul. 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 here discussing our verticals and what we're seeing before I turn over to talk about our pipeline. On the residential front, supply pressures have eased somewhat but continue to present concentrated challenges in sunbelt markets in particular. According to RealPage, 2Q of 2025 marked the first quarterly drop of over 20 basis points in inventory growth in over 15 years as new deliveries tapered after peaking in late 2024. Despite the slowdown, over 400,000 units were delivered in the trailing 12 months, sustaining elevated competition and lease-ups. The upshot here is that after one more quarter of significant deliveries in 3Q of 2025, the national delivery outlet contracts to a GFC-level output of just 77,000 units per quarter, which supports our thesis on accelerating fundamentals in the multifamily sector in 2026, 2027, 2028. More positive news, demand outperformed expectations in the first half of the year. Net absorption surged and the national stabilized occupancy rate improved to 94.6 in July. New lease rates are still modestly negative in most of our markets as operators continue to be defensive. However, we are very constructive on rental rates continuing to inflect higher as the supply picture continues to improve. On the storage front, the REITs guided for flat to very low single-digit revenue growth and flat to negative 1.5% NOI growth in 2025. Q1 earnings were slightly better than expected, but guidance was maintained. Post-Nay-REIT commentary in June indicated rising occupancies and improving rates. Still, the sluggish housing market continues to weigh on the self-storage demand. Home sales are at a multi-year low and mortgage rates remain elevated, softening the 2025 peak leasing season still the REITs are pushing street and web rates which could support q2 results and have so far REITs with exposure to major markets are outperforming on the occupancy front i.e extra space and public storage smart stop these exceed their 2025 projected averages while operators in secondary and tertiary markets continue to underperform on the supply outlook new development remains below equilibrium under two and a half percent of existing supply and with limited bank financing high land and construction costs and elevated interest rates supply continues to be in check this supply discipline should help restore pricing powers housing activity rebounds finally on the life science front lab leasing continues to be challenging particularly given the tariff and nih funding uncertainty under the under the new administration with that said we're pleased to report some great great momentum at our alewife project we're closing in on a 245 000 square foot lease with an ai biologics company on a 15-year deal producing a debt yield of just over eight percent for for this just the portion of this project we expect the formal announcement to occur in the first half of of q3 they're very excited about this this upcoming event as paul also mentioned we were able to accretively dispose at Mofford last week, creating even more liquidity to fuel our pipeline. Today, our active pipeline of origination stands at over $235 million, and largely in the resi sector. We expect this incremental pipeline activity to create an increase in our CAD run rate in the high single digits. In closing, our underlying credit profile of the portfolio remains very strong atop the commercial mortgage rate sector. Moreover, we continue to have some of the lowest leverage profile of any commercial mortgage rate which allows us a variety of capital options to pursue accretive growth indeed we're excited about our growth in particular and cautiously optimistic about the overall market dynamics going into the second half of the year as always i want to thank the team for their hard work and now i'd like to turn the call over the operator for questions at this time i would like to remind everyone in order to ask a question press start then the number one on your telephone keypad we will pause for just a moment to compile the Q&A roster.
Operator
Your first question comes from the line of Jayes Romani with KBW. Your line is open.
Thank you very much. Can you comment on credit trends within the Freddie Mac VPS portfolio? Both GSEs talked about a slight uptick in delinquency trends within their portfolio.
Hey, Jay, this is Paul. Yes, our VPS portfolio is still overall very solid when compared to you know, other CRE, CLO, and that 21-22 vintage, you know, RB pieces, again, straddle 2018 through a 2025 vintage. So, you know, we have some really good collateral, some really good deals that are both diversified, fixed, and floating. And I would say, yeah, there's, you know, a few problem loans here and there, but overall, especially on the fixed side, it's been really sturdy and, you know, really good credit profile. But, you know, again, I would say, you know, in our floating rate vintages in that 21 pool. Yeah, there are a few loans that we have our eye on, but nothing of complete concern as of right now. Matt, I don't know if you have anything to add to that.
Yeah, I think given the amount of liquidity in the market for Resi in particular, you know, we're optimistic that some of the troubled assets just broadly across all K deals and even in our portfolio are going to be able to catch a bid here in the second half of the year, and and the borrowers will be able to you know have liquidity options to um yeah available to them whether it's you know more agency or or um the debt uh the debt funds are getting more aggressive in particular on the multifamily sector so um yeah with the liquidity profile i think everyone's you know waiting out the kind of the first half of 2025 looking forward to 2026 and um expect the uh the overall delinquency picture uh to improve uh going into the back half of the year even though you know we're still in a challenging supply environment thanks on the life science side can you talk about pro forma for that lease that you mentioned what the occupancy would be at that point yeah so it's about two-thirds yeah yeah of course so it's two-thirds of the first phase of the project which is which is what our loan is um so it'll be yeah like I said two-thirds lease post deal announcement.
So once that happens how much duration will there be remaining on this loan?
Roughly on a fully extended basis roughly two and a half years.
But importantly importantly we're already seeing and in talks with you know back leverage and eight note lenders and you know with the lease we have a lot more you know financing options to us to uh you know to uh probably be taken out um before that so this project seems quite different from or resistant to the pressures we're seeing in life science overall uh several of the mortgage REITs for example have downgraded to risk five uh life science loans uh and books reserves this quarter yeah um well the good news for us is that we started um you know we made this loan in the in the midst of 2024 early 2024 and not in 2020 or 2021 or 2022. So that coupled with the fact that the sponsor has 400 million of equity versus our 218 million dollar mortgage and then plus we were able to land the lease so in a different spot than our peers fortunately.
Thanks wanted to ask your thoughts on the seniors housing space. You know the thought is that COVID really outweighed the favorable demographic trend underpinning that sector because there were huge inflation and operating costs and a lot of delinquent tenants that remained in occupancy. You know, the inflation rate has moderated and the delinquencies are being reversed. So the fundamental outlook for that sector is much improved. Do you agree with that?
And are you interested in adding exposure to that what are your thoughts generally yeah i i 100 agree with that and um you know look no further than the the out performance of well tower you know over the last couple years um and then yeah the proliferation even i think that they're doing and build to rent and specialized um you know projects for for an aging population um we're seeing you know a lot of capital in that space we put to work you know on the on the on the build to rent side and you know highly amenitized senior housing projects are finding good capital and good and great cap rates so I do think that that is a good place to play we looked at a couple of purpose-built senior build to rent deals haven't hit on any thus far but it is an attractive space I agree with you and and one with some legs and you know over the next over the course of this decade I I think so. Yeah, we're we're interested in.
Thanks. I'll stay tuned for that. You all have been pretty nimble at identifying those kinds of opportunities. So I imagine it's something you'll look at.
Yeah, I agree. Thank you, Jay. Thanks.
Operator
I will now turn the call back to the management for closing remarks.
Thank you very much for everyone's time today, and we look forward to speaking to you after the third quarter.
Operator
Ladies and gentlemen, that concludes today's call. You may know disconnect.
