NexPoint Real Estate Finance, Inc. (NREF) Q4 2025 Earnings Call Transcript

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Next Point Real Estate Finance Q4 2025 Earnings 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 by the number one on your telephone keypad. And if you'd like to withdraw your question, press star 1 again.

Thank you.

I'd 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's conference call to review the company's results for the fourth quarter ended December 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 nref.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 a new 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 with sec for a more complete discussion of risk and other factors that could affect the forward looking statements the statements made during this conference call speak as of today's date and accept as required by law interrupt 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.

Thanks, Kristen, and good morning, everyone. I'll walk through our quarterly results, cover the balance sheet, and provide guidance for Q1 before turning it over to Matt for a deeper dive on the portfolio and the macro lending environment. Fourth quarter results are as follows. We report a net income of $0.52 per deluded share compared to 43 cents in Q4 24. The increase is driven by unrealized gains on our preferred stock and stock warrant investments. Earnings available for distribution came in at 48 cents per diluted share compared to 83 cents in Q4 24. Cash available for distribution was 53 cents per diluted share up from 47 cents in the prior year our prior quarter. We paid a regular dividend of 50 cents per share in the fourth quarter which was 1.06 times covered by cash available for distribution. The Board has declared a dividend of $0.50 per share for the first quarter of 2026. Book value per share increased 1.4% from Q3 to $19.10 per diluted share, primarily driven by unrealized gains on preferred stock investments and stock warrants, turning to new investment activity during the quarter. We funded $5.7 million on a loan with a monthly coupon of SOFR plus 900 basis points with a 14% floor, along with $22.5 million on a loan paying an 11% monthly coupon. We also funded a combined $17.4 million across two Marino loans at a 13% monthly coupon. On the capital market side, we raised $60.5 million in gross proceeds from our Series B preferred stock offering. For the full year, we reported a net income of $2.09 per deluded share, more than double the $1.02 reported in 2024. The increase was primarily driven by higher net interest income. Interest income increased $17.4 million to $89.9 million for 2025, up from $72.5 million in the prior year, driven by higher rates on the portfolio. At the same time, interest expense declined from $44.4 million to $42.8 million. Earnings available for distribution was $1.84 per diluted share, up 3.4% from $1.78 in 2024. Cash available for distribution was $1.97 per alluded share compared to two dollars and 42 cents in the prior year a decrease of 18.6 percent moving to the portfolio and balance sheet our portfolio consists of 92 investments with a total outstanding balance of 1.2 billion by sector we are allocated as follows 47 multifamily 30 life sciences 70 17 single family rental and the balance across storage marina and industrial by investment type 28 cmbs bps 23 preferred equity 20 mezzanine loan 14 revolving credit facilities 10 senior loans and the remainder in io strips and promissory notes geographically our collateral is concentrated in massachusetts at 24 texas at 16 and california 7 with the massachusetts and california exposure heavily weighted towards life science florida georgia and maryland round out the top states reflecting our continued preference for sunbelt markets. The collateral on our portfolio is 82.5% stabilized with a 63.6 loan-to-value ratio and a weighted average debt service coverage ratio of 1.24 times. We have $771.2 million of debt outstanding and a weighted average cost of 5.3% and a weighted average maturity of roughly one year. Our secured debt is collateralized by $689.2 million of assets with a weighted average maturity of 3.6 years and a debt-to-equity ratio of 0.92 times. During the quarter, we refinanced $36.5 million unsecured notes with a new $45 million unsecured offering at 7.875%, a modest step up from the 7.5% notes we issued in October of 2020 when we were in a zero interest rate environment. The new notes carry a two-year term with prepayment flexibility, which positions us real well in the declining interest rate environment. We're pleased with this execution and look forward to terming out the remaining unsecured notes in the first half of 2026. On that note, we have 180 million of unsecured notes maturing in May, and we are actively reviewing several options to achieve the best execution and pricing on the refinancing. We also recently launched our Series C 8% preferred stock at $25 per share. Through the end of the year, we have sold approximately 80,000 shares for a total gross proceeds of $2 million and a total of $14.1 million through today. Lastly, subsequent to quarter end, we entered into a re-REMIC transaction on our 2017 K62 DB piece with Mizuho. Under this structure, we are selling the BPs and purchasing the horizontal risk retention tranche, which represents roughly 5.8% of re-REMICs. This transaction reduces our mark-to-mark repo financing by $75.2 million, and our debt-to-equity ratio would decrease to 0.83 times, and the HRR tranche carries an expected yield of 18.5%. On a go-forward basis, the interest expense savings and reinvestment capacity are expected to be around 30 to 34 cents per share accretive to annual CAD. We view this as a compelling example of actively managing our BP's portfolio to unlock value and improve our capital efficiency. Moving to guidance for the first quarter, earnings available for distribution, 40 cents per diluted share at the midpoint with a range of 35 to 45 cents. Cash available for distribution, 50 cents per diluted share at the midpoint with a range of 45 to 55 cents. And with that, I'd like to turn over to Matt for a detailed discussion of the portfolio and the current market environment.

Appreciate it, Paul. I'm excited to speak to everyone today about Interest Pipeline and trends in our main verticals. I also want to thank our team here, as Paul just mentioned, and all of our partners for another quality quarter for the business and our shareholders with great execution. As it relates to our main verticals, I'm very pleased with our portfolio of assets in this era of major AI disruption. Indeed, NextPoint has been steady and intentional about our asset selection, and thankfully NextPoint, and by extension, NREF especially, is not investing in AI scare trade assets or assets historically levered to these property types. We are intentional about our residential and self-storage exposure, both recession-resilient property types necessary for everyday life. Indeed, the introduction of AI to these property types is only improving efficiency and margins in these businesses and not rendering them obsolete. Even our life science exposures infers to fill assets in elite educational districts producing this AI talent. What's more, the demand funnel for our life science collateral is widening to AI companies themselves, which need the purpose-built lab-type buildings to house their compute infrastructure. Our AIRWIFE project is a perfect example. Lab and AI tenants could go to older converted assets for half the rent, but they must have the infrastructure and bones of these purpose-built, well-located assets, and they'll pay for it. So let me start there with life science for the quarter. Our largest single asset exposure in life science, Alewife Park, is now 64% leased at a nine debt cap rate, with RFPs, LOIs, and leases now totaling 2.8 times the square footage of the project momentum has materially increased since the lilies and we expect this trend to continue to have the project fully leased in 2026 yielding a debt cap rate with a 12 handle more broadly certainly less expensive alternative alternatives exist in the suburbs or in second gen space but first to fill buildings in impossible to recreate locations again in elite educational centers is our exposure. And what we are fairly certain of are two things. Number one, health, wellness, and longevity of life was already a rapidly growing trend before the latest AI disruption. And if we do get the productivity gains and GDP growth as a result, we believe the population will prioritize spending in their health, i.e. living longer, and entertainment. Drug discovery and delivery are key tenets of life science demand, and we believe each of these have a massive tailwind for purpose-built new life science product in elite academic ecosystems. The second tenet of our thesis in leaning in when we did is that new supply over the near term is non-existent. Our basis in our collateral is 30 to 60 percent below replacement costs for these assets, and that's just replacement costs, let alone the need to justify a profit for a new life science development. In short, we really like our portfolio and where it's positioned, especially relative to comps and the demographic that AI tailwinds are real. On the residential front, we continue to work through the highest supply cycle since the 1980s and do see the new lease inflection this year. I've detailed this on prior calls, but just to quickly repeat, we think multifamily rents will inflect positive with most of our market exposure occurring in the second half of 2026. We attribute this to four main factors. Persistent structural demand, the cost to own a home is three times more to rent an apartment in our markets. A 60% decline in new market rate deliveries from the peak. Construction starts running approximately 70% below their 2020 peak, locking in a multi-year supply trough. And finally, concession burn-off, resulting in immediate gains to gross potential rents. We do think AI will have some job cannibalizing effects, particularly in the entry-level white-collar job market, but also see an encouraging residential trend offsetting potential job weakness. That is, advances in health and wellness are adding longevity to the population, creating somewhat of a demographic backstop to demand. The 65-plus population is growing at 3% to 5% across our markets, and a late 2025 study from Harvard projects for the senior-runner population to double from 5.8 million households to 12.2 million households by 2030. On the self-storage front, Q3 REIT earnings came in at or slightly above expectations, excuse me, Q4 REIT earnings came in slightly above expectations, but revenue was flat to slightly negative year-over-year. Looking forward, Q4 in full-year performance is expected to show flat revenue in 50 to 150 basis point decline in NOI. Some self-site analysts have already trimmed their 2026 and 2027 estimates. Occupancy generally remains under pressure, with industry average ending 2025 at 89 percent, down 210 basis points from the start of the year. The primary culprit is the sluggish housing market, as home sales remain near multiyear lows and mortgage rates stay elevated, reducing a key demand driver for self-storage. Rates are the bright spot, however. However, after two years of falling rates, some down 20% from COVID-era highs, move-in rates have been trending up since May of 2025 and should help offset some of the occupancy weakness. Also good news, supply remains constrained at just under 3% of existing stock, with the already projecting deliveries as low as 1% over the next couple of years. Again, high financing costs, expensive land, and material cost inflation are deterring new development, which should eventually restore pricing power and return to NOI growth to the historical 3% to 5% range. Our NextPoint storage portfolio significantly outperformed the broader industry in 2025, finishing the year at 91.7% occupancy, exceeding its NOI budget by 3.2% and growing NOI 13 percent over 2024. Looking into 2026, NOI growth is expected to moderate to 4 percent, reflecting portfolio stabilization, softer demand, and rate constraints on our two LA properties, but still notably higher than the broader industry. On the SFR and VTR front, fundamentals continue to outperform the broader multifamily segment generally. Our SFR collateral remains some of the best performing within our portfolio with steady occupancies in the mid-90s with positive new lease and renewal growth as well. In recent discussion with the agencies and notwithstanding recent proposed regulation limiting institutional ownership in the sector, Fannie and Freddie remain open to finance built rent assets. Indeed, we believe this is an immense area of opportunity, regardless of regulation, to either take subordinate risk off of the agencies or fill a direct lending void to institutional portfolios of scattered site SFR, should this void materialize. I'm also very pleased with our pipeline and menu of capital options available to us to capitalize on these opportunities. Today, our rolling 90-day pipeline consists of senior mezzanine investments in $90 million of multifamily product, $55 million of BTR, 45 million of small bay industrial and self-storage and 70 million of life sciences and advanced manufacturing. As Paul mentioned, our underlying credit profile of the portfolio remains very strong atop the commercial mortgage REIT sector. And also given our healthy dividend coverage, very low leverage, stable book value, and capital options available to us, you can expect that we will also continue to opportunistically buy back stock while pursuing these new investments, particularly after the refinancing of our bonds. Again, very pleased with the portfolio's performance and look forward to deploying more capital this year in 2026. Again, 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.

As a reminder, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. Your first question comes from the line of Crispin Love from Piper Sandler. Your line is live.

Hi, how's it going? Can you guys hear me all right? Yeah. You're great. Awesome. Thank you so much. This is Ben Graham in for Crispin Love. Thanks for taking the question. I'm wondering if you could discuss dividend sustainability and your confidence in the current level. The EAD guidance range is below the dividend, but cash available for distribution is in line. And I'm wondering what the major factors are that are dividing yours and the board's decision on the dividend here.

And when do you believe you could be covering the dividend on a more consistent basis with ead thank you yeah hey great great uh getting to talk to you so yes our ead is a little below our cad but the majority of that is you know again the bridge from ead to cad and amortization of premiums some accretion of discounts and depreciation on reo so you know we we believe that cad is the better indicator of uh you know dividend coverage and sustainability hence why we have continued to recommend a 50 cent dividend to the board and they have you know approved it every time so you know we feel very good on the go forward you know one from the re-remic transaction we discussed two from the continued series c raise

and redeployment at 200 to 400 basis point net interest margin for that number to grow over time as well so you know we feel well positioned you know for the future for dividend sustainability yeah i just add to that um you know our we've consistently are out earned our dividends since our inception um again have stable book value um going on the the offensive and um really like our cost of capital again to drive uh drive the results that you're seeing here um which which you know uh relative to the comps uh we think it's pretty good awesome thank you so much for the color there and then if i could ask one more question um when you look at your

portfolio areas between multifamily, single-family rental, self-storage, life sciences, et cetera. I'm wondering what areas you're most excited about today. And then further, how do you expect the administration's focus on real estate, mortgage, and single-family affordability to impact some of the areas where you're invested? Thank you.

Yeah, I think, you know, I'm glad, as I mentioned, that we leaned into life sciences when we did last year at a time when, you know, There was no capital available because we're starting to see folks reenter that market, which are going to reduce spread. So right now, I think where we're spending the most time is on the BTR and the multifamily front on the new construction and stretch senior side, you know, providing B notes and selling off A notes for both new construction and or new lease up deals, both on the BTR front and on the multifamily front. As it relates to, you know, the recent proposed regulations, I think it's still too early to tell, but our organization has been involved in some of the, you know, the regulatory process, if you will, and lobbying process in in in dc and um you know i i think from from our exposure um you know we feel very good about mainly focusing on you know built rent assets which are adding to the housing stock and not detracting from it and so we we still think that there's going to be um a need to provide capital in that in that space um so i think the opportunity remains uh for btr assets what's more interesting and I think more in the bullseye of the proposed regulations are scattered site SFR. There's been proposals on limiting institutional buyers from purchasing homes off of the MLS and how that all shakes out in terms of the financeability. It's probably too early to tell, but I think the ABS market on the scattered site front is still very active and still you know i'd say wide open um even you know post uh post the announcements i think that market still continues to trade well and still um i think the origination volume is still open but to the extent that it's closed and scatter site becomes a little bit of a yeah you know um uh out of favor with the you know with the broader you know lending environment because of political pressure i do think that that's an opportunity for us to enter that market and provide capital and liquidity because we're obviously very comfortable with it.

Thank you so much for taking my questions.

You bet. Your next question comes from the line of Jade Ramani from KBW. Your line is live.

Thank you very much. Can you touch on the provision for credit loss that took place in the quarter, around $12 million, and what you expect on that going forward?

Absolutely, Jade. Hey, this is Paul. I would say that one-third of it was just our general reserve. We include, we updated our calculation to be, again, more conservative. It now includes a severe downside component to the CECL provision to align with our peer group. And the other, you know, call it 66% were on deals that we've already taken a CECL reserve on, which were on a few of the prep deals that we spoke about last quarter. On the go-forward expectations, again, I think you're kind of at that trough and there shouldn't be really, there aren't any really more problem areas on the press book or in the portfolio. So I think this would probably level off in 26.

Thank you very much. And just on the life science project, which has bucked the trend in the industry of a downdraft in leasing activity, um could you give your thoughts as to you know what the project specific characteristics are that drove you know the positive performance and if you're seeing you know outside of this project any uptick in life science leasing activity that might make you you know look at other deals in that sector yeah you bet um i'd say the alewife park project is is one of the uh the very few um you know, purpose-filled, life science, slab on grade, all the, you know, all the qualities that you need, and, you know, more importantly, you know, in West Cambridge on mass transit lines.

And I think, you know, when this project opened and CO'd, it was probably into the worst, you know, I would say some of the worst, you know, market dynamics that we faced, you know, historically in life science. You know, I think part of it is, again, the infrastructure that LILA Sciences needed. You know, we were the only building that could, you know, at that time house their needs and their infrastructure. And then, you know, it's kind of a cluster effect. Once you get a good tenant such as LILA, backed by a very well-heeled investor base, you know, that those tenants can continue to drive more leasing activity and if people want to be around them. So I think, you know, we might have gotten lucky, but I'll take it, I would say. More broadly, I think across the portfolio, I think activity is in the last, you know, 30, 60 days coming out of JP Morgan in San Francisco, there's been, you know, I would say a lot of optimism. We're seeing, you know more capital um yeah you've got cfos you know folks in charge of capital allocation decisions start making those decisions um finally and then i do think you know some of the um some of the biggest demands and winding of the funnel will come from ai and whether or not it's it's life sciences uh you know ai design the life sciences i don't think we really care i think the um you know again these buildings and these companies these ai companies with this compute infrastructure they they have to go in to purpose build new buildings um you know with all the uh the quality um you know the air quality the infrastructure like that i think that's um yeah that's helped our leasing activity a lot and i can yeah i don't see that uh i don't see that waning anytime soon thank you thanks your final question comes from the line of gabe pogey from Raymond James.

Their line is live.

Hey, good morning, guys. Thanks for taking the time. Can you give a little more details around the loans you made in the quarter, you know, specifically the $22.5 million loan, you know, 11%. I assume the SOFR9 is at AleWife. But just any kind of incremental color around those loans would be helpful.

Sure. Yeah, as you mentioned, there was the one loan, which was our continued commitment on the AleWife project. The other two loans, which were roughly, you know, I think it was around $10 million plus on the preferred side for two marinas that, you know, we really believe in the cash flow, et cetera. And the last one was a, it was a self-storage, a self-storage deal in Hylia. And again, very sound, very great detachment point, covered, you know, again, we expect to find these types of deals using more of a rifle shot approach, as Matt mentioned, in our pipeline funnel. So, you know, you can expect to see more of the multifamily in these types of deals in the future.

Got it. And then, Matt, you talked about, you know, obviously the potential regulation out of D.C., but the opportunity set just to go direct on build to rent, right, whether you're that solution capital, so to speak, PREF, NAS, et cetera. Can you talk about how big that sandbox could be for you guys as you just think about the whole, what next point holistically looks at, what NREF has touched, and how you think about how big that bucket could be over time?

Yeah, you bet. That's a great question. For our single-family equity business, they have roughly $550 million of BTR under contract or reviewing in any given month with about $200 million of new build-to-rent construction and product. And we're seeing all of that, obviously, in terms of deal flow and look at both the debt and the equity. And so it's been a steady pipeline, and it's been an origination funnel for us and one that we're really trying to get the word out with the Walker & Dunlop and the JLLs and CBs and say, hey, we're open for business on build-to-rent new construction. And CFO financing, we can take over at CFO, you know, play up and down the cap stack, wherever the opportunity is. And, again, like, you've got to be smart about the asset selection. I mean, we're not going to go, you know, finance a, you know, a greenfield, a new greenfield project next to a cow pasture. We're looking mainly to, on the smaller side, 50 to 125, 150 units that just feel more like an extension of the community. um versus you know like i said like uh you know random housing project in the middle of nowhere so um like like the like the backdrop for it um you know and certainly uh you know certainly think uh there's there's plenty plenty to do there in 2026 and beyond thanks guys thanks there are no further questions i'd like to turn it back over to the management team for closing remarks yeah thank you very much this morning uh for all your interest and participation in rep and we look

forward to speaking to you next quarter thanks again this concludes today's meeting you may not disconnect