NexPoint Real Estate Finance - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 delivered GAAP net income attributable to common stockholders of $35.0M and diluted EPS of $1.14; CFO referenced $1.12 due to share count and rounding differences, while non-GAAP EAD and CAD were $11.6M ($0.51/sh) and $12.1M ($0.53/sh), respectively.
• EPS beat S&P Global consensus ($0.51 vs $0.47*) and revenue materially exceeded consensus ($61.34M vs $11.89M*) on fair-value gains and portfolio income, while dividend coverage improved to 1.06x on CAD.
• Q4 2025 guidance raised: EAD/share midpoint to $0.48 (from $0.42 for Q3) and EPS/share midpoint to $0.41 (from $0.36 for Q3); CAD/share midpoint maintained at $0.50, with a $0.50 Q4 dividend declared.
• Catalysts: a 245k sq ft life-sciences lease at Alewife (Lila Sciences) stabilizing the asset and enabling financing optionality, a $65.7M Series B preferred raise, and launch of a $200M Series C 8% preferred offering; management indicated opportunistic buybacks alongside pipeline deployment.

What Went Well and What Went Wrong

What Went Well

• Strong GAAP results and improved dividend coverage: CAD/share $0.53 covered the $0.50 dividend 1.06x; book value per diluted share rose 8% QoQ to $18.79, driven by unrealized gains in preferred/warrant positions.
• Portfolio execution and capital formation: $42.5M preferred purchase, $6.5M SOFR+900bps loan funding, $60M multifamily sale generating a $3.7M gain, and $65.7M gross proceeds from Series B preferred.
• Strategic life sciences leasing win: “The Lila lease stabilizes the project and gives it a powerful base from which to drive leasing momentum and catalyze a new AI cluster,” positioning Alewife for refinancing/monetization options.

What Went Wrong

• Non-GAAP earnings pressure YoY: EAD/share fell to $0.51 from $0.75 and CAD/share to $0.53 from $0.67, reflecting credit provisions and lower accretion benefits YoY.
• Higher provision for credit losses ($15.68M) and reliance on fair-value gains to drive GAAP net income, underscoring sensitivity of quarterly results to mark-to-market items.
• Market headwinds in bridge lending and Sunbelt multifamily: management acknowledged softness in floating-rate bridge cohorts (2021–2022) and slower leasing in Sunbelt, though expressed optimism into 2026 as supply declines and new lease growth inflects.

Transcript

Operator (participant)

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 NexPoint Real Estate Finance Q3 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' 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. 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.

Kristen Griffith (IR)

Thank you. Good day everyone and welcome to the NexPoint Real Estate Finance conference call to review the Company's results for the third quarter ended September 30, 2025.

On the call today are Paul Richards, Executive Vice President and Chief Financial Officer, and Matt McGraner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast to 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 meanings 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 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 (EVP and CFO)

Thanks Kristen and welcome everyone joining us this morning. I'm going to briefly discuss our quarterly results, move to our balance sheet, and lastly provide guidance for the next quarter before turning it over to Matt for a detailed commentary on the portfolio and the macro lending environment. Third quarter results are as follows. For the third quarter we reported a net income of $1.12 per diluted share compared to net income of $0.74 per diluted share for the third quarter 2024. The increase in net income for the quarter was due to an increase in unrealized gains on preferred stock and stock warrant investments between the third quarter 2025 and the third quarter 2024. Earnings available for distribution was $0.51 per diluted share in Q3 compared to $0.75 per diluted share in the same period of 2024.

Cash available for distribution was $0.53 per diluted share in Q3 compared to $0.67 per diluted share in the same period of 2024. We paid a regular dividend of $0.50 per share in the third quarter and the board has declared a dividend of $0.50 per share payable for the fourth quarter of 2025. Our dividend in the third quarter was 1.06x covered by cash available for distribution. Book value per share increased 8% from Q2 2025 to $18.79 per diluted share with the increase being primarily due to unrealized gain on our preferred stock investment and stock warrants. During the quarter we funded $42.5 million on a life sciences preferred. During the quarter the company funded $6.5 million on a loan that pays a monthly coupon of SOFR +900 basis points.

The company sold a multifamily property for $60 million that resulted in a $3.7 million gain and raised $65.7 million in gross proceeds from the Series B Preferred stock raise. On October 27th, 2025, NREF announced a fourth quarter dividend of $0.50 per common share. Moving to the portfolio and balance sheet, our portfolio is comprised of 88 investments with a total outstanding balance of $1.1 billion. Our investments are allocated across sectors as 47.3% multifamily, 33.9% life sciences, 15.9% single-family rental, 1.8% storage, and 1.1% marina. Our fixed income portfolio is allocated across investments as follows: 27% CMBS B pieces, 26.5% mezzanine loans, 18.6% preferred equity investments, 12.4% revolving credit facilities, 10% senior loans, 4.2% IO strips, and 1.3% promissory notes.

The assets collateralizing our investments are allocated geographically at 28.1% Massachusetts, 15.5% Texas, 8% Georgia, 5.3% California, 4.2% Maryland, 4.4% Florida, with the remainder across states with less than 4% exposure, reflecting our heavy preference for Sun Belt markets, with Massachusetts and California exposure heavily weighted towards life sciences. The collateral on our portfolio is 87.4% stabilized, with 54.9% loan to value and a weighted average DSCR of 1.41x. We have $728.9 million of debt outstanding with a weighted average cost of 5.3%. Our debt is collateralized by $633.2 million of collateral with a weighted average maturity of 3.9 years and a debt to equity ratio of 0.93x. After the quarter, we paid off our $36.5 million senior unsecured notes with the new senior unsecured note offering of $45 million.

The coupon on the new notes is 7.875%, a slight increase from the 7.5% notes we issued in October 2020 when interest rates were near 0%. The new notes carry a term of two years, with the prepayment options providing flexibility in this declining rate environment. We're pleased with this execution and look forward to terming out the remaining senior unsecured notes in first half of 2026. Lastly, we have been making great strides in our Series B Preferred raise, which has almost hit the $400 million offering limit given the heightened demand. We are now in the process of launching a Series C Preferred, which will be a $200 million offering at an 8% coupon, where we will continue to deploy capital at 400 basis point plus spreads at the cost of this capital.

Moving to guidance for the fourth quarter, we are guiding earnings available for distribution and cash available for distribution as follows. Earnings available for distribution of $0.48 per diluted share at a midpoint, with a range of $0.43 on the low end and $0.53 on the high end. Cash available for distribution of $0.50 per diluted share at the midpoint, with a range of $0.45 on the low end and $0.55 on the high end. Now I would like to turn over to Matt for a detailed discussion of the portfolio and markets.

Matt McGraner (EVP and CIO)

Thank you, Paul, and appreciate all the team's hard work here. On the asset management and sourcing front, as we close out another successful quarter, like to spend a few minutes discussing what we're seeing in our key verticals and then talk about our pipeline. On a residential front, we're close to the end of a record national new multifamily supply cycle. CoStar sees annual net deliveries having peaked at 695,000 units in the trailing twelve month period ending fourth quarter of 2024. This compares to annual net delivered units of 351,000 units on average in the prior five years from 2014 to 2019 and then 282,000 units on average since 2001. CoStar forecasts net deliveries reach 697,000 units in 2024 and expected to be 508,000 units in 2025 before falling significantly year-over-year in 2026 by 49% and then another 20% in 2027.

Q3 2025 deliveries are down 17% quarter-over-quarter and is the last quarter with more than 100,000 units delivered. An increased expectation for the third quarter deliveries is followed by a significant drop off to Q4 2025 that is now forecasted at just 69,000 units, down 52% year-over-year and 41% quarter-over-quarter. This ushers in a start of a lengthy period where deliveries are expected to be below the long run national average. For 2027 and 2028. Delivery forecasts have also fallen. CoStar now expects 2027 deliveries of 234,000 units, which compares to a forecast from December of last year of 283,000 units or a revision down by 17% and then 230,000 units for 2028 and that compares to a prior forecast of 308,000 units which is down 27%.

On the whole, cautious optimism best fits our rental market outlook and believe 2026 will usher in a positive revenue for the first time in several years. On the storage front, second quarter earnings for the REITs were consistent with guidance and more or less in line with sell side estimates. Expectation is that Q3 same store revenue will be flat year over year and same store NOI will be slightly down. That is the expectation for the full year for the sector, flattish revenue and 50 to 150 basis points decline in NOI. The peak leasing season was again a little shorter and choppier than in the pre-COVID era. April and May were great months and June and July were a little less great.

As stated in past reports, the sector has been negatively impacted by the lack of movement in the housing sector, which is a large demand driver for self storage. The news is a lot better on the rate front. After eight or so quarters of falling rates, with some rates down as much as 20% from COVID era highs, rates have begun to move up again. John Good, our CEO of our storage platform, attended EXR's partners conference last week during which they informed us that across their 4,000 store universe, rates universally rose in each of June through September. There is a lag effect on rising rates, but this trend should provide optimism that 2026 revenue growth will be healthier than 2025 and NOI growth should resume. Supply remains muted. Facilities under construction, according to Yardi, are less than 3% of existing supply, which is the benchmark for equilibrium.

Yardi predicts that deliveries for the next couple of years could be as low as 1% of new supply, which should bring pricing power back to the industry and allow revenue and NOI growth to return to the 3%-5% range within which it has traditionally operated. Anecdotally, in talking to experienced developers, bank financing is still very difficult to find and is expensive as land continues to be expensive. Also, there's been continued inflation in materials costs, all of which has negatively affected prospective returns and has deterred some developers from moving forward with new supply. Interest rates continue to be much higher than they were during the 2015-2020 development cycle, again supporting revenue growth into 2026.

On the life sciences front, our Alewife project did land the flagship Pioneering-backed AI and life sciences company Lila Sciences on a long-term lease for 245,000 sq ft with options to take more space in the future. The Lila lease stabilizes the project and gives it a powerful base from which to drive leasing momentum and catalyze a new AI cluster at the broader Alewife project. This lease creates additional capital market optionality for both NREF and the borrower, as it is the first of many green shoots we're seeing in our opportunistic base life sciences investments. I'm also very pleased with our pipeline today and menu of capital options available to us to capitalize on these opportunities today.

The pipeline consists of over $350 million of investments in $120 million of multifamily, $75 million of BTR, $45 million of small bay industrial storage, and $80 million of life sciences and advanced manufacturing loans. In closing, our underlying credit profile of the portfolio remains very strong atop the commercial mortgage REIT sector. Moreover, we continue to have some of the lowest leverage profile of any commercial mortgage REIT, which allows us a variety of capital options to pursue accretive growth to fund our exciting pipeline of investments. Given our healthy dividend coverage, very low leverage, stable book value, and capital options available to us, you can expect that we will also buy back stock opportunistically while pursuing these new investments. Indeed, we're excited about our growth in particular and cautiously optimistic about the overall market dynamics going into 2026.

As always, I want to thank this team for their hard work. Now we'd like to turn the call over to the operator to take your questions.

Operator (participant)

At this time I would like to remind everyone in order to ask a question, press Star then the number One on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jason Savshu with KBW. Your line is open.

Jason Savshu (Equity Research)

Thanks for taking my question and good morning. It would be helpful to hear just your updated view on the life sciences sector. You know, we're seeing soft tenant demand and oversupply in some markets and then specifically as it relates to NREF's exposure, just your thoughts there. If there's any color you can provide on leasing at the asset, that would be helpful.

Matt McGraner (EVP and CIO)

Yeah, you bet. I think that the good news about our life sciences book is we didn't start making life sciences loans until 2024. Most of the distress within the sector was for projects that were capitalized shortly after COVID and during the extreme liquidity that was there and all the rage. Where you do see weakness, like for example in Alexandria's reports, is more or less in their B assets and their non-core markets.

Where they are showing strength in leasing and having good tenant demand is in the gateway markets of San Diego, San Francisco, and their master plan communities or campus in Cambridge and Boston. That's where our exposure is. We're highly focused on first-to-fill assets, including the Alewife project, which again is roughly a 30% loan to cost, and that's the majority of our life sciences exposure. The good news is this first lease with Lila, backed by Mag 7 style investors, is going to create the cluster, if you will, at the project. We're already getting more looks at the project for leasing, and as the project stabilizes, being two-thirds now occupied and the tenant taking space towards the end of the year, we can do a number of things to take advantage of the liquidity that the lease provides.

We could note it, we can be refi'd out, and we could sell the loan given that it's SOFR 900, which is mispriced now at a stabilized life sciences project. I think this lease just solidifies our precision-based investments, taking advantage opportunistically at a time when there was no liquidity in the space. Very, very proud to see that the first of kind of one of the first investments that we made in life sciences is bearing fruit for the company and the shareholders.

Jason Savshu (Equity Research)

Great, thank you. Just to shift to multifamily.

Pretty clear from your remarks that you see the supply backdrop as improving.

At the same time, we have

Seen some pressure in the bridge lending space as it turns

It relates to deployment, you know, where.

Would you preference deploying capital into senior?

Loans versus mezzanine or preferred versus equity

Ownership and kind of just your view

On some of the softness that we've seen

Seen in the bridge space?

Thank you.

Matt McGraner (EVP and CIO)

Yeah, you bet. I think most of the softness in the bridge space was the floating-rate bridge loans that were originated in 2021-2022 with two to three-year maturities that can't be refi'd out today. There's been a lot of folks extending and pretending, which I think is the right thing to do. As my prepared remarks stated, there is light at the end of the tunnel. It's not a question of if, it's just when. In the recent months, August and September across the multifamily sector were a little bit weaker than expected. There is now new lease growth inflecting across most of the major top 50 MSAs. Particularly, you're starting to see new lease growth inflecting in the markets where supply is always constrained, such as San Francisco, New York, and Chicago. Sunbelt is still tough, but there's infinite job growth demand for multifamily in the Sunbelt smile.

It'll take a little bit longer to work its way through the system into, I think, the second quarter, third quarter, 2026 where we believe we'll start seeing new lease growth inflect higher in the Sunbelt market. That's reason for optimism. If you do have a bridge loan and you can wait it out, whether you're a borrower or a lender, you want to give yourself the opportunity to take advantage of that new lease growth. There is a little bit of pressure, but I think it's workable. It's not, you know, this is an office or hotel or anything with extreme heavy CapEx. The multifamily and the residential market will correct, it's dramatically undersupplied. Once you do see new lease growth come and inflect next year, capital will follow. Equity cost of capital will become key again and I expect transaction volumes to pick up dramatically in 2026.

You're right, it's still a little bit tough, but there are reasons for supreme optimism going forward.

Jason Savshu (Equity Research)

Great, thank you.

Matt McGraner (EVP and CIO)

You bet.

Operator (participant)

I will now turn the call back to the management team for closing remarks.

Matt McGraner (EVP and CIO)

Thank you all for your participation today. I look forward to speaking next quarter. Thanks again from the team at NexPoint. Good evening. Good day.

Operator (participant)

Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you and have a great day.