NexPoint Real Estate Finance Inc Stock

Hello everyone. Thank you for joining us and welcome to the NexPoint Residential Trust (sic) [ NexPoint Real Estate Finance ] Quarter 2, 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Kristen Griffith, Investor Relations. Kristen, please go ahead.

Thank you. Good day everyone and welcome to NexPoint Real Estate Finance conference call to review the company results for the second quarter ended June 30, 2026. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer, and Matthew McGraner, Executive Vice President and Chief Investment Officer.

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 the 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 risk 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.

Thanks, Kristen, and good morning, everyone. I'll walk through our quarterly results, cover the balance sheet, and provide guidance for Q3 before turning it over to Matt for a deeper dive on the portfolio and macro lending environment.

For the second quarter, we reported a net income of $0.29 per diluted share compared to $0.54 for Q2 2025. The earnings available for distribution was $0.46 per diluted share in Q2 compared to $0.43 per diluted share in the same period of 2025. Cash available for distribution was $0.58 per diluted share in Q2, compared to $0.46 per diluted share in the same period of 2025. We paid a regular dividend of $0.50 per share in the second quarter, which was 1.16x covered by cash available for distribution.

On July 27, 2026, the Board declared a dividend of $0.50 per share payable for the third quarter of 2026. Book value per diluted share decreased by 1.9% from Q1 2026 to $18.60 per diluted share, primarily driven by a small unrealized loss on our stock warrant portfolio.

Turning to new investments during the quarter. We have continued to originate new investments across our target asset classes, funded through a combination of retained operating cash flow, proceeds from our Series C preferred offering, and additional capacity under our secured financing facilities, reflecting our continued ability to identify and execute attractive opportunities that drives returns for our shareholders.

We funded a $20.2 million preferred equity investment in a multifamily property that pays a monthly coupon of 14%, a $42.6 million mezzanine loan secured by a life science property at a 14% coupon, and funded an additional $31.9 million on other existing commitments in the quarter.

I want to highlight what remains in our view the most important development year-to-date. We closed a $375 million drawable term loan facility with Mizuho Capital Markets, which we used to repay our $180 million, 5.75% senior unsecured notes at their May 1 maturity. As of today, there is $362.2 million outstanding on the facility. Concurrently, we entered into a TRS, or total return swap, with Mizuho, which reduces the effect of our net interest costs to SOFR plus 2.45%.

The transaction removed the largest near-term liability overhang on our balance sheet and replaced fixed-rate unsecured debt with a floating-rate asset-based financing structure that better aligns with our preference to have additional balance sheet flexibility in terms of prepayment ability and provides a back-leveraged solution to enhance returns on new investments. Combined with the $22.6 million we raised in our Series C preferred, we head into the back half of 2026 with what we believe to be one of the cleanest, most flexible capital structures in the commercial mortgage REIT sector.

Moving to the portfolio and balance sheet, our portfolio is comprised of 85 investments with a total outstanding balance of $1.1 billion. Our investments are allocated across sectors are as follows: 39.4% life sciences, 37.6% multifamily, 15.1% single-family rental, 4.2% storage, 2.1% industrial, and 1.6% marina. Our fixed income portfolio is allocated across investments as follows: 27.8% preferred equity investments, 24.9% mezz loans, 17.5% CMBS B-Pieces, 17.3% revolving credit facilities, 6.2% senior loans, 4% IO strips, and 2.2% promissory notes.

The assets collateralizing our investments are allocated geographically as follows: 31.2% Massachusetts, 16% Texas, 6% Florida, 4.6% Georgia, 5.2% California, 4.7% Maryland, with the remainder across states with less than 4% exposure, reflecting our heavy preference to Sunbelt markets, with Massachusetts and California exposure heavily weighted towards life science.

The collateral in our portfolio is 80.3% stabilized, with a 63.4% loan-to-value and a weighted average DSCR of 1.39x. We have $836.6 million of debt outstanding with a weighted average cost of 6.3% that has a weighted average maturity of 2.6 years. Our secured debt is collateralized by $1.4 billion of collateral with a weighted average maturity of 2.7 years and a debt-to-equity ratio of 0.88x.

Moving to guidance for the third quarter. Earnings available for distribution, $0.43 per diluted 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, $0.55 per diluted share at the midpoint with a range of $0.50 on the low end and $0.60 on the high end.

And with that, I'd like to turn it over to Matt for a detailed discussion of the portfolio and the current market environment. Matt?

Thanks, Paul. Another great quarter of consistent, solid execution, so appreciate it. The underlying recurring earnings power of the portfolio is continuing to tick up while we operate at the top of the commercial mortgage peer group on credit.

Now on to our verticals. As Paul noted, residential remains our largest exposure between SFR and multifamily. We believe residential fundamentals are turning and remain constructive. Blended lease trade-outs across our owned residential assets progressed from -1.7% in April to -1.2% in May, to -50 basis points in June and turned +30 basis points in July. That's the first positive blended print since early 2025. And new lease trade-outs remain the drag, but renewals have been holding up well.

The 2021 and 2022 vintage loans are where the compression risk still sits. And as you know, we did very little originations during this period. Net deliveries peaked at approximately 695,000 units in the trailing 12 months ending Q4 2024 against roughly 282,000 units of average annual delivery since 2001. CoStar forecasts 2026 deliveries down approximately 49% from 2025 with another 20% decline in 2027, and starts are running approximately 70% below the 2022 peak. Supply is what broke pricing power in 2024 and 2025, and supply is what is going to return it.

The structural backdrop has not changed. The cost to own in our markets remains roughly 3x the cost to rent, and there's no reasonable mortgage rate path that closes that gap quickly.

Now on to life science. Alewife is now tracking to be 85% leased, up from 71% leased, anchored by Lila Sciences on a long-term lease for 245,000 square feet with expansion options. While Lila indeed does keep expanding their plan and programming at the asset, obviously a great sign and accretive to our collateral.

The demand funnel for our life science collateral has widened materially because of AI and not in spite of it. AI companies need the same purpose-built infrastructure traditional lab tenants need, that is, power density, cooling capacity, structural floor loads, ventilation, vibration and vibration tolerances. They cannot retrofit older converted assets at any rent. Alewife has the bones. It's in the right submarket, adjacent to MIT and the broader Cambridge cluster. Our exposure here is not a generic bet on the sector. It's a concentrated bet on first-to-fill, infrastructure-grade assets in elite educational districts that are now also AI corridors. The credit profile is improving as the tenant universe widens.

On to self-storage. Our NSP portfolio continues to outperform with occupancy in the low 90s, and with rent growth and NOI materially ahead of the sector.

On the upcoming pipeline, in April, we walked through $190 million-plus of NREF investment across 11 active deals and $225 million-plus of structured product -- credit opportunities. And as Paul mentioned, we successfully closed in excess of $70 million of this pipeline during the quarter. The pipeline's blended return profile remains well in excess of our cost of capital on the TRS facility. And even with the move higher in the forward curve, pricing power remains with disciplined solution capital providers.

To close and summarize, earnings are ahead of guidance we gave in April. Credit continues to hold well. The April pipeline converted into funded assets at double-digit coupons, a residential supply trough that is now visible in operating data rather than forecast, life science collateral that keeps de-risking, storage is bottoming, and a balance sheet purpose-built for exactly the rate environment we are in.

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

[Operator Instructions] Your first question comes from the line of Crispin Love with Piper Sandler.

First, on the portfolio makeup side, life sciences, I think it's now nearly 40%, exceeds multifamily, I think, for the first time for you guys. So, when you take a longer-term horizon lookout, how do you think about portfolio sizing with regards to multifamily and life sciences, where those could trend directionally, especially with the AI theme, but also kind of positive themes across multi as well as you look at the next several quarters and years.

Yes, that's a great question, Crispin, and one that we talk about often. I think in a normalized environment, we'd probably like to keep life sciences to be about a 1/3 -- or I'd say life science and advanced manufacturing, kind of biomanufacturing, those type of assets in around 1/3 of the pie chart. Obviously, in the recent kind of 12 to 18 months, Alewife is a one-off, pretty special opportunity that we were able to take advantage of.

But going forward, I think we'd like to have it be 1/3 and have residential kind of be 50%. [indiscernible] about the exposure on life science, we are expecting probably to get some of that capital back. The sponsor on Alewife is out running a refi process to recap the Alewife whole campus, and we would get a substantial amount of capital back to then go redeploy. And our goal would be to probably redeploy most of those proceeds into residential assets.

Perfect. That makes sense. I know there's definitely a unique situation there. And then just on the dividend and the outlook, CAD has been ahead of the dividend for some time, but earnings available for distribution has been below for several quarters. So curious if you have a line of sight where you think -- when you think both EAD and CAD could be above the dividend on a sustainable basis. And are you just -- are you comfortable with the cost at the current level given the CAD coverage?

Yes, another great question, Crispin. We're definitely comfortable with the CAD coverage, which is our gold standard when it comes to distributions and when we discuss with the Board those opportunities for quarterly distributions.

And over time we do think both EAD and CAD will converge, and what you've seen, too, is the increase in CAD over the past few quarters, as we discussed in prior calls, due to the redeployment accretively into investments via using proceeds from our Series B and now Series C preferred raising. So hope that answers your question.

Your next question comes from the line of Jade Rahmani with KBW.

What are you seeing in terms of underlying credit performance in the multifamily book? Maybe you could touch on both the preferred equity exposure and also the B-Piece exposure.

Yes, thanks, Jade. I think as it relates to our multifamily exposure, I think we benefited from largely investing and focusing on assets that were agency quality. So Fannie and Freddie underwritten assets that were first screened by a JLL, Walker, et cetera, and then underwritten by our team. So we did very little of sort of the non-bank, floating-rate bridge loans that I think some of our peers have done and gotten in trouble with. Most of our collateral on the pref book does sit behind agency loans to the extent that we've had to take over projects like in Alexandria or Alexander at the District, for example. I think now about a year ago, that deal is now leased up and healthy.

But the underlying kind of, I guess, credit profile of our assets, both on the B-Piece and preferred qualitatively, I think, are of a higher standard than our peer group, number 1. Number 2, most of that exposure was originated in kind of 2018 to 2020. And then some COVID-era lean-ins on the B-Pieces where we got some outstanding collateral and terms and got paid for it. Didn't do much in '22, '23, and now we're kind of back in the market. The higher-for-longer rate environment, I think, helps us a little bit on the multifamily because you are -- you can see some cracks forming for folks that need to find cash and collateral to refi on the extension test.

But so far, so good on the B-Piece collateral. I don't think we took any provisions or saw any credit leaks on that side, nor on the pref book. To the extent that anything happens there, we certainly have the team to take over the asset and nurture it back to health and then -- pretty constructive on the transaction market going forward. I think in Q4, as new leasing -- we believe new leasing, as I said in my prepared comments, will inflect higher in Q4. That should attract capital providers, both on the debt and the equity side. And we're starting to see that in the transaction market.

So long-winded answer, but I think that we like our credit exposure and certainly like the setup for supply and demand in the next 2, 3, 4 quarters.

Alewife seems like a great asset. So definitely produced very high returns, but outside of that exposure, life science still remains quite challenged. What are you seeing in the rest of the life science exposure?

Yes, Alewife is doing extremely well. And unfortunately and fortunately, I think we'll probably get that capital back sometime in the fourth quarter. It'll be a great result. The broader exposure on our life science book continues to sequentially get better. Tours and our TIMs, the tenants in the market list, sequentially over Q1 into Q2, were up 30%. And more in works. We're already seeing in July, even with the holiday soaking up the first two weeks, that the third quarter is tracking to be ahead in terms of tour activity.

So we like our kind of broader exposure beyond Alewife and some of our investors and analysts toured those assets and then I think would agree they're first-to-fill, great, well-located. I'd say that beyond our exposure, the other important point to make is, again, when we originated it, most of it was done kind of in the distressed era, '24, '25, '26 at a reset basis. And so we're not originating the loans back in the go-go days in '21 and '22 that you're seeing some credit creep and some trouble with our peers. So...

There are no further questions at this time. I will now turn the call back to the management team for closing remarks.

All right, well, thanks very much for everyone's participation and interest today. And thanks to the teams here at NexPoint and I look forward to speaking after the Q3 call.

So have a good day. Thank you. Bye-bye.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Real Estate Finance First Quarter 2026 Earnings Call.

[Operator Instructions]

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 NexPoint Real Estate Finance conference call to review the company's results for the first quarter ended March 31, 2026.

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 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 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 Q2 before turning it over to Matt for a deeper dive on the portfolio and macro lending environment. For the first quarter, we reported net income of $0.42 per diluted share compared to $0.70 for Q1 2025. The decrease was driven by small mark-to-market declines on preferred stock and warrants, as well as a decrease in the change in net assets related to consolidated CMBS VIEs.

Earnings available for distribution was $0.43 per diluted share in Q1, compared to $0.41 per diluted share in the same time period of 2025. Cash available for distribution was $0.58 per diluted share in Q1, compared to $0.45 per diluted share in the same period of 2025.

We paid a regular dividend of $0.50 per share in the first quarter, which is 1.16x covered by cash available for distribution. On April 28, 2026, the Board declared a dividend of $0.50 per share payable for the second quarter of 2026. Book value per share decreased slightly by 0.3% from Q4 2025 to $18.96 per diluted share, primarily driven by unrealized losses on our preferred stock investments and stock warrants.

Turning to new investments during the quarter. The company funded over $30 million on 2 loans that both pay a monthly coupon in the mid-teens. I want to highlight what is, in our view, the most important development of the quarter and frankly, of this week.

We have successfully refinanced $180 million of senior unsecured notes that were maturing on May 1. We replaced those 5.75% fixed rate notes with a new $242 million total return swap facility priced at SOFR plus 375 basis points with a 3-year term and 1-year extension option. This transaction does several things.

First, it removes the largest near-term liability overhang on our balance sheet. Second, the floating rate structure aligns with our floating rate asset base and gives us refi optionality as the curve evolves. Third, the upside gives us approximately $45 million of incremental capacity to deploy into our pipeline at the double-digit coupons we are seeing today. And fourth, the facility allows for back lever optionality on eligible positions, which expands our origination capacity without requiring additional unsecured note issuances.

We engaged more than 20 counterparties across bank and nonbank channels to optimize the structure and the SOFR plus 375 pricing came inside comparable mortgage REIT executions in the high-yield baby bond and term loan markets. Importantly, we did this without diluting common shareholders at a discount to book.

Combined with the $20.1 million we raised in our Series C preferred and the re-REMIC execution I'll discuss in a moment, we head into the back half of '26 with one of the cleanest, most flexible capital structures in the commercial mortgage REIT sector. Capital recycling and book value accretion. We executed a re-REMIC of our FREMF 2017-K62 B-Piece during the quarter.

We sold the B-Piece to Mizuho at 92.7, having purchased it at 68.69 in 2021 and reinvested into the HRR tranche of the new structure at an 18.5% yield. That single transaction generated $0.46 per share of book value appreciation, reduced repo financing by $75 million and is expected to drive approximately $0.34 per share of annual CAD accretion going forward. This is the kind of execution that does not happen by accident and it speaks to the value we extract from a portfolio of seasoned, well-written structured credit positions.

Moving to the portfolio and balance sheet. Our portfolio is comprised of 90 investments with a total outstanding balance of $1.1 billion. Our investments are allocated across sectors as follows: 39.4% multifamily, 35.9% life sciences, 17.1% single-family rental, 3.9% storage, 1.6% marina and 2.1% industrial. Our fixed income portfolio is allocated across investments as follows: 19% CMBS B-Pieces, 22% mezz loans, 24.5% pref equity investments, 15.6% revolving credit facilities, 10.1% senior loans, 4.2% IO strips and 4.6 promissory notes.

The asset collateralizing our investments are allocated geographically as follows: 28.7% Massachusetts, 17.6% Texas, 5.9% Florida, 4.9% Georgia, 5.2% California and 4.7% Maryland, with the remainder across states with less than 4% exposure, reflecting our heavy preference to Sunbelt markets, with Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 81.2% stabilized with 59.9% loan-to-value and a weighted average DSCR of 1.32x. We have $665.2 million of debt outstanding with a weighted average cost of 5.2% and has a weighted average maturity of 0.8 years.

Our secured debt is collateralized by $571.3 million of collateral with a weighted average of 3.8 years and a debt-to-equity ratio of 0.7x.

Moving to our guidance for the second quarter. Earnings available for distribution, $0.43 per diluted 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, $0.54 per diluted share at the midpoint with a range of $0.49 on the low end and $0.59 on the high end.

With that, I'd like to turn it over to Matt for a detailed discussion of the portfolio and the current market environment. Matt?

Appreciate it, Paul. I'm excited to walk through another strong quarter for NREF and to thank our team and our partners for executing in what continues to be a noisy macro backdrop, including and especially the exciting and accretive financing completed with Mizuho that Paul just mentioned.

Now on to the verticals. On the residential front and this is where we have our largest exposure at roughly 56% of the portfolio between SFR and multifamily. We are now firmly in the supply trough that I've been describing on these calls for several quarters. The thesis is playing out. We're coming off a record national multifamily supply cycle. Net deliveries peaked at approximately 695,000 units in the trailing 12 months ended Q4 2024.

For context, that compares to roughly 282,000 units of average annual deliveries since 2001. CoStar now forecasts 2026 deliveries to fall approximately 49% from their 2025 levels, with another 20% decline forecast for 2027. 2027 and 2028 forecasts have been revised down meaningfully from prior estimates as well.

On the supply side, multifamily construction starts are running approximately 70% below their 2022 peak and that is locking in a multiyear supply trough. On the demand side, the structural backstop has not changed. The cost to own a home in our markets remains roughly 3x the cost to rent and there's no reasonable mortgage rate scenario that closes that gap quickly. Our on-the-ground leasing data is consistent with the inflection thesis.

Putting it all together, we believe the second half of 2026 and 2027 will be meaningfully better than 2025 for residential operators and by extension, for the residential debt collateral on our balance sheet.

On to life sciences. I want to spend a minute on here because I know it's a sector that has attracted some discussion and I think the conversation deserves a little more nuance than it's been getting. Our exposure is concentrated, intentional and increasingly derisked. Our Alewife project is now 71% leased, anchored by Lila Sciences, a pioneering backed AI and life science company, on a long-term lease for 245,000 square feet with options to expand. The active pipeline of RFPs, LOIs and leases on the project today represents approximately 92% of the remaining vacant square footage. This is a high conviction underwrite into a project where the leasing momentum and credit improvement are visible in the data, not aspirational.

An additional and increasingly relevant point I want to drive home is the demand funnel of our life science collateral has widened materially because of AI, not in spite of it. AI companies need exactly the same purpose-built infrastructure that traditional lab tenants need, power density, cooling capacity, structural floor loads, ventilation and vibration tolerances. They cannot retrofit older converted assets at any rent. They need the bones and they will pay for the bones. Alewife is exactly that asset in the right submarket adjacent to MIT and the broader Cambridge cluster.

Our life science exposure is not a generic bet on the sector. It's a concentrated bet on first-to-fill infrastructure-grade assets in elite educational districts that are now also AI corridors.

The credit profile of these assets is improving, not deteriorating, as the tenant universe widens. Moreover, our capital was largely placed in the last 12 to 18 months at a reset basis that prime billions of dollars of equity versus loans originated in the go-go days of post-COVID liquidity craze, where capital was much less discerning.

On to self-storage. Storage is in a cyclical bottoming process. Industry-wide, second quarter earnings for the public REITs were consistent with guidance and largely in line with sell-side estimates. Expectation for the full year is roughly flat revenue and 50 to 150 basis point declines in NOI. Supply remains muted also. According to [ REID ] the facilities under construction are less than 3% of existing supply. That's the equilibrium benchmark.

Forecasted deliveries over the next several years could be as low as 1% of existing stock and combined with the difficulty of bank financing for new development, the cost of land and materials at a higher rate environment than the 2015 to 2020 development cycle, we expect supply discipline to persist and pricing power to return.

Our NSP portfolio continues to outperform the industry meaningfully. Occupancy in the low 90s near the top of the industry, with rent growth and NOI performance materially ahead of the sector decline, almost 300 to 500 basis points.

Moving to our pipeline. Today, it consists of approximately $190 million of NREF investment across 11 active deals, 3 closed and 8 under executed LOI, plus an additional $275 million of structured product opportunities, specifically across multifamily senior loans and CMBS pools. These are real deals at real spreads. The pricing power remains very much in our favor of disciplined capital providers like us. The pipeline's blended return profile is well in excess of our cost of capital in the new TRS facility that Paul mentioned, which is already driving modest increases in CAD, which we expect to see continuing throughout the back half of 2026.

Before I close, I want to take a moment on something that I believe will be a meaningful differentiator for NREF over the next several years. We are deploying AI across our underwriting, portfolio monitoring, credit risk and operations functions and we believe we are ahead of the commercial mortgage REIT peer group on this. On the underwriting side, we're piloting AI-assisted deal screening and diligence across CMBS, mezzanine and preferred equity originations. The system ingests rent rolls, comps, market data and our target is a 50% reduction in underwriting cycle time. That means more deals are being evaluated, sharper credit work, faster execution, all without expanding headcount.

On the portfolio monitoring side, we're deploying always-on surveillance across all 92-plus investments. Machine learning-driven signals on occupancy, rent growth, debt service coverage ratios and sponsor health flag risk before it shows up in the financials. We believe this will result in earlier identification of watch list assets and meaningfully tighten the feedback loop between credit underwriting and portfolio surveillance.

We're also building predictive credit models for borrower default probability, LTV trespass and loss given defaults. This reinforces our existing disciplined underwriting with data-driven early warnings. It does not replace our investment committee process.

In our operations and reporting, we're using generative AI to accelerate investor reporting, SEC filings prep, earnings supplemental drafting and internal research, freeing our team for higher value analytical work. Our road map is sequenced, foundation in Q2 and Q3 of this year, scale across the full portfolio by Q4 and full optimization throughout 2027.

We expect this to translate into faster decisions, sharper risk management and a more scalable platform for growth. A few closing points on capital and the balance sheet. Net debt-to-equity continues to run below 1x among the lowest in the commercial mortgage REIT space.

Combined with the re-REMIC execution that Paul just mentioned and the new TRS facility, we do indeed have the capital structure flexibility to be opportunistic on origination and on our own stock. Speaking of which, at current levels, we continue to trade at a meaningful discount to book value of approximately $19 per share. We've been clear that we view buybacks at this discount as an accretive use of capital and you should expect to see us continue to buy back stock opportunistically alongside the funding pipeline -- funding the pipeline I just walked through. And given our liquidity position and having successfully refinanced near-term maturities, the 2 are not mutually exclusive.

Our Series C preferred programs continue to provide flexible nondilutive capital. Our book value is stable, our dividend coverage is sound, leverage is low and the portfolio's credit profile is improving. That is a setup we feel very good about heading into the second half of 2026.

To summarize, a strong quarter on earnings and credit, a transformative refinancing on the liability side, a continuing supply-driven tailwind in the residential space, a derisking and broadening demand picture in life science, a robust pipeline of accretive deployment and an AI platform initiative that we believe will set NREF apart over the coming years. 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 to take your questions.

[Operator Instructions] Your first question comes from the line of Jade Rahmani of KBW.

Rates are trending higher year-to-date and I was wondering what you think the impact to the CRE recovery outlook will be, particularly around multifamily as bridge loans taken out during the COVID years are up for maturity.

Yes, it's a good question. What I can say is in terms of like the last, I'd say, 4 to 6 weeks with rates going up as a result of geopolitical tensions, the processes that we've seen that started prior to that time in terms of the capital markets transactions, both on loan sales and investment sales, they've all continued without, I would say, material disruption. There have been, I'd say, some slight walk-backs in terms of buyers underwriting a 5.5% all-in rate on a Freddie or Fannie agency and then the 10-year moves against them. And so they'll seek a little retrade.

So there's, I would say, a little disruption in the capital markets, but nothing that would halt it or I would say liquidity is still very, very plentiful on the multifamily side. And I think what's even more important than that is we -- and I think the broader public REIT universe in their reporting yesterday and today are really starting to see the fundamentals in multifamily sector turn and firm up.

Concessions are getting weaker. In our own portfolio, for example, concessions are down by 50% from Q4. So all that is kind of offsetting, I think, any near-term interest rate rise as it relates to multifamily.

The life science update has been quite impressive. And I was wondering if you could give some thoughts. Do you view the Alewife exposure as unique to NREF, or are you also seeing green shoots elsewhere in the portfolio? And then overall, do you view NREF's exposure as better than the market? One of the commercial mortgage REITs took a -- downgraded a loan to risk 5 and took a quite large reserve on that. They're also expecting an REO in life science and much of it is vacant in the sector. So just looking for some additional thoughts there.

Yes, you bet. I think the important point on our project in Alewife is, again, it's brand new, it's purpose -- not purpose-built with incredible infrastructure. And the land that the asset is built on was assembled over years 3 to 5 years, not -- it wasn't just a spec build. It was very intentional and in a cluster-built submarket. I think that for one is unique.

Our own investment in terms of the loan-to-cost, it's roughly 30%. That is our unique sponsor relationship there and the ability for us to provide capital at a time, like I said, in the last kind of 12 to 18 months where there's literally no capital available in the life science sector. So I think the loans that I've seen as well, that you're referring to, were, again, I think originated in a more speculative environment with more hope to lease on the outskirts of the cluster markets that we have exposure. So again, the Cambridges and the Longwood and Fenway districts, these assets are -- excuse me, these locations are going to be the first-to-fill locations. And we're seeing real depth in the project leasing in terms of the marketing coming out of big pharma and in the venture space. I think the green shoots you can point to are the biotech index is nearing cyclical highs. Venture capital is, I think, at a high since 2021.

And then again, the AI spend and the assets that AI needs just widens the demand funnel for our assets in particular. We're in the right locations where they want to be and they have the critical infrastructure that's demanded by their compute and other real estate needs. So I do think we are different. I do think our exposure is different. And I think it's, again, more recent at a reset basis versus loans that were originated perhaps in 2020, 2021 and 2022.

Your next question comes from the line of Gabriel Poggi of Raymond James.

I want to actually piggyback on what Jade was just asking. It sounds like Alewife is doing great. Some other exposures Holly Springs, Vacaville, California, you guys have low attachment points, but it looks like the senior mortgages are due maybe kind of by the end of the year. Just any color you can give on expectations for the underlying asset, whether it's a refi or a sale, et cetera, I think, would be helpful as it pertains to life science exposure away from Alewife.

Yes. Great question. Thanks for it, Gabe. So Holly Springs and Vacaville are both advanced manufacturing assets, which, if anything, is stronger in the last 6 months of that versus life science. So the Holly Springs underlying collateral, I believe, is now topped out, has a tenant. And I think we'll probably likely be refied out of those -- out of that deal. It's actually -- the tenant is a battery manufacturer for the Department of Defense. And so they're seeing a ton of growth right now. And I think that I see that exposure being reduced by a loan payoff at some point this year.

Same thing goes to Vacaville. It's got, I think 8 to 10 project names in and around both semiconductor manufacturing and advanced manufacturing in the pharmaceutical side.

To your point, the detachment is very low there. So I think there's a lot of ways to win. And I would say that we'd probably be taken out of that asset in the next 12 months as well.

And then one thing that is on the horizon that could be good and bad is Alewife being repaid. I think with the success of leasing there going from 0% to 71% leased and the tenant quality and then the clustering that's happening, like I said, there's RFPs and LOIs on that asset that almost get it to 100% full. We could see that capital come back to us in the next 12 months as well.

And then one more kind of just on the accounting side. In the other income, right, the $17 million, can you guys break out kind of the components of that, Paul, just for us before we get to Q? Or do we need to wait for the Q for that?

Yes. Gabe, great question. I think we wait for the Q for that one. It'll give you a good breakdown of the other income and we can provide a breakdown in the supplement as well, too, going forward for better analysis.

There are no further questions at this time. And with that, I will now turn the call back over to the management team for final closing remarks. Please go ahead.

Yes. Thank you again for everyone's participation this morning and look forward to speaking to you next quarter and providing another good update. Have a great day. Thanks.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

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 NexPoint Real Estate Finance Q4 2025 Earnings Call. [Operator Instructions]

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 NexPoint 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 McGraner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at inres.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-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 as of today's date and except as required by law, in rest 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 reported net income of $0.52 per diluted share compared to $0.43 in Q4 '24. The increase was driven by unrealized gains on our preferred stock and stock warrant investments. Earnings available for distribution came in at $0.48 per diluted share compared to $0.83 in Q4 '24.

Cash available for distribution was $0.53 per diluted share, up from $0.47 in the prior year -- our prior quarter. We paid a regular dividend of $0.50 per share in the fourth quarter, which was 1.06x 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 the 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 2 Marina 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 net income of $2.09 per diluted 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 diluted share compared to $2.42 in the prior year, a decrease of 18.6%. 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, 17% single-family rental and the balance across storage, marina and industrial by investment type, 28% CMBSD-piece, 23% preferred equity, 20% mezzanine loan, 14% revolving credit facilities, 10% senior loans and the remainder in IO and promissory notes.

Geographically, our collateral is concentrated in Massachusetts at 24% and Texas at 16% and California at 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 was 82.5% stabilized with a 63.6% loan-to-value ratio and a weighted average debt service coverage ratio of 1.24x. We have $771.2 million of debt outstanding at 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 0.92x. During the quarter, we refinanced $36.5 million unsecured notes with a new $45 million unsecured offering at 7.85%. A modest step-up from the 7.5% notes we issued in October of 2020 when we were in a 0 interest rate environment. The new notes carry a 2-year term with prepayment flexibility, which positions us very well in a 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 our 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-rented transaction on our Franp2017 K-62DBpiece with Mizuho. Under this structure, we are selling the BPs and purchasing the horizontal risk retention tranche, which represents roughly 5.8% of re-remix. This transaction reduces our mark-to-market repo financing by $75.2 million, and our debt-to-equity ratio would decrease to 0.83x and the Archange carries an expected yield of 18.5%. On a go-forward basis, the interest expense savings and reinvestment capacity are expected to be around $0.30 to $0.34 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, $0.40 per diluted share at the midpoint with a range of $0.35 to $0.45, cash available for distribution $0.50 per diluted share at the midpoint with a range of $0.45 to $0.55.

And with that, I'd like to turn it over to Matt for a detailed discussion of the portfolio and the current market environment.

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, in 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, NexPoint has been steady and intentional about our asset selection and thankfully, NexPoint and by extension in RF, especially is not investing in AI scared trade assets or assets historically leveraged 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 in first-to-fill assets in elite educational districts producing this AI talent. What's more of 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 Air 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 Lise Park is now 64% leased at a debt cap rate with RFPs, LOIs and leases now totaling 2.8x the square footage of the project. Momentum has materially increased since the allies, 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 alternatives exist in the suburbs or in second gen space, the first to fill buildings and impossible to recreate locations, again, in elite educational centers is our exposure. And what we are fairly certain of are 2 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 nonexistent. Our basis in our collateral was 30% to 60% below replacement costs for these assets, and that's just replacement costs, but along 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 and 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 impact positive with most of our market exposure occurring in the second half of 2026.

We attribute this to 4 main factors: Persistent structural demand, the cost to own a home is 3x 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 multiyear 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 of the population, creating somewhat of a demographic backstop to demand.

The 65-plus population is growing at 3% to 5% across our markets in a late 2025 study from Harvard projects that the senior rider 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 and full year performance is expected to show flat revenue and a 50 to 150 basis point decline in NOI.

Some sell-side analysts have already trimmed their 2026 and 2027 estimates. Occupancy generally remains under pressure with industry average ending 2025 at 89%, down 210 basis points from the start of the year. The primary culprit is a sluggish have market as home sales remain near multiyear lows and mortgage rates stay elevated, reducing a key demand driver for self-storage. Rights are the bright spot. However, after 2 years of falling rates, some down 20% from COVID era highs, moving rates have been trending up since May 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 NexPoint storage portfolio significantly outperformed the broader industry in 2025, finishing the year at 91.7% occupancy, exceeding its NOI budget by 3.2% and and growing NOI 13% over 2024. Looking into 2026, NOI growth is expected to moderate to 4%, reflecting portfolio stabilization, softer demand and rate constraints on 2 L.A. properties, but still notably higher than the broader industry.

On the SFR and BCR 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 discussions with the agencies and notwithstanding recent proposed regulation limiting institutional ownership in the sector, Fannie and Freddie remain open to finance build-to-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 boy to institutional portfolios of scattered site SFR should this void materialize.

I'm also very pleased with our pipeline, the 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 Vance manufacturing. As Paul mentioned, our underlying credit profile of the portfolio remains very strong, a commercial -- top 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 operator for questions.

[Operator Instructions] Your first question comes from the line of Crispin Love from Piper Sandler.

Awesome. This is Ben Gram in for Chris and Love. I'm wondering if you could discuss dividend sustainability and your confidence in the current level, the AD 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 the AD?

Yes. Great getting this all to you. So yes, our EAD is a little below our CAD, but the majority of that is, again, the bridge of BAD, the cat amortization of premiums, some accretion of discounts and depreciation on REO. So we believe that CAD is the better indicator of dividend coverage and sustainability hence, why we have continued to recommend a $0.50 dividend to the Board, and they have approved it every time.

So we feel very good on the go forward. One, from the re-rent transaction we discussed 2 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 we feel well positioned for the future for dividend sustainability.

Yes, I'll just add to that. we consistently outearned our dividend since our inception, again, have a stable book value going on the opens and really like our cost of capital, again, to drive the results that you're seeing here, which relative to the comps, we think is pretty good.

Awesome. And then if I could ask one more question. 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 to focus on real estate mortgage and single-family affordability to impact some of the areas where you're invested?

Yes. I think I'm glad, as I mentioned that we leaned into Life Sciences when we did last year at a time when there was no capital available because we're starting to see folks reenter that market, which are going to reduce spreads. So right now, I think where we're spending the most time is on the BTR in the multifamily front on the new construction and stretched senior side 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 the recent proposed regulations, I think it's still too early to tell, but our organization has been involved in some of the regulatory process, if you will, and lobbying process in D.C. And I think from our exposure we feel very good about mainly focusing on build-for-rent assets, which are adding to the housing stock and not detracting from it. And so we still think that there's going to be a need to provide capital in that space. So I think the opportunity remains for BTR assets.

What's more interesting, and I think more in the bull's eye of the proposed regulations are scattered side, 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, I'd say, wide open even post the announcements, I think that market still continues to trade well and still I think the origination volume is still open.

But to the extent that it's closed and scatter side becomes a little bit of a out of favor with the broader 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 very -- obviously very comfortable with it.

Your next question comes from the line of Jade Ramani from KBW.

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, Jay, this is Paul. I would say that 1/3 of it was just our general reserve. We include -- we updated our calculation to be, again, more conservative and that includes a severe downside component to the CECL provision to align with our peer group. And the other, call 66% more on deals that we've already taken a seasonal 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.

And just on the life science project, which has bucked the trend in the industry of a downdraft in leasing activity. Could you give your thoughts as to what the project-specific characteristics are that drove the positive performance. And if you're seeing outside of this project, any uptick in life science leasing activity that might make you look at other deals in that sector?

Yes, you bet. I'd say the Life Park project is one of the very few purpose-built life science, slab-on-grade, all the qualities that you need and more importantly, in West Cambridge on mass transit lines. And I think when this project opened and CO, it was probably into the worst, I would say, some of the worst market dynamics that we faced historically in Life Science. I think part of it is the -- again, the infrastructure that Lila size is needed we were the only building that could -- at that time, house their needs and their infrastructure.

And then it's kind of a -- it's a cluster effect once you get a good tenants such as Lila backed by a very well-healed investor base, those tenants continue to drive more leasing activity and people want to be around them. So I think 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 30, 60 days coming out of JPMorgan in San Francisco there's been, I would say, a lot of optimism.

We're seeing more capital CFOs folks in charge of capital allocation decisions, start making those decisions. Finally. And then I do think some of the biggest demand and widening of the funnel will come from AI and whether or not it's life sciences, AI design life sciences, I don't think we really care. I think the -- again, these buildings -- these companies, these AI companies with this compute infrastructure, they have to go in to purpose build new buildings with all the quality, the air quality, the infrastructure, like I think that's helped our leasing activity a lot, and I can -- yes, I don't see that waning anytime soon.

Your final question comes from the line of Gabe Poggi from Raymond James.

Can you give a little more details around the loans you made in the quarter, specifically the $22.5 million loan at 11%. I assume the SOFR 9 is at Al Life, but just any kind of incremental color around those loans would be helpful?

Sure. Yes. As you mentioned, there was the one loan, which was our continued commitment on the Alife project. The other loans, which were roughly -- I think it was around $10 million plus on the preferred side for 2 marinas that we really believe in the cash flow, et cetera. And the last one was -- it was a self-storage deal in EYLEA. And again, very sound, very great detachment point covered 13% and Again, we expect to find these types of deals using more of a rifle-shot approach, as Matt mentioned, in our sales -- in our pipeline funnel. So you can expect to see more of the multifamily and these types of deals in the future.

Got it. And then Matt, you talked about 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, presses, et cetera. Can you just talk about how big that sandbox could be for you guys as you just think about the whole -- what NexPoint holistically looks at, what RAP has touched and how you think about how big that bucket could be over time?

Yes, you bet. That's a great question. For our single-family equity business, they have roughly $550 million of BTR under contract or reviewing at any given month about 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 and Don loss from the JLL, CVs and say, "Hey, we're open for business on build to rent new construction CMO financing. We can take over a play up and down cap stack, wherever the opportunity is.

And again, like you got to be smart about the asset selection. I mean we're not going to go finance greenfield -- a new greenfield project next to a Cal pasture. We're looking mainly on the smaller side, 50 to 125, 150 units that just feel more like an extension of the community versus, like I said, the random housing project in the middle of nowhere. So like the backdrop for it, and certainly think there's plenty to do there in 2026 and beyond.

There are no further questions. I'd like to turn it back over to the management team for closing remarks.

Yes. Thank you very much this morning 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 now disconnect.

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. [Operator Instructions]

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 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 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 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 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 of 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 science preferred. During the quarter, the company funded $6.5 million on the loan that pays a monthly coupon of SOFR plus 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 27, 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 follows: 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% mezz 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 as follows: 28.1% Massachusetts, 15.5% Texas, 8% Georgia, 5.3% California, 4.2% Maryland, 4% Florida, with the remainder across states with less than 4% exposure, reflecting our heavy preference for Sunbelt markets with Massachusetts and California exposure heavily weighted towards life science. 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 $720.9 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 a new senior unsecured note offering of $45 million. The coupon on the new notes is 7.875%, a slight increase to the 7.5% notes we issued in October of 2020 when interest rates were near 0%. The new notes carry a term of 2 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 the first half of '26.

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 an 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 it over to Matt for a detailed discussion of the portfolio and markets.

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. I'd like to spend a few minutes discussing what we're seeing in our key verticals and then talk about our pipeline. On the residential front, we're close to the end of a record national new multifamily supply cycle.

CoStar issued annual net deliveries having peaked at 695,000 units in the trailing 12-month period ending fourth quarter of 2024. This compares to annual net delivered units of 351,000 units on average in the prior 5 years from 2014 to 2019, and then 282,000 units on average since 2001.

CoStar forecasts net deliveries reached 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 '25 deliveries are down 17% quarter-over-quarter and it 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 27 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 8 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% to 5% range within which it has traditionally operated.

Anecdotally, in talking to experienced developers, bank financing is still very difficult to find and as 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 to 2020 development cycle, again, supporting revenue growth into '26.

On the life science front, our Alewife project did land the flagship pioneering-backed AI and life science company, Lila Sciences on a long-term lease for 245,000 square feet 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 is the first of many green shoots we're seeing in our opportunistic base life science 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 -- portfolio remains very strong at top of 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. And now we'd like to turn the call over to the operator to take your questions.

[Operator Instructions] Your first question comes from the line of Jason Sabshon with KBW.

It would be helpful to hear just your updated view on the life science sector. 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. And if there's any color you can provide on leasing at the asset, that would be helpful.

Yes, you bet. I think that the good news about our life sciences book is we didn't start making life science loans until 2024. Most of the distress within the sector was for projects that were capitalized shortly after COVID 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 -- and they said this, their core -- or excuse me, their B assets in their noncore 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 planned communities or campuses in Cambridge and Boston. And 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 stabilized being 2/3 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 A note it, we can be refi out. We could sell the loan given that it's SOFR 900, which is mispriced now at a stabilized life science project.

So I think this lease just solidifies our precision-based investments, taking advantage opportunistically at a time when there was no liquidity in the space and very proud to see that the first of -- kind of one of the first investments that we made in life science is bearing fruit for the company and the shareholders.

Great. And then just to shift to multifamily. Now pretty clear from your remarks that you see the supply backdrop as improving. So -- but at the same time, we have seen some pressure in the bridge lending space. So I guess as it turns -- as it relates to deployment, 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 in the bridge space?

Yes, you bet. I think most of the softness in the bridge space was the floating rate bridge loans that were originated in '21, '22 with 2-, 3-year maturities that can't be refied out today. So there's been a lot of folks extending and pretending, which I think is the right -- which is the right thing to do as my comments, 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, but 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 will take a little bit longer to work its way through the system into, I think, the second quarter, third quarter of 2026, where we believe we'll start seeing new lease growth inflect higher in the Sunbelt market. So that's the reason for optimism.

And 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. So there is a little bit of pressure, but I think it's workable. It's not -- this is an office or hotel or anything with extreme heavy CapEx. The multifamily and the residential market will correct. It's dramatically undersupplied. And then 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. So you're right, it's still a little bit tough, but there are reasons for Supreme optimism going forward.

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

Thank you all for your participation today, and look forward to speaking next quarter. Thanks again here for the team at NexPoint, and good day.

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