NexPoint Real Estate Finance, Inc.

Ladies and gentlemen, thank you for standing by. My name is Sherrell, and I will be your conference operator today. At this time, I would like to welcome everyone to NextPoint Real Estate Finance conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, Simply press star, followed by the number one on your telephone keypad. 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 Thomas. Please go ahead.

Thank you. Thank you. Good day, everyone, and welcome to the next point real estate finance conference call to review the company's results for the third quarter ended September 30th, 2023. On the call today are Brian Mitz, Executive Vice President and Chief Financial Officer, Matt McGrainer, Executive Vice President and Chief Investment Officer, and Paul Richards, Vice President, Originations and Investments. As a reminder, this call is being webcast through the company's website at nref.nextpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions, and beliefs. Listeners should not place 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 seek only as of today's date and except as required by law, NRES does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes 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 Brian Mitts. Please go ahead, Brian.

Thanks, Kristen. Appreciate everyone's participation today. Joining me today are Matt McGrainer and Paul Richards. I'm going to kick off the call, briefly discuss our quarterly and year-to-date results, discuss our portfolio and balance sheet, and then provide updated guidance for next quarter before turning it over to the team for a detailed commentary on the portfolio and the macro lending environment. So we'll start with Q3 results, which are as follows. For the third quarter, we reported a net loss of $0.82 per diluted share compared to a net loss of $0.49 per diluted share for the third quarter of 2022. The decrease in net income was largely driven by mark-to-market adjustments on our common stock investments in Q3 23 and a higher provision for credit losses in 23 as we transitioned to CECL. Net interest income increased 14.3% to $4.8 million in the third quarter, from $4.2 million in the third quarter of 22. The increase was driven primarily by more originations of preferred equity investments with a slightly higher yield than in 2022 and partially offset by higher financing costs in 23. Earnings available for distribution was $0.43 per diluted share in the third quarter compared to $0.40 per diluted share in the same period of 22 and $0.50 per diluted share in Q2 of 23. Cash available for distribution was $0.47 per diluted share in the third quarter compared to $0.42 per diluted share in the same period last year and $0.53 per diluted share in the second quarter of 23. The increase in earnings available for distribution and cash available for distribution from the prior year is partially driven by deconsolidation of the Hughes investment and fewer realized losses. Excuse me. We paid a regular dividend of 50 cents per share and a special dividend of 18.5 cents per share in the third quarter. The Board has declared a regular dividend of 50 cents per share and a special dividend of 18.5 cents per share payable in the fourth quarter. Our dividend in the third quarter was 0.86 times covered by earnings available for distribution, and that's the regular dividend, and 0.94 times covered by cash available for distribution. Food value per share decreased 13.5% year-over-year and 7.1% quarter-over-quarter to $17.88 per diluted share, primarily due to the special dividend and mark-to-mark adjustments. During the quarter, we originated six preferred equity investments with $16.3 million of outstanding principal and one loan with $5 million of outstanding principal. These seven investments have a blended all-in yield of 11.3%. We also purchased three common equity securities for $1.8 million. We had one preferred investment redeemed for $3.6 million of outstanding principal and sold one CMBSB piece for $45 million. Moving to year-to-date, we reported a net loss of $0.11 per diluted share compared to net income of $0.48 per diluted share for the same period in 2022. The decrease in net income was largely driven by higher unrealized losses in 2023 as compared to 22 and a higher provision for credit losses in 23. Net interest income decreased 61.6% to $13 million year-to-date 23 from $33.8 million in the same period in 22. The decrease was driven primarily by fewer prepayments on our SFR loans and higher financing costs in 23. Earnings available for distribution was $1.44 per diluted share in the third quarter, or sorry, in the first nine months of 23 compared to $1.74 per diluted share in the same period of 22. Cash available for distribution was $1.54 per diluted share year-to-date compared to $2.18 per diluted share in the same period of 22. The decrease in earnings available for distribution and cash available for distribution for prior year is partially driven by higher weighted average share counts as well as lower prepayments on our SFR loans in 23. Today we announce the launch of a $400 million Series B 9% redeemable preferred equity offering. The offering will be sold through our retail distribution team. The Series B is redeemable at the option of the holder or the issuer of us. The issuer may meet the redemption in cash or common stock at our sole discretion. Redemptions initiated by holders are limited to 2% of the total outstanding Series B per month, 5% per quarter, and 20% per year. There were also penalties for redeeming prior to year four. Proceeds will be used to take advantage of accreted investment opportunities we see in the market, which Matt will discuss in more detail in his prepared comments. Moving to our portfolio, our portfolio is comprised of 89 investments with a total outstanding balance of $1.6 billion. Our investments are allocated across sectors as follows. 45.8% in single family rental, 48.1% in multifamily, 4.6% in life sciences, and 1.5% in storage, which represent sectors that we are involved in across our platform. Our portfolio is allocated across investments as follows. 42.8% in senior loans, 31.2% in CMBSB pieces, 10.9% for equity investments, 8.4% mezzanine loans, and 3.5% in IO strips, and the remainder is in mortgage-backed securities. Assets collateralizing our investments were located geographically as follows, 21% in Georgia, 17% in Florida, 14% in Texas, and 6% in California, with the remaining 42% across states with less than 5% exposure, reflecting our focus on Sunbelt markets. The collateral on our portfolio is 90.9% stabilized with a 69% weighted average loan-to-value and a weighted average DSCR of 1.77 times. We have $1.2 billion of debt outstanding. Of this, only approximately $300 million or 25% is short-term debt in the form of repurchase agreements that roll monthly. Our weighted average cost of debt is 4.23% and has a weighted average maturity of 3.2 years. Our debt is collateralized by $1.6 billion of value with a weighted average maturity of 5.7 years. And our debt-to-equity ratio is 2.93 times book value. Moving to guides for the fourth quarter, we're guiding earnings as follows. Earnings available for distribution of $0.45 per diluted share at the midpoint with a range of $0.40 on the low end and $0.50 on the high end. Cash available for distribution of 47% diluted share at the midpoint with a range of 42 cents on the low end and 52 cents on the high end. So now I'll turn it over to the team to discuss the portfolio and our lending environment.