NexPoint Real Estate Finance, Inc. (NREF) Q2 2026 Earnings Report, Transcript and Summary

Hello everyone. Thank you for joining us, and welcome to the NexPoint Residential Trust quarter 26 earnings call. After today's prepared remarks, we will host a question-and-answer session If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. 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 06/30/2026. On the call today are Paul Richards, executive vice president and chief financial officer and Matthew Ryan McGraner, executive vice president and chief investment officer. As a reminder, this call is being webcast to the company's website at nrep.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 2 thousand that are based on the management 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-Ks 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 will walk through our quarterly results, cover the balance sheet and provide guidance for Q3 before turning it over to Matthew 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 of 2025. The earnings available for distribution was $0.46 per diluted share in the second quarter compared to $0.43 per diluted share in the same period of 2025. Cash available for distribution was $0.58 per diluted share in the second quarter 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 07/27/2026, 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 of 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 drive 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 are $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 cost to SOFR plus 245. This 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 leverage 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 1 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% mezzanine loans, 17.5% CMBS B pieces, 17.3% revolving credit facilities, 6.2% senior loans, 4% IO strips, and 2.2% promissory notes. The asset 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 of 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 would like to turn it over to Matthew Ryan McGraner. For a detailed discussion of the portfolio and the current market environment.

Matthew Ryan McGraner?

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 REIT peer group on credit. Now onto 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 negative 1.7% in April to negative 1.2% in May to negative 50 basis points in June and turned positive 30 basis points in July. that is the first positive blended print since early 25. And new lease trade outs remain the drag, but renewals have been holding up well. The 2021 and 2022 vintage loans is where the compression risk still sits. And as you know, we did very little originations during this period. Net deliveries peaked at approximately 695 thousand units in the trailing 12 months in the ending Q2 of 2024 against roughly 282 thousand units of average annual deliveries 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 is no reasonable mortgage rate path that closes that gap quickly.

Now on to life science. Life is now tracking to be 85% leased, up from 71% leased, anchored by Lila Sciences, on a long term lease for 245 thousand square feet. With expansion options. Indeed keeps expanding its plan and programming at the asset, obviously, great sign and accretive to our collateral value. The demand funnel for our life science collateral has widened materially because of AI, 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 is in the right submarket. Adjacent to MIT and the broader Cambridge cluster. Our exposure here is not a generic bet on the sector. it is 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 unit universe widens. On the self storage, our self-storage portfolio continues to outperform with occupancy in the low 90s, rent growth, and with rent growth and NOI materially ahead of the sector. The upcoming pipeline, in April, we walked through a $190 million-plus of NREF investment and $200 and 25 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 the 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 derisking, 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 would like to turn the call over to take your questions.

We will now begin the question-and-answer session. You would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset. When asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Crispin Love. With Piper Sandler. Your line is now open. Please go ahead.

Thank you. Good morning. I appreciate you taking my question. First, on the portfolio makeup side, life sciences, I think it is now nearly 40%, exceeds multifamily, I think, the first time for you guys. So when you take a longer-term horizon look out, 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 is a great question, Crispin, and 1 that we talk about often. I think, the in a normalized environment, we would probably like to keep life sciences to be about 1/3, or I would say life science and advanced manufacturing kind of biomanufacturing, those type of assets. At around a third of the pie chart. Obviously, in the, you know, recent kind of 12 to 18 months, Alewife is a 1-off pretty special opportunity that we were able to take advantage of. But going forward, I think we would like to have it be 1-third and have the residential, you know, kind of be 50%. Above about the exposure on life science. We are expecting probably to get some of that capital back. The sponsor on Alewife is out you know, running a refi process to, recap the Alewife the whole campus. And we would get, you know, substantial amount of capital back. To then go redeploy. And, you know, our goal would be to probably redeploy most of those proceeds into residential assets.

Perfect. That makes sense. I know there is definitely a unique situation there. And then just on the dividend and the outlook, CAD had been ahead of the dividend for some time, but earnings available for distribution had 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 comfortable with the current level given the CAD coverage?

Yes, another great question, Crispin. We are we are definitely comfortable with the CAD coverage. Which, you know, is our, you know, gold standard when it comes to, distributions and when we discuss with the board those opportunities for quarterly distributions. And you know, over time, you know, we do think both EAD and CAD will converge you know, and what you have seen too is the increase in CAD over the past few quarters as we discussed in prior calls due to the redeployment you know, accretively into investments via you know, using proceeds from our series b and now series c preferred raising. So hope that answers your question.

Perfect. Thank you, and appreciate you taking my question.

Your next question comes from the line of Jade Rahmani with KBW. Your line is now open. Please go ahead.

You very much. 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.

Yeah. Thanks, Jade. Good morning. I think as it relates to our multifamily exposure, you know, 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 you know, by a JLL, a walker, etcetera. And then, you know, underwritten by our team. So we did very little of sort of the nonbank, you know, floating rate bridge loans that you know, I think you know, some of our peers have done and gotten in trouble with. Most of our collateral, you know, on the pref book, does sit behind agency loans, yet to the extent that we have had to take over, you know, projects, like in Alexandria or The Alexander at the District, for example, think now about a year ago, the that deal is now leased up and healthy. But the underlying, you know, kind of, I guess, credit profile of our assets both on the B-pieces and preferred qualitatively, I think, are of a higher standard you than our peer group. Number 2, most of that exposure You know, some COVID-era lean-ins on the b pieces where we got some outstanding collateral in terms and got paid for it. Did not do much in 2022, 2023. And now we are, you know, kinda back in the market. The higher for longer rate environment I think, helps us a little bit on the multifamily because you are--you know, you can still you can see some cracks forming you know, for folks that you know, need to find, you know, cash-in collateral in order to refi on the extension test. But so far, so good. On the B-piece collateral, you know, I do not think we took any you know, provisions or saw any credit you know, credit leaks, on that side, nor on the pref book, you know, to the extent that, you know, anything happens there that you know, we certainly have the team to take over the asset and nurture it back to health. And then, you pretty constructive on the transaction market going forward. I think in Q4, as new leasing you know, we believe new leasing, as I have said in my prepared comments, will inflect higher in Q4. You know, that should attract, capital providers both on the debt and the equity side, and we are starting to see that in the transaction market. So long-winded answer, but, you know, I think that we like our credit exposure and certainly like the setup for supply and demand, you know, in the next, you know, 2, 3, 4 quarters.

Thanks very much. Alewife seems like a you know, great asset so it will definitely produce 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, you know, extremely well and, you know, unfortunately, I think we will we will probably get that capital back sometime in the fourth quarter, and it will be a great result. The broader exposure, you know, in on our life science book, continues to, to sequentially get better. Tours and our TIMs, you know, tenants in the market list, sequentially over Q1. And into Q2, we are up 30%. And more, and we are already seeing in July even with the holiday, you know, soaking up the first 2 weeks that the third quarter is tracking to be ahead in terms of, you know, tour activity. So we like, you know, we like our kind of broader exposure beyond you know, alewife and, some of our investors and analysts toward those assets and then think would agree they are first to fill, you know, great, well located I would say that beyond, beyond our exposure, the other important point to make is, again, when we originated it. You know, most of it was done, you know, kind of in distressed hairy era of 2024, 2025, 2026 at a reset basis. And so we are not you know, we are not originating the loans back in the go-go days of 2021 and 2022 that, you know, that you are seeing some credit creep and some trouble with our peers. So thanks. Thanks, Jade.

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

Alright. Well, thanks very much for everyone's participation and interest today. Thanks to the teams here at NexPoint. And I look forward to speaking after the Q3 call. Have a good day. Thank you. Bye.

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