NexPoint RE Finance (NREF) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Communications and Corporate Affairs - Carley Musser
• Executive Vice President and Chief Financial Officer - Paul Richards
• Executive Vice President and Chief Investment Officer - Matt McGraner

TAKEAWAYS

• Net Loss -- $0.65 per diluted share, reflecting unrealized losses on fair valued positions during the quarter.
• Earnings Available for Distribution (EAD) -- $0.52 per diluted share, compared to $0.51 per diluted share in the third quarter of 2025.
• Cash Available for Distribution (CAD) -- $0.60 per diluted share, which provided 1.2x coverage for the quarterly dividend.
• Dividends -- $0.50 per common share, with a fourth quarter dividend declared at the same rate.
• Book Value -- $17.63 per diluted share, a 5.2% decrease from the second quarter of 2026 due to valuation adjustments.
• Total Portfolio -- $1 billion across 83 investments, with the collateral 78.3% stabilized.
• Portfolio Allocation -- 40.7% life sciences, 38.3% multifamily, and 14.0% single-family rental assets.
• Loan-to-Value (LTV) -- 64.7%, based on the weighted average of senior loans, mezzanine debt, and preferred equity.
• Debt Service Coverage Ratio (DSCR) -- 1.39x, representing the weighted average across the investment portfolio.
• New Investments -- $4 million in preferred equity at a 14% monthly coupon and $2.2 million in a marina preferred equity investment at a 13% coupon.
• Loan Funding -- $8.4 million on a loan yielding SOFR plus 900 basis points.
• Credit Facility Upsize -- $450 million, representing an increase from the previous $375 million Mizuho Capital Markets term loan facility.
• Series C Preferred Offering -- $27.9 million in gross proceeds raised to fund existing commitments and identify new opportunities.
• Debt Obligations -- $913.1 million outstanding with a weighted average cost of 5.8% and a weighted average maturity of 2.5 years.
• Q4 2026 EAD Guidance -- $0.37 to $0.47 per diluted share, with a midpoint of $0.42 per diluted share.
• Q4 2026 CAD Guidance -- $0.50 to $0.60 per diluted share, with a midpoint of $0.55 per diluted share.
• Multifamily Market Supply -- 40% decline in construction starts between 2023 and 2025, with new deliveries expected to bottom at 327,000 units in 2027.
• Freddie Mac Delinquencies -- 80 basis points in Aug. 2026, an increase from 48 basis points in Aug. 2024.
• Special Situation Pipeline -- 32 billion in agency floating rate securitizations from the 2020 to 2023 vintage identified as potential targets for solution capital.
• Self-Storage Performance -- 93.5% occupancy with rents increasing 600 basis points year over year.
• Geographic Exposure -- 31.1% in Massachusetts and 15% in Texas, reflecting a focus on life science hubs and Sunbelt markets.
• Existing Commitments -- $91.7 million in additional funding deployed during the quarter toward current portfolio obligations.

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RISKS

• Richards stated that "unrealized losses on a few of our fair valued positions" occurred "due to a rapid rise in rates over the quarter," which impacted the company's book value.
• McGraner noted that "higher for longer pressures borrowers who need to refinance or meet extension tests," which contributes to stress in the multifamily system.

SUMMARY

NexPoint Real Estate Finance, Inc. (NYSE:NREF) reported third quarter results characterized by stable dividend coverage and the tactical deployment of capital into high-yielding residential and life science credit. Management reported that the company is actively developing a supplemental capital program to address liquidity needs for sponsors of agency-underwritten multifamily debt facing extension tests. The company stated it maintains a clean capital structure with significant dry powder following a preferred stock offering and an upsized credit facility. Management indicated that the current supply-demand dynamics in multifamily, marked by a significant drop in new construction starts, are expected to restore pricing power as the pipeline bottoms in 2027.

• McGraner reported that for the IQHQ exposure, the company is "seeing a lot of good traffic in Boston and San Francisco" and anticipates capital return from potential asset monetizations.
• Management is preparing to redeploy capital from the LYFE life science recapitalization back into residential collateral, targeting a one-third portfolio weighting for life science over time.
• The company identified roughly 220,000 square feet of new life science leases signed year to date, signaling sequential fundamental improvements in core hubs.
• McGraner stated that NREF is developing a program where it "would provide co-terminous supplemental capital behind the existing first lien" for agency floating rate loans.
• Management noted that the Alexander project in Atlanta, previously a foreclosure, has recovered to 97% leased and 95% occupied.
• Self-storage investments are yielding double-digit coupons, with new construction pipelines in the sector falling well below historical averages.

INDUSTRY GLOSSARY

• CAD (Cash Available for Distribution): A non-GAAP measure used by REITs to assess the ability to pay dividends, adjusted for non-cash items like amortization and depreciation.
• CMBS B-Piece: The most junior, highest-risk slice of a commercial mortgage-backed security that is the first to absorb losses.
• DSCR (Debt Service Coverage Ratio): A measure of the cash flow available to pay current debt obligations.
• EAD (Earnings Available for Distribution): A non-GAAP financial metric used to evaluate operating performance and the long-term ability to pay distributions.
• IO Strips: Interest-only strips, a type of security where the holder receives only the interest payments from a pool of mortgages.
• LTV (Loan-to-Value): A ratio expressing the amount of a loan as a percentage of the total value of the asset collateralizing it.
• Mezzanine Loan: A form of financing that sits between senior debt and equity in the capital stack, typically carrying higher interest rates.
• SOFR (Secured Overnight Financing Rate): A benchmark interest rate for dollar-denominated derivatives and loans that replaced LIBOR.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to NexPoint Real Estate Finance Q3 2026 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 star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Carley Musser with Communications and Corporate Affairs. Carley, please go ahead.

Carley Musser: Thank you, Carley. Good morning, and welcome to NexPoint Real Estate Finance's conference call to review the company's results for the third quarter ended September 30, 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.

Paul Richards: Thanks, Carley, and good morning, everyone. I'll walk through our quarterly results, cover the balance sheet, and provide guidance for Q4 before turning it over to Matt for a deeper dive on the portfolio and the macro lending environment. For the third quarter, we reported a net loss of $0.65 per diluted share compared to $1.14 for Q3 2025. Earnings available for distribution was $0.52 per diluted share in Q3 compared to $0.51 per diluted share in the same period of 2025. Cash available for distribution was $0.60 per share in Q3 compared to $0.53 per diluted share in the same period of 2025.

We paid a regular dividend of $0.50 per share in the third quarter, which was 1.2x covered by the cash available for distribution. On October 26, 2026, the board declared a dividend of $0.50 per share payable for the fourth quarter of 2026. Book value per diluted share decreased 5.2% from Q2 2026 to $17.63 per diluted share, primarily driven by unrealized losses on a few of our fair valued positions due to a rapid rise in rates over the quarter, which has subsequently retraced and rallied back a substantial amount, which we believe should assist in a marked rebound for Q4. 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 $4 million preferred equity investment in a multifamily property that pays a monthly coupon of 14%, a $2.2 million preferred equity investment in a marina at a 13% coupon, and funded an additional $91.7 million on other existing commitments in the quarter.

During the quarter, we upsized our $375 million term loan facility and total return swap with Mizuho Capital Markets to $450 million, which we used to fund existing commitments, primarily an $80.5 million bridge loan yielding 14% that paid off at the end of the quarter. In accordance with the payoff, we paid down $52.2 million on the secured facility, lowering total outstanding balance to $397.8 million. Combined with the $27.9 million we raised in our Series C Preferred, we head into the last quarter of 2026 with what we believe to be one of the cleanest, most flexible capital structures in the commercial mortgage REIT sector.

Our portfolio is comprised of 83 investments with a total outstanding balance of $1 billion. Our investments are allocated across sectors as follows: 40.7% life sciences, 38.3% multifamily, 14% single family rental, 4.6% storage, 2.2% industrial, and 0.2% marina. Our fixed income portfolio is allocated across investments as follows: 28.4% preferred equity investments, 22.8% mezzanine loans, 18.2% revolving credit facilities, 17.9% CMBS B-pieces, 6.4% senior loans, 3.9% IO strips, and 2.3% promissory notes.

The assets collateralizing our investments are allocated geographically as follows: 31.1% Massachusetts, 15% Texas, 7% North Carolina, 6.5% Florida, and 5.5% California, with the remainder across states with less than 5% exposure, reflecting our heavy preference for Sunbelt markets, with Massachusetts and California exposure heavily weighted towards life science. The collateral on our portfolio is 78.3% stabilized, with 64.7% loan-to-value and a weighted average DSCR of 1.39x. We have $913.1 million of debt outstanding with a weighted average cost of 5.8% and has a weighted average maturity of two and half years. Our secured debt is collateralized by $1.5 billion of collateral with a weighted average maturity of 2.6 years and a debt-to-equity ratio of 0.97x.

Moving to guidance for the fourth quarter. Earnings available for distribution, $0.42 per diluted share at the midpoint, with a range of $0.37 on the low end and $0.47 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. With that, I would like to turn it over to Matt for a detailed discussion of the portfolio and the current market environment. Matt?

Matt McGraner: Thank you, Paul. This quarter was a solid, consistent execution. Both EAD and CAD came in ahead of our guidance. Given our positive credit profile and the improving but still challenging macro backdrop, we continue to play offense in this environment and expect opportunities for our solution-oriented capital to grow over the near-term. The Fed held its target rate at 3.75%-4% in late October, and the 10-year Treasury moved back above 5%. Higher for longer pressures borrowers who need to refinance or meet extension tests, and that is exactly where disciplined solution capital earns its pricing power. Our new investments are priced at double-digit coupons at reset basis, and therefore, we believe we are well-positioned for this type of environment.

Turning to our verticals. Residential, between multi and single-family rental, remains our largest exposure. Our multifamily credit sits predominantly behind agency-underwritten senior debt, which has historically been some of the most resilient collateral in real estate. Freddie Mac's aggregate losses have averaged about 7 basis points per year since 2009, with $432.6 million of cumulative losses on $645.8 billion of issuance through August of 2026. That is not to say there is not stress in the system, though. Trepp has Freddie's multifamily delinquency at 80 basis points of UPB in August, up from 48 basis points in August of 2024. We see this as an opportunity, however, which I will elaborate on in a minute.

On the supply side, multifamily construction starts fell more than 40% between 2023 and 2025, and new deliveries are forecasted to bottom near 327,000 units in 2027, well below the roughly 600,000-unit peak in 2024. Supply is what broke pricing power over the last two years, and the falling supply pipeline is what we expect to restore it. That said, the recovery is not linear, and in the third quarter, blended lease rates across our portfolios remained flat to slightly positive, and concessions, while abating, are still prevalent in the market for Class A and Class B multifamily in our geographical footprint.

The good news is we are underwriting and deploying our capital into new residential investments on today's rents, again, on reset basis and not on a recovery pro forma. Our single-family rental book continues to perform really well, with significant equity cushion. Overall, we view the sector's credit profile as slightly more favorable than multifamily, with rents already in positive territory and less pockets of distress. The number of households renting single-family homes continue to rise, and higher for longer should keep demand high for our affordable SFR in our markets. Now on to life science.

At LYFE, the sponsor's recap process is underway, and we continue to expect a substantial, if not all, of our return of capital in the next quarter or two. When the capital comes back, our plan is to redeploy most of it into residential collateral and to move life science back toward roughly one-third of the portfolio over time. Across the rest of our life science exposure, fundamentals continue to improve sequentially, particularly in Boston and San Francisco, with 220,000 sq ft of new leases signed during the year-to-date. The remaining industry-wide speculative pipeline is expected to deliver through 2026, after which new supply will be limited largely to fully pre-leased build-to-suit projects.

Demand is broadening beyond traditional lab users to biomanufacturing, onshoring, and AI-driven users that need power density, floor loads, and lab-grade infrastructure. Importantly, and again, most of this book was originated in 2025 through 2026 at a reset basis. In self-storage, fundamentals troughed in 2025, and with new construction pipelines well below historical averages, we expect conditions to keep strengthening. During the quarter, we continued to add small mezzanine positions on newly stabilized storage assets at double-digit coupons. The sector has already largely reported better-than-expected results during the quarter, and our NSP-owned portfolio continues to perform very well also, with occupancy as of 9/30 at 93.5% and rents up 600 basis points year-over-year.

On the pipeline in April, we outlined more than $190 million of NREF investments and more than $225 million of structured product opportunities. Year-to-date, I'm pleased to say we have closed $280 million of that $415 million pipeline and have another $160 million committed over the next 12 months with an active pipeline backlog building. We were deliberately selective in the third quarter, and with the additional Mizuho capacity and expected repayments, we have the dry powder to lean in at attractive spreads in the fourth quarter and into 2027. I'm glad we waited on some of the resi opportunities because more will appear.

One critical need for the market will be to provide solution and special situation capital for the residential sector, and this is a great opportunity for NREF over the next couple of years, with the caveat that it might not fully materialize if the capital markets rapidly improve, which we wouldn't hate either. The stress in agency multifamily is concentrated in floating rate loans originated in 2020 through 2023, when SOFR was near zero. Those loans need replacement rate caps, cap escrows, and in many cases, a paydown to meet their refi and extension test, and a meaningful number of sponsors do not have the equity to do it.

In agency floating rate securitizations alone, that vintage is more than $32 billion across roughly 1,000 loans, and about a quarter of that balance is already on special servicer watch lists. We have demonstrated time-and time again that we can be a creative partner with the agencies, particularly Freddie, to provide solution-oriented capital on a bespoke basis. We're already developing a program where NREF would provide co-terminous supplemental capital behind the existing first lien so that sponsors can buy the cap, fund reserves, and pass their tests rather than hand back the keys. This is exactly the kind of solution capital we have built the platform around.

It sits behind conservatively underwritten agency senior debt in an asset class and in markets we know as operators, and it is priced like rescue capital. We would also expect it to be financed on a matched term basis, similar to how our original SFR portfolio was financed. The program is not final, but we do believe there is a strong need for it, and we are excited about it. To close and summarize, we are pleased with where we are, particularly in this cycle. Earnings came in ahead of guidance, the dividend is covered, credit continues to hold well, and our balance sheet has more capacity than it did a year ago.

As always, I want to thank this team for their hard work and focus, and with that, we would like to turn the call over to the operator and take your questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one 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 Jade Rahmani with KBW. Your line is open. Please go ahead.

Jade Rahmani: Thank you very much. Could you give an update on the IQHQ exposure, specifically the credit facility and preferred equity position, and how you expect that to perform over the next one to two years?

Matt McGraner: Yeah. Happy to. Good morning. The preferred and the RCF sit at different detachment points, but it's roughly, I think, $350 million collectively. The company is, as I've said in the past, executing on its plan, seeing a lot of good traffic in Boston and San Francisco in particular. The near-term, I would say, catalyst is Alewife, and they're continuing to either recap or monetize and/or sell that asset. To the extent that it's sold, then that frees up a ton of capital to delever the company and take out some of our capital.

In terms of, I'd say, the widening funnel, one thing that's popped up in the last quarter or two, these assets have not only really great infrastructure, but they unbeknownst to the sponsor has a great deal of powered shell. What I mean by that is, the assets are now starting to get looks for edge compute, and then the economics of that are pretty stellar. That's one sort of green shoot that has appeared relatively recently that I think the team is working on and could be a pretty interesting monetization event, given where we are in the cycle.

But, yeah, I think our exposure is, from a per square foot and a detachment standpoint, some of the best out there. I think the RCF detachment point is roughly $1,100 a sq ft. The series E detachment point is roughly $1,350 a sq ft. If you compare those bases to the rest of the industry, and particularly, just plain new office rents and new office buildings, I think we like where we are in the cap stack.

Jade Rahmani: If Alewife refinanced and there was a repayment, would that pay down any of the preferred or credit facility?

Matt McGraner: Yeah, it absolutely could. The current or our current first mortgage is roughly a couple hundred million. I know there's term sheets and other kind of loan sizing out there in the 400-ish range. So, yeah, I would expect there to be excess cash there.

Jade Rahmani: Okay. Turning to the rest of the portfolio, like the preferred equity and mezzanine exposure to multifamily, how are you feeling about the performance outlook there? Because you did mention that there's significant challenges in multifamily credit. I know the vintage is more recent, but if you could comment on that portfolio.

Matt McGraner: Yeah. The problems that we had were like two or three loans that we've already taken back and consolidated. One comes to mind was the Alexander project in Atlanta that we took back, I think, early last year. That project is now 97% leased, 95% occupied, and doing really well. Same thing with Ridgeview, and then I think another deal called Mag & May. But all of those were known to us and have largely been foreclosed on and now owned by us, and we're nursing them back to health, which kind of all told isn't a ton of exposure. The rest of the mezz and pref positions are performing well and on schedule.

The new construction pref and mezz positions are doing extremely well and delivering kind of on schedule, on budget, and then hopefully into an environment in 2029 where there's going to be no new supply. So, feel really good about that book, particularly relative to the rest of the commercial real estate mortgage REIT universe.

Jade Rahmani: Thank you very much.

Matt McGraner: Thanks, Jade.

Operator: Your next question comes from the line of Gabe Poggi with Raymond James. Your line is open. Please go ahead.

Gabriel Poggi: Hey, guys. Good morning. Thanks for taking the time. I want to follow up on a couple specific assets. Two pref equity positions, Holly Springs and Vacaville, we have talked about before. It looks like those loans may have been extended. Can you just give us an update on what is going on there?

Matt McGraner: Yeah. Holly Springs is some of the RTP exposure that we are continuing to invest in, and we love that exposure. RTP is on fire with reshoring and onshoring capital. We extended it because the sponsors needed more capital and time to chase, build to suit for a top seven market cap pharmaceutical company that is building a 350,000 sq ft build-to-suit campus, manufacturing campus, biomanufacturing campus there. So, that is the reason for that one. Vacaville kind of goes along with my comments around edge compute. Sponsor there is working on a conversion of that biomanufacturing facility to an edge compute facility.

The good news there is there is actually a solar field and quite a bit of power there. We're excited about the opportunity to invest in that project and extend it and allow this business plan to take place because there's a lot of demand for that out there, and we think it's an interesting wave to play the cycle.

Gabriel Poggi: Thanks. That's helpful on both those. I know they're chunky, but I know you guys have talked about them in the past as being very high quality, so just wanted to make sure I wasn't missing anything. Then to kind of piggyback on Jade's question about multi, are there any Maybe you guys mentioned this and I just missed it, but any mezz or pref positions where the senior's coming due or has been kind of getting close to full maturity extension where there may have to be some kind of workout where you guys maybe get the keys back?

Matt McGraner: Nothing new. Honestly, we've already worked through a lot of that. I know that we pay attention to the rest of the calls and your guys' analyses and questions, and we're prepared to answer questions around delinquency and mezz and pref positions, but there isn't really a ton. I'd say that the only thing to add is on the agency side, where I think we have less than $10 million of exposure. We're watching a K deal, but otherwise, we really like the credit profile. It's holding up. Then, like I said, the ability to kind of turn this on its face and play offense here, particularly with the agencies, is something we're extremely excited about.

And the industry needs it. It's going to need this sliver capital coming in, particularly if the Fed continues to hike interest rates into this multi-cycle. Yeah, nothing alarming at this point.

Gabriel Poggi: Good to hear. One final one, if I could sneak it in, is to that point, Matt, about solution capital, and to go forward and capital needs across multifamily. Where can you guys put money to work today, and how different is it, at least from a return perspective, for NREF relative to a year ago, two years ago, et cetera? Obviously, capital can't be too expensive or it doesn't work for anybody in the stack.

Matt McGraner: Yeah.

Gabriel Poggi: Just kind of give an overview of kind of where you can. Is it still kind of the same zip code of what you've been doing, a little higher, et cetera, would be helpful.

Matt McGraner: Yeah. We can underwrite to high single digits with this solution capital, and if we can do it with the agencies, then we can get back leverage on it like we have in the past, and that turns it into a mid-teens return. What I'd say is that the kind of return there, the return is still there, but what I think is now kind of coming home to roost is that the opportunities are starting to appear. Heretofore, most folks were, most banks and non-bank lenders were willing to kind of hold through the cycle and just work it out themselves and maybe take on some REO and sell it into a strengthening environment in 2026 and 2027.

With the latest hike in interest rates, the exhaustion is starting to appear, I think, on some of these borrowers and sponsors and also some of the lenders. I think that they're starting to be more open for the first time to ideas and solutions that we're bringing. I think the return's going to be there. It's not going to be anything like to the depth of life science, but it is going to be an interesting place to play on a risk-return profile, and it'll have some size. Like I said, we identified $30 billion or so of opportunities.

Gabriel Poggi: Thank you.

Matt McGraner: Thanks, Gabe.

Operator: Just a reminder, if you'd like to ask a question, please press star one to raise your hand. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Matt McGraner: Thanks, everyone.

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