Good day, Ladies and gentlemen. You are currently on hold for NexPoint Real Estate Finance Q1 2022 Conference Call. We're currently assembling today's audience and plan to be underway shortly. Thank you for your patience, and please remain on the line. Good day, and welcome to the NexPoint Real Estate Finance Q1 2022 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jackie Graham. Please go ahead.
Thank you. Good day, Everyone, and Welcome to NexPoint Real Estate Finance's Conference Call to review the company results for the first quarter ended March 31, 2022. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer, Matt Goetz, Senior Vice President, Investments and Asset Management, and Paul Richards, Vice President, Originations and Investments. 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. 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 Brian Mitts. Please go ahead, Brian.
Thank you, Jackie. Appreciate everyone joining us this morning. I'll start the call by going through our results for the first quarter. I'll cover guidance briefly and then turn it over to the rest of the team for them to give a detailed commentary on the portfolio, some of the recent activity and some of the things that we see ahead for the remainder of the year. For the first quarter, we reported net income of $0.81 per diluted share, compared to net income of $1.26 per diluted share for the first quarter of 2021. We reported earnings available for distribution of $1.23 per diluted share for the first quarter, compared to $0.43 per diluted share in the same period of 2021.
We reported cash available for distribution of $1.58 per diluted share, compared to $0.47 per diluted share in the first quarter of 2021. Book value per share increased 1.3% quarter-over-quarter and 7.1% year-over-year to $21.78. For the first quarter, we paid a dividend of $0.50 per share, and the board has declared a dividend of $0.50 per share for the second quarter. Let me move to guidance for the second quarter. Earnings available for distribution per diluted share, we're guiding to $0.55 per share at the midpoint with a range of $0.50-$0.60.
For cash available for distribution per diluted share, we're guiding to $0.64 per share at the midpoint with a range of $0.59-$0.69. With that, let me turn it over to the team to go through the portfolio and some of the recent activity.
Thanks, Brian. The first quarter continued to show strong performance across each of our investments and asset classes. The portfolio is currently comprised of 70 individual investments with approximately $1.6 billion in total outstanding principal. The loan portfolio is 97% residential with 44% invested in senior loans collateralized by single-family rental and 54% invested in multifamily, primarily via agency CMBS. The remaining 3% of the loan book is life sciences and self-storage. The portfolio's average remaining term is 6.4 years with 94% stabilized. Has a weighted average loan-to-value of 67.7% and an average debt service coverage ratio of 1.87 times. The portfolio is geographically diverse with a bias towards the Southeast and Southwest markets. Texas, Georgia, and Florida combined for approximately 49% of our exposure on a geographic basis.
100% of our investments are current. As mentioned in our earnings, none of our underlying loans are currently in forbearance. Moving to the opportunities we were able to take advantage of during the quarter. During the quarter, we originated a convertible note in the amount of $38.7 million, bringing our total convertible notes exposure to ground leases to approximately $60 million. Subsequent to quarter end, the sponsor repaid all but $25 million of this amount, which is converted into common equity in the company at a 12.5% discount. On January 14, we purchased $19.6 million of preferred equity collateralized by a single-tenant stabilized pharmaceutical manufacturing property with a current yield of 10%.
On January 27th, we purchased $41.8 million of a preferred equity investment collateralized by a stabilized multifamily property in Las Vegas, Nevada. On January 25th, three single-family rental first mortgage loans with an aggregate principal amount of $32.1 million were repaid in full with NREF achieving an IRR of 41.5%. On February 25th, a $62 million single-family rental first mortgage loan was repaid in full, and NREF realized an IRR of 35.9%. In summary, we continue to find attractive investment opportunities throughout our target markets and asset classes, and we'll continue to evaluate these opportunities with the goal of delivering value to our shareholders. I would now like to hand the call over to Paul Richards.
Thanks, Matt. During the first quarter, the company was yet again active in the primary bond market. Though there were not any CMBS bond acquisitions made during the first quarter, the company participated in two Freddie Mac bond auctions. One of which was a small balance loan B-piece in Freddie Mac's small balance program, and the other, which was a floating-rate K-Deal. Both auctions demonstrated extremely strong demand and ultimately priced well inside previous market clearing levels. Just this morning, we closed on a seasoned Freddie Mac small balance loan B-piece. The B-piece was purchased for approximately $39 million, which we will prudently lever via attractively priced repo financing. The bond carries a current coupon of approximately 4.25% and was purchased at a discount.
We expect to generate an all-in unlevered yield of roughly 8% and a levered yield in the low to mid-teens. The weighted average life of the bond, assuming a 15% CPR, is roughly 6.5 years. As discussed in the previous quarter's commentary, the market continues to experience inflation headwinds along with the Fed Signaling multiple half-point rate hikes. Though as previously mentioned, there has been insatiable demand for Freddie Mac B-piece bonds, and we continue to see prices tighten. We continue to be sensibly levered on our repo at roughly 57% LTV at quarter end. Lastly, I wanted to briefly touch on the continued performance of the SFR loan pool and the Q1 2022 loan paydowns.
All SFR loans are current, performing and demonstrating strong metrics in terms of rent growth and occupancies as the demand for single-family rental continues to shine brightly. The portfolio has had a few SFR loan paydowns in the first quarter, which generated a combined IRR north of 40% compared to the original underwriting of 9%. Due to the early prepayment penalties, the investments were able to generate additional net proceeds than the original underwriting, which was roughly one-third of the original investment's time horizon. To finalize our prepared remarks before we turn it over for questions, I'd like to turn it over to Matt McGraner.
Thanks, Paul. Again, we continue to be pleased with the underlying credit performance of NREF portfolio, generating book value growth for the eighth consecutive quarter while providing durable cash flows for our shareholders. The recent market volatility has started to bear fruit for NREF investing pipeline, creating second-chance and gap-financing opportunities in our core property types, especially in the multifamily sector. Finally, we continue to cultivate programmatic special situation and preferred opportunities with SFR, storage, and multifamily sponsors with an underwriting pipeline today north of $400 million. Just wanna thank the team for continued execution. Now we'd like to turn the call over to the Operator for questions.
Thank you. Ladies and gentlemen, to ask a question, please signal by pressing star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, to ask a question today, please signal by pressing star one on your telephone. We will pause for just a moment to allow everyone an opportunity to signal for questions. Our first question today comes from Stephen Laws from Raymond James. Please go ahead.
Hi, good morning. You know, as we look at the portfolio mix, you know, the multifamily SFR mix has sort of flipped over the last year. As you look at your investment pipeline and where you're seeing the most attractive risk-adjusted returns, you know, where do you see that mix going, say, over the next 12 months?
Hey, hey, Stephen. It's Matt McGraner. Yeah, I think we continue just to have more financing opportunities within the multifamily sector. There's just, you know, it's just a larger market, more institutional, more transaction volume. You know, obviously the Freddie Mac pipeline is gonna stay there. As I mentioned kind of briefly in the prepared remarks, as long as the agencies kind of, you know, keep spreads wider than banks and other, you know, life cos, we're seeing these gap financing opportunities in the multifamily sector kind of accelerate. You know, our historical private preferred pipeline is about $100 million a year.
That could be $200 million this year, as you know, just lower LTVs, you know, that are generated by the agencies create that, you know, 65%-85% of the stack type of financing. I would expect us to spend a lot of time in that market. That's just you know a function of the recent volatility.
Thanks, Matt. On the common stock investment, kind of what's the outlook there? You know, if you fully redeploy that into investments today, if you were to kind of look at it that way, what type of impact would that have on adding interest income or CAD to the current portfolio returns?
Yeah. The ground lease investment, I think is what you're referring to, right?
Yes.
We decided to convert. We could have repaid the whole thing. But we like leaving, you know, some out there just to have some connectivity with the sponsor, you know, number one. Then number two, and probably more importantly, we think it's a 2x over three years. You know, our hopefully investors realize that we're not just a, you know, a dividend payer. We do have, you know, special situation investments like this one that create, you know, book value growth, and more total return potential than the normal mortgage REIT. You know, we like that risk-adjusted, you know, profile of creating, you know, roughly another $1.50 a share for shareholders.
Great. Thanks for the color there. You mentioned dividend. I do wanna ask about that lastly. You know, strong coverage, you know, outlook, you know, in the supplement looks like continued strong coverage. Can you know, talk about how you think about setting the dividend and, you know, thoughts about potentially increasing it given the strong coverage you have in place?
Yeah. Hey, Stephen, it's Brian. I think overall we wanna make sure that we can continue to cover it with, you know, go-forward earnings. Obviously it's difficult when you're getting prepayments and things to really estimate that out into the future. As we increase earnings, we want to be cautious about increasing the dividend, and try to, you know, peg that coverage to our earnings available for distribution, because we think that's a better longer-term view than just cash available for distribution.
I think once we get a couple quarters under our belt for, you know, the current portfolio and better understand where the prepayments are gonna go, particularly in that SFR pool, where I think just the run-up in values of SFR properties puts the borrowers in a position where they're at a pretty low LTV with our loans. They can refinance those pretty easily and, not, you know, very expensive either, and go up to a large LTV. It makes sense for them to pay those huge prepayment penalties in some cases. That just creates a little bit of uncertainty in the portfolio. We just want to be careful before we raise the dividend.
We'll look at it as a coverage on earnings available for distribution is our sort of benchmark.
Great. Appreciate the comments, Brian.
Thank you. As a reminder, ladies and gentlemen, to ask a question today, please signal by pressing star one on your telephone keypad. We'll now take a question from Jade Rahmani from KBW. Please go ahead.
Thank you very much. As it relates to the multifamily outlook, how are you thinking about it, in terms of valuation of the asset class from the impact of rising rates and also a potential slowdown in rent growth? For some color, I think the shelter index is about one-third of what the Fed looks at in terms of inflation. Given the timeline to turnover assets, and I believe multifamily turnover ratios are still running low, that suggests inflation will have a lagging effect on inflation. If the Fed really wants to get inflation under control, they have to slow down not just the home purchase market, but also the rental market. Question is: What are you thinking and projecting for the outlook for rent growth in multifamily as well as single-family for rent?
What impact do you think rising rates will have on cap rates?
Yeah. Hey, Jade. Matt McGraner. Lots to unpack there. I think, we reported in our 1Q earnings two days ago, had our strongest same-store NOI growth that we've had in a couple years. Blended lease growth, both renewals and new leases, north of 20%. Same thing has occurred into April. Mid-America just did basically the same thing this morning or yesterday after the close. Most of the operators in sort of the, I guess even on the gateway markets have all kinda increased guidance in terms of just seeing top line and GPR growth within their rent rolls.
This year I think we'll see continued strength in underlying leases, especially and particularly in the agency, the middle market, you know, the agency cohort. I think the cap rates in the transaction volumes, at least for now, have kinda taken a brief pause, but there's still, you know, a ton of equity out there chasing deals. While there might be less sort of, you know, in the buyer pool, so to speak, the well-heeled and the institutional capital is still chasing multifamily because there's underlying growth and stability in the rents and a perfect, not a perfect, but, you know, as close to perfect as you can get for an inflation hedge.
Capital has been, you know, more capital, institutional capital has been allocated toward, you know, the residential sector for these reasons, as an inflation hedge. I don't see that, you know, abating. Cap rates right now have remained steady. There is a negative debt constant at least on the agency side where cap rates are tighter than spreads. That dynamic gives us, you know, some concern if any that cap rates would increase, but they haven't yet. You know, as I'm sure you're aware of in the last few weeks, the agencies have continued to tighten spreads.
Yeah, I'd say that we're still positive, you know, obviously on a relative basis to multifamily, you know, more so than probably any other property type in this current environment, especially when it's in the middle market segment, which is largely where most of our activity is. In terms of SFR, you know, I'll let Brian or Paul comment.
Yeah. I'll start. It's Brian. It's a lot of the same dynamics I think with multi. Overall, I think we look at the portfolio itself and the underlying assets and, you know, again, the LTV in those deals is fairly low. It's hard for us to report on that because we don't get, you know, updated numbers specifically across the entire portfolio frequently. Being in the business and owning over 22,000 homes ourselves across the country into different vehicles, we do understand that market. We feel pretty optimistic about it. As we mentioned earlier, it is a less institutionalized sector.
It is harder to find opportunities, and, you know, there's a big disparity between a handful of really large players and then everyone else who's pretty small and not necessarily the types of partners that we wanna lend to from this vehicle. I think as far as the sector goes, we like SFR. It's got a lot of strong fundamentals and tailwinds, but it's hard to put money to work there and, you know, obviously we don't control the velocity of prepayments in the current environment. Paul, if you wanna...
Yeah. I think I agree with everything Brian just said, and the only thing I would add on would be, you know, the difference between homeownership versus renting in the SFR space. You know, we've seen mortgage rates blow out past 5% and, you know, if you're looking at what homeownership costs versus renting, you know, it's 40% more in HPA versus renting. It's only been about 10-15% in growth rates. So it's still cheaper to rent on the SFR side. I think if you look at our, you know, rental to incomes, it's still, you know, 20-25%. So there's still room to run, you know, in that regard. I think it's still attractively priced from a rental standpoint.
I think lastly, Jade, I don't know how the Fed's gonna get it under control by raising rates. You know, we've had this debate internally, and I mean, the Fed increases will just, you know, continue to make homeownership, you know, less affordable and available to the masses. You know, I think that the rental space, the middle market rental space that we operate in and where majority of our investments are, will continue to benefit from that.
Yeah. Thanks. I don't know how they will either. They may need to cause unemployment to rise, and that means probably a recession. There's a labor shortage, so hard to see how all of this plays out. Let's see. On the single-family rental repayments, any partial paydowns received from Progress Residential? With CLO spreads widening and the all-in cost to issue a CLO up, does that decrease any likelihood of repayment from Progress Residential?
Hey, Jade, it's Paul. On the Progress Residential or the resi loan, yeah, no prepayments on that. You know, it's still a long you know, a long-dated bond or a long-dated loan. So the prepayment's still, call it 20% or so. Yeah, I don't see that prepaying anytime soon given the size. Paul and Brian, do you have anything else on that?
No, I think that's accurate.
Thank you. In terms of the GSE multifamily outlook, do you think that they have recently picked up volumes or they're still struggling to gain market share? I saw recently that there's some stories about them loosening underwriting, not just tightening spreads, as you mentioned, but also their look-back debt service coverage ratios. You know, a lot of deals haven't penciled for them because they're looking at old rents instead of where things are today. Do you have a sense of whether their deal flow has picked up?
Yeah. I mean, you're exactly right. Anecdotally, they had a pretty terrible March in terms of production. You know, April doesn't seem like they're, you know, they're really gaining any more market share. There's less transaction volume in April anyway, and March. So they're definitely behind their pace. We had Freddie Mac in here, I think 2.5 weeks ago. You know, they were, you know, I guess, trying to internally work through how they can be competitive and make sure that they can still provide liquidity to the market. Because right now they're about a month behind their last year's run rate.
Can you give a mark-to-market book value? Is book value down based on where rates have moved thus far in 2Q?
From the CMBS side, the B pieces actually did tighten. You know, given the fact that the auctions priced 2-3 basis points tighter than, you know, the original market clearing levels or the previous market clearing levels, those tightened. The IO strips, which of course are more interest rate sensitive, those did have, you know, one, they're amortizing, and two, interest rates rising did cause a little bit of mark-to-market loss on the IO strips. All in all, I believe it was a pretty tight quarter in terms of the CMBS book.
Okay. Post-quarter end, in the second quarter so far, is book value relatively flat, would you say? Or is it up or down? Any comment you could provide or not really?
Yeah. Relatively flat as of, you know, this month.
Okay. Thanks very much, and appreciate the color.
Thanks, Jade.
Thank you. As a final reminder, ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. It appears we have no further questions at this time.
Yeah. Great. Appreciate everyone's time. Thank you for participating, and we'll talk next quarter. Thank you.
Thank you. This would conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.