Please stand by. Good day, and welcome to the NexPoint Real Estate Finance Q2 2022 conference call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Jackie Graham. Please go ahead, ma'am.
Thank you. Good day, everyone, and welcome to NexPoint Real Estate Finance's conference call to review the company's results for the second quarter ended June 30th, 2022. On the call today are Matt McGraner, Executive Vice President and Chief Investment Officer, David Willmore, Vice President, Finance, 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 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 Matt McGraner. Please go ahead, Matt.
Thank you, Jackie, and appreciate everyone joining us today. I'll start by addressing second quarter highlights and then turn it over to Dave to review the financial results, followed by Matt and Paul's comments on the portfolio and new investments. First, NREF's credit investments in primarily stabilized shorter-term lease duration assets with lower CapEx have and should continue to maintain dynamic pricing power in today's inflationary environment. Underlying NOIs embedded in our stabilized SFR, multi, and storage collateral continue to outperform other property types, providing a resilient base of earnings for distribution to provide stable yields to our investors.
We believe our two special situation investments, converted equity in NexPoint Storage Partners and our ground lease investment, roughly $80 million of notional value, provide a differentiated total return profile compared to our commercial mortgage REIT peers, insulating and enhancing book value growth in the coming years, and when monetized and redeployed, significant CAD growth. Though the capital markets were volatile during the quarter, we didn't sit still. The team originated 11 new investments totaling $150 million, all of which were with institutional and/or repeat sponsors in SFR, multi, and self-storage, as Matt will detail in his prepared remarks. Finally, it's an exciting time for our business. We believe our portfolio's credit profile is second to none and positioned in the most enviable property types, again, providing a stable and transparent earning stream for the next five plus years.
NexPoint's relationships across multi, SFR, storage, ground leases, and life sciences continue to provide steady deal flow. Indeed, today our pipeline consists of over $150 million of new investments across Freddie K and preferred and CGMP, multi, and storage, all at attractive and accretive yields. Now I'd like to turn the call over to David to review NREF's financial highlights for the quarter. David.
Thank you, Matt. I'm going to briefly discuss our results for the quarter and the year, provide guidance for the third quarter, and then turn it over to the team for detailed commentary on our portfolio and the lending environment. For the second quarter, we reported net income of $0.34 per diluted share compared to net income of $0.58 per diluted share for the second quarter of 2021, a decrease of 41% on a per share basis. Interest income increased 37% over Q2 in 2021, driven by a 41 basis point increase in average yields on investments. Interest expense increased 20%, driven by $125.6 million of additional borrowings and a 49 basis point increase in average rate. Overall, net interest income increased 61% over Q2 2021.
Earnings available for distribution was $0.56 per diluted share in Q2, compared to $0.41 per diluted share in the same period of 2021, an increase of 36.9% on a per share basis. Cash available for distribution was $0.63 per diluted share in Q2, compared to $0.47 per diluted share in the same period of 2021, an increase of 34.3% on a per share basis. We paid a dividend of $0.50 per share in the second quarter, and the board has declared a dividend of $0.50 per share payable for the third quarter. Our dividend in the second quarter was 1.12 x covered by earnings available for distribution and 1.26 x covered by cash available for distribution.
Book value per share decreased 0.9% quarter-over-quarter to $21.59 per diluted share. During the quarter, we originated or purchased eight investments with $82.7 million of outstanding principal, with a combined current yield of 6.1%. Two investments were redeemed with $13 million of outstanding principal for a total gain of $1 million. One investment was converted from a note to equity at a 12.5% discount valued at $25 million. For the six months ended June 30th, 2022, we reported net income attributable to common shareholders of $1.14 per diluted share compared to net income of $1.83 per diluted share for the same period of 2021.
Earnings available for distribution was $1.78 per diluted share year- to- date, compared to $0.83 per diluted share in the same period of 2021, an increase of 113.8%.
Cash available for distribution was $2.21 per diluted share year- to- date, compared to $0.94 per diluted share in the same period of 2021, an increase of 170.7%. Our dividend in the year was 1.78 x covered by earnings available for distribution and 2.21 x covered by cash available for distribution. Book value per share increased 5.9% year-over-year to $21.59 per diluted share.
Moving to guidance for the third quarter, we are guiding to earnings available for distribution and cash available for distribution as follows: earnings available for distribution of $0.44 per diluted share at the midpoint, with a range of $0.39 on the low end and $0.49 at the high end, and cash available for distribution of $0.51 per diluted share at the midpoint, with a range of $0.46 on the low end and $0.56 at the high end. The decrease in cash available for distribution and earnings available for distribution from the second quarter is driven primarily by non-recurring prepayment penalties from an SFR loan, a preferred investment, and an interest-only strip. Now I'd like to turn it over to the team for a detailed discussion on originations and the portfolio.
Thanks, Dave. The first quarter continued to show strong performance across each of our investments and asset classes. As of today, the portfolio is currently comprised of 75 individual investments with approximately $1.6 billion in total outstanding principal. The loan portfolio is 98% residential, with 44% invested in senior loans collateralized by single-family rental and 54% invested in multifamily, primarily via agency CMBS. The remaining 2% of the loan book is life sciences and self-storage. The portfolio's average remaining term is six point four years, is 94% stabilized, has a weighted average loan value of 68.5%, and an average debt service coverage ratio of 1.63 x. The portfolio is geographically diverse with a bias towards the Southeast and Southwest markets. Texas, Georgia, and Florida combine for approximately 47% of our exposure on a geographic basis.
100% of our investments are current. Moving to opportunities we're able to take advantage of, as Matt mentioned, through today we were able to close 11 new investments totaling $152 million with a weighted average unlevered yield of 7.75% and average levered yield of 11.3%. During the quarter, we originated an $8 million preferred equity investment collateralized by three stabilized self-storage properties located in Central and Coastal Texas with an unlevered yield of 10.5%. We also purchased $9 million of MSBR notes with an average unlevered yield of 8.5% and levered yield of 13.6%.
We originated or we purchased $26 million of single-family rental debt securitizations with an average unlevered yield of 8% and levered yield of 11.6%. Originated a $4.5 million preferred equity investment collateralized by a stabilized Class A multifamily property in Rogers, Arkansas at one month SOFR +1070. Today we purchased Freddie Mac floating-rate pay series VPs at SOFR +525 for a purchase price of $70 million. 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 to discuss the bond market, repo financing, and SFR portfolio.
Thanks, Matt. During the second quarter, the company was active in the secondary bond market, sourcing a $41 million Freddie Mac small balance loan BP, which has an unlevered yield to maturity of approximately 8% and a levered yield in the low to mid-teens, which was prudently levered via attractively priced repo financing. As Matt discussed, the company also closed on a new issue, Freddie Mac floating-rate BPs for approximately $70.5 million just this past afternoon. The bond yields a 30 day average SOFR plus 5.25%, and we were able to finance the bond via cash on balance sheet and attractive repo financing. The bond boasts a great geographical presence, prudent underlying loan leverage, and as always, excellent sponsorship.
Lastly, through a syndication process, the company bid on Freddie Mac risk transfer certificates and were allocated roughly $9 million of the B1 and M2 bonds, boasting attractive yields of 30 day SOFR plus 9.50% and 6.50% respectively. As discussed in the previous quarters commentary, the market continues to experience inflation headwinds along with the Fed continuing its rate hiking cycle. Though as previously mentioned, there has been insatiable demand for residential and therefore heightened demand for Freddie Mac BP bonds. We continue to be sensibly levered on our repo facility at roughly 60% LTV at quarter end. Lastly, I wanted to briefly touch on the continued performance of the SFR loan pool and the Q2 2022 loan paydowns. All SFR loans are currently performing and demonstrating strong metrics in terms of rent growth and occupancies as the demand for single-family rental is still red hot.
The portfolio had one SFR loan payoff in the second quarter, which generated an IRR of 31.2% as compared to the original underwritten IRR of only 9%. Due to the early prepayment penalty, the investment was able to generate outsize net proceeds than the original underwriting and in roughly one-third of the original investment time horizon. That concludes our prepared remarks. I will now turn it back over to the operator for Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Stephen Laws with Raymond James.
Hi, good afternoon. You know, Matt or Brian, I guess to start, can you talk about what type of returns you're seeing on new investments versus three or six months ago, given, you know, the dislocation in the markets and where spreads and rates have moved? When you think about your pipeline, you know, what pockets look most attractive on a relative basis that we should expect to see, you know, new investments in during the second half?
Yeah. Hey, Steven. Good afternoon. Returns on new investments during the quarter and then kind of what our pipeline is that Matt alluded to, we're getting probably another 2%-3% more in yield right now in the current environment. In the pipeline we have coming up, and this goes to your second question, what kind of new opportunities. We're having a lot of success sourcing C of O preferred or preferred in CGMP facilities, you know, the pharmaceutical manufacturing facilities, where we, you know, basically provide financing at certificate of occupancy for new builds with well-heeled sponsors. That to us is a great place to be.
It's two to three year kind of money and, you know, it's usually kind of 10%-12% yields, and again in life sciences and the reshoring of pharmaceutical manufacturing. We just like that space a lot. The second kind of area where we're doing a lot of work and seeing a lot of work is on the storage side. We're originating kind of private preferred, and then we'll be probably in the market purchasing new issue storage B-pieces as well. That, you know, that type of credit is SOFR plus kind of 600-700 at the moment. We like that space as well. The team's also doing a great job of continuing to source the multifamily private preferred.
You know, obviously with negative leverage in the market, kind of second chance opportunities, you know, retrades, LTV tests not hitting with the agencies. We're seeing a lot of gap financing opportunities, and those are probably gonna come fast and furious in the third and fourth quarter as well as transaction volumes pick up, and the agencies aren't quite there. There's still, like I said, negative leverage in most multifamily property types, so there's got to be some gap financing that sponsors will seek. It's kind of a but kind of doing the same thing we've been doing, but getting a, like I said, 2%-3% more.
Great. Appreciate the color on that. One follow-up. You know, when I think about the repayment or prepayment fees, you know, certainly slowing around the SFR, can you talk about what your expectations are there and kind of how you saw that slow during the quarter?
Hey, Stephen. Paul. Yeah. During the quarter, we saw the one loan pay down. And I think what you're still seeing, though, is you still have higher rates on or high rates on the SFR loan book and HPA buildup from 2018, 2019 originations. So what you're seeing or could continue to see are kind of the smaller loan balances. You know, a lot of these operators printing a realized gain on those and the prepayment penalty might not be, you know, as, you know, devastating for them to, you know, rack up that HPA and realize those gains. So I don't think it's out of the question to, you know, maybe see some of these smaller loans pay off and these operators do, you know, sizing up a good gain for them for the year.
That's how we kind of see that SFR loan book right now.
Great. Appreciate the color today. Thank you.
Thanks, Stephen.
Thank you. We'll take our last question today from Jade Rahmani with Keefe, Bruyette & Woods.
Thank you very much. Can you quantify the impact in multifamily, single-family rental, and self-storage from higher rates to cap rates and overall valuations? Either currently so far, I know it's slow moving, deals take, you know, time to close, but what's your expectation for range of move in cap rates?
Yeah. Good question. Jade. We feel that feel is the same on the NXRT call a few days ago. Roughly today, spot cap rates in multifamily are for most property types or excuse me, for class B, Class A, have risen about 40-60 basis points, call it 50 basis points, translating to a decrease in values on average from 10%-15%. There's some capitulation in the market from sellers around the 4% cap rate on multifamily, you know, that we've seen where you're starting to see some, you know, some deals get done in the recent weeks. That's multi. Storage is almost identical to multi.
You know, I'd say that, you know, cap rates there, you know, have moved in the same range. The SFR cap rates, or at least the SFR cap rates that we see are moving, you know, roughly, you know, 25, a little bit less than multi and storage, but the 25 basis points. A little bit less of a retracement in values, kind of 7%-10% in values. Those cap rates, you know, didn't dip or haven't dipped as low, you know, as multi in the, you know, sometimes sub-3% in Q4 and Q1, but certainly low threes. On average, kind of 10%-15% retracement in values, on a spot basis as we sit here today.
In terms of performance of the company in a recession, you know, what do you think the impact would be? Would it be loans and forbearance? Would it be slightly lower, you know, more moderate rent growth than expected, dip in occupancy? Since you're primarily in the debt capital structure, what would be the impact? Also maybe if you could touch on either the B-piece exposure or preferred equity exposure. Thanks a lot.
Yeah, you bet. Good question. You know, I think that the best kind of recent test of the credit profile and the performance of the portfolio during tough times is obviously COVID. You know, during which the business did exactly what it was designed to do, you know, in these property types that we think continue to be resilient and outperform. Like I said in my prepared remarks, you know, at present, although a recession, consumer-led recession perhaps may be coming, you know, our NOIs across our own portfolio in SFR, multifamily and self-storage are growing around 7% to 10% to 15%. You know, at present they're performing well.
In a downturn, you know, I think, you know, we didn't have any losses. We had, you know, a couple deals go into forbearance into Freddie K, and, you know, those ended up performing just fine. On the preferred side, on the multifamily side, I think you know, it's almost you know, kind of insulated by the mechanisms within our JV structures with our borrowers and our sponsors. To the extent you had an issue, we have the ability to take over the asset and wipe the equity clean and own the asset at our basis. Kind of an extra built-in, you know, risk mitigation tool in a dire situation.
Again, that portfolio performed exceptionally well also during COVID. You know, never say never, but you know, again, I think our credit portfolio or the credit profile of our portfolio is pretty resilient and stood up in recent history.
Anything further, Jade?
Thank you very much.
You bet.
Thank you. We have no further questions.
All right. We appreciate everyone dialing in today and look forward to discussing our Q3 earnings with you here in a few months. Thanks, and have a great day.
Thank you. That does conclude today's teleconference. We do appreciate your participation. You may now disconnect.