Good morning. My name is Abby, and I will be your Conference operator today. At this time, I would like to welcome everyone to the NexPoint Real Estate Finance Quarter One 2023 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, again, press star one on your telephone keypad. Thank you. Kristen Thomas, you may begin your conference.
Thank you. Good day, everyone, welcome to NexPoint Real Estate Finance Conference call to review the company's results for the first quarter ended March 31, 2023. On the call today are Brian Mitts, Executive Vice President and Chief Financial Officer, Matt McGraner, Executive Vice President and Chief Investment 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 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 Brian Mitts. Please go ahead, Brian.
Thank you for that, Kristen. Thank you for everyone joining us today. I'll get us started by briefly going through our results for the quarter, then I will go into guidance for Q2, then turn it over to the team and talk about some of the things we did this quarter, some of the things we're seeing in the world today and what we see in the lending environment. Starting with Q1 results. For the first quarter, we reported net income of $0.37 per diluted share compared to net income of $0.78 per diluted share for the first quarter of 2022. Decrease in net income year-over-year was the result of lower prepayments in Q1 2023.
If you recall, we had quite a few prepayments last year, particularly in the first quarter. earnings available for distribution was $0.52 per diluted share in the first quarter compared to $1.20 per diluted share in the same period of 2022. cash available for distribution was $0.55 per diluted share in Q1 compared to $1.55 per diluted share in the same period in 2022. Again, as with net income, earnings available for distribution and cash available for distribution were lower year-over-year as a result of lower prepayments in the first quarter of this year. We paid a dividend of $0.50 per share in the first quarter, and the board has declared a dividend of $0.50 per share payable for the second quarter.
The board has also declared, again, a special dividend of $0.185 per share for the second quarter, and we intend to declare special dividends of $0.185 for the remainder of each quarter for this year. Our dividend in the first quarter is 1.04 times covered by earnings available for distribution and 1.1 times covered by cash available for distribution. Book value per share decreased 2.2% quarter-over-quarter to $19.59 per diluted share, primarily due to the special dividend and mark-to-market adjustments on our common stock investments. During the quarter, we originated six investments with $34.8 million of outstanding principal with a combined current yield of 11.4%.
During the quarter, we had one investment that partially redeemed for $11.5 million of outstanding principal and another investment that fully redeemed for $24.7 million. Let me then now move to guidance for the next quarter for earnings available for distribution and cash available for distribution. Earnings available for distribution, we're guiding to $0.46 per diluted share at the midpoint, with a range of $0.41 on the low end and $0.51 on the high end. Cash available for distribution, we're guiding to $0.50 per diluted share at the midpoint, with a range of $0.45 on the low end and $0.55 on the high end.
Decrease in cash available for distribution and earnings available for distribution from the first quarter, again, is driven by, primarily the one-time gain on the deconsolidation of the multifamily property that we consolidated for 2022. With that, I'll turn it over to the team for additional commentary.
Thanks, Brian. During the quarter, the loan portfolio continued to perform strongly and is currently composed of 88 individual investments with approximately $1.7 billion of total outstanding principal.
Loan portfolio is 95% residential, with 44% invested in loans collateralized by single-family rental and 51% invested in multifamily, primarily via agency CMBS. The remaining 4% of the loan book is life sciences and self-storage. The portfolio's average remaining term is 5.4 years, is 92% stabilized, has a weighted average loan to value of 68.7% and an average debt service coverage ratio of 1.9 times. The portfolio is geographically diverse with a bias towards the Southeast and Southwest markets. Texas, Georgia and Florida combined for approximately 51% of our exposure on a geographic basis. As Brian mentioned, during the quarter, we originated 6 investments with $34.8 million of outstanding principal, with a combined current yield of 11.4%.
One investment partially re-redeemed for $11.5 million of outstanding principal, and one investment fully redeemed for $24.7 million. The six new investments consisted of a $14 million preferred equity investment in a build-to-rent portfolio in Forney, Texas, a suburb of Dallas with a well-heeled repeat sponsor. The preferred has a fixed rate of return of 11%. We also invested $500,000 in common equity into the project for additional upside. An $11.2 million preferred investment was made with the same sponsor on a build-to-rent portfolio located in Richmond, Virginia. The investment also has a fixed rate of return of 11% and included another $500,000 of common equity for additional upside.
Two follow-on life sciences preferred investments were made for a total of $2.7 million and have an average fixed rate return of 10%. One follow-on multifamily investment was made for $1.2 million and has a fixed rate of return of 11%. The property is located in Houston, Texas, and is owned by a repeat sponsor with 80,000 units under management across the country. We also purchased a floating rate BP with an outstanding principal balance of approximately $15 million, with 2 years left until maturity and a current yield of 13.1%. After the quarter ended, we made a $20 million preferred equity investment into a CGMP facility in Temecula, California, with a repeat sponsor. The preferred equity has a fixed rate of return of 10%.
The two redemptions in the quarter consisted of a partial redemption of approximately eleven and a half million of preferred equity on stabilized multifamily property located in Las Vegas, Nevada. A full redemption of a mezzanine investment for a mixed-use project located in Los Angeles, California, in the amount of $24.7 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.
Thanks, Matt. As previously discussed, during the first quarter, the company was able to source, underwrite, and acquire a seasoned agency BP floater, providing a very attractive yield of SOFR plus 8.5%. We've again stressed the entire CMBS portfolio by shocking interest rates to determine how far implied yields would have to climb and marks would have to fall to equal a decline of $142 million in market value. $142 million represents the difference between our book value and market value as of close last night. The stress test yielded a result of implied yields almost doubling to approximately 21%, which is equivalent to a 25% decrease in the CMBS portfolio value and over a realized 40%-plus decline in the underlying multifamily and single-family property values to recognize any real impairment.
These types of losses would be on par or worse than what was experienced during the great financial crisis. We firmly believe in the resiliency of the residential space in the current inflationary environment and the safety of these investments, as evidenced by the performance in these verticals. We continue to be prudently levered on our repo financing at approximately 60% LTV at quarter end and a continuous dialogue with our repo lending partners on the state of the market and the finance portfolio. Touching on our continued performance of the SFR loan pool. All SFR loans in the portfolio are currently performing and displaying strong DSCRs NOI growth as the demand for SFR continues to show great strength. The portfolio did not have an SFR paydown during the first quarter.
To finalize our prepared remarks before we turn it over for questions, I'd like to turn it over to Matt McGraner.
Thank you, Paul. Underlying NOIs embedded in our stabilized SFR, multi, life science, and storage collateral continue to outperform other property types, providing a resilient base of earnings for distribution and stable yields to our investors. NREF's business is doing exactly what it was designed to do, namely produce a consistent, durable cash flow stream for our investors backed by the highest quality assets in the commercial mortgage REIT sector. We're pleased to be speaking to you this morning about special dividends, unrivaled credit quality, and originations of quality CGMP and residential investments, and not CECL reserves for office loans and other watch lists. On the origination front, we have a robust pipeline of low double-digit yielding preferred and mezz investments in the CGMP and SFR sectors and expect to continue to recycle capital into these opportunities in the coming quarters.
I want to thank the team for continuing to source and monitor high-quality investments. With that, we'd like to turn the call over to the operator for questions.
At this time, I would like to remind everyone in order to ask a question, press star then one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Crispin Love from Piper Sandler. Your line is open.
Thanks, good morning, everyone. Just first off, on credit quality, and Paul, I appreciate your comments that you just made, I'm just looking for a little bit of an update on the credit outlook. Recently, there seems to be just more caution on multifamily properties broadly in the industry with some defaults in the news, not related to NREF, but others. Just curious on your thoughts on the current credit environment and kind of where we could be headed over the next few quarters in kind of multifamily and SFR, especially as you continue to have no loans in default or forbearance.
Hey, Crispin, it's Matt McGraner. I'd say as I mentioned, the underlying NOIs, at least in our portfolio, it's largely underwritten by in conjunction with a quality sophisticated servicer like a Walker & Dunlop or a CBRE or someone like that, plus our underwriting, plus Freddie. Most of the multifamily that we see are still producing positive NOIs, well covering a 1.2 to a debt service coverage ratio, and are fine.
Where you're seeing problems, I think, are the 2020, 2021, sort of, vanilla vintage debt fund or CRE CLO, you know, deals that were struck at, you know, low 3 caps, 3.5 caps, 4 caps that are gonna have to be a cash-in refinance or just extended from a valuation scenario. Most of those, like I said, are CRE CLOs or, you know, like a debt fund. We don't have any exposure to those type of assets. I think the juxtaposition is one where we'll continue to underwrite the source on the Freddie K side and leave the problems elsewhere to those that, you know, struck those deals.
Paul, do you have anything to add on SFR?
No. Same boat.
Thanks, Matt. helpful there. I think I might have missed this in the prepared remarks, just an update on the Las Vegas multifamily investment that triggered the material weakness in the 10-K. Sounds like you were able to deconsolidate that. I think I heard you kind of mention that there was a one-time gain. Can you just dig a little bit deeper into that one-time gain? Was that in the first quarter? Is that a second quarter event?
Hey, it's Brian. We did correct the issue with the investment. It's now recorded as a preferred investment, which is the intent all along. There was a gain in deconsolidating that, but that happened in the first quarter. You know, worked obviously closely with the auditors through that process, so don't expect any more issues from that. Also working closely with them and the board to remediate that material weakness, which we expect to happen this year. Then taking other measures to make sure that, you know, obviously avoid something like that in the future.
All right. Thanks, Brian. How large was that gain?
$1.5 million
$1.5 million.
Appreciate it. Thank you so much for taking my questions.
Sure.
Your next question comes from the line of Stephen Laws from Raymond James. Your line is open.
Hi. Good morning. You know, you guys are a little more narrow focused from a property standpoint than most of your peers, but do have the flexibility to do a much broader range of investments than many other CRE mortgage REITs. Maybe the recent pref investment activity is a sign, but can you talk about your investment pipeline, you know, where you're seeing the best opportunity to put money to work? Then, Matt, I know you ran through a couple of redemptions and a couple of new investments, but maybe kind of netting that all out, what is your appetite for new investment from a net growth standpoint or sort of net flat? Kind of how do we think about appetite for new investments?
Yeah. Stephen, good morning. I think the lack of bank activity in general right now makes it, you know, makes a pretty opportunistic and attractive time to put money to work really anywhere, especially in our verticals. The CGMP focus will continue to be a primary focus for us because even in a normalized banking environment, this is an unbanked sector. With the reshoring wave of pharmaceutical manufacturing, other specialty manufacturing, coming back, you know, coupled with the lack of liquidity in the space, there's just a tremendous opportunity.
We're spending a lot of time with sale leasebacks from users and CDMOs and we'll continue to try to source those opportunities because we just we love that, we love that space and understand it. Again, it's non-bank. Spreads on Freddie K, I think will continue to provide an attractive, you know, source of investments. You're earning, you know, in some cases as Paul mentioned, three times the unlevered asset yield in a great credit position. I mean, I think those two spaces for me will continue to be attractive.
Great. Thanks. Brian, wanted to touch, ask quickly on the unrealized loss. I think in your prepared remarks you mentioned it was mainly related to the common stock, but do you have a breakout for what was unrealized from a security mark versus common on that?
Do we have that?
Uh, we can-
Yeah. We'll try to get back to you on the details on that, Steve.
Follow-up there. You know, when you look at the common stock investments, I guess the two smaller ones recently relate to the pref equity you talked about. You know, the bigger ones, can you talk about what your return expectations are and kind of monetization outlook and, you know, how you think about that capital allocation versus capital allocated to a cash flowing debt investment?
Yeah. I mean, the big ones, Stephen, it's Matt, are the GLR ground lease investment and the NexPoint Storage Partners investment. Kind of take them in reverse order. The storage portfolio is, in our view, one of the highest quality storage assets or storage portfolios out there. You know, ton of exposure to Florida, a lot in Miami. In fact, I think we might be the largest self-storage owner in Miami now. We like that investment long term. You know, think that it's not the right time to monetize that one because, you know, of the lack of liquidity, albeit we get some, you know, some addressing of values from the recent Life and EXR deal.
You know, we feel really good about that investment, but it's just not the right time to monetize it. When we do, you know, I think we're like I said, looking at $2 or $3 a share in book value gains from that investment. The GLR investment is another attractive one. Obviously, that's more of a bond-like, you know, equity investment, but it's also, I think, a $2-$3 share of book value accretion. You know, we really like these investments for the total return aspect. You know, obviously, that I think differentiate our portfolio from just a, you know, a steady yield.
We, you know, we think that this can get these two investments when monetized add together $5 or $6 bucks a share of book value accretion.
Appreciate the color on that. Thanks for your time.
You bet.
Your next question comes from the line of Jade Rahmani from KBW. Your line is open.
Thanks very much. As it stands today, follow-up on the credit question, you're not expecting any deterioration, default pressure on performance? I mean, it just seems that with the magnitude of rate increases we're seeing many of the multifamily deals, you know, by necessity, needing interest rate caps, that eventually there are gonna be pressures. What are your expectations?
Yeah. Jade, it's Matt McGraner again. You know, we don't have a, or we're not aware of any, you know, underlying issues in any of our credit investments or preferred investments. In case of a preferred investment in a multifamily deal, you know, they're underwritten and structured as such that to the extent there is a default, we can take over the management and equity position at our basis and think that we've underwritten those, you know, given our multifamily experience and our operating partnerships in that space, very prudently.
You know, those are all deals that are performing well with quality sponsors, repeat sponsors, that to the extent there were issues that we could, you know, have them recap the equity to the extent there were issues. Again, there are no issues. Paul, I'll kick it over to you for some of the securitization piece.
Yeah. Also the single-family rental too. Those deals were struck back in, you know, 2018, originated back in 2018, where all fixed rate investments, all 4% or 5% type of, you know, fixed rate debt. DSCRs are growing on those aspects. NOI growth has been great for those specific investments as well. There isn't much stress on the SFR side. As far as the securitizations go, you know, our BPs for Freddie consist of vintages anywhere from 2019, 2020, 2021, 2022, you know, both fixed and float. We haven't seen much stress, you know, in terms of the floaters where people are, you know, getting new caps, et cetera, or DSCRs are still, you know, performing, going up, increasing. It feels like really good performance throughout the securitization book as well.
I'd add one thing, and then I'll give an update on Stephen's question earlier. Most of the multifamily REIT public world is reported thus far, and it's been pretty positive. Obviously not apples to apples, as they're pretty low leverage compared to some of the sponsors that we work with and where we sit in the cap stack. I think fundamentally, it's shown that multifamily is still performing pretty well overall. I think that the SFR industry or sector is expected to kind of have similar results when they report in the public markets. Stephen, to answer your question directly, GLR was down $1 million.
NSP, the storage platform was down $240,000, and then the remainder of the loss was from the CMBS book.
On a follow-up question, if I could ask.
Yeah, go ahead, Jade.
Do you know what the debt service coverage ratio is on the Freddie Mac BP side?
Our entire portfolio is $1.9. On the Freddie Mac side it is. One sec. I don't want to give you the wrong number. We'll follow up on the exact pool because we break it down by loan in our internal notes, so we can aggregate that and get back to you.
Third side, do you know what % of the deals have floating rate debt and interest rate caps?
Right now we have roughly four securitization, 4 B pieces that are floaters, and those all would have some sort of caps. You know, of course, that would differ because of the vintages. Some are, you know, 19, some are 20, some are 21. The caps are usually, you know, 3-year, 4-year caps, so they come up at different times. It's more of a, you know, a steady wave of when those caps need to be replaced.
Hey, Jay, this is Goetz. Freddie required all of those borrowers to purchase caps for any floating rate debt unless it's super low leverage.
On the preferred side, the preferred multifamily deals you've done, not the BP side, what % are floating and Not the preferreds, but the underlying debt's floating, and what % have interest rate caps? Do you know that?
Yeah. All of the floating rate preferred deals that we've done have caps on them.
Is most of.
They may not have been... Go ahead.
I was gonna say, is most of the underlying debt floating?
I'll have to go and find the exact breakout. I would say it's probably majority floating, but we can get back to you.
All right. Thanks for taking the question.
Jay, to answer your question about what the DSCR is of the floating rate securitizations, it's 2.29 times.
Okay, great. Good. That's good coverage. Thanks for that.
Of course.
Again, if you would like to ask a question, press star one on your telephone keypad. There are no further questions at this time. Mr. Brian Mitts, I turn the call back over to you.
Thanks. Just wanna highlight one thing before we go. You know, Paul had mentioned the stress test we did internally. I think if you look at where the stock's trading versus sort of the underlying fundamentals of the portfolio, not to mention the almost 16% yield, including the special dividends, you know, I think it's a pretty strong value. Hopefully investors will see that, and see the results from this quarter and sort of the guidance that we've issued for next quarter, and see that value proposition. Having said that, appreciate everyone's time and participation and questions. We'll get back to you on some of that information that we couldn't answer here.
With that, thank you, and we'll see you next quarter.
This concludes today's Conference Call. You may now disconnect.