NexPoint Real Estate Reports “Another Strong Quarter”
With interest rates on everyone’s mind, we’re going to take a good look at NexPoint Real Estate stock today.
After taking a hit from rising interest rates, mortgage real estate investment trust (mREIT) stocks like NexPoint Real Estate Finance Inc (NYSE:NREF) have been rebounding since the Federal Reserve began cutting its key lending rate.
Some may think that higher interest rates would be good for mREITs, because they purchase or originate mortgage and mortgage-backed securities…and it is if they have a lot of floating rate investments in their respective portfolios.
However, higher interest rates could also lead to potential property buyers waiting on the sidelines for a better borrowing environment. Lower rates could mean less income from interest, but they could also mean more lending.
And after reporting back-to-back strong quarters, NexPoint Real Estate Finance Inc has seen its share price surge to near record levels. Over the last six months, NexPoint Real Estate stock has rallied an impressive 30%.
And, from October 30 (the day before it announced its Q3 results) through December 3, NexPoint Real Estate stock advanced 27%, hitting a 52-week high of $18.09, just slightly below its May 2022 record high of $18.37.
The stock has retreated a little since then due to short-term profit-taking, trading at around $17.12 per share. However, thanks to continued strong financial results, lower interest rates, and a solid economy, the outlook for NREF stock remains robust.
Chart courtesy of StockCharts.com
About NexPoint Real Estate
NexPoint Real Estate Finance is an mREIT that is primarily focused on investments in the multifamily, single-family rental (SFR), self-storage, and hospitality sectors located predominantly in the top 50 metropolitan statistical areas. (Source: “3Q 2024 Financial Supplement,” NexPoint Real Estate Finance Inc, October 31, 2024.)
The company focuses on lending or investing in properties that are stabilized or require limited deferred funding to support leasing or the ramping up of operations, for which most capital expenditures are for value-added improvements.
The portfolio has minimal exposure to construction loans, no heavy transitional loans, and no for-sale loans.
The company’s outstanding total portfolio is comprised of 83 investments worth $1.1 billion. The portfolio is geographically diverse with a bias towards the southeast and southwest.
Of that portfolio, multifamily, life sciences, single-family rental, and self-storage represent 52.3%, 26.7%, 17.0%, and 4.0% of the company’s debt portfolio, respectively.
“Another Strong Quarter”
NexPoint reported third-quarter net income of $16.1 million, or $0.75 per share, compared to $0.68 per share in the second quarter of 2024 and $0.43 per share in the third quarter of 2023. (Source: “NREF Announces Third Quarter 2024 Results, Provides Fourth Quarter 2024 Guidance,” NexPoint Real Estate Finance Inc, October 31, 2024.)
The company reported cash available for distribution of $15.8 million, or $0.67 per share, up from $0.64 per share in the previous quarter and $0.47 per share in the same prior-year period.
Commenting on the third-quarter performance, Matthew McGraner, NexPoint Real Estate’s chief investment officer, said, “NREF is pleased to report another strong quarter, showcasing consistent and resilient earnings across our core property types. Amidst a landscape where banks and traditional lenders are often sidelined or preoccupied with credit issues, we remain active and focused.”
Looking ahead to the fourth quarter, NexPoint expects to report earnings available for distribution of $0.75 to $0.85 per share and cash available for distribution of $0.45 to $0.55 per share.
In the fourth quarter of 2023, NexPoint reported earnings available for distribution of $0.44 per share, and cash available for distribution of $0.51 per share.
NexPoint Real Estate Stock: Quarterly Dividend of $0.50/Share
Cash available for distribution (CAD) is the amount of cash a REIT has available for dividends. So it’s important that a REIT has enough CAD to cover its payout.
With that said, in the third quarter, NexPoint announced CAD of $0.67 per share.
That’s more than enough to cover its most recent quarterly dividend of $0.50 per share, or $2.00 on an annual basis for a forward dividend yield of 11.6%. (Source: “NexPoint Real Estate Finance, Inc. Announces Quarterly Dividend,” NexPoint Real Estate Finance Inc, October 29, 2024.)
When the company has a really good quarter, it might also distribute a special dividend. For example, in October 2023, NexPoint Real Estate declared a regular dividend of $0.50 per share and a special dividend of $0.185 per share. (Source: “NexPoint Real Estate Finance, Inc. Announces Quarterly and Special Dividends,” NexPoint Real Estate Finance Inc, October 31, 2023.)
The Lowdown on NexPoint Real Estate Stock
NexPoint Real Estate Finance Inc is a great mREIT with a geographically diverse portfolio, which has a weighted average remaining term of 3.9 years. This helps provide income investors with a reliable, transparent earnings stream for the four years.
And, as an mREIT, NexPoint doesn’t follow the same strict lending rules that traditional lenders do. This allows it to deploy capital even in this challenging credit market, creating long-term value for its shareholders.
This helps NexPoint Real Estate stock provide investors with a reliable dividend and the occasional special dividend.