NexPoint Diversified Real Estate Trust (NXDT) Earnings Call Transcript & Summary

Hi, everyone, and thanks for being here on the NextPoint Diversified Real Estate investor update call. With us on the line today are Matt McGrainer, who serves as Executive Vice President and Chief Investment Officer; Paul Richards, Executive Vice President and Chief Financial Officer; and John Good, Chief Executive Officer of NextPoint Storage Partners as well as Chief Executive Officer of Vineburg Homes Trust, Inc. Prior to getting underway, I'd like to note that during this update call and in the presentation that goes along with it, we'll be making forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995, and those statements represent what management currently expects, assumes, and believes. Before we continue, a word of caution: don't put too much weight on anything here that looks ahead. We suggest you go through our Form 10-K as well as the other documents we've filed with the SEC, since those lay out more fully the risks and other elements that could change how those forward-looking statements play out. Anything said during this conference holds true only as of today, and unless the law demands it, NFVT has no duty to publicly update or revise any forward-looking statements. At this point, let's turn things over to Matt. The floor is yours, Matt. Thanks, Kristen, and I appreciate everyone being here this morning as we share where NXDT stands. Like Kristen said, joining me today are Paul Richards, who serves as CFO of NXCT, and John Good, the CEO overseeing our storage and single family rental operations. During this morning's session, we'll discuss NXCT's real estate markets and share updates regarding our top holdings. We'll begin by spending a few minutes on the residential market, the supply picture, and where things stand with our CityPlace project in Uptown Dallas. Following that, I'll hand the call over to John and Paul so they can discuss our storage, SFR, and credit vehicles. Then I'll close with progress on efforts to monetize assets and repurchase stock; on the residential side, we are now squarely in the supply trough I've been describing on these calls for several quarters. Here's where things stand: we'd just wrapped up an unprecedented run in the national multifamily market, and units delivered hit a high of about 695,000 during the twelve months concluding in the fourth quarter of 2024. To put that in perspective, annual deliveries have averaged somewhere around 282,000 units since 2001. Looking ahead, Costar's current estimate calls for 2026 deliveries to fall roughly 49 percent versus what's expected in 2025, and 2027 is projected to see another 20% drop. Forecasts for both 2027 and 2028 have likewise been cut substantially compared with what was previously anticipated. Turning to supply, the pace of new multifamily construction starts sits about 70% under the high-water mark reached in 2022. The result is a supply shortfall baked in for several years, especially in uptown Dallas. Thanks. As for demand, the fundamental structural support remains intact. In the areas where we operate, owning a property still costs about triple what renting does. No realistic set of mortgage rates would make that disparity disappear in short order. What we're seeing in our own leasing activity supports the idea that a turning point has arrived. Putting it all together, we expect residential properties to perform considerably better during the back half of 2026 and throughout 2027 compared with 2025. While there's still no consensus on how AI might reshape white-collar employment further out, the case we're making for demand doesn't hinge on what the workforce looks like. Given that owning a home in our markets once again costs three times what renting does, and with new supply falling apart, the structural argument for rental demand holds across a broad spectrum of employment scenarios. We'd also point to a supportive longer-term demographic tailwind, as ongoing improvements in health and longevity stretch the renter age band and widen the demand base over time; and once more, regarding the city place, uptown sub market, the supply situation is practically nonexistent, with only 232 units slated to deliver in the city place sub market during 2027, and then nothing after that; we are close to finishing design and capitalization of the apron project, as shown in the recent state filings. Beyond that, we've secured term sheets for construction financing on favorable terms, and our underwriting remains strong, with pro forma yield on costs staying in the mid 6% range. Combining new housing on the apron with the current office space, building amenities, and the retail and hospitality offerings that are coming will represent a significant advance in the wider city place redevelopment. Along those lines, efforts on the tower residential design and programming remain on schedule, intentionally trailing the apron as we phase the development. We expect to move toward getting the tower financed during the back half of the year, and we remain generally optimistic about starting construction on this residential project within the year, given that the sub market is basically collapsing. At this point, I want to pass things over to John. Thanks, Matt. Hi, everybody. I'll start with the results for NextPoint Storage Partners, then turn to Vinebrook, and following that, pass the call to Paul. On the subject of occupancy trends at NextPoint Storage Partners, our fiscal occupancy as of March 31 came in at 92.3%, an increase of 60 basis points compared with December 31, 2025, when the figure on that date was 91.7%. That is in line with the 92.3% figure we gave for March 31 of 2025. Occupancy is behaving the way we'd expect for this point in the season, and our physical occupancy still sits near the top of the self storage sector. Yesterday's physical occupancy came in at 93.9%, which is 160 basis points higher than on march 31 and roughly equal to where we stood on the same date a year ago. On the rental rate side, rates across the sector have continued to drift higher as rental season moves along. The in place rate for our portfolio on March 31, 26 was $20.23 per foot, an increase of 6.7% over the $18.96 recorded at March 31 of 2025, and 30 basis points above the $20.17 we posted at the start of the year. Our average asking rate stayed relatively flat year over year. We raised the rate by two cents, moving from $19.48 on March 31.25 up to $19.50 by March 31, 26. Our average web rate — what we charge customers who locate a unit and book it over the internet, and that group makes up most of our customer base — climbed 2.6% compared with a year earlier, going from $13.30 on March 31, 25 to $13.64 on March 31, 26. We keep applying aggressive rate increase programs across our properties to existing tenants, and those hikes typically take effect four months after someone new moves into the facility; over the past several months, those increases have been running above 30%. Alongside consistent occupancy levels, we expect those rent bumps to produce a 5 to 6% improvement in same store revenue during 2026. Now looking at revenue and net operating income: same store revenue during the quarter ending March 31, 2026 totaled $23.1 million, reflecting a 6.4% rise from the $21.7 million recorded in Q1 of 2025. For the first quarter of 2026, net operating income landed at $14 million, up 10.2% versus the $12.7 million NOI posted in Q1 2025. These figures place us well ahead of the publicly traded self-storage REITs by a substantial margin.

Turning to profitability, their first-quarter same store revenue increase came in at just below 2% on average, and same store NOI growth was negative as well. In the self-storage business, movers and major life changes have typically been what fuels demand, and the housing market's weakness over the past three years, which is unprecedented, has softened that demand. While demand remains sluggish, the self storage repairs we have publicly listed continue to operate a substantial portion of their own portfolios, resulting in revenue growth that is flat to negative and NOI growth that is negative. Even so, ours is the youngest sizable portfolio in the storage sector, and being situated in big, dense urban sub markets gives us a steady demand funnel consisting of individuals who must rent storage since they lack the room. That leaves us comparatively shielded from the still-sluggish housing market weighing on the sector's other players, and it has let us beat our peers by a wide margin. Turning to supply, self-storage development stays constrained because of steep borrowing costs, scarce land, major inflation in materials costs, permitting difficulties, and demand for self-storage that keeps weakening, which the soft housing market caused. Looking ahead to 2026 and 2027, the amount of new supply we expect to come online is well below the 3% mark that's needed for the market to stay balanced, and it should shrink even more by the time 2027 gets here, which would likely hand pricing power back to the industry and open the door to better rate increases over the next two years. Our view hasn't changed: we believe we own the top urban storage portfolio anywhere in the United States, and it will continue to outperform our competitors while commanding a premium price in any liquidity event. Turning now to Vinebrook. In the latter portion of 2025, we began a major overhaul at Vinebrook Homes. We brought in Evergreen Residential as our partner to oversee a portfolio exceeding 20,000 homes. At the same time, we moved quickly to sell off approximately 4,000 properties — those representing our weakest 20% — and put the money we raised into communities built around higher yields. By handing management over to Evergreen, we expect to cut more than $15 million annually in G&A costs. And by upgrading the lowest-performing slice of the portfolio, we anticipate yields that beat our overall portfolio average by 50 to 100 basis points, and exceed the yields from the homes we sold by 75 to 150 basis points. Replacing our older housing stock—which costs more to maintain—with newly built-to-rent homes that need less upkeep, are simpler to operate, and generate better returns should add a great deal to Vinebrook's net operating income and share value over time, once those built-to-rent communities reach stabilization. To advance this strategy during the first quarter, we removed 1,670 homes from the rental pool so they could be prepared for sale; 289 homes were sold in Q1, and 181 built-to-rent homes were purchased during that same quarter. Consequently, as we execute this repositioning of the company, revenue will trail for several quarters while homes currently in the portfolio are moved out of the rental pool and disposed of. We also acquire built-to-rent properties and get them leased. When that repositioning finishes in 2027, we expect revenue growth to be robust, and our company's value ought to rise considerably. Results for the first quarter were strong. In our stabilized same home group, physical occupancy moved up to 95.3%, compared with 94.9% at the close of 2025. Our stabilized home count was fairly level in Q1 versus the same period in 2025, standing at 15,765 homes in Q1 26 compared with 15,747 homes in Q1 25 — an increase of 18 homes, which works out to about one 10th of 1%. For the quarter, same home portfolio net operating income margin was 63.9%. That's up 60 basis points versus the same quarter in 2025 and in line with what our peers posted. During the first quarter, renewal lease rental rates increased 5.5%, while new lease rental rates were basically unchanged. Combined, that gave us a blended rental rate gain of 4.5% for Q1 — over twice the blended growth rates reported by our larger publicly traded peers. Q1 same home net operating income was up 1.3% compared with Q1 2025. During the last two and a half years, we've strengthened the Vinebrook balance sheet by lowering leverage, bringing down our interest rate, and pushing maturities out to the end of the decade. Through that strengthening effort, we secured a $500 million acquisition line of credit from J.P. Morgan aimed at funding built-to-rent acquisitions. The plan is to reduce that acquisition line by selling the homes I mentioned earlier, which makes our BTR strategy leverage neutral to leverage positive. positive. As of today, we've acquired three stabilized BTR communities and have funded part of two forward sale BTR communities, putting roughly $100 million into these built-to-rent communities. On this call, I want to point out that homes built specifically for rental purposes deliver stronger returns, sit in markets with faster growth, and are simpler to operate. In two legacy markets where we've seen solid performance—Indianapolis and Kansas City—we've put money into built-to-rent communities, and we've done the same in newer markets like Nashville and Raleigh. Back in early January of this year, the President urged Congress to pass legislation aimed at making housing more affordable—something most of you likely already know from news coverage or press reports. Part of that push was asking Congress to limit the expansion of what he described as corporate ownership of single family rental housing, specifically by prohibiting institutional investors from making further purchases. Following a lengthy stretch of dueling legislative proposals and back-and-forth talks between the House and the Senate, as of last night, the 21st Century Road to Housing Act had cleared both chambers. Over the prior six months, we lobbied hard for legislation that wouldn't choke off capital entering our sector and would let us keep operating the way we always have. The bulk of this bill is designed to encourage private-sector participants, states, and municipalities to increase supply and widen home loan availability in smaller communities. Title 10, Section 1001 bars large institutional investors — defined as any entity, or group of connected entities, that holds more than 350 homes — from buying additional single-family rentals moving forward. Several significant carve-outs from that prohibition exist: newly built homes, properties constructed specifically for rental use, homes bought and refurbished to satisfy local occupancy codes, residences entered into a rent-to-own arrangement, and acquisitions made from institutional investors. Our view is that this legislation permits us to keep running the way we do today and consistent with our existing business plan, and according to experts, the bill in its passed form will restore capital flowing into the sector. During the last two years, we strengthened Vinebrook's balance sheet and generated capital to deploy toward build-to-rent opportunities; we have a live pipeline and the capability to move extremely fast to seal good deals, and the legislation now lets us keep doing that. Lastly, some remarks on net asset value and liquidity.

As of March 31, 26, our net asset value stood at $54.24, versus $54.56 on March 31, 2025 — that's a decline of 60 basis points, driven by a wider range of cap rates from Street Advisors, the third-party firm we use for valuations. The current housing market is the weakest we've seen in 20 years, marked by scarce inventory, few construction starts, and elevated mortgage, tax, and insurance rates, plus political obstacles in Washington, DC. Shares of our publicly traded peers kept changing hands at significant discounts to their net asset values, which reflects those higher cap rates. Home sales continue to underpin our NAV, and we're glad it has stayed within a narrow band across the last two years, even with a persistently soft housing market, climbing costs, and turbulence in the SFR REIT sector. We're still dedicated to offering a certain amount of limited liquidity at some point in the back half of the year — management and the Board keep discussing how much that will be — while we watch the macro picture and carry out our portfolio reposition. A listing within the coming four quarters remains a possibility, though our publicly traded peers keep trading well under NAV, and we're conscious of pursuing any such listing in a way that maximizes shareholder value as much as we can. The board and NextPoint entities are still the company's biggest shareholders, and when it comes to maximizing value, we stay completely aligned with every shareholder. Having said that, I'll hand things to Paul for his comments on NREF.

Thanks, John. Right now, NXCT owns OP unit shares in NextPoint Real Estate Finance carrying a net asset value of roughly $94 million, which works out to about $1.59 for each NXCT share on a standalone basis. Just to remind everyone, NREF is the publicly traded mortgage REIT we run, and it concentrates on originating and/or buying credit investments within our core operating verticals: residential — including both SFR and multifamily — self-storage, and life science. NRF posted net income to common shareholders for the first quarter of 10 million, equaling 42 cents per share. Cash available for distribution came in at 13.5 million, or 58 cents per share. Turning to our portfolio and book value: book value per share dipped marginally to $18 and 96 cents, which mirrors continued solid performance across our underlying assets. The portfolio stands at roughly 1.1 billion spread over 90 investments, with diversification spanning multi single family rentals and life sciences. Crucially, NREF continues to rank among the least levered mortgage rates in this space, sitting at only about 0.7 times debt to equity, giving us both flexibility and downside protection. The stock currently trades at a 30% discount to book value, which makes for an appealing entry point versus intrinsic value. Now, a handful of remarks about capital activity. About our biggest deal this quarter: we refinanced $180 million in senior unsecured notes that had a May 1st maturity date. Those were replaced with 5.75% fixed rate notes, plus a brand-new $242.5 million total return swap facility priced at SOFR plus 375 basis points, which has a three year term and a one year extension option. Now, on capital structuring positioning: along with the $21.1 million we raised and are seriously preferred in the re-REMIC execution, we're heading into the back half of 26 with one of the cleanest, most flexible capital structures in the commercial mortgage rate sector; moving on to the re-REMIC execution. We offloaded our BPs to Mizuho at a price of 92.7, after having acquired them at 68.69 — uh, 68.69 — back in 2021, and we put the proceeds into an hrr tranche under the new structure at a yield of 18.5. That one deal produced a 46 percent uh increase in book value per share, lowered repo financing by 75 million, and should generate roughly 34 cents per share in annual CAD accretion moving forward. Now turning to dividend coverage. During the first quarter we distributed a regular dividend of 50 cents per share, and cash available for distribution covered it 1.16 times. And finally, our future outlook and guidance. Turning to what lies ahead, our projection for the second quarter includes earnings available for distribution at 43 cents per share, alongside CAD of 54 cents per share, with a debt to equity ratio of 0.7 to 0.7. Dividend coverage by CAD comes in at 1.16, and with that same 1.16 dividend coverage by CAD, we believe NREF is well-positioned — we believe NREF is well-positioned — to sustained sustain its distribution and create durable shareholder value. Our affiliates and long-term investors maintain significant skin in the game alongside our shareholders. A structured review is a meaningful differentiator. At this point, I'll hand things over to Matt.

Okay, thank you, Paul. As John and Paul's updates make clear, we're still achieving operational gains across every one of our platforms, even with the wider geopolitical and capital market turbulence. Like I mentioned during the prior quarter, a number of monetization initiatives keep advancing on multiple fronts. Take MidWave Wireless, previously known as TerraStar Corporation, which is still among the biggest independent holders of wireless spectrum licenses in the United States. That business keeps looking at strategic alternatives as it works to monetize its investment. We're still witnessing activity within the sector, with spectrum licenses changing hands actively in the marketplace, and we see that as a favorable sign for possible value realization during the coming 12 months. To give you a sense of scale, you can look at some recently announced transactions that show just how substantial this market is. AT&T reached an agreement to acquire about 50 megahertz of Echo Star Spectrum for around $23, which works out to an implied price near $1.40 per megahertz pop. Meanwhile, SpaceX acquired Echo Star's spectrum across two deals valued at nearly 20 billion in total, and both Verizon and T-Mobile have reportedly been examining the licenses that remain. In our view, demand at this level from large cap buyers reinforces the worth contained within our holdings. Along with the continued immunization of our preferred stock holdings, this kind of activity is going to keep driving aggressive stock buybacks in the near term. By the end of the day yesterday, we had bought back more than 1.1 million shares of common stock, paying an average of $3.83 per share. You should anticipate that this buyback activity will continue in the near term. In addition to stock repurchases, management and the board are staying highly focused on improving disclosure and evaluating share issuances, all while we continue pushing operational progress in our core operating verticals. That wraps up everything for our prepared remarks today. Thank you all for joining today's call, and I'm eager to share further updates on our next progress next quarter.

Much appreciated, and hello everyone. That brings us to the end of the conference call for today. We're glad you could be with us. You're free to disconnect at this point.