NexPoint Real Estate Finance Inc
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
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Sep 30, 2024 · Filed Nov 7, 2024
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Item 4.
- Loans Held for Investment, Net
The Company’s investments in mortgage loans, mezzanine loans, preferred equity and promissory notes are accounted for as loans held for investment. The mortgage loans are presented as “Mortgage loans, held-for-investment, net” and the mezzanine loans, preferred equity and promissory notes are presented as “Loans, held-for-investment, net” on the Consolidated Balance Sheets. The following tables summarize our loans held-for-investment as of September 30, 2024 and December 31, 2023, respectively (dollars in thousands):
| Weighted Average | ||||||
|---|---|---|---|---|---|---|
| Loan Type | OutstandingFace Amount | Carrying Value (1) | Loan Count | Fixed Rate (2) | Coupon (3) | Life (years) (4) |
| Mortgage loans, held-for-investment | $247,705 | $250,474 | 10 | 50.13% | 9.81% | 2.66 |
| Mezzanine loans, held-for-investment | 133,207 | 134,919 | 22 | 78.31% | 9.55% | 4.61 |
| Preferred equity, held-for-investment | 222,898 | 222,236 | 16 | 43.73% | 12.01% | 1.51 |
| Promissory notes, held-for-investment | 101,600 | 86,203 | 2 | 100.00% | 16.48% | 0.64 |
| $705,410 | $693,832 | 50 | 60.61% | 11.42% | 2.38 | |
| Loan Type · Outstanding Face Amount · Carrying Value (1) · Loan Count · Weighted Average | ||||||
|---|---|---|---|---|---|---|
| Fixed Rate (2) · Coupon (3) · Life (years) (4) | ||||||
| Mortgage loans, held-for-investment | $645,277 | $676,420 | 11 | 100.00% | 4.79% | 4.49 |
| Mezzanine loans, held-for-investment | 133,207 | 135,069 | 22 | 78.31% | 9.61% | 5.36 |
| Preferred equity, held-for-investment | 195,392 | 193,391 | 15 | 39.12% | 12.20% | 2.22 |
| $973,876 | $1,004,880 | 48 | 84.82% | 6.94% | 4.15 | |
(1)Carrying value includes the outstanding face amount plus unamortized purchase premiums/discounts and any allowance for loan losses.
(2)The weighted-average of loans paying a fixed rate is weighted on current principal balance.
(3)The weighted-average coupon is weighted on outstanding face amount.
(4)The weighted-average life is weighted on outstanding face amount and assumes no prepayments. The maturity date for preferred equity investments represents the maturity date of the senior mortgage, as the preferred equity investments require repayment upon the sale or refinancing of the asset.
For the nine months ended September 30, 2024 and 2023, the loan and preferred equity portfolio activity was as follows (in thousands):
| For the Nine Months Ended September 30, | ||
|---|---|---|
| 2024 | 2023 | |
| Balances, December 31, | $1,004,880 | $982,678 |
| Recognition of retained preferred equity investment upon deconsolidation of real estate (Note 14) | — | 36,022 |
| Cumulative effect of adoption of ASU 2016-13 (See Note 2) | — | (1,624) |
| Originations | 250,088 | 76,355 |
| Proceeds from principal repayments | (551,570) | (58,246) |
| PIK distribution reinvested in Preferred Units | 11,033 | 4,076 |
| Amortization of loan premium, net (1) | (21,319) | (4,871) |
| (Provision for) reversal of credit losses | 720 | (6,236) |
| Balance at September 30, | $693,832 | $1,028,154 |
(1)Includes net amortization of loan purchase premiums.
As of September 30, 2024 and December 31, 2023, there were $10.2 million and $33.1 million of unamortized premiums on loans, held-for-investment, net, respectively, on the Consolidated Balance Sheets.
As discussed in Note 2, the Company evaluates loans classified as held-for-investment on a loan-by-loan basis every quarter. In conjunction with the review of the portfolio, the Company assesses the risk factors of each loan and assign a risk rating based on a variety of factors. Loans are rated “1” through “5,” from least risk to greatest risk, respectively. See Note 2 for a more detailed discussion of the risk factors and ratings. The following tables allocate the principal balance and net book value of the loan portfolio based on our internal risk ratings (dollars in thousands):
| Risk Rating | Number of Loans | Carrying Value | % of Loan Portfolio |
|---|---|---|---|
| 1 | — | $— | — |
| 2 | — | — | — |
| 3 | 49 | 681,339 | 98.20% |
| 4 | 1 | 12,493 | 1.80% |
| 5 | — | — | — |
| 50 | $693,832 | 100.00% |
| Risk Rating · December 31, 2023 | |||
|---|---|---|---|
| Number ofLoans · CarryingValue · % of LoanPortfolio | |||
| 1 | — | $— | — |
| 2 | — | — | — |
| 3 | 46 | 992,751 | 98.79% |
| 4 | 2 | 12,129 | 1.21% |
| 5 | — | — | — |
| 48 | $1,004,880 | 100.00% | |
Our loan portfolio had a weighted-average risk rating of 3.0 as of September 30, 2024, and 3.0 as of December 31, 2023.
The following tables present the carrying value of the loan portfolio by the Company's internal risk rating and year of origination as of September 30, 2024 and December 31, 2023 (dollars in thousands):
| September 30, 2024 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Carrying Value by Year of Origination (1) | |||||||||
| Risk Rating | Number ofLoans | Outstanding Face Amount | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total Carrying Value |
| 1 | — | $— | $— | $— | $— | $— | $— | $— | $— |
| 2 | — | — | — | — | — | — | — | — | — |
| 3 | 49 | 692,810 | 224,252 | 90,641 | 77,081 | 37,610 | 19,721 | 232,034 | 681,339 |
| 4 | 1 | 12,600 | — | — | — | 12,493 | — | — | 12,493 |
| 5 | — | — | — | — | — | — | — | — | — |
| 50 | $705,410 | $224,252 | $90,641 | $77,081 | $50,103 | $19,721 | $232,034 | $693,832 | |
(1)Represents the date a loan was originated or acquired.
| December 31, 2023 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Carrying Value by Year of Origination (1) | |||||||||
| Risk Rating | Number ofLoans | Outstanding Face Amount | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total Carrying Value |
| 1 | — | $— | $— | $— | $— | $— | $— | $— | $— |
| 2 | — | — | — | — | — | — | — | — | — |
| 3 | 46 | 961,756 | 82,879 | 69,958 | 40,981 | 19,158 | 759,828 | 19,947 | 992,751 |
| 4 | 2 | 12,120 | — | 12,129 | — | — | — | — | 12,129 |
| 5 | — | — | — | — | — | — | — | — | — |
| 48 | $973,876 | $82,879 | $82,087 | $40,981 | $19,158 | $759,828 | $19,947 | $1,004,880 | |
(1)Represents the date a loan was originated or acquired.
The following tables present the geographies and property types of collateral underlying the Company’s loans held-for-investment as a percentage of the loans’ face amounts.
| Geography | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Massachusetts | 20.64% | * |
| Texas | 16.94% | 13.87% |
| Georgia | 11.77% | 30.50% |
| Maryland | 8.90% | 5.47% |
| California | 8.73% | 4.92% |
| Virginia | 5.21% | * |
| Florida | 4.59% | 18.40% |
| Minnesota | * | 7.31% |
| Other (21 and 23 states each at <4%) | 23.22% | 19.53% |
| 100.00% | 100.00% |
*Included in "Other."
| Collateral Property Type | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Multifamily | 35.29% | 21.99% |
| Life Science | 33.17% | 6.33% |
| Single Family Rental | 27.51% | 69.94% |
| Self-Storage | 2.84% | 1.75% |
| Marina | 1.19% | —% |
| 100.00% | 100.00% |
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