NEXPOINT REAL ESTATE FINANCE, INC. The following is a discussion and analysis of our financial condition and results of operations. The following should be read in conjunction with our financial statements and accompanying notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this annual report. See "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in this annual report. Our management believes the assumptions underlying the Company's financial statements and accompanying notes are reasonable. However, the Company's financial statements and accompanying notes may not be an indication of our financial condition and results of operations in the future.
Overview
We are a commercial mortgage REIT incorporated inMaryland onJune 7, 2019 . Our strategy is to originate, structure and invest in first-lien mortgage loans, mezzanine loans, preferred equity, convertible notes, multifamily properties and common stock investments, as well as multifamily CMBS securitizations, MSCR Notes and mortgage-backed securities, or our target assets. We primarily focus on investments in real estate sectors where our senior management team has operating expertise, including in the multifamily, SFR, self-storage, life science, hospitality and office sectors predominantly in the top 50 MSAs. In addition, we target lending or investing in properties that are stabilized or have a light-transitional business plan. Our investment objective is to generate attractive, risk-adjusted returns for stockholders over the long term. We seek to employ a flexible and relative-value focused investment strategy and expect to re-allocate capital periodically among our target investment classes. We believe this flexibility will enable us to efficiently manage risk and deliver attractive risk-adjusted returns under a variety of market conditions and economic cycles. For highlights of our acquisition, financing and other activity during 2022, see "Item 1. Business-2022 Highlights." We are externally managed by our Manager, a subsidiary of our Sponsor, anSEC -registered investment advisor, which has extensive real estate experience, having completed as ofDecember 31, 2022 approximately$18.4 billion of gross real estate transactions since the beginning of 2012. In addition, our Sponsor, together with its affiliates, including NexBank, is one of the most experienced global alternative credit managers managing approximately$19.8 billion of loans and debt or credit related investments as ofDecember 31, 2022 and has managed credit investments for over 25 years. We believe our relationship with our Sponsor benefits us by providing access to resources including research capabilities, an extensive relationship network, other proprietary information, scalability, and a vast wealth of knowledge of information on real estate in our target assets and sectors.
We elected to be treated as a REIT for
On
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February 8, 2023 , the UBS Lawsuit was filed againstMr. Dondero and a number of other persons and entities. Neither the Bankruptcy Trust Lawsuit nor theUBS Lawsuit include claims related to our business or our assets or operations. Our Sponsor andMr. Dondero have informed us they believe theBankruptcy Trust Lawsuit has no merit, andMr. Dondero has informed us he believes theUBS Lawsuit has no merit; we have been advised that the defendants named in each of the lawsuits intend to vigorously defend against the claims. We do not expect the Bankruptcy Trust Lawsuit or the UBS Lawsuit will have a material effect on our business, results of operations or financial condition.
Components of Our Revenues and Expenses
Net Interest Income for the Years Ended
Interest income. Our earnings are primarily attributable to the interest income from mortgage loans, mezzanine loan and preferred equity investments. Loan premium/discount amortization and prepayment penalties are also included as components of interest income.
Interest expense. Interest expense represents interest accrued on our various financing obligations used to fund our investments and is shown as a deduction to arrive at net interest income.
The year ended
The following table presents the components of net interest income for the years
ended
For the Year Ended December 31,
2022 2021
Interest Interest
income/ Average income/ Average
(expense) Balance (1) Yield (2) (expense) Balance (1) Yield(2) $ Change % Change Interest income SFR Loans, held-for-investment$ 43,946 $ 746,111 5.89 %$ 37,652 $ 890,009 4.23 %$ 6,294 16.7 % Mezzanine loans, held-for-investment 15,464 157,789 9.80 % 11,754 129,968 8.81 % 3,710 31.6 % Preferred equity, held-for-investment 9,263 102,471 9.04 % 2,586 27,711 9.04 % 11,405 441.0 % Convertible bond, held-for-investment 2,545 47,821 5.32 % 26 224 9.33 % 2,519 9688.5 % CMBS structured pass through certificates, at fair value 4,682 66,442 7.05 % 3,453 55,225 11.61 % 1,229 35.6 % Bridge loan 346 6,787 5.10 % 356 4,039 6.25 % (10) (2.8) % MSCR notes 590 4,385 13.46 % - - N/A 590 N/A Mortgage backed securities 1,152 11,025 10.45 % - - N/A 1,152 N/A Total interest income$ 77,988 $ 1,142,830 6.82 %$ 55,827 $ 1,107,176 6.72 %$ 26,889 48.2 % Interest expense Repurchase agreements (11,280) (147,850) 7.63 % (4,294) (147,850) 2.90 % (6,986) 162.7 % Long-term seller financing (15,817) (822,820) 1.92 % (18,991) (822,820) 2.31 % 3,174 (16.7) % Bridge financing - - - % (101) (55) 183.64 % 101 (100.0) % Unsecured Notes (13,158) (201,697) 6.52 % (6,386) (91,733) 6.96 % (6,772) 106.0 % Total interest expense$ (40,255) $ (1,172,367) 3.43 %$ (29,772) $ (1,062,458) 2.80 %$ (10,483) 35.2 % Net interest income (3)$ 37,733 $ 26,055 $ 16,406 63.0 % (1)Average balances for the SFR Loans, the mezzanine loan and preferred equity are calculated based upon carrying values. (2)Yield calculated on an annualized basis. (3)Net interest income is calculated as the difference between total interest income and total interest expense. 58
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The year ended
The following table presents the components of net interest income for the years
ended
For the Year Ended December 31,
2021 2020
Interest Interest
income/ Average income/ Average
(expense) Balance (1) Yield (2) (expense) Balance (1) Yield(2) $ Change % Change Interest income SFR Loans, held-for-investment$ 37,652 $ 890,009 4.23 %$ 32,797 $ 927,479 3.85 %$ 4,855 14.8 % Mezzanine loans, held-for-investment 11,754 129,968 8.81 % 2,136 28,381 8.20 % 9,618 450.3 % Preferred equity, held-for-investment 2,586 27,711 9.04 % 2,829 24,088 12.80 % (243) (8.6) % Convertible bond, held-for-investment 26 224 9.33 % - - N/A 26 N/A CMBS structured pass through certificates, at fair value 3,453 55,225 11.61 % 1,216 23,466 7.27 % 2,237 184.0 % Bridge loan 356 4,039 6.25 % - - N/A 356 N/A MSCR notes - - N/A - - N/A - N/A Mortgage backed securities - - N/A - - N/A - N/A Total interest income$ 55,827 $ 1,107,176 6.72 %$ 38,978 $ 1,003,414 4.23 %$ 16,849 43.2 % Interest expense Repurchase agreements (4,294) (147,850) 2.90 % (2,082) (101,551) 2.23 % (2,212) 106.2 % Long-term seller financing (18,991) (822,820) 2.31 % (18,596) (786,913) 2.57 % (395) 2.1 % Bridge financing (101) (55) 183.64 % - - N/A (101) N/A Unsecured Notes (6,386) (91,733) 6.96 % (634) (36,500) 8.23 % (5,752) 907.3 % Total interest expense$ (29,772) $ (1,062,458) 2.80 %$ (21,312) $ (924,964) 2.51 %$ (8,460) 39.7 % Net interest income (3)$ 26,055 $ 17,666 $ 8,389 47.5 % (1)Average balances for the SFR Loans, the mezzanine loan and preferred equity are calculated based upon carrying values. (2)Yield calculated on an annualized basis. (3)Net interest income is calculated as the difference between total interest income and total interest expense.
Other Income (Loss)
Change in net assets related to consolidated CMBS variable interest entities. Includes unrealized gain (loss) based on changes in the fair value of the assets and liabilities of the CMBS trusts and net interest earned on the consolidated CMBS trusts. See Note 4 to our consolidated financial statements for additional information. Change in unrealized gain (loss) on CMBS structured pass-through certificates. Includes unrealized gain (loss) based on changes in the fair value of the CMBS I/O Strips. See Note 6 to our consolidated financial statements for additional information. Change in unrealized gain on common stock investments. Includes unrealized gain (loss) based on changes in the fair value of our common stock investments in NSP and the Private REIT. See Note 5 to our consolidated financial statements for additional information.
Change in unrealized gain (loss) on MSCR notes. Includes unrealized gain (loss) based on changes in the fair value of our MSCR Notes. See Note 6 to our consolidated financial statements for additional information.
Change in unrealized gain on mortgage-backed securities. Includes unrealized
gain (loss) based on changes in the fair value of our mortgage backed
securities. See Note 6 to our consolidated financial statements for additional
information.
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Loan loss benefit (provision). Loan loss benefit (provision) represents the change in our allowance for loan losses. See Note 2 to our consolidated financial statements for additional information.
Realized losses. Realized losses include the excess, or deficiency, of net proceeds received, less the carrying value of such investments, as realized losses. The Company reverses cumulative unrealized gains or losses previously reported in its Consolidated Statements of Operations with respect to the investment sold at the time of the sale.
Revenues from consolidated real estate owned (Note 8). Reflects the total revenues for our multifamily properties. Revenues include rental income and other income of the multifamily properties.
Other income. Includes placement fees, exit fees and other miscellaneous income items.
Operating Expenses G&A expenses. G&A expenses include, but are not limited to, audit fees, legal fees, listing fees, Board fees, equity-based and other compensation expenses, investor-relations costs and payments of reimbursements to our Manager. The Manager will be reimbursed for expenses it incurs on behalf of the Company. However, our Manager is responsible, and we will not reimburse our Manager or its affiliates, for the salaries or benefits to be paid to personnel of our Manager or its affiliates who serve as our officers, except that 50% of the salary of our VP of Finance is allocated to us and we may grant equity awards to our officers under theNexPoint Real Estate Finance, Inc. 2020 Long Term Incentive Plan (the "2020 LTIP"). Direct payment of operating expenses by us, which includes compensation expense relating to equity awards granted under the 2020 LTIP, together with reimbursement of operating expenses to our Manager, plus the Annual Fee, may not exceed 2.5% of equity book value determined in accordance with GAAP, for any calendar year or portion thereof, provided, however, that this limitation will not apply to Offering Expenses, legal, accounting, financial, due diligence and other service fees incurred in connection with extraordinary litigation and mergers and acquisitions and other events outside the ordinary course of our business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of certain real estate related investments. To the extent total corporate G&A expenses would otherwise exceed 2.5% of equity book value, our Manager will waive all or a portion of its Annual Fee to keep our total corporate G&A expenses at or below 2.5% of equity book value. Loan servicing fees. We pay various service providers fees for loan servicing of our SFR Loans, mezzanine loans and consolidated CMBS trusts. We classify the expenses related to the administration of the SFR Loans and mezzanine loans as servicing fees while the fees associated with the CMBS trusts are included as a component of the change in net assets related to consolidated CMBS variable interest entities ("VIEs").
Management fees. Management fees include fees paid to our Manager pursuant to the Management Agreement.
Expenses from consolidated real estate owned (Note 8). Reflects the total expenses for our multifamily properties. Expenses include interest, real estate taxes and insurance, operating, general and administrative, management fees, depreciation and amortization, rate cap (income) expense, and debt service bridge expenses of the multifamily properties.
Results of Operations for the Years Ended
The year ended
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The following table sets forth a summary of our operating results for the years
ended
For the Year Ended December 31,
2022 2021 $ Change % Change
Net interest income $ 37,733 $ 26,055 $ 11,678 44.8 %
Other income (loss) 2,661 71,263 (68,602) (96.3) %
Operating expenses (26,180) (13,846) (12,334) 89.1 %
Net income 14,214 83,472 (69,258) (83.0) %
Net (income) attributable to preferred
shareholders (3,512) (3,508) (4) 0.1 %
Net (income) attributable to redeemable
noncontrolling interests (4,969) (40,387) 35,418 (87.7) %
Net (income) loss attributable to
redeemable noncontrolling interests in
subsidiaries (2,499) - (2,499) N/A
Net income attributable to common
stockholders $ 3,234 $ 39,577 $ (36,343) (91.8) %
The change in our net income for the year ended December 31, 2022 as compared to
the net income for the year ended December 31, 2021 primarily relates to an
increase in operating expenses and a decrease in other income including changes
in net assets related to consolidated CMBS VIEs partially offset by increases in
net interest income. Our net income attributable to common stockholders for the
year ended December 31, 2022 was approximately $3.2 million . We earned
approximately $37.7 million in net interest income, generated income of $2.7
million in other income, incurred operating expenses of $26.2 million , allocated
$3.5 million of income to preferred stockholders, allocated $5.0 million of
income to redeemable noncontrolling interests and allocated $2.5 million of
income to redeemable non controlling interests in subsidiaries for the year
ended December 31, 2022 .
Revenues
Net interest income. Net interest income was$37.7 million for the year endedDecember 31, 2022 compared to$26.1 million for the year endedDecember 31, 2021 which was an increase of approximately$11.7 million . The increase between the periods is primarily due to an increase in investments compared to the prior period. Additionally, prepayment penalties related to early paydowns offset by accelerated premium amortization contribute to the increase between the periods. As ofDecember 31, 2022 we own 83 discrete investments compared to 74 as ofDecember 31, 2021 . Other income (loss). Other income (loss) was$2.7 million for the year endedDecember 31, 2022 compared to$71.3 million for the year endedDecember 31, 2021 which was a decrease of approximately$68.6 million . This was primarily due to an increase in unrealized losses related to consolidated CMBS VIEs and a decrease in fair value marks between the periods.
Expenses
G&A expenses. G&A expenses were$7.2 million for the year endedDecember 31, 2022 compared to$6.4 million for the year endedDecember 31, 2021 which was an increase of approximately$0.8 million . The increase between the periods was primarily due to a$1.3 million increase in stock compensation expense and a$0.7 million increase in legal fees compared to the prior period. Loan servicing fees. Loan servicing fees were$4.4 million for the year endedDecember 31, 2022 compared to$5.2 million for the year endedDecember 31, 2021 which was a decrease of approximately$0.8 million . The decrease between the periods was primarily due to a decrease in SFR Loans and mezzanine loans in the portfolio compared to the prior period. Management fees. Management fees were$3.2 million for the year endedDecember 31, 2022 compared to$2.3 million for the year endedDecember 31, 2021 which was an increase of approximately$0.9 million . The increase between the periods was primarily due to an increase in equity as defined by the Management Agreement. 61
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The year ended
The following table sets forth a summary of our operating results for the years
ended
For the Year Ended December 31,
2021 2020 $ Change % Change
Net interest income $ 26,055 $ 17,666 $ 8,389 47.5 %
Other income (loss) 71,263 25,752 45,511 176.7 %
Operating expenses (13,846) (9,248) (4,598) 49.7 %
Net income 83,472 34,170 49,302 144.3 %
Net (income) attributable to preferred
shareholders (3,508) (1,748) (1,760) 100.7 %
Net (income) attributable to redeemable
noncontrolling interests (40,387) (21,323) (19,064) 89.4 %
Net income attributable to common
stockholders $ 39,577 $ 11,099 $ 28,478 256.6 %
The change in our net income for the year ended December 31, 2021 as compared to
the net income for the year ended December 31, 2020 primarily relates to
increases in net interest income and other income including changes in net
assets related to consolidated CMBS VIEs partially offset by an increase in
operating expenses. Our net income attributable to common stockholders for the
year ended December 31, 2021 was approximately $39.6 million . We earned
approximately $26.1 million in net interest income, $71.3 million in other
income, incurred operating expenses of $13.8 million , allocated $3.5 million of
income to preferred stockholders and allocated $40.4 million of income to
redeemable noncontrolling interests for the year ended December 31, 2021 .
Revenues
Net interest income. Net interest income was$26.1 million for the year endedDecember 31, 2021 compared to$17.7 million for the year endedDecember 31, 2020 which was an increase of approximately$8.4 million . The increase between the periods is primarily due to an increase in investments and the number of days in operation compared to the prior period. Additionally, prepayment penalties related to early paydowns offset by accelerated premium amortization contribute to the increase between the periods. As ofDecember 31, 2021 we owned 74 discrete investments compared to 60 as ofDecember 31, 2020 . Other income. Other income was$71.3 million for the year endedDecember 31, 2021 compared to$25.8 million for the year endedDecember 31, 2020 which was an increase of approximately$45.5 million . This was primarily due to an increase in net assets related to consolidated CMBS VIEs and an increase in fair value marks between the periods. Expenses G&A expenses. G&A expenses were$6.4 million for the year endedDecember 31, 2021 compared to$3.4 million for the year endedDecember 31, 2020 which was an increase of approximately$3.0 million . The increase between the periods was primarily due to a$1.5 million increase in stock compensation expense and a$0.8 million increase in legal fees compared to the prior period. Loan servicing fees. Loan servicing fees were$5.2 million for the year endedDecember 31, 2021 compared to$4.3 million for the year endedDecember 31, 2020 which was an increase of approximately$0.9 million . The increase between the periods was primarily due to an increase in loans in the portfolio and the number of days in operation compared to the prior period. Management fees. Management fees were$2.3 million for the year endedDecember 31, 2021 compared to$1.6 million for the year endedDecember 31, 2020 which was an increase of approximately$0.7 million . The increase between the periods was primarily due to an increase in equity as defined by the Management Agreement and the number of days in operation compared to the prior period. 62
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Key Financial Measures and Indicators
As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, EAD, CAD and book value per share.
Earnings Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net income
per share and dividends declared per share (in thousands, except per share
data):
For the Year Ended December 31,
2022 2021 2020
Net income (loss) attributable to redeemable
noncontrolling interests $ 4,969 $ 40,387 $ 21,323
Net income attributable to common stockholders 3,233 39,577 11,099
Weighted-average number of shares of common stock
outstanding
Basic 14,686 6,601 5,206
Diluted 14,686 20,366 18,648
Net income per share, basic $ 0.22 $ 6.00 $ 2.13
Net income per share, diluted $ 0.22 $ 3.93 $ 1.74
Dividends declared per share $ 2.0000 Earnings Available for Distribution and Cash Available for Distribution
EAD is a non-GAAP financial measure. EAD has replaced our prior presentation of
Core Earnings. In addition, Core Earnings results from prior reporting periods
have been relabeled EAD. In line with evolving industry practices, we believe
EAD more accurately reflects the principal purpose of the measure than the term
Core Earnings and will serve as a useful indicator for investors in evaluating
our performance and our long-term ability to pay distributions. EAD is defined
as the net income (loss) attributable to our common stockholders computed in
accordance with GAAP, including realized gains and losses not otherwise included
in net income (loss), excluding any unrealized gains or losses or other similar
non-cash items that are included in net income (loss) for the applicable
reporting period, regardless of whether such items are included in other
comprehensive income (loss), or in net income (loss) and adding back
amortization of stock-based compensation. Net income (loss) attributable to
common stockholders may also be adjusted for the effects of certain GAAP
adjustments and transactions that may not be indicative of our current
operations, in each case after discussions between the Manager and the
independent directors of our Board and approved by a majority of the independent
directors of our Board.
We use EAD to evaluate our performance which excludes the effects of certain
GAAP adjustments and transactions that we believe are not indicative of our
current operations and to assess our long-term ability to pay distributions. We
believe providing EAD as a supplement to GAAP net income (loss) to our investors
is helpful to their assessment of our performance and our long term ability to
pay distributions. EAD does not represent net income or cash flows from
operating activities and should not be considered as an alternative to GAAP net
income, an indication of our GAAP cash flows from operating activities, a
measure of our liquidity or an indication of funds available for our cash needs.
Our computation of EAD may not be comparable to EAD reported by other REITs.
We also use EAD as a component of the management fee paid to our Manager. As
consideration for the Manager's services, we will pay our Manager an annual
management fee of 1.5% of Equity, paid monthly, in cash or shares of our common
stock at the election of our Manager. "Equity" means (a) the sum of (1) total
stockholders' equity immediately prior to the closing of our IPO, plus (2) the
net proceeds received by us from all issuances of our equity securities in and
after the IPO, plus (3) our cumulative EAD from and after the IPO to the end of
the most recently completed calendar quarter, (b) less (1) any distributions to
our holders of common stock from and after the IPO to the end of the most
recently completed calendar quarter and (2) all amounts that we have paid to
repurchase for cash the shares of our equity securities from and after the IPO
to the end of the most recently completed calendar quarter. In our calculation
of Equity, we will adjust our calculation of EAD to remove the compensation
expense relating to awards granted under one or more of our long-term incentive
plans that is added back in our calculation of EAD. Additionally, for the
avoidance of doubt, Equity does not include the assets contributed to us in the
Formation Transaction.
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CAD is a non-GAAP financial measure. We calculate CAD by adjusting EAD by adding back amortization of premiums, depreciation and amortization of real estate investment, amortization of deferred financing costs and by removing accretion of discounts and non-cash items, such as stock dividends. We use CAD to evaluate our performance and our current ability to pay distributions. We also believe that providing CAD as a supplement to GAAP net income (loss) to our investors is helpful to their assessment of our performance and our current ability to pay distributions. CAD does not represent net income or cash flows from operating activities and should not be considered as an alternative to GAAP net income, an indication of our GAAP cash flows from operating activities, a measure of our liquidity or an indication of funds available for our cash needs. Our computation of CAD may not be comparable to CAD reported by other REITs. The following table provides a reconciliation of EAD and CAD to GAAP net income attributable to common stockholders for the years endedDecember 31, 2022 , 2021, and 2020 (in thousands, except per share amounts): For the Year Ended December 31, % Change 2022 - % Change 2021 - 2022 2021 2020 2021 2020 Net income attributable to common stockholders$ 3,234 $ 39,577 $ 11,099 (91.8) % 256.6 %
Adjustments
Amortization of stock-based compensation 3,286 2,023 548 62.4 % 269.2 % Unrealized (gains) or losses (1) 33,539 (23,811) (2,263) (240.9) % 952.2 % One-time non-cash item (2) - - (1,053) N/A N/A Loan loss (benefit) provision (3) - - 94 N/A N/A EAD attributable to common stockholders$ 40,059 $ 17,789 $ 8,425 125.2 % 111.1 % EAD per Diluted Weighted-Average Share$ 2.63 $ 2.53 $ 1.57 4.0 % 61.1 % Adjustments Amortization of premiums$ 16,397 $ 5,408 $ 2,160 203.2 % 150.4 % Accretion of discounts (10,655) (5,587) (1,053) (90.7) % 430.6 % Depreciation and amortization of real estate investment 2,280 - - N/A N/A Amortization of deferred financing costs 38 - - N/A N/A Stock dividends received - - (538) N/A N/A CAD attributable to common stockholders$ 48,119 $ 17,610 $ 8,994 173.2 % 95.8 % CAD per Diluted Weighted-Average Share$ 3.15 $ 2.50 $ 1.67 26.0 % 49.7 % Weighted-average common shares outstanding - basic 14,686 6,601 5,206 122.5 % 26.8 % Weighted-average common shares outstanding - diluted (4) 15,257 7,045 5,378 116.6 % 31.0 % (1)Unrealized gains are the net change in unrealized loss on investments held at fair value (2)One-time non-cash item is the make-whole premium in theJernigan Capital, Inc. ("JCAP") preferred stock investment conversion to common stock. See Note 5 to our consolidated financial statements for additional disclosures. (3)We have modified our calculation of EAD and CAD to exclude any add back of loan loss (benefit) provision beginning with our fiscal year 2021. 64 -------------------------------------------------------------------------------- Table of Contents (4)Weighted-average diluted shares outstanding does not include dilutive effect of redeemable non-controlling interests The following table provides a reconciliation of EAD and CAD to GAAP net income including the dilutive effect of non-controlling interests for the years endedDecember 31, 2022 , 2021, and 2020 (in thousands, except per share amounts): For the Year Ended December 31, % Change 2022 - % Change 2021 - 2022 2021 2020 2021 2020 Net income attributable to common stockholders$ 3,234 $ 39,577 $ 11,099 (91.8) % 256.6 % Net income attributable to redeemable noncontrolling interests 4,969 40,387 21,323 (81.9) % 89.4 %
Adjustments
Amortization of stock-based compensation 3,286 2,023 548 62.4 % 269.2 % Unrealized (gains) or losses (1) 44,765 (43,503) (3,981) 202.9 % 992.8 % One-time non-cash item (2) - - (2,094) N/A N/A Loan loss (benefit) provision (3) - - 320 N/A N/A EAD attributable to common stockholders$ 56,254 $ 38,484 $ 27,215 52.3 % 41.4 % EAD$ 2.50 $ 1.89 $ 1.46 38.1 % 29.5 % Adjustments Amortization of premiums$ 20,840 $ 15,769 $ 8,280 32.2 % 90.4 % Accretion of discounts (13,312) (9,196) (3,160) (44.8) % 191.0 % Depreciation and amortization of real estate investment 2,895 - - N/A N/A Amortization of deferred financing costs 48 - - N/A N/A Stock dividends received - - (1,254) N/A N/A CAD$ 66,725 $ 45,057 $ 31,081 53.3 % 45.0 % CAD per Diluted Weighted-Average Share$ 2.97 $ 2.21 $ 1.67 38.9 % 32.3 % Weighted-average common shares outstanding - basic 14,686 6,601 5,206 122.5 % 26.8 % Weighted-average common shares outstanding - diluted 22,476 20,366 18,648 10.4 % 9.2 % (1)Unrealized gains are the net change in unrealized loss on investments held at fair value (2)One-time non-cash item is the make-whole premium in the JCAP preferred stock investment conversion to common stock. See Note 5 to our consolidated financial statements for additional disclosures. (3)We have modified our calculation of EAD and CAD to exclude any add back of loan loss (benefit) provision beginning with our fiscal year 2021. 65
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Book Value per Share / Unit
The following table calculates our book value per share (in thousands, except
per share data):
December 31, December 31,
2022 2021
Common stockholders' equity $ 346,474 $ 200,503
Shares of common stock outstanding at period end 17,080 9,164
Book value per share of common stock $
20.29
Due to the large noncontrolling interest in the OP and formerly the Subsidiary
OPs (see Note 13 to our consolidated financial statements, for more
information), we believe it is useful to also look at book value on a combined
basis as shown in the table below (in thousands, except per share data):
2022 2021
Common stockholders' equity $ 346,474 $ 200,503
Redeemable noncontrolling interests in the OP 96,501 261,423
Total equity $
442,975
Redeemable OP Units and SubOP Units at period end 5,038 12,308 Shares of common stock outstanding at period end 17,080 9,164
Combined shares of common stock and redeemable OP Units and SubOP Units
22,118 21,472
Combined book value per share / unit $ 20.03 $ 21.51
Our Portfolio
Our portfolio consists of SFR Loans, CMBS B-Pieces, CMBS I/O Strips, mezzanine
loans, preferred equity investments, common stock investments, multifamily
properties, MSCR Notes and mortgage backed securities with a combined unpaid
principal balance of $2.0 billion at December 31, 2022 and assumes the CMBS
Entities' assets and liabilities are not consolidated. The following table sets
forth additional information relating to our portfolio as of December 31, 2022
(dollars in thousands):
Current
Investment Principal Net Equity Current Yield Remaining Term (4)
Investment (1) Date Amount (2) Location Property Type Coupon (3) (years)
SFR Loans
1 Senior loan 2/11/2020 $ 508,700 $ 73,291 Various Single-family 4.65 % 4.39 % 5.67
2 Senior loan 2/11/2020 10,143 1,536 Various Single-family 5.35 % 5.24 % 5.09
3 Senior loan 2/11/2020 5,396 675 Various Single-family 5.33 % 5.28 % 0.58
4 Senior loan 2/11/2020 10,179 1,473 Various Single-family 5.30 % 5.01 % 5.67
5 Senior loan 2/11/2020 5,458 787 Various Single-family 5.24 % 4.93 % 5.76
6 Senior loan 2/11/2020 51,304 6,944 Various Single-family 4.74 % 4.59 % 2.75
7 Senior loan 2/11/2020 9,494 1,362 Various Single-family 6.10 % 5.70 % 5.76
8 Senior loan 2/11/2020 36,762 5,175 Various Single-family 5.55 % 5.14 % 5.84
9 Senior loan 2/11/2020 5,760 827 Various Single-family 5.99 % 5.59 % 5.92
10 Senior loan 2/11/2020 5,177 755 Various Single-family 5.46 % 5.15 % 6.01
11 Senior loan 2/11/2020 8,779 1,293 Various Single-family 5.88 % 5.55 % 6.01
12 Senior loan 2/11/2020 6,309 870 Various Single-family 4.83 % 4.77 % 1.09
13 Senior loan 2/11/2020 7,480 1,105 Various Single-family 5.34 % 5.07 % 6.09
14 Senior loan 2/11/2020 6,582 974 Various Single-family 5.46 % 5.19 % 6.17
15 Senior loan 2/11/2020 10,523 1,509 Various Single-family 4.72 % 4.60 % 3.17
Total 688,046 98,576 4.81 % 4.55 % 5.36
CMBS B-Piece
1 CMBS B-Piece 2/11/2020 24,348 (5) 9,154 Various Multifamily 8.95 % 8.96 % 3.16
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2 CMBS B-Piece 2/11/2020 29,596 (5) 11,429 Various Multifamily 9.80 % 9.79 % 3.90
3 CMBS B-Piece 4/23/2020 81,999 (5) 27,424 Various Multifamily 3.50 % 5.39 % 7.16
4 CMBS B-Piece 7/30/2020 21,342 (5) 9,459 Various Multifamily 12.80 % 12.80 % 4.48
5 CMBS B-Piece 8/6/2020 108,643 (5) 24,603 Various Multifamily 0.00 % 8.22 % 7.49
6 CMBS B-Piece 4/20/2021 43,340 (5) 14,866 Various Multifamily 9.29 % 9.29 % 8.16
7 CMBS B-Piece 6/30/2021 108,305 (5) 30,299 Various Multifamily 0.00 % 9.13 % 4.00
8 CMBS B-Piece 12/9/2021 57,289 (5) 22,231 Various Multifamily 8.29 % 8.29 % 1.82
9 CMBS B-Piece 5/2/2022 35,811 (5) 10,214 Various Multifamily 4.22 % 4.55 % 15.91
10 CMBS B-Piece 7/28/2022 70,481 (5) 26,899 Various Multifamily 8.29 % 8.29 % 6.57
Total 581,154 186,578 4.61 % 8.14 % 6.22
CMBS I/O Strips
1 CMBS I/O Strip 5/18/2020 17,590 (6) 495 Various Multifamily 2.02 % 14.56 % 23.75
2 CMBS I/O Strip 8/6/2020 108,643 (6) 6,268 Various Multifamily 2.98 % 15.98 % 7.49
3 CMBS I/O Strip 4/28/2021 (7) 64,768 (6) 1,409 Various Multifamily 1.59 % 15.52 % 7.07
4 CMBS I/O Strip 5/27/2021 20,000 (6) 1,024 Various Multifamily 3.39 % 15.73 % 7.40
5 CMBS I/O Strip 6/7/2021 4,266 (6) 127 Various Multifamily 2.31 % 18.91 % 5.91
6 CMBS I/O Strip 6/11/2021 (8) 115,523 (6) 1,872 Various Multifamily 1.19 % 13.34 % 6.40
7 CMBS I/O Strip 6/24/2021 26,191 (6) 435 Various Multifamily 1.18 % 16.77 % 7.40
8 CMBS I/O Strip 8/10/2021 25,000 (6) 635 Various Multifamily 1.89 % 15.87 % 7.32
9 CMBS I/O Strip 8/11/2021 6,942 (6) 440 Various Multifamily 3.10 % 13.74 % 8.57
10 CMBS I/O Strip 8/24/2021 1,625 (6) 250 Various Multifamily 2.61 % 14.44 % 8.07
11 CMBS I/O Strip 9/1/2021 34,625 (6) 3,726 Various Multifamily 1.92 % 15.03 % 7.49
12 CMBS I/O Strip 9/11/2021 20,902 (6) 3,822 Various Multifamily 2.95 % 13.70 % 8.74
Total 446,075 20,503 2.04 % 15.01 % 7.83
Mezzanine Loan
1 Mezzanine 6/12/2020 7,500 7,500 Houston, TX Multifamily 11.00 % 11.00 % 0.50
2 Mezzanine 10/20/2020 5,470 2,267 Wilmington, DE Multifamily 7.50 % 7.31 % 6.34
3 Mezzanine 10/20/2020 10,380 4,320 White Marsh, MD Multifamily 7.42 % 7.22 % 8.50
4 Mezzanine 10/20/2020 14,253 5,929 Philadelphia, PA Multifamily 7.59 % 7.38 % 6.42
5 Mezzanine 10/20/2020 3,700 1,531 Daytona Beach, FL Multifamily 7.83 % 7.63 % 5.76
6 Mezzanine 10/20/2020 12,000 4,993 Laurel, MD Multifamily 7.71 % 7.50 % 8.25
7 Mezzanine 10/20/2020 3,000 1,249 Temple Hills, MD Multifamily 7.32 % 7.12 % 8.59
8 Mezzanine 10/20/2020 1,500 624 Temple Hills, MD Multifamily 7.22 % 7.02 % 8.59
9 Mezzanine 10/20/2020 5,540 2,296 Lakewood, NJ Multifamily 7.33 % 7.14 % 6.34
10 Mezzanine 10/20/2020 6,829 2,828 Rosedale, MD Multifamily 7.53 % 7.34 % 6.01
11 Mezzanine 10/20/2020 3,620 1,507 North Aurora, IL Multifamily 7.42 % 7.22 % 8.50
12 Mezzanine 10/20/2020 9,610 4,000 Cockeysville, MD Multifamily 7.42 % 7.22 % 8.50
13 Mezzanine 10/20/2020 7,390 3,076 Laurel, MD Multifamily 7.42 % 7.22 % 8.50
14 Mezzanine 10/20/2020 2,135 884 Tyler, TX Multifamily 7.74 % 7.54 % 5.76
15 Mezzanine 10/20/2020 1,190 493 Las Vegas, NV Multifamily 7.71 % 7.51 % 6.17
16 Mezzanine 10/20/2020 3,310 1,372 Atlanta, GA Multifamily 6.91 % 6.73 % 6.50
17 Mezzanine 10/20/2020 2,880 1,192 Des Moines, IA Multifamily 7.89 % 7.69 % 5.84
18 Mezzanine 10/20/2020 4,010 1,660 Urbandale, IA Multifamily 7.89 % 7.69 % 5.84
19 Mezzanine 1/21/2021 24,844 24,644 Los Angeles, CA Multifamily 17.00 % 17.14 % 1.06
20 Mezzanine 11/18/2021 12,600 12,491 Irving, TX Multifamily 14.77 % 14.90 % 5.92
21 Mezzanine 12/29/2021 7,760 7,695 Rogers, AR Multifamily 14.77 % 14.90 % 2.03
22 Mezzanine 6/9/2022 4,500 4,462 Rogers, AR Multifamily 14.45 % 14.57 % 2.44
23 Mezzanine 7/1/2022 9,000 8,918 Medley, FL Self-Storage 11.00 % 11.10 % 4.50
Total 163,021 105,931 10.42 % 10.34 % 5.39
Preferred Equity
1 Preferred Equity 5/29/2020 10,000 10,000 Houston, TX Multifamily 11.00 % 11.00 % 7.34
2 Preferred Equity 9/29/2021 7,606 7,591 Holly Springs, NC Life Science 10.00 % 10.02 % 0.75
3 Preferred Equity 10/26/2021 9,750 9,687 Atlanta, GA Multifamily 11.00 % 11.07 % 1.85
4 Preferred Equity 1/14/2022 19,496 19,509 Vacaville, CA Life Science 10.00 % 9.99 % 0.75
5 Preferred Equity 4/7/2022 (9) 4,000 3,963 Beaumont, TX Self-Storage 13.77 % 13.90 % 7.67
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6 Preferred Equity 6/8/2022 4,000 3,962 Temple, TX Self-Storage 13.05 % 13.17 % 7.67
7 Preferred Equity 8/10/2022 8,500 8,423 Plano, TX Multifamily 14.61 % 14.74 % 2.69
8 Preferred Equity 9/30/2022 9,000 8,915 Fort Worth, TX Multifamily 13.76 % 13.89 % 2.75
9 Preferred Equity 10/5/2022 4,030 3,991 Kirkland, WA Multifamily 14.52 % 14.66 % 5.01
10 Preferred Equity 10/19/2022 15,000 14,925 Woodbury, MN Life Science 10.00 % 10.05 % 0.75
Total 91,382 90,966 11.51 % 11.57 % 2.76
Common Stock
1 Common Stock 11/6/2020 N/A 50,380 N/A Self-Storage N/A N/A N/A
2 Common Stock 4/14/2022 N/A 27,884 N/A Ground Lease N/A N/A N/A
Total 78,264
Real Estate
1 Real Estate 12/31/2021 (10) N/A 27,267 Charlotte, NC Multifamily N/A N/A N/A
2 Real Estate 2/1/2022 (11) N/A 36,283 Las Vegas, NV Multifamily N/A N/A N/A
Total 63,550
MSCR Notes
1 MSCR Note 5/25/2022 4,000 2,021 Various Multifamily 13.02 % 13.02 % 29.42
2 MSCR Note 5/25/2022 5,000 2,315 Various Multifamily 10.02 % 10.02 % 29.42
3 MSCR Note 9/23/2022 1,500 637 Various Multifamily 10.37 % 11.40 % 28.92
Total 10,500 4,973 11.21 % 11.36 % 29.35
Mortgage Backed
Securities
Mortgage Backed
1 Securities 6/1/2022 10,074 3,102 Various Single-family 4.87 % 5.08 % 2.89
Mortgage Backed
2 Securities 6/1/2022 10,419 3,425 Various Single-family 7.08 % 7.39 % 3.30
Mortgage Backed
3 Securities 7/28/2022 575 261 Various Single-family 6.23 % 6.33 % 4.80
Mortgage Backed
4 Securities 7/28/2022 1,057 403 Various Single-family 3.60 % 4.23 % 5.47
Mortgage Backed
5 Securities 9/12/2022 4,473 1,789 Various Single-family 9.29 % 9.27 % 8.07
Mortgage Backed
6 Securities 9/29/2022 8,000 7,906 Various Single-family 9.57 % 9.59 % 4.71
Total 34,598 16,886 7.18 % 7.36 % 4.21
(1)Our total portfolio represents the current principal amount of the
consolidated SFR Loans, CMBS I/O Strips, mezzanine loans, preferred equity,
multifamily properties, MSCR Notes and mortgage backed securities as well as the
net equity of our CMBS B-Piece investments.
(2)Net equity represents the carrying value less borrowings collateralized by
the investment.
(3)Current yield is the annualized income earned divided by the cost basis of
the investment.
(4)The weighted-average life is weighted on current principal balance 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.
(5)The CMBS B-Pieces are shown on an unconsolidated basis reflecting the value
of our investments.
(6)The number shown represents the notional value on which interest is
calculated for the CMBS I/O Strips. CMBS I/O Strips receive no principal
payments and the notional value decreases as the underlying loans are paid off.
(7)The Company, through the Subsidiary OPs, purchased approximately $50.0
million and $15.0 million aggregate notional amount of the X1 interest-only
tranche of the FHMS K-107 CMBS I/O Strip on April 28, 2021 and May 4, 2021 ,
respectively.
(8)The Company, through the Subsidiary OPs, purchased approximately $80.0
million , $35.0 million , $40.0 million ad $50.0 million aggregate notional amount
of the X1 interest-only tranche of the FRESB 2019-SB64 CMBS I/O Strip on June
11, 2021 and September 29, 2021 , February 3, 2022 and March 18, 2022 ,
respectively.
(9)The Company, through the Subsidiary OPs, invested $2.7 million and $1.3
million in this preferred equity investment on April 7, 2022 and May 3, 2022 ,
respectively.
(10)Real Estate is a 204-unit multifamily property.
(11)The Company, through the Subsidiary OPs, purchased this real estate
investment for $184.1 million on February 1, 2022 , using cash on hand of $39.5
million and debt financing of $144.6 million . This is the Elysian at Hughes
Center investment that was previously presented as a preferred equity investment
but has been consolidated as of December 31, 2022 . Pursuant to an expected
restructuring of the transaction subsequent to December 31, 2022 , this
investment is
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expected to be deconsolidated in 2023 and presented solely as a preferred equity
investment See Note 16 to our consolidated financial statements for additional
information.
The following table details overall statistics for our portfolio as of
Total Floating Rate Fixed Rate Common Stock Real Estate
Portfolio Investments Investments Investment Investment
Number of investments 83 22 57 2 2
Principal balance (1) $ 1,628,772 $ 368,021 $ 1,260,751 N/A N/A
Carrying value $ 1,866,802 $ 362,173
5.67 % 8.21 % 4.79 % N/A N/A
Weighted-average all-in yield 6.41 % 10.31 % 5.21 % N/A N/A
(1)Cost is used in lieu of principal balance for CMBS I/O Strips.
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of funds necessary to pay for our ongoing commitments to repay borrowings, maintain our investments, make distributions to our stockholders and other general business needs. Our investments generate liquidity on an ongoing basis through principal and interest payments, prepayments and dividends. We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments, potential obligations to purchase up to$3.7 million of the Preferred Units (defined below) and dividend requirements for the twelve-month period followingDecember 31, 2022 . Our long-term liquidity requirements consist primarily of acquiring additional investments, scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings. Our leverage is matched in term and structure to provide stable contractual spreads which will protect us from fluctuations in market interest rates over the long-term. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, borrowing restrictions imposed by lenders, general market conditions for REITs and our operating performance and liquidity. We believe that our various sources of capital, which may include future debt or equity issuances, net cash provided by operations and other secured and unsecured borrowings, will provide sufficient funds for our operations, 69
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anticipated debt service payments, potential obligations to purchase Preferred Units and dividend requirements for the long-term.
Asset Metrics Debt Metrics
Investment Fixed/Floating Rate Interest Rate Maturity Date Fixed/Floating Rate Interest Rate Maturity Date Net Spread
SFR Loans
Senior loan Fixed 4.65% 9/1/2028 Fixed 2.24% 9/1/2028 2.41%
Senior loan Fixed 5.35% 2/1/2028 Fixed 3.51% 2/1/2028 1.84%
Senior loan Fixed 5.33% 8/1/2023 Fixed 2.48% 8/1/2023 2.85%
Senior loan Fixed 5.30% 9/1/2028 Fixed 2.79% 9/1/2028 2.51%
Senior loan Fixed 5.24% 10/1/2028 Fixed 2.64% 10/1/2028 2.60%
Senior loan Fixed 4.74% 10/1/2025 Fixed 2.14% 10/1/2025 2.60%
Senior loan Fixed 6.10% 10/1/2028 Fixed 3.30% 10/1/2028 2.80%
Senior loan Fixed 5.55% 11/1/2028 Fixed 2.70% 11/1/2028 2.85%
Senior loan Fixed 5.99% 12/1/2028 Fixed 3.14% 12/1/2028 2.85%
Senior loan Fixed 5.46% 1/1/2029 Fixed 2.97% 1/1/2029 2.49%
Senior loan Fixed 5.88% 1/1/2029 Fixed 3.14% 1/1/2029 2.74%
Senior loan Fixed 4.83% 2/1/2024 Fixed 2.40% 2/1/2024 2.43%
Senior loan Fixed 5.34% 2/1/2029 Fixed 2.98% 2/1/2029 2.36%
Senior loan Fixed 5.46% 3/1/2029 Fixed 2.99% 3/1/2029 2.47%
Senior loan Fixed 4.72% 3/1/2026 Fixed 2.45% 3/1/2026 2.27%
Mezzanine Loans
Mezzanine Fixed 7.50% 5/1/2029 Fixed 0.30% 5/1/2029 7.20%
Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031 7.12%
Mezzanine Fixed 7.59% 6/1/2029 Fixed 0.30% 6/1/2029 7.29%
Mezzanine Fixed 7.83% 10/1/2028 Fixed 0.30% 10/1/2028 7.53%
Mezzanine Fixed 7.71% 4/1/2031 Fixed 0.30% 4/1/2031 7.41%
Mezzanine Fixed 7.32% 8/1/2031 Fixed 0.30% 8/1/2031 7.02%
Mezzanine Fixed 7.22% 8/1/2031 Fixed 0.30% 8/1/2031 6.92%
Mezzanine Fixed 7.33% 5/1/2029 Fixed 0.30% 5/1/2029 7.03%
Mezzanine Fixed 7.53% 7/1/2031 Fixed 0.30% 7/1/2031 7.23%
Mezzanine Fixed 7.42% 1/1/2029 Fixed 0.30% 1/1/2029 7.12%
Mezzanine Fixed 7.42% 7/1/2031 Fixed 0.30% 7/1/2031 7.12%
Mezzanine Fixed 7.42% 4/1/2031 Fixed 0.30% 4/1/2031 7.12%
Mezzanine Fixed 7.74% 10/1/2028 Fixed 0.30% 10/1/2028 7.44%
Mezzanine Fixed 7.71% 3/1/2029 Fixed 0.30% 3/1/2029 7.41%
Mezzanine Fixed 6.91% 7/1/2029 Fixed 0.30% 7/1/2029 6.61%
Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028 7.59%
Mezzanine Fixed 7.89% 11/1/2028 Fixed 0.30% 11/1/2028 7.59%
Our primary sources of liquidity and capital resources to date consist of cash generated from our operating results and the following:
Freddie Mac Credit Facilities
Prior to the Formation Transaction, two of our subsidiaries entered into a loan and security agreement, datedJuly 12, 2019 , with Freddie Mac (the "Credit Facility"). Under the Credit Facility, these entities borrowed approximately$788.8 million in connection with their acquisition of senior pooled mortgage loans backed by SFR properties (the "Underlying Loans"). No additional borrowings can be made under the Credit Facility, and our obligations will be secured by the Underlying Loans. The Credit Facility was assumed by the Company as part of the Formation Transaction. As such, the remaining outstanding balance of$788.8 million was contributed to the Company onFebruary 11, 2020 . Our borrowings under the Credit Facility will mature onJuly 12, 2029 ; however, if an Underlying Loan matures prior toJuly 12, 2029 , we will be required to repay the portion of the Credit Facility that is allocated to that loan (see Note 9 to our consolidated 70
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financial statements for additional information). As of
Repurchase Agreements
From time to time, we may enter into repurchase agreements to finance the acquisition of our target assets. Repurchase agreements will effectively allow us to borrow against loans and securities that we own in an amount equal to (1) the market value of such loans and/or securities multiplied by (2) the applicable advance rate. Under these agreements, we will sell our loans and securities to a counterparty and agree to repurchase the same loans and securities from the counterparty at a price equal to the original sales price plus an interest factor. During the term of a repurchase agreement, we will receive the principal and interest on the related loans and securities and pay interest to the lender under the repurchase agreement. At any point in time, the amounts and the cost of our repurchase borrowings will be based on the assets being financed. For example, higher risk assets will result in lower advance rates (i.e., levels of leverage) at higher borrowing costs. In addition, these facilities may include various financial covenants and limited recourse guarantees. As discussed in Note 9 to our consolidated financial statements, in connection with our recent CMBS acquisitions, we, through the OP and the Subsidiary OPs, have borrowed approximately$331.0 million under our repurchase agreements and posted approximately$974.4 million par value of our CMBS B-Piece, CMBS I/O Strip, MSCR Notes and mortgage backed security investments as collateral. The CMBS B-Pieces, CMBS I/O Strips, MSCR Notes and mortgage backed securities held as collateral are illiquid and irreplaceable in nature. These assets are restricted solely to satisfy the interest and principal balances owed to the lender.
The table below provides additional details regarding recent borrowings under the master repurchase agreements (dollars in thousands):
December 31, 2022
Facility Collateral
Weighted Weighted Weighted
average average average
Outstanding Carrying Final stated interest life (years) Outstanding Carrying life (years)
Date issued face amount value maturity rate (1) (2) face amount Amortized cost basis value (3) (2)
Master Repurchase
Agreements
CMBS
Mizuho(4) 4/15/2020 331,020 331,020 N/A (5) 5.83 % 0.20 974,440 543,919 539,736 7.0
(1)Weighted-average interest rate using unpaid principal balances.
(2)Weighted-average life is determined using the maximum maturity date of the
corresponding loans, assuming all extension options are exercised by the
borrower.
(3)CMBS are shown at fair value on an unconsolidated basis.
(4)On April 15, 2020 , three of our subsidiaries entered into a master repurchase
agreement with Mizuho. Borrowings under these repurchase agreements are
collateralized by portions of the CMBS B-Pieces, CMBS I/O Strips, MSCR Notes and
mortgage backed securities.
(5)The master repurchase agreement with Mizuho does not have a stated maturity
date. The transactions in place have a one-month to two-month tenor and are
expected to roll accordingly.
At-The-Market Offering
OnMarch 31, 2021 , the Company, the OP and the Manager entered into separate equity distribution agreements (the "2021 Equity Distribution Agreements") with the Sales Agents, pursuant to which the Company could issue and sell from time to time shares of the Company's common stock and Series A Preferred Stock having an aggregate sales price of up to$100.0 million (the "2021 ATM Program"). The 2021 Equity Distribution Agreements provided for the issuance and sale of common stock or Series A Preferred Stock by the Company through a sales agent acting as a sales agent or directly to the sales agent acting as principal for its own account at a price agreed upon at the time of sale. Effective as ofDecember 16, 2021 , the Company terminated each 2021 Equity Distribution Agreement. As of the termination date, pursuant to the Equity Distribution Agreements, the Company had sold 532,694 shares of its common stock and zero shares of Series A Preferred Stock for total gross sales of$11.3 million . For additional information about the 2021 ATM Program, see Note 11 to our consolidated financial statements. 71 -------------------------------------------------------------------------------- Table of Contents OnMarch 15, 2022 , the Company, the OP and the Manager separately entered into the 2022 Equity Distribution Agreements with the Sales Agents, pursuant to which the Company may issue and sell from time to time shares of the Company's common stock and Series A Preferred Stock having an aggregate sales price of up to$100.0 million in the 2022 ATM Program. The 2022 Equity Distribution Agreements provide for the issuance and sale of common stock or Series A Preferred Stock by the Company through a sales agent acting as a sales agent or directly to the sales agent acting as principal for its own account at a price agreed upon at the time of sale. As ofDecember 31, 2022 , pursuant to the 2022 Equity Distribution Agreements, the Company had sold 531,728 shares of its common stock and zero shares of Series A Preferred Stock for total gross sales of$12.6 million . For additional information about the 2022 ATM Program, see Note 11 to our consolidated financial statements.
Company Notes Offering
On
OnDecember 20, 2021 , the Company issued$60.0 million in aggregate principal amount of its 5.75% Notes at a price equal to 102.8% par value, including accrued interest, for proceeds of approximately$60.9 million after original issue discount and underwriting fees. OnJanuary 25, 2022 , the Company issued$35.0 million in aggregate principal amount of its 5.75% Notes at a price equal to 100.9% par value, including accrued interest, for proceeds of approximately$35.1 million after original issue discount and underwriting fees.
On
On
Secondary Public Offering
OnAugust 18, 2021 , the Company the OP and the Manager entered into an underwriting agreement (the "Underwriting Agreement") withRaymond James as representative of the several underwriters, pursuant to which the Company agreed to sell 2,000,000 firm shares at a public offering price of$21.00 per share. The Company also granted the underwriters a 30-day option to purchase up to an additional 300,000 option shares. The firm shares were issued onAugust 20, 2021 . OnSeptember 8, 2021 , the underwriters partially exercised the option to purchase 59,700 option shares. The 59,700 option shares were issued onSeptember 10, 2021 . For additional information about this public offering, see Note 11 to our consolidated financial statements.
LIBOR Transition
Approximately 3.7% of our portfolio by unpaid principal balance as ofDecember 31, 2022 pays interest at a variable rate that is tied to LIBOR. OnMarch 5, 2021 , theFinancial Conduct Authority of the U.K . announced that all of the LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately afterDecember 31, 2021 , in the case of the 1-week and 2-month US dollar settings; and (ii) immediately afterJune 30, 2023 , in the case of the remaining one-month, three-month, six-month and twelve-month US dollar settings. TheU.S. Federal Reserve , in conjunction with the Alternative Reference Rates Committee, a steering committee convened by theU.S. Federal Reserve Board and comprised of largeU.S. financial institutions, has recommended replacingU.S. dollar LIBOR with the SOFR, an index calculated by short-term repurchase agreements backed byU.S. Treasury securities. Approximately 13.3% of our portfolio by unpaid principal balance as ofDecember 31, 2022 pays interest at a variable rate that is tied to SOFR, and it is anticipated that future investments we make may have variable interest rates tied to SOFR. Although there have been issuances utilizing SOFR, or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it is unknown whether these alternative rates will attain market acceptance as a replacement for LIBOR. In connection with the foregoing, we may need to renegotiate some of our agreements to determine a replacement index rate. As ofDecember 31, 2022 , the Company has not received any LIBOR transition notices under its loan agreements. Any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our investments and result in mismatches with the interest rate of investments that we are financing. 72
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Elysian at Hughes Center
Subsequent toDecember 31, 2022 , the Company expects to restructure this investment such that it does not meet the requirements for consolidation under ASC 810 - Consolidation and is expected to be deconsolidated in 2023 and presented solely as a preferred equity investment. As ofDecember 31, 2022 , the Company owned a preferred equity investment and the common equity interests in Elysian at Hughes Center, which resulted in the consolidation at year end. However, the common equity interests are expected to be transferred to an affiliate of the Manager, such affiliate which is expected to guarantee payments due to the Company in respect of its preferred equity investment if the investment is not redeemed prior to the close of the ongoing private offering of Class I Beneficial Interests in the Trust, which will continue until the maximum offering amount of$115.3 million has been reached or, if earlier, untilDecember 31, 2023 .
Elysian at Hughes Center Equity Offering
OnMarch 9, 2022 , the Company, through a subsidiary, NexPoint Hughes DST (the "Trust") began offering to sell (the "Hughes Offering") up to 100% of the Class I Beneficial Interests in the Trust (the "Interests") to accredited investors pursuant to the terms of a private placement memorandum. The Trust is the sole owner of the Elysian at Hughes Center, a multifamily apartment complex located inLas Vegas, Nevada . The property consists of 6.08 acres of land upon which two residential buildings are situated comprising 368 apartment units. FromMarch 9, 2022 toDecember 31, 2022 , the Company sold approximately 64.0% of the outstanding Interests, raising approximately$67.3 million in net proceeds after selling costs and commissions. The net proceeds were used to repay the$55 million bridge loan with the remainder being distributed to the Company. The Hughes Offering will continue until the maximum offering amount of$115.3 million has been reached or, if earlier, untilDecember 31, 2023 .
Other Potential Sources of Financing
We may seek additional sources of liquidity from further repurchase facilities, other borrowings and future offerings of common and preferred equity and debt securities and contributions from existing holders of the OP or Subsidiary OPs. In addition, we may apply our existing cash and cash equivalents and cash flows from operations to any liquidity needs. As ofDecember 31, 2022 , our cash and cash equivalents were$20.3 million .
Cash Flows
The following table presents selected data from our Consolidated Statements of Cash Flows for the years endedDecember 31, 2022 , 2021, and 2020 (in thousands): For the Year Ended December 31, 2022 2021 2020
Net cash provided by (used in) operating activities
517,878 (68,261)
Net cash provided by (used in) financing activities (1,029,264)
(567,415) 68,830 Net increase (decrease) in cash, cash equivalents and restricted cash (12,885) (239) 33,471 Cash, cash equivalents and restricted cash, beginning of period 33,232 33,471 -
Cash, cash equivalents and restricted cash, end of period
$ 20,347
The year ended
Cash flows from operating activities. During the year endedDecember 31, 2022 , net cash provided by operating activities was$65.8 million compared to net cash provided by operating activities of$49.3 million for the year endedDecember 31, 2021 . This increase was primarily due to the interest income generated by our investments. Cash flows from investing activities. During the year endedDecember 31, 2022 , net cash provided by investing activities was$950.6 million compared to net cash provided by investing activities of$517.9 million for the year endedDecember 31, 2021 . This increase was primarily driven by proceeds received from payments on mortgage loans held in VIEs. Cash flows from financing activities. During the year endedDecember 31, 2022 , net cash used in financing activities was$1.0 billion compared to net cash used in financing activities of$567.4 million for the year endedDecember 31, 2021 . This increase was primarily driven by distributions to bondholders of VIEs. 73
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The year ended
Cash flows from operating activities. During the year endedDecember 31, 2021 , net cash provided by operating activities was$49.3 million compared to net cash provided by operating activities of$32.9 million for the year endedDecember 31, 2020 . This increase was primarily due to the interest income generated by our investments and the change in unrealized loss on investments held at fair value. Cash flows from investing activities. During the year endedDecember 31, 2021 , net cash provided by investing activities was$517.9 million compared to net cash used in investing activities of$68.3 million for the year endedDecember 31, 2020 . This increase was primarily driven by proceeds received from payments on mortgage loans held in VIEs. Cash flows from financing activities. During the year endedDecember 31, 2021 , net cash used in financing activities was$567.4 million compared to net cash provided by financing activities of$68.8 million for the year endedDecember 31, 2020 . This increase was primarily driven by distributions to bondholders of VIEs.
Emerging Growth Company and Smaller Reporting Company Status
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 13(a) of the Exchange Act, for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards. We may elect to comply with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.
We are also a "smaller reporting company" as defined in Regulation S-K under the Securities Act, and may elect to take advantage of certain of the scaled disclosures available to smaller reporting companies. We may be a smaller reporting company even after we are no longer an "emerging growth company."
Income Taxes
We elected to be treated as a REIT forU.S. federal income tax purposes, beginning with our taxable year endedDecember 31, 2020 . We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the year endedDecember 31, 2022 . If we fail to qualify as a REIT in any taxable year, we will be subject toU.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT. We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are "more-likely-than-not" (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in progress, and none are expected at this time.
We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and
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record the amount that is more likely than not to be realized upon ultimate
settlement. We had no material unrecognized tax benefit or expense, accrued
interest or penalties as of
Dividends
We intend to make regular quarterly dividend payments to holders of our common stock. We also intend to make the accrued dividend payments on the Series A Preferred Stock, which are payable quarterly in arrears as provided in the articles supplementary setting forth the terms of the Series A Preferred Stock.U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income, which is not used to pay a dividend on the Series A Preferred Stock, to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether forU.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities. We will make dividend payments to holders of our common stock based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair-value adjustments, differences in premium amortization and discount accretion and non-deductible G&A expenses. Our quarterly dividends per share of our common stock may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our fourth quarterly dividend of 2022 to common stockholders of$0.50 per share onOctober 24, 2022 , which was paid onDecember 30, 2022 to common stockholders of record as ofDecember 15, 2022 . OnDecember 15, 2022 , our Board declared a preferred stock dividend of$0.53125 per share, which was paid onJanuary 25, 2023 to preferred stockholders of record as ofJanuary 13, 2023 .
Off-Balance Sheet Arrangements
As of
OnDecember 8, 2022 and in connection with a restructuring of NSP, the Company, through REIT Sub, together with the Co-Guarantors, as guarantors, entered into a Sponsor Guaranty Agreement in favor ofExtra Space pursuant to which REIT Sub and the Co-Guarantors guaranteed obligations of NSP with respect to NSP's newly created Series D Preferred Stock and two promissory notes in an aggregate principal amount of approximately$64.2 million issued toExtra Space . The guaranties by REIT Sub and the Co-Guarantors are capped at$97.6 million , which amount will be reduced as the guaranteed obligations of NSP are paid. Each of REIT Sub and the Co-Guarantors generally guaranteed the foregoing obligations of NSP up to the cap amount on a pro rata basis with respect to its percentage ownership of NSP's common stock. The maximum liability of REIT Sub under the guaranties is approximately$83.8 million . As ofDecember 31, 2022 , the Company owns approximately 25.8% of the total outstanding shares of common stock of NSP.
Commitments and Contingencies
Except as otherwise disclosed in Note 15 to our consolidated financial statements, the Company is not aware of any contractual obligations, legal proceedings, or any other contingent obligations incurred in the normal course of business that would have a material adverse effect on our consolidated financial statements.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires our management to make judgments, assumptions and estimates that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We evaluate these judgments,
assumptions and estimates for changes that would affect the reported amounts.
These estimates are based on management's historical industry experience and on
various other judgments and assumptions that are believed to be
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reasonable under the circumstances. Actual results may differ from these
judgments, assumptions and estimates. Below is a discussion of the accounting
policies and estimates that involve significant estimation uncertainty that have
or are reasonably likely to have a material impact on our financial condition or
results of operations. A discussion of recent accounting pronouncements and our
significant accounting policies, including further discussion of the accounting
policies described below, can be found in Note 2 to our consolidated financial
statements.
Allowance for Loan Losses
The Company performs a quarterly evaluation of loans classified as held for
investment for impairment on a loan-by-loan basis in accordance with ASC
310-10-35, Receivables, Subsequent Measurement ("ASC 310-10-35"). If we deem
that it is probable that we will be unable to collect all amounts owed according
to the contractual terms of a loan, impairment of that loan is indicated. If we
consider a loan to be impaired, we will establish an allowance for loan losses,
through a valuation provision in earnings that reduces carrying value of the
loan to the present value of expected future cash flows discounted at the loan's
contractual effective rate or the fair value of the collateral, if repayment is
expected solely from the collateral. For non-impaired loans with no specific
allowance, the Company determines an allowance for loan losses in accordance
with ASC 450-20, Loss Contingencies ("ASC 450-20"), which represents
management's best estimate of incurred losses inherent in the portfolio at the
balance sheet date, excluding impaired loans and loans carried at fair value.
Management considers quantitative factors likely to cause estimated credit
losses, including default rate and loss severity rates. The Company also
evaluates qualitative factors such as macroeconomic conditions, evaluations of
underlying collateral, trends in delinquencies and non-performing assets.
Increases to (or reversals of) the allowance for loan loss are included in "Loan
loss benefit (provision)" on the accompanying Consolidated Statements of
Operations.
Significant judgment is required in determining impairment and in estimating the
resulting loss allowance, and actual losses, if any, could materially differ
from those estimates.
Valuation of Common Stock
As of December 31, 2022 , the Company owns approximately 25.8% of the total
outstanding shares of NSP and thus can exercise significant influence over NSP.
The Company elected the fair-value option in accordance with ASC 825-10-10. On a
quarterly basis, the Company, with the assistance of an independent third-party
valuation firm, determines the fair value for subsequent measurement absent a
readily available market price. The valuation is determined using widely
accepted valuation techniques consistent with the principles of ASC 820.
Specifically, these techniques include the discounted cash flow methodology
whereby observable market terminal capitalization rates and discount rates are
applied to projected cash flows generated by self-storage assets owned by NSP.
The necessary inputs for the valuation include projected cash flows of NSP,
terminal capitalization rates and discount rates. These inputs are reflective of
public company comparables, but are assumptions and estimates. As a result, the
determination of fair value involves significant estimation uncertainty because
it involves subjective judgments and estimates that are based on unobservable
inputs. For the year ended December 31, 2022 , the unrealized loss related to the
change in fair value estimate is $8.1 million . See Notes 5 and 10 for additional
disclosures regarding the valuation of NSP.
As of December 31, 2022 , the Company owns approximately 6.36% of the total
outstanding shares of the Private REIT. The Company records the Private REIT at
fair value in accordance with ASC 321. The valuation is determined using a
market approach as the Private REIT is a recent transaction. The necessary input
for the valuation includes the recent transaction price of the Private REIT. As
a result, the determination of fair value is uncertain because it involves
subjective judgments and estimates that are unobservable. For the year ended
December 31, 2022 , the unrealized gain related to the change in fair value
estimate is $2.9 million . See Notes 5 and 10 for additional disclosures
regarding the valuation of the Private REIT.
REIT Tax Election
We elected to be treated as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our "REIT taxable income," as defined by the Code, to our stockholders. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the years endedDecember 31, 2022 andDecember 31, 2021 . We believe that our organization and current and proposed method of operation will allow us to qualify for taxation as a REIT, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. 76
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