Nexpoint Diversified Real Estate Trust (NXDT) Q2 2026 earnings call

Kristin, please go ahead Good day everyone and welcome to next point diversified real estate Investor update call on the call to our Matt Mcgrainer executive vice president chief investment officer Paul Richards executive vice president and chief financial officer John good chief executive officer of next point stories partners and chief executive officer of mindberg homes trust me Before we begin, I would like to remind everyone that this update call in a company presentation contains forward-looking statements Within the meaning of the private securities litigation reform act of 1995 that are based on management's current expectations assumptions and beliefs listeners should not place Undo reliance on any forward-looking statements and are encouraged to review the company's annual report Unformed 10k and the company's other filings of SEC For a more complete discussion of risk and other factors that could affect the board-looking statements The statements made during this conference ball speak only as of today's date and as Except as required by law and xtt does not undertake any obligation to publicly update or revise any forward-looking statements I would now like to turn the call over to Matt.

Please go ahead Matt Thank you christen and thank you to everyone for joining the call this morning for an update on nxtt's progress in the second quarter I'm joined today by paul richard cfo and john good ceo of our storage and single family rental businesses This morning we will discuss nxtt's real estate markets provide updates on our top holdings And as always focus on the steps we're taking to close the gap between our share price and the underlying value of the portfolio First i'd like to spend a few minutes on the residential market and the supply picture And then update you on the continuing progress for our city place office to residential conversion I'll then turn the call over to john and paul to cover storage sfr and our credit vehicles I'll close with our efforts to monetize assets Repurchase stock and narrow our discounts in av which remains our key near-term focus Turning to the multi-family supply picture The inflection we described on prior calls is now beginning to show up in the data Nationally trailing 12-month absorption has overtaken new deliveries for the first time since early 2022 vacancy posted its first meaningful decline in over a year and asking rent have begun to grind positive We continue to expect our sunbelt markets to lag the national turn Given the given the supply still to be absorbed But the direction is now unmistakable and it is underpinned by the same four factors we have highlighted Persistent structural demand the cost to own a home remains roughly three times the cost to rent and apartment in our markets a steep decline in new deliveries National completions have fallen from a 2024 peak of roughly 696,000 units to an estimated 421,000 units this year And continue to trend lower Construction starts running well below their 2022 peak locking in a multi-year supply trough And finally concession burn-off with roughly 40 percent of units nationally still advertising a discount The normalization of confessions flows directly through to gross potential rent Our city place uptown sub-market specifically The supply picture is almost non-existent with just 232 units delivering in the sub-market in 2027 And zero currently it's slated for 2028 and beyond Our redevelopment of the city place apron is now fully defined Approximately 460 multi-family units across the roughly six acre apron surrounding the tower But they curated ground floor retail program acre by a bt grocer in a rooftop amenity oriented to the downtown Dallas skyline On the tower itself residential design and programming continue phased intentionally behind the apron And now in the second half of the year you've turned to turn our attention to tower financing And we remain bullish on convincing this residential project as supply as Sub-market supply falls off of the cliff Now i'd like to turn the call over to john john Thanks matt welcome everyone um first Going to occupancy of our self-storage portfolio at june 30 2026 our fiscal occupancy was 94.1 Which was up 240 basis points from december 31 2025 where occupancy was at 91.7 percent And we're 30 basis points less than the 94.4 Occupancy at june 30 at 2025 Our occupancy levels have performed to normal seasonal expectations And our fiscal occupancy continues to rank among the highest in the self-storage industry as for rental rates sector wide rental rates Inched forward as we completed the 2026 rental season We generally outperform the sector Our portfolios in place rate on june 30th was $20 and 54 cents per foot up 6.3 percent from the 19 dollars and 33 cents per foot at june 30 2025 And up 183 basis points from the $20 and 17 cents per foot at the beginning of the year Our average street rate increased 230 basis points from 21 dollars and 88 cents at june 30 2025 to 22 dollars and 38 cents at june 30 26 Growth in our average web rate Which is the rate charged to customers who find units and rent via the internet comprising the majority of our customers was at 330 basis points year over year from 15 dollars and 73 cents at june 30 2025 to 16 dollars and 25 cents at june 30 20 26 We view these rates to be indicative of a return to steady if slow rent growth for the entire self-storage sector Moreover, we expect these rate increases along with stable occupancy to support a five to six percent increase in our same store revenue for 2026 Which is significantly ahead of what the public reads are forecasting As for revenue and net operating income Same store revenue for the quarter ended june 30 20 26 was 23.7 million dollars Or 6.1 percent higher than the 22.4 million dollars recognized in the second quarter of 2025 Net operating income for the second quarter 2026 was 14.9 million dollars Or 15.2 percent higher than the q2 2025 in oi of 12.9 million dollars These results were driven by strong occupancy Good rate growth and strong expense control Our results continue to lead the publicly traded storage rates by a large margin As those rates are forecasting for the year Approximately flat in oi growth and one to two percent top line growth Demand in the self-storage sector has typically been led by housing mobility and life events The housing market has remained very weak which has continued to suppress self-storage demand in some areas However, our portfolio is the youngest portfolio of size in the storage sector And our facilities are located in large dense urban sub-markets Where demand is driven more by need and less by mobility We believe our exceptional locations and strong demographic profile Insulate us to a large degree from the continued slow housing market that is burdening the rest of the sector And has allowed us to substantially outperform our peers Turning to the supply picture Development remains limited nationwide due to high borrowing costs Land scarcity Significant inflation and materials costs and permitting challenges as well as a continued weak housing market that has weighed on self-storage demand In other words, anyone who's underwriting a storage development now has a really hard time determining what future rents will be Most experts in the sector believe this dynamic will continue for the next several quarters Providing a potential tailwind to the storage sector in 2027 and 2028 We continue to believe we have the preeminent urban storage portfolio in the United States That will continue to outperform our peers and command a premium valuation upon any liquidity event We continue to evaluate strategic alternatives for our storage platform Now turning to bine brook homes Over the past two years bine brook's management team has focused on fortifying our balance sheet To reduce our capital cost and effectively eliminate threats from short-term debt maturities Right sizing our gna structure with a goal of 15 million dollars of gna annual savings And beginning a very significant and impactful portfolio Repositioning involving exiting underperforming scattered site homes and markets and redirecting invested capital to newer Better located and easier to manage built to rent homes in more dynamic markets and submarkets Our second quarter performance reflects the fruits of our efforts including some pain mixed with game On the positive side physical occupancy within our stabilized same home set Continues to track over 95 percent with june 30 26 occupancy at 95.2 percent Up from 94.9 percent at the beginning of the year Our stabilized home count was relatively flat during q2 26 compared to q2 2025 with the count being 15,611 for the 2026 quarter versus 15,588 homes for q1 2025 a 23 home increase Also our blended rent growth continues to lead our larger publicly traded peers with second quarter growth of 5.1 percent on renewal leases and 1 percent on new leases for a blended 4.2 percent growth rate On the negative side Our net operating income margin dropped 340 basis points for the second quarter Compared to the same quarter in 2025 On account of an intentional focus on improving the quality of homes that turn over to new residents A strategic decision that has resulted in longer-term times and higher turn costs and repair and maintenance expense Which has negatively impacted margins We believe this short-term drop in ny margin was necessary to accomplish a sustainable Long-term enhancement of earnings and corporate value Over the past two and a half years.

We have reduced leverage decreased our interest rate and extended debt maturities Our work on the balance sheet has produced a 500 million dollar acquisition line of credit from jp morgan Which we have continued to utilize to fund built-to-rent acquisitions Moreover after quarter and on august 14th vinebrook closed on a 545 million Five-year fixed rate term loan with bearings mass mutual Proceeds were used to repay in full our floating rate syndicated credit facility with jp morgan and other short-term debt In addition, the refinancing resulted in a meaningful net capital inflow for btr acquisitions and other corporate purposes We completed this transaction at a 160 basis point spread to the five-year treasury note Which is a tightening relative to other similar fixed rate executions that we've completed in the past With limited near-termaturities We believe our improvements in the balance sheet have placed us in a strong position to trim underperforming assets and reinvest capital into btr homes in our core markets Where we see the most promising long-term growth With respect to the portfolio repositioning during the quarter end of June 30 We sold an additional 638 homes for approximately 101 million of net proceeds The proceeds were used to pay down debt and fund new built-to-rent acquisitions During the quarter we acquired over 150 units across three btr communities Pursuant to a four to four purchase contracts that we have with developers We have another $100 million of btr home purchases under contract and a robust pipeline of potential additional btr acquisitions With the adoption of the federal 21st century road to housing act Which allowed for continued institutional investment in built-to-rent home new housing We expect to have significant additional opportunities to add high quality Built-to-rent homes to our portfolio over the coming quarters To replace the lower yielding housing inventory that we have disposed of or intend to dispose up Our net asset value at June 30, 20, 26 was $52 and 68 Compared to $54 and 25 cents at June 30, 2025 A 289 basis point to climb As the range of cap rates provided by green street advisors our third-party valuation firm expanded During the quarter long-term mortgage rates rose again contributing to the contribution Contributing to the continuation of the worst housing market in two decades And such rates have continued to rise since the end of the quarter The shares of our publicly traded peers continue to trade at substantial discounts To their net asset values reflecting these higher cap rates Finally, we remain committed to providing liquidity divine book common shareholders Management and the board continue to monitor the macro outlook as well as the performance of our peers A listing sometime in 2027 is still on the table, but our publicly traded peers continue to trade significantly below nav And we are mindful of conducting such listing in a manner where shared shareholder value is maximized Moreover with capital flowing back into the sector and an exemption now for investor-to-investor Transactions under the new housing act There is the possibility of consolidation in the industry which could provide liquidity opportunities for us after we contemplate after we complete our portfolio transformation Management the board And next point entities including an nx dt Remain the largest shareholders in the company and we continue to be absolutely aligned with all shareholders in terms of seeking the maximized value With that i'll turn it over to paul to discuss in ref Thanks, john I will quickly hit on n ref's q2 results and further guidance as of today nx t hold shares and op units of n ref worth approximately 108 million in net asset value Where approximately 1 $1.71 per nx dt share on a standalone basis as a reminder n ref is a publicly traded mortgage Focus on originating and a repurchasing credit investments in our key operating verticals of residential both spar and multi Life science self-storage industrial and marina And our purported second quarter net income to common shareholders of 5.4 million or 29 cents per deluded share Thereings available for distribution were 11.2 million or 46 cents per deluded share Which is up 7% from the first quarter and the head of our guidance we gave in april Cash available for distribution was 13.9 million or 58 cents per deluded share Moving to the portfolio and book value book value per deluded share was 18 dollars and 60 cents down roughly 2 Percent from 18 dollars and 96 cents at the end of first quarter driven primarily by small unrealized loss on our stockwarm portfolio The portfolio tools approximately 1.1 billion across 85 investments 39.4 life science 37.6 multi And 15.1 single family rental with the balance of self-storage industrial and marina Credit quality continues to sit at the top of our commercial mortgage repure group a weighted average ltv of 63.4 A weighted average ds cr of 1.39 times and 80.3 of our collateralized of our collateralized stabilized Of our collateral stabilized and reprimand conservatively levered at 0.88 times debt to equity With 836.6 million of debt outstanding at a weighted average cost of 6.3 and a weighted average maturity of 2.6 years Which gives us flexibility and downside protection The stock closed at 15 dollars and 81 cents on september 23rd roughly a 15 discount to book value And an implied dividend yield north of 12 percent an attractive entry point relative to intrinsic value Next a few comments on capital allocation and activity On the most significant transaction of the year today We close 300 75 million drawable terminal facility with mazuho capital markets and use it to repay our 180 million Of 5.75 percent senior unsecured notes at the may one maturity Concurrently we entered into a total return swap mazuho that reduced our net effective interest cost to sofa plus 245 basis points As of the august earnings call 362.2 million without standing on the facility The transaction removed the largest near-term liability overhang on our balance sheet Replaced fixed rate unsecured debt with floating rate asset asset based financing that better matches our preference for pre payment flexibility and provides a back lever solution that enhances returns on new investments Uncapable structure positioning Combined with 22.6 million be raised in a series c preferred during the quarter We had into the back half of 2026 with what we believe is one the cleanest most flexible capital structures in the commercial mortgage reach sector Onto new investments.

We've funded 42.6 million mezzloan secured by a life science property at a 14 percent coupon A 20.2 million preferred equity investment in a multi-family property at a 40 percent coupon 7.3 million on a loan tank sofa plus 900 basis points and an additional 31.9 million on existing commitments more than 70 million of the pipeline we outlined in april at double digit coupons on a life Our air life life science campus is now tracking to 85 percent least up to 71 1 anchored by a long-term lease with Lila sciences for 245,000 square feet The sponsor is running a recapitalization process and we would expect a substantial amount of capital back Essentially in the fourth quarter to redeploy primarily into residential assets Undividend coverage we paid a regular divin a 50 cents per share in the quarter Which was 1.16 covered by cash available for distribution The board declared another 50 cents per share for the third quarter payable September 30th Lastly our future outlooking guidance looking forward third quarter guidance Earnings available for distribution of 43 cents per diluted share at the midpoint with CAD at 55 cents per diluted share at the midpoint With a debt to equity ratio of 0.88 times a divin uncovered of 1.16 by CAD In the second quarter and guided at 1.1 times for the third and residential and life science fundamentals and selecting in our favor We believe n ref as well positions to sustain its distribution and create durable shareholder value Our affiliates and long-term investors maintain significant skid in the game alongside our shareholders A structure we do as a meaningful depreciator now.

I like to pass it back to Matt.

Thank you Paul Again, we are making operational progress across all of our platforms as we look forward to a more liquid transaction market and weighing supply in 2026 and 2027 We also continue running a variety of processes to monetize assets at a fair at fair market values in this environment One example is Midway Wireless formerly Terastar Corporation, which remains one of the largest independent wireless spectrum license holders in the United States Midway holds the entire 1.4 gigahertz band making it the largest contiguous wide area band not controlled by a national carrier It also holds an indirect interest in 18 AWS dash three licenses Spanning many of the largest us metropolitan markets The company continues to explore strategic options to monetize this position And we are encouraged both by the regulatory and standards work completed over the past two years By a wave of large cap demand that has materially reprised the asset class Emerging use cases such as directed advice and supplemental coverage from space only deepen that demand We believe this backdrop is a positive indicator for value realization over the next 12 months And would note that nxtt's current valuation describes very little of this embedded value to the position Conviction in our monetization efforts coupled with the ongoing amortization of our preferred holdings continues to fund our repurchase program and our pace is accelerated meaningfully During the second quarter we repurchase approximately 109,000 shares of common stock Subsequent to quarter ends from the beginning of July through late September We repurchased an additional 1,000,000 shares at an average price of approximately $5 and 33 cents By a wide margin our most aggressive stretch of buying since the program began In total we have now repurchased approximately 2.28 million shares under the program for roughly 10.4 million dollars At a blended average price of about $4 and 58 cents per share We intend to keep repurchasing common for as long as that discount persists And to make real measurable progress on closing it over the balance of 2026 while we continue the operational work within our key operating verticals To summarize the near term catalyst we are focused on completing the capitalization of the city place apron and advancing tower financing Continuing to progress the monetization processes underway across the portfolio Pursuing value realization on our midway spectrum position over the coming year And continuing to repurchase common stock in a discount navy All in service of the demonstrable progress in narrowing our discount That's all we have today for our prepared remarks I'd like to thank everyone again for joining today's call And look forward to providing further updates on our progress next quarter Thank you.