Overview of the Company’s Financial Performance

NexPoint Real Estate Finance, Inc. (the “Company”) is a commercial mortgage real estate investment trust (REIT) that focuses on originating, structuring, and investing in various real estate-related assets. In 2024, the Company reported strong financial results, with net income attributable to common stockholders of $17.7 million, up from $10.4 million in 2023.

The primary driver of the Company’s improved performance was an increase in net interest income, which grew from $16.8 million in 2023 to $28.1 million in 2024. This was due to the Company’s ability to generate higher yields on its investment portfolio, particularly from its preferred equity, revolving credit facility, and senior loan investments.

The Company also saw a significant increase in other income, which grew from $25.3 million in 2023 to $44.5 million in 2024. This was largely attributable to realized gains from the sale of consolidated commercial mortgage-backed securities (CMBS) variable interest entities (VIEs).

Revenue and Profit Trends

The Company’s net interest income has been a key component of its financial performance. In 2024, the Company’s net interest income increased by 67.5% compared to 2023, driven by growth in its investment portfolio and higher yields on its assets. The weighted-average cash coupon on the Company’s portfolio increased from 6.16% in 2023 to 7.16% in 2024, while the weighted-average all-in yield increased from 9.94% to 12.37% over the same period.

The Company’s other income, which includes changes in the fair value of its CMBS, mortgage-backed securities, and common stock investments, as well as realized gains, also contributed significantly to its profitability. In 2024, other income increased by 75.8% compared to 2023, primarily due to the sale of consolidated CMBS VIEs.

Despite the growth in revenues, the Company’s operating expenses also increased, rising by 56.9% in 2024 compared to 2023. This was largely due to higher general and administrative (G&A) expenses, including increased stock compensation, legal fees, and tax fees. The Company’s loan servicing fees, however, decreased by 62.1% as a result of a decline in its SFR Loans and mortgage-backed securities portfolio.

Overall, the Company’s net income attributable to common stockholders increased by 70.1% in 2024 compared to 2023, reflecting the strong performance of its investment portfolio and the positive impact of its other income.

Analysis of Strengths and Weaknesses

One of the Company’s key strengths is its diversified investment portfolio, which includes senior loans, CMBS, mezzanine loans, preferred equity, common equity, and other real estate-related assets. This diversification helps to mitigate risk and provides the Company with the flexibility to allocate capital to the most attractive investment opportunities.

Another strength is the Company’s experienced management team, which has a proven track record of successfully navigating various market conditions. The Company’s Manager, a subsidiary of its Sponsor, has extensive real estate and alternative credit management experience, which has contributed to the Company’s strong performance.

However, the Company’s reliance on debt financing, particularly through repurchase agreements, could be a potential weakness. While these financing arrangements have allowed the Company to leverage its investments and generate higher returns, they also expose the Company to interest rate risk and the risk of counterparty default. The Company’s ability to continue to access these financing sources on favorable terms will be crucial to its future performance.

Additionally, the Company’s operating expenses, particularly its G&A expenses, have been growing at a faster rate than its revenues. This could put pressure on the Company’s profitability if it is unable to effectively manage these costs.

Outlook for the Future

The Company’s outlook for the future appears positive, as it continues to execute on its investment strategy and capitalize on opportunities in its target markets. The Company’s diversified portfolio, experienced management team, and access to capital should position it well to navigate any potential market challenges.

However, the Company will need to closely monitor its operating expenses and ensure that it maintains a prudent approach to leverage and risk management. Additionally, the Company’s ability to continue to generate strong returns on its investments will be crucial to its long-term success.

Overall, the Company’s financial performance in 2024 was impressive, and it appears well-positioned to continue delivering value to its shareholders in the years to come.