NexPoint Diversified Real Estate Trust — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance sheet compared with December 31, 2023. The Trust is an externally managed, diversified REIT investing across real estate and related debt and equity securities. Its portfolio includes direct property holdings and substantial investments in affiliated or related-party entities.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $12.8 million | $14.9 million |
| Operating income | $0.3 million | $2.3 million |
| Net loss | $21.5 million | $19.5 million |
| Net loss attributable to common shareholders | $22.7 million; $0.59 per share | $20.7 million; $0.56 per share |
| Operating cash flow | $(2.6) million | $0.5 million |
| Investing cash flow | $7.4 million | $8.2 million |
| Financing cash flow | $(4.4) million | $(12.6) million |
Revenue declined about 14%, principally as rental income fell with lower Cityplace Tower occupancy and investment dividends decreased, particularly from CLO positions. Operating margin was approximately 2% of revenue, versus 16% in Q1 2023. Net results included $6.3 million of unrealized gains but $21.9 million of realized losses; the realized loss was primarily associated with legacy CLO redemptions. Interest expense rose $1.1 million to $4.5 million.
Non-GAAP FFO attributable to common shareholders was $2.0 million, or $0.05 per share, while AFFO attributable to common shareholders was negative $4.0 million, or $(0.10) per share. These supplemental measures are not substitutes for GAAP earnings or operating cash flow. Same-store NOI fell 21% to $0.17 million. The quarterly common distribution was $0.15 per share; the Q1 payment was made 80% in shares and 20% in cash.
Financial position and liquidity
At March 31, total assets were $1.075 billion, down from $1.098 billion at year-end, and shareholders’ equity was $863.0 million. Investments at fair value were $669.5 million, including $557.9 million of Level 3 assets valued using significant unobservable inputs. Net consolidated real estate investments were $262.4 million. Cash and cash equivalents were $20.2 million; restricted cash was $33.5 million and is not generally available for ordinary liquidity needs.
Reported debt carrying amounts totaled approximately $195.1 million: mortgages payable, net, of $141.4 million; notes payable, net, of $52.3 million; and prime brokerage borrowing of $1.4 million. Cityplace mortgage principal was $141.7 million, at a weighted-average rate of 8.48%, and its maturity was extended to March 2025. The $20 million NexBank revolver carried a SOFR-based floating rate and was scheduled to mature May 21, 2024, with two possible six-month extensions subject to conditions. The $19.25 million Raymond James facility was scheduled to mature in October 2025. Management said it expected available cash, operating cash flows and potential financings to cover operations, scheduled debt service and dividends for the twelve months after quarter-end.
Changes, outlook and material risks
- Q1 2024 net loss widened versus Q1 2023, despite a substantial improvement in unrealized investment marks, because of larger realized investment losses, lower revenue, higher interest expense and greater equity-method losses.
- Management said Cityplace occupancy had declined; the tower was 51.2% occupied at quarter-end and remained under renovation and hotel-conversion development. The Trust estimates a further $190 million to $210 million of capital expenditures to complete the renovation.
- Management stated that alternative funding is necessary to repay Cityplace debt at maturity and is evaluating refinancing, additional equity or debt, portfolio sales, or combinations of these options. The filing does not provide a specific financing commitment or a formal earnings forecast.
- Interest rates and constrained commercial real estate credit markets may increase borrowing costs and impede refinancing or asset sales. The company also identifies inflation, leverage, investment valuation uncertainty, tenant and property risks, and REIT qualification as significant risks.
- Guarantees and contingencies include obligations relating to affiliated self-storage investments and other loans. The filing reports underlying loan balances of approximately $536.7 million for three NSP secured loans, $272.7 million for SAFStor loan pools, and $77.4 million for an NHT loan; these are contingent exposures, not reported direct debt of the Trust. Management said relevant borrowers were current and compliant. The Trust reported no material litigation involving its own business.
- The adviser is an affiliate and received $3.2 million in advisory and administrative fees in Q1; $1.35 million of fees was paid in shares. The adviser also manages the Trust’s day-to-day operations, and the Trust holds substantial related-party investments.
- Subsequent events included a new $6.5 million loan to an NREF affiliate on April 19 and a common-share dividend declaration of $0.15 per share for June 2024. No formal forward guidance was disclosed.
Most important facts for investors to verify
- Whether the NexBank revolver was extended or repaid after its May 21, 2024 scheduled maturity, and the conditions and cost of any extension.
- Progress and committed sources of repayment or refinancing for the $141.7 million Cityplace mortgage due in March 2025.
- Funding plan, remaining budget and schedule for the estimated $190–$210 million Cityplace renovation, alongside occupancy and leasing trends.
- Cash available for distributions: operating cash flow was negative, AFFO was negative, and the common dividend was partly paid in shares.
- Valuation assumptions and potential volatility in Level 3 investments, which represented approximately 52% of total assets, as well as concentration in related-party investments and contingent guarantees.