NexPoint Diversified REIT Remains High-Risk Amidst Deep Discount to Net Asset Value

NexPoint Diversified REIT's 9.8% dividend yield is risky due to high interest rates and a high debt load. Despite being discounted to its net asset value, the stock's risks remain significant.

NexPoint Diversified REIT (NYSE:NXDT) has been under the spotlight for its 9.8% dividend yield, which initially seemed attractive but is now seen as risky due to high interest rates and a substantial debt load. Despite trading at a significant discount to its net asset value, the stock's risks remain significant.

The REIT, which invests in commercial, residential, and life science properties, as well as various debt instruments, has faced severe headwinds from high interest rates. The Federal Reserve's shift from a hawkish to a dovish strategy has provided some relief, with interest rates decreasing and property transactions potentially increasing. However, the REIT's high debt load and persistent losses have not been adequately addressed.

NexPoint Diversified REIT's preferred stock has gained 2% and offered a total return of 5% since the previous analysis, but the common stock has declined 25%, underperforming the broader market and the Real Estate Select Sector SPDR Fund ETF (XLRE) by 44% and 2%, respectively. This significant underperformance is concerning, as it indicates a weak business model and poor management.

The REIT's net debt is more than double its current market capitalization, and interest expense has exceeded operating income in recent years. High interest rates have also led to excessive losses in fixed-income investments and mark-to-market valuation. Despite the recent shift in the Fed's strategy, the REIT's business performance remains weak, with revenue declining and losses per share widening.

Investors should be cautious about NexPoint Diversified REIT, as its high debt load, weak business model, and persistent losses make it a risky investment. The stock's deep discount to its net asset value does not entirely mitigate these risks, and the future path of interest rates remains uncertain. Therefore, investors should stay away from the stock, as it is likely to continue underperforming the broad market over the long term.