NREF and NXRT: Seizing Opportunities in Real Estate REITs Amid Economic Crosscurrents

The real estate sector faces headwinds from rising interest rates, supply chain disruptions, and macroeconomic uncertainty, yet two NexPoint entities—NexPoint Real Estate Finance, Inc. (NYSE: NREF) and NexPoint Residential Trust (NYSE: NXRT)—present compelling opportunities for investors seeking stability and upside in a turbulent market. Both companies delivered mixed Q2 2025 results, but their valuations, strategic moves, and underlying fundamentals suggest they could be poised for rebounds. Let's dissect the data to identify where the smart money might be moving.

NREF: A Discounted Player with Hidden Resilience

NexPoint Real Estate Finance reported Q2 revenue of $11.51 million, surpassing estimates by 5%, but its EPS of $0.37 fell short of expectations by 7.5%. This divergence highlights a critical tension: strong top-line growth amid margin pressures or cost overruns. The stock dipped 2.26% post-earnings, a reaction to the EPS miss and lingering concerns about debt exposure and regulatory risks.

Why It's an Opportunity:
- Valuation Discount: NREF trades at $13.95, below its historical post-earnings bounce pattern (+1.82% average gain in the 10 days following results). The dip creates a buying opportunity if upcoming quarters improve EPS performance.
- Strategic Focus: NREF's emphasis on multifamily and commercial real estate financing—key sectors with steady demand—aligns with long-term housing trends. Its portfolio includes first-lien mortgages and CMBS, which offer diversification against single-asset risks.
- Dividend Stability: Despite the EPS miss, management maintained the dividend, signaling confidence in cash flow sustainability.

Risks to Watch:
- Debt Management: NREF's leverage and opaque credit loss provisions remain red flags. Investors should monitor Q3 disclosures for clarity.
- Life Sciences Supply Chains: Delays in this sector could impact collateral values, though leasing momentum appears resilient.

NXRT: NAV Discount and Buyback Backed Buy

NXRT's Q2 results were clouded by a $6.9 million net loss (vs. $26.4M profit in Q1 2024), but its core FFO of $0.75/share and occupancy rising to 95.5% post-quarter highlight underlying strength. The stock trades at $33.88, a 37.7% discount to its $51.20 NAV midpoint, making it a textbook valuation play.

Why It's a Bargain:
- NAV Mispricing: The 37.7% discount to NAV suggests the market is undervaluing NXRT's portfolio of 62,000+ units in Sun Belt markets. Reduced new supply (projected to drop 22% in 2025) and rising rent growth in key markets like Las Vegas (+7%) bode well for NOI recovery.
- Buybacks at a Discount: NXRT spent $7.6 million repurchasing shares at $34.29—33% below NAV—signaling management's belief in intrinsic value.
- Rental Momentum: Same-store NOI is expected to stabilize in H2 2025, with peak leasing seasons (Q2/Q3) driving higher occupancy and rent premiums.

Risks to Consider:
- High Leverage: A 380% debt-to-equity ratio and weak interest coverage (earnings below interest costs) could strain liquidity if rates rise further.
- Dividend Sustainability: The 6.0% yield is supported by FFO but risks if core FFO declines as projected.

The Macro Backdrop: Why REITs Offer Resilience

Amid fears of a recession, multifamily and industrial real estate remain defensive plays due to inelastic demand. Both NREF and NXRT benefit from:
- Inflation Hedge: Rental growth and long-term leases protect against rising costs.
- Interest Rate Divergence: While higher rates pressure REIT valuations, reduced new construction (as seen in NXRT's markets) limits supply, supporting pricing power.

Investment Strategy: Opportunistic Entry Points

1. NREF:
2. Buy on dips: Target entry points below $13 if Q3 EPS improves.

3. Long-term hold: Focus on its diversified real estate financing model, which should outperform in varied economic cycles.

4. NXRT:

5. Accumulate on the NAV discount: The $51 NAV midpoint offers a clear upside target.

6. Monitor refinancing progress: A successful debt swap or lower interest rate environment could alleviate leverage concerns.

7. Portfolio Positioning:

8. Allocate 5-7% of a conservative portfolio to these REITs as a hedge against inflation and equity market volatility.

Final Take: Value and Volatility in the Same Package

NREF and NXRT are not without risks—debt, margin pressures, and macroeconomic uncertainty loom large. However, their discounted valuations, strategic buybacks, and exposure to resilient real estate sectors make them worth considering for investors with a 12-18 month horizon. For now, the dips post-Q2 results are opportunities to position for rebounds in Q3 and beyond.

Act on the data, not the noise.