NREF - NexPoint Diversified: This Opaque REIT Is Best Avoided Despite The Huge Discount
2024-03-15 05:38:18 ET
Summary
- NexPoint Diversified Real Estate Trust has underperformed the S&P 500 Index and iShares U.S. Real Estate ETF since its conversion into a real estate investment trust.
- NXDT's external management structure and poor financial performance may be contributing factors to its underperformance.
- The majority of the trust's revenue comes from debt and equity securities rather than directly held real estate, and its profit margin is slim, potentially impacting its ability to sustain its high dividend yield.
- NexPoint Diversified has a negative FFO, casting doubt on its ability to sustain the 12.20% dividend yield. The market appears to agree with this assessment.
- The trust is trading at a huge discount, but I do not recommend purchasing it until management becomes more transparent and FFO becomes positive.
The NexPoint Diversified Real Estate Trust ( NXDT ) is an externally managed real estate investment trust that invests in a variety of different types of commercial real estate. The company's website describes it thusly:
NexPoint Diversified: This Opaque REIT Is Best Avoided, Despite The Huge DiscountNexPoint Diversified Real Estate Trust is an externally advised diversified real estate investment trust, with its shares of common stock and 5.50% Series A Cumulative Preferred Shares listed on the New York Stock Exchange under the symbols NXDT and NXDT-PA, respectively. As a diversified REIT, NXDT's primary investment objective is to provide both current income and capital appreciation.
NXDT seeks to achieve this objective by investing across various commercial real estate property types and across the capital structure, including but not limited to mortgage debt, mezzanine debt and common and preferred equity. Target underlying property types include but are not limited to industrial, hospitality, net lease, retail, office, storage, and healthcare and, to the extent currently owned, multifamily and single-family rentals. NXDT also may, to a limited extent, hold, acquire, or transact in certain non-real estate securities.