HFRO has had a nice bounce since my recent post and is +8% since I wrote about it. I think it still has upside from here, but if I’m honest, it depends to some degree on “known unknowns” and discount narrowing, which is always a tough story with no catalyst.
Full disclosure, this shift comes after talking to MDC of Clark Street Value. His posts on NHF were excellent and after he joined a Twitter Space I started, I though NHF was the better opportunity. Highly recommend you follow his blog if you’re not already.
HFRO is still fine! But NHF on the other hand:
- Trades at a larger discount (~32% vs. 22% at HFRO). However, the Terrestar position is at 9%, which I had concerns about, so its close.
- Has a better catalyst to close the discount: its converting to a REIT which will trade on FFO most likely and multiples are typically pretty high in REIT space. Therefore the chance the discount narrows is descent even ex-Terrestar whereas at best I was thinking HFRO would still trade at 85% of NAV.
- Nexpoint has decent track record in real estate
- Have also demonstrated that they want to do things to close the discount (like an exchange offer for pref)
So full disclosure, I still own HFRO, but bought the same $ amount of NHF. Over time, I probably will close out of HFRO.