Moving on from $HFRO: $NHF seems to be better risk / reward

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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:

  1. 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.
  2. 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.
  3. Nexpoint has decent track record in real estate
  4. 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.

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