New York Mortgage Trust Inc (NYMT) 2022 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust Third Quarter 2022 Results Conference Call. (Operator Instructions) This conference is being recorded on Thursday, November 3, 2022. A press release and supplemental financial presentation with New York Mortgage Trust's third quarter 2022 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.nymtrust.com. Additionally, we are hosting a live webcast of today's call, which you can access in the Events and Presentations section of the company's website.

At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York Morgan Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.

Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission.

Now at this time, I would like to introduce Jason Serrano, CEO and President. Jason, please go ahead.

Thank you very much. Good morning. Welcome to New York Mortgage Trust 2020 Third Quarter Earnings Call. I'm joined this morning by our CFO, Kristine Nario. I'll be referring to the supplemental which is posted on our website for additional details.

The U.S. economy activity was pressured in the third quarter by rising interest rates, concerns over tightening monetary policy, near double-digit inflation and geopolitical instability. Thus far, in 2022, equity markets have been challenged with the Fed's decision to raise interest rates by 75 basis points in 4 consecutive meetings, taking the federal funds rate to its highest point since 2008 with expected additional rate hikes in the upcoming months, alongside of a growth -- growing concerns of a potential near-term recession.

Accordingly, fixed income markets have been impacted. The yield on the 2-year treasury increased to 4.22% at the end of the quarter, an increase of 349 basis points from last year. Rate hikes by the Fed contributed to the treasury curve and [burning]. At the end of September, the spread between the 2- and 10-year treasury yield closed at negative 39 basis points compared to 79 basis points positive at 2021 year-end.

As was the case for credit-sensitive assets across markets, pricing for many assets within our investment portfolio during the third quarter declined, particularly so in the final weeks of the quarter. Due to these factors, we anticipate markets and the pricing will continue to experience volatility through year-end and into 2023. So the question is how do we navigate this risk while keeping a proactive stance to seek opportunities. I hope to demonstrate that our portfolio managed decisions and financing plans over the last 18 months were designed to stay short, nimble and liquid.

Before I dive into these points, I'll start with a brief review of the third quarter financial results and then pass over to Christine for further details.

Now speaking from Page 7. Due to the macro factors discussed, we incurred an undepreciated loss per share of $0.27 and undepreciated book value decline of 8.3%, ending the third quarter at $3.89. This decline was related to mark-to-market changes of our portfolio against higher rates, which we believe is recoverable over time. We saw a tremendous opportunity to buy back our shares in the quarter given a sharp selloff in the market. In all, we repurchased 5.5 million shares at an average price of $2.62 during the third quarter. We added 2.1 million shares to this amount in the first days of October at a price of $2.23. At these levels, we believe repurchases are highly accretive, particularly in light of our short duration portfolio and ability to generate cash. Thus, we expect to continue with share repurchase in Q4 should our common stock continue to trade at a significant discount to our undepreciated book value.

As we announced in late September, we are focused on monetizing the value created against our timely multifamily property acquisitions, mostly aggregated in 2021. We were able to recognize $14 million of realized gains from our first property sale ‐‐ more on that in a minute ‐‐ alongside of $18 million in other asset sales. Investment activity was significantly reduced in the quarter, primary or in the [origination market], coupons were frankly not repriced fast enough. Unfortunately, second market sellers refer to primary market activity for their pricing levels and a feedback loop that locked the market in the third quarter. In fact, we are still very much there today, and I will have further details about that.

Shortly after the Jackson Hole and Powell pivot (inaudible), if you will, we found an attractive entry point to a $242 million loan securitization. This allowed us to reduce our repo mark‐to‐market exposure and recourse leverage, which now stands at industry-leading low of 0.5x at the company and 0.4x at the portfolio level.

With that, I'll pass it over to Kristine for more details on our financial results. Kristine?

Thank you, Jason. Good morning, everyone, and thank you again for being on the call. Our financials now showed on Slide 9 covers key portfolio metrics on a quarter-over-quarter comparison. As Jason mentioned earlier, undepreciated book value per share ended at $3.89, down 8.3% from June 30 and translated to a negative 5.9% economic return on undepreciated book value during the quarter.

The company had undepreciated loss per share of $0.27 in the third quarter. The fair value changes related to our investment portfolio continued to have a significant impact on our earnings and book value. We recognized $0.34 per share of unrealized losses, primarily due to an increase in interest rates and credit spread widening that resulted in a decline in the fair values of a majority of the assets in our investment portfolio. More on this point in a minute.

Consistent with our efforts to further strengthen our balance sheet, we completed a securitization of residential loans, as Jason mentioned. With the completion of this securitization as of September 30, the company's recourse leverage ratio and portfolio recourse leverage ratio decreased to 0.5x and 0.4x, respectively, from 0.7x and 0.6x, respectively, as of June 30.

In addition, it is worth mentioning that only 23% of our total financing arrangements, including CDOs or securitization structures is subject to mark-to-market margin call risk, down from 33% at June 30.

We paid a $0.10 per common share dividend, which was unchanged from the prior quarter. While our financing costs were higher in the third quarter due to rising interest rates, the contribution of adjusted net interest income to EPS during the quarter was at the same level as a year ago at $0.08 per share as a result of our low utilization of leverage.

Moving on to Slide 10. I will focus my commentary on the main drivers of third quarter financial results. We had GAAP net interest income of $14.2 million or $0.04 per share for the quarter. Excluding the $16 million or $0.04 per share of interest expense on mortgages payable related to our consolidated real estate, our adjusted net interest income, as mentioned earlier, contributed $0.08 per share in earnings. During the quarter, we opportunistically disposed off investment securities in our portfolio, generating in total realized gains of $20.6 million or $0.05 per share.

Also, as Jason mentioned, during the quarter, we successfully disposed off a property in one of our consolidated joint venture structures at a 2.18x multiple, earning NYMT a net gain of $14 million, which is included in net -- which has included net of losses incurred from other investments and other income of $4 million.

Also, as previously discussed, the [star-grade] volatility witnessed in the third quarter caused prices in a majority of the assets in our investment portfolio to significantly decline. This resulted in $128.1 million or $0.34 per share of unrealized losses incurred in the third quarter. Of the $128.1 million of unrealized losses, $67 million or $0.18 per share are attributed to residential loans held in securitization vehicles. Unlike some of our peers, we do not mark our liabilities to fair value. Therefore, there is no corresponding unrealized gain recognized on our securitization liabilities to offset and realize losses on the assets held in the securitization.

In correlation to our decision to significantly curtail our investment activity in the quarter in light of extreme volatility, our G&A and portfolio operating expenses were down $4.1 million in the quarter as compared to the second quarter.

The final point to highlight is our adjustments to add back depreciation expense and operating real estate and amortization of lease intangibles to calculate undepreciated earnings. As previously announced, we are actively considering opportunities to monetize the appreciated value of our consolidated JV investments, therefore, meeting the held-for-sale criteria for GAAP purposes. On a go-forward basis, we would expect depreciation and amortization to reduce significantly as the majority of these assets are held for sale and capital gains to be the main driver of earnings related to this portfolio.

I will now turn it over to Jason to go over the market and strategy update. Jason?

Thank you, Kristine. Talking from Page 12. The U.S. housing market underpinned by a multi-decade low of U.S. units available for sale is now slowing. Units of new and existing homes trending below 2019 levels are now turning below 2019 levels due to an average monthly mortgage pay. That's 60% to 90% below previous year's payment, depending on the market. So the raising of interest rates have caused affordability levels today to actually experience the worst that the market has seen in over 2 decades with a 60% to 90% rise in multi payment.

Now what we highlighted here last quarter was a transmission mechanism for the market going from the first quarter of 2022 to 2023. So we've updated that. Everything pretty much is going as we outlayed last quarter, in that the first half of 2022, we saw a par plus efficient financing market. The securitization market was very robust and many deals could get done at really the tightest levels that we've seen in this market in quite some time.

In the third quarter 2022, after the second quarter fall off of securitization activity, discount and inefficient financing became the norm. In that time period throughout the entirety of the third quarter, we have paused our pipelines where we had about $1 billion of pipeline that we could have invested into in the third quarter. And with that, we were able to forgo some mark-to-market and also lower coupon assets on our balance sheet that would be better off if we would have waited to invest in those assets today.

So the plan has worked. However, in the fourth quarter, as we discussed in last quarter's conversation, we're seeing a dislocated market with wide bid-ask spreads. That feedback loop I mentioned earlier where the primary market levels are not adjusting fast enough higher is causing the secondary market to reference those points and cause a larger bid-ask spread, which is locking the markets.

So what we expect to happen is capitulation in early 2023. With deep discount assets being available, where financing is not required given the underlying returns, meaning go-forward yield expectations. And at that time, we expect to be aggressive and liquid to invest into these markets. Now we're able to do that through, first, with our operations, where we didn't engage in high fixed cost entanglements which would have allowed us to -- would have forced us to continue buying assets into the market to support the cost that we have on our balance sheet.

So with that and the flexibility and nimbleness that we've provided, our portfolio also was managed to preserve book value in higher rates or more volatility. In this case, we favored shorter term duration assets, which help minimize the mark-to-market loss and also reduce the requirement to use repo leverage, mark-to-market repo leverage, for our balance sheet.

Now the timing is going to be everything here on when to start redeployment efforts in a significant manner. We need to exhibit patients, the bid-ask spreads, the market capitulation could take longer than initially discussed at the beginning of 2023, and we will wait until that happens. We are already seeing evidence of this where there's trades that are in the market that are failing based on too big of a discount being required by the market, in particular, in the SFR space, single-family residential -- single-family rental opportunity. We're seeing a 15% to 30% discount to current values being priced in some market and a very little trading.

It looks like sellers want to sell at 15% discount and buyers want to buy at a 30% discount to current values in the single-family rental markets. So that's just an example of some of the lack of trading that's happening because of a large bid-ask spread.

Now the execution of this particular market environment is going to be key based on asset management and ability to roll up your sleeves and deal with the underlying discounts even purchasing and being able to unlock value through asset management plans. This is something we are very adept at doing and have various amounts of experience over 2 decades managing discounted assets to trust environments and look forward to optimizing our portfolio in that environment.

Now going over to Page 13. The investment strategy. As I mentioned, $119 million was invested in the third quarter. Much of that was actually draws from previous loans that we funded. So when I mentioned we curtailed investment activity, it was significant. We were able to basically hold up over about $1 billion investment activity. And that was decided due to a portfolio management decision of waiting for a better opportunity given what we saw earlier in the third quarter.

The paradigm shift significantly curtailed our investment pipelines and all core strategies, both in single-family DPL, rental and fix-and-flip as well as within the multifamily sector.

Now again, our focus is acquiring assets on a levered basis. We believe that the market will come around to be able to do that and generate double-digit returns without the use of leverage. However, we also recognize that the market definition of liquidity at some point in 2023 will change to be really unrestricted cash. And for our purposes and how we've dealt with our debt management, we believe that the -- our definition of unrestricted cash, which is going to be truly unrestricted cash, we'll be able to put into higher-yielding opportunities to grow our earnings per share.

To discuss that point, turning to Page 14. Our portfolio financing strategy to optimize cash was more or less a de-risking mechanism from mark-to-market financing. Portfolio financing exposure for mark-to-market repo exposure equals 23% as of the third quarter. Mark-to-market repo percent of asset portfolio is only 14%. We currently carry, as Kristie mentioned, 0.4x portfolio recourse leverage.

But the story goes beyond just the portfolio financing. It goes also within our corporate borrowing strategy. We have 3 bonds that are standing on our balance sheet today. A $100 million secured fixed, which is due in 2026, and Jr. Subordinated debt deals that are due in 2035. Company recourse leverage of 0.5x is the result. I mentioned this because there are no maturity walls that we have to contend with and reserve cash back in case of dislocated markets for corporate activity.

So when I -- when we mention that we have unrestricted cash, we truly believe that it is unrestricted and can be used in this market environment. Evidence of that, in the third quarter, we had margin calls about $50.2 million. Now this is very low relative to the $369 million cash we had on our balance sheet in the end of the second quarter, also low with respect to $4.3 billion of portfolio that we have in our balance sheet. So we're able to manage this margin call risk and we expect it to actually -- the exposure to repo leverage to decline in the fourth quarter with an additional securitization that is being priced.

Now going to Page 15, balance sheet summary. We left this page in there from last quarter. It puts it all together and it provides a nice summary of our portfolio assets and debt. On the left side, bridge loans was leading opportunity. Again, over 18 months ago, we decided to invest into this space as a trade, not a business in that we were focused on utilizing our cash for short-term opportunities that would have fast reinvestment criteria, enable us to invest into higher-yielding or more dislocated assets in the future.

And also on the multifamily side, we focused on both JV and Mezzanine lending, both are shorter dated opportunities, shorter duration opportunities for us to invest in. On the joint venture side, we saw an opportunity in 2001 to buy underlying properties. We thought that would be a shorter dated opportunity in that the environment wouldn't last forever to have double-digit rental rate increases per year. So we see an opportunity to monetize our portfolio today. On the Mezzanine lending, various debt that was issued below the senior debt, which we find incredibly accretive to our portfolio.

On the right side, our securitization debt, as Kristine mentioned earlier, we do not mark-to-market our underlying securitization notes that would offset unrealized losses on our portfolio that are underlying those loans. In that case, the majority of our financing is through the securitization debt structure. And as I mentioned earlier, we have very little corporate debt on our balance sheet and no maturity to speak of.

Now turning to Page 16. Single-family portfolio overview. Our single-family portfolio is stable. Our highest credit risk category in the sector that we have here is within our RPL. As you can see, the FICO scores are quite low and also the fact that these borrowers had been somewhat delinquent in previous time. But to date, our portfolio of 60-plus delinquency ratio has declined by 3.15% since the beginning of 2021. When you're aligned with the borrower with a 62% LTV, plenty of equity, and able to work with the borrower on sustainable payment plans, you should expect this result. We have securitized 99.5% of this portfolio to date.

In bridge lending and rental and performing loan opportunities, these were the areas that were pretty robust. Allocations over the last couple of quarters in areas that we saw an opportunity to pause and reset for a dislocated opportunity.

Turning to multifamily. On the multifamily business, rental unit demand continues to be elevated in the short term, particularly in the South and Southeast. The demand for rental units is outpacing the supply due to the high migration, particularly in Florida and Texas. Nationally, rents continue to increase at a slower rate with the Southeast outperforming.

This opportunity here on our senior lending relating to our mezzanine loan opportunity, we've seen senior lending advance rates decline. In other words, banks are not advancing the same proceeds they did on senior loans as they had in the past. The difference is roughly a 10-point decline in advance rate. So it's taking a 75% LTV to a 65 LTV. As an example, -- and in this case, it provides a nice opportunity to fit a second lien or mezzanine financing behind that first lien with larger equity position for us today.

We see this opportunity as a core strategy. However, we are also recognizing that the underlying rates, which you could lend at aren't moving as fast as we'd like. We'd like to see this lending rate around anywhere north of 13%, closer to 15%. And we think it's a process that is happening to achieve those types of lending rates, but they're not quite there yet in the market. We think we'll be able to see that in 2023 or perhaps even in the later part of this quarter. On the joint venture side, as we discussed, we're in a monetization effort on the portfolio.

On the multifamily and mezzanine lending, we have few loans that were prepaid and redeemed in the quarter. $19 million total, 17.66% lifetime IRR on these assets as well as a 1.42 multiple. Now this is exactly what we expected to see in our lending. Our coupons were around 11.9%, as you can see on average, but because of the minimum payoff multiples we do, we're able to achieve a higher return. This asset class and sector has been extremely stable. We have only one loan that is delinquent and we expect a full payoff at par. Again, we believe this sector has been highly accretive to our balance sheet, and we continue to add value over time.

Now on the multifamily joint venture side, we have listed out the 19 properties that remain in our portfolio. As we mentioned earlier, we had one sale of a Houston property last quarter, which achieved a 66.3% IRR or 2.8x multiple. Now these are assets that we underwrote to a 13% to 17% IRR. Obviously, the return here is well beyond our expectation. We had significant rental growth in our portfolio, as you can see, labeled on the top left corner here. In 2021, we had a 16% growth in our portfolio. In 2022, we had a 17% growth, and we are still seeing rental growth in our portfolio, again, looking at the cities, mostly in the South, Southeast part of the United States.

So we feel we're fairly confident that we'll be able to produce further gains in this portfolio, and hence, the reason why we're looking to monetize these 19 assets.

Now I would like to wrap up my comments here with the following. The company is focused on opportunities in a market undergoing a landscape change and offering deep discount pricing due to the inefficiencies that we're seeing in the securitization market. And we believe the success in the new environment will be achieved through organic creation of liquidity, tactical asset management and prudent liability management for book value protection.

I thank you for your time. At this time, I'll pass it over to the operator to open up the call for Q&A. Thank you.

(Operator Instructions) Our first question comes from Doug Harter with Credit Suisse.

This is John Kilichowski on for Doug. My first question, could you just give us an idea of the pacing of future JV equity transactions?

Yes. So we are currently engaged on a couple of properties. We are looking at individual sales, we're looking at portfolio sales and looking at strategic opportunities. So the pace is really undetermined. The market, as I mentioned earlier, is in flux, and that includes even property transactions. In flux, meaning that there is more of a wait-and-see approach to 2023 than willing to put more capital to work in 2022. And I think that's across a lot of sectors, credit sectors in this market. But we do have a pipeline of sales that we're working on at the moment. The pace is really mediated by the market, really hard to make a firm comment on that.

And I guess just the return opportunity on those, do you think they're similar to what you saw at the [Bridge Houston] property?

I think they are going to be some maybe more, some maybe less. It's hard to say. Again, this market is -- with the rate increases, one thing that is in our favor here, despite rate increases, the reason why cap rates is still quite low in this market is that the market is supported by agency financing on the senior debt side. So they have a budget to put to work for senior financing against properties just like this, which has allowed the cap rate to stay quite low relative to other markets. That has been a tailwind to this market for quite some time. And that stability and the financing is there, where you don't have that in residential credit.

Yes, so from that perspective, it's hard to comment on exactly what the returns look like. We know that from GAAP perspective, we have these assets marked as depreciated and amortized, lower depreciation amortized costs as well. On a depreciated basis, we hold it at cost basis. And we feel like we, given the rental rate increases that we've experienced in these portfolios that they're more valuable today, and we hope to demonstrate that over the course of the year.

And do you have a book value update quarter-to-date?

Yes, we're seeing basically less than 1% decline in our portfolio on a book value basis.

The next question comes from Christopher Nolan, Ladenburg Thalmann.

Quick question. For the JV exits, is the plan to remain exposed to multifamily through mezz lending?

Yes, that's right. We saw an opportunity in 2021 to add exposure in the equity space. We did so because of the migration that was experienced, that we were seeing. That was quite obvious. And the rental -- the lack of supply and demand that was there. Supply was obviously -- new construction was held off for quite a bit and is now catching up. So we saw an opportunity to put some money to work there. We felt like when we were underwriting the mezzanine loan opportunities, we saw better upside with same downside protection in the JV space, equity space. So hence, that's why we looked in that space.

Today, we see better opportunity in pref or in mezzanine lending. And because of that, with a larger equity cushion, given I just mentioned earlier that the senior lending has pulled back slightly, and therefore, we can fit in with higher equity exposure or equity cushion loss. So with a -- with our performance of -- in the history of underwriting this market for us, we've never experienced a loss in this asset class. It's been a fantastic strategy. We have great underwriting and sourcing capabilities. So we do expect to continue putting money work in the space.

The timing of it is a little more up in the air depending on capitulation for a higher rate kind of lump, but that's something we're looking to continue doing.

And given where we are in the cycle, is this mezz lending sort of a form of hard money lending?

I wouldn't call it hard money lending. I mean this is traditional second lien mezz lending that has been a part of the multifamily market for quite some time. I would say hard money lending comes into play where you shorten the duration or the maturity of the loan to a year, and it could look more like a loan-to-own opportunity where you're providing the sponsor some bridge capital, and you're waiting to see if they can formulate whatever plan they need to pay you off at a 1-year maturity.

The market is not there yet, and we don't pursue that in the near term. We do know that there is about $130 billion of bank loans, senior loans that will be coming due over the course of 2023. And that provides an opportunity given that bank loan senior funding was done at a higher LTV than it's available today. So there will be needs for a second component to finance these assets. And given the run-up in rental yields and some appraisal values, we see that the assets could support that additional debt, which is, quite frankly, equal to the same senior level debt they had from 2 years ago.

And final question. Is it fair to say, given your comments in terms of preparing the market for an investment opportunity in coming quarters that we should see the recourse leverage levels decrease further?

That's right. Yes. We're looking at moving a portfolio within our BPL rental strategy into securitization in the coming days. That will significantly reduce our mark-to-market exposure due to rebuild financing as well as focus on assets that do not require leverage. Now we do have a revolver -- 2 revolver securities within our short dated BPL loan strategy that we continue to utilize and we want to keep funded. So that we should expect to be active there. But for the most part, what we do see, some incremental leverage opportunities, our focus is going to be on the non-mark-to-market side of the equation for financing.

The next question is from Bose George with KBW.

This is actually [Mike Smith] on for Bose. So it sounds like you're pretty cautious in terms of capital deployment. Can you just kind of talk through how you're thinking about the balancing act between buying back more stock versus maintaining a strong liquidity position? And then as a follow-up, can you just remind us how much remaining authorization you have left on the buyback?

Yes. So I'll start with the liquidity situation. So the -- what we've done over 18 months is built over $1 billion of short duration BPL loans. The goal there was to be able to utilize that market, those assets into a higher-yielding market. So it was a great cash utilization strategy for us, given the high coupons, short duration aspect of those portfolios. And we see an opportunity to rotate that capital into -- we hope to see as a better buying opportunity in 2023.

So today, we see a better opportunity as it relates to our share price and buybacks versus the investable market today, simply because of the discount we currently trade at. And we do have to weigh that with liquidity and expected capitalization efforts in 2023.

But as I said earlier, we do expect to continue engaging and buying back shares in the market if levels stay around lows that we've been purchasing at. And that is something that we're going to continually monitor and look at. In previous calls, we weren't as forthcoming simply because we were still debating the value proposition there versus assets that we saw in the market. But once the third quarter securitization market sort of being very much less liquid and efficient, the meter turned towards our buyback literally as a primary strategy in the third quarter. We spent more money there than we did in new investment activity, given the majority of what we invested in in the third quarter was related to a drawdown from previous loans that we actually funded.

So we will continue looking at our shares and our share price and discount to book value as an opportunity. We think it's highly accretive. And that could change depending on share price as well as the market opportunity offering from a large bid-ask spread to shortening up and becoming more of a buyers' market. So it's something we're balancing and we'll continue to follow.

And to answer your question with how much is left over. So as of 9/30, that's about $178 million with the trades that we settle early in October, that will be taking you down to $176 million.

And maybe just one on the dividend. Can you just talk through how you're thinking about the dividend? It looks like, especially given the context of the comments you made on remaining defensive, it looks like the ROE on the existing book implies like a breakeven ROE of 10% to 11%? Is that something you think you can generate just given your defensive posture? Or any other color on the dividend would be helpful.

Yes. So as we said earlier in previous calls, our dividend policy is kind of an 18-month forecast on not only our interest income but also some realized activity we see on our balance sheet. Today, we believe we can support the $0.10 based on, as Kristine mentioned earlier, our interest. Net interest income generated about $0.08 of EPS on top of potential liquidations in the future for additional realized gains. A component to our dividend policy for quite some time now has been the principal component on sales or realized activity to meet our dividend obligation. And that still continues today.

We, over the past 5 years, really have not been a story of NIM. That is the full focus of what we are looking to -- and how to (inaudible) over a leverage play on assets with short-term liabilities to pay dividends. It's always been a component of looking at not only the interest income on assets we're generating, but also on principal activity through discounted purchases or realized activity.

So the fact that we're -- we've already announced the $0.10 dividend and looking at the 18-month forecast, we feel that we can support that dividend over time. Now the market, obviously, the key component here is whether or not we can reinvest our BPL, short-term duration loans into the market. It's a higher-yielding opportunity. That's something we expect to do. And the goal there, just in today's market where coupons in that space are generally 150, 200 basis points higher than it was 1.5 months ago, 2 months ago. So at a minimum, we could reinvest and continue into the BPL space to earn a higher return than we had earlier. But we think there may be better opportunities in 2023.

So for us, we wanted to stay liquid. We wanted to be able to be active in a dislocated market and be able to put money to work at compelling risk-adjusted returns. So with that, we think that the bridge from the BPL book to the opportunity or just even higher coupon BPLs, will continue to allow us to support our dividend.

The next question is from Jason Stewart at JonesTrading.

This is Matthew on for Jason. What is the quarterly operating expense run rate that you guys have for operating real estate going to look like after the next chunk of asset sales? And then how should we model that to get to 0 once the sales are complete?

Well, in terms of operating expenses, there will still be operating expenses left in the property. But if you take a look at what's really driving that operating expense on real estate, it's depreciation and amortization with GAAP accounting being held for sale. Depreciation and amortization on a majority of those properties will be essentially 0. What's going to be left over is multifamily property on a consolidated JV structure that we have where we own less than 20% of common equity. There will still be depreciation, but to a lesser extent as it compares to prior quarters.

And then with that cash, is the plan to pay off repo debt outstanding or continue to invest it?

Yes. So the cash is going to be invest. The repo debt payoff will occur through a securitization that we're looking to complete. So if we're successful in that deal, which is out at the moment, we will be able to pay down debt through transparence of terms securitization leverage. And the cash will be utilized for investment opportunities.

Got you. And then one quick follow-up. What is the cap rate that you guys are looking to get or have got on some of these sales for the assets?

Yes. I mean it cap rate, if you spend time in the multifamily space, there's probably 3 or 4 definitions of what cap rate means. Cap rate traditionally is obviously your rental income versus your cost basis and minus the expenses there. But because of rental rate increases that you're seeing across the market, there is catch-up that needs to be applied into some of the formula that you're looking to sell. So if you have leases that are rolling in the next 6 months that are up 10%, that's part of your cash flow. Therefore, the cap rate number really becomes very difficult to understand because it doesn't incorporate that, given current cash flow.

If I simply answer your question, caveating those points, you're around 5.2%-5.5%. But the loss to lease is a significant component of your cash flow on a pro forma basis, that has to be modeled in as well. So that is our opportunity.

The next question comes from Matthew Howlett with B. Riley.

My question is, you got the company as well positioned as really anyone out there with the leverage and the excess cash and potentially some more capital coming in the door. When you look at the pace of capital deployment in 2022, I know you don't have a crystal ball, but you could obviously deploy it overnight, given all the different asset classes you look at. I mean what are some of the things as asset prices decline? What we saw during the last recession was things went down, they went down further and further. What can you tell us in terms of when you feel like it's time to start really getting aggressive?

Right. So the first point that you mentioned, if you found value in today's markets, particularly in BPL rental or fix-and-flip or short dated loans, you can really own the market today. There are various originators that would love somebody to show up with $250 million of cash to invest in this market. And the problem is that the loans that they're producing just aren't attractive relative to the term rates that we see in the market today. But there is much difference than a year ago. Anybody with capital can step in and take a big market share that exists in this market.

We're also looking at the fact that we're quite possibly could call peak housing third quarter of 2022, and that's evident, obviously, in the affordability measures that are one of the worst levels in 20 years. So I think there's a lot -- there will be some significant buyer's remorse that it may experience from Q3 activity. And I think that is part of our opportunity for 2023 in that if you've not efficiently financed those assets in 2022, we believe that the 2023 financing environment could be even more difficult and even less efficient than it is today.

So your question on timing, it's really a function of when we can generate our double-digit kind of equity type of returns without the use of leverage. That's -- in a much broader and much deeper stress scenario, that's what basically helped the housing market cure, is when rental yields became 13%, 14%. And and you could earn that just by buying a home and not utilizing any leverage. While similar kind of outcomes that we would expect in some of these loan products where financing is not available or very inefficient, where the -- there were maybe shopping of portfolios, not getting done in 2022 and 2023 is a capitulation on the sale.

What causes some of those capitulation is financing. And warehouse lines, they are typically structured 364 days. And the roles on that financing facilities for loans, we expect obviously could be pressured in that you have less financing dollars that will be provided, advance rates will be lower, likely if it's an aged portfolio. And if you're over levered there and do not have enough liquidity to take those assets off your warehouse line, that becomes a distressed opportunity. And that is something that we expect to see in some parts of this market, particularly within the origination channels in the market today.

So for those reasons, we're kind of at hold until where we see that capitulation. We see loans and houses being shopped and trades failing or not being consummated because the discount required by the market is larger than the pain points of the seller. But over time, we believe that some of those sellers will run out of time and will provide an opportunity for us to invest in this market.

So I think I hear what you're saying. You're going to buy this stuff unlevered double digits. Potentially maybe over time, watch them go up, maybe put financing them over time. But in the meantime, NYMT is going to operate with effectively very limited recourse leverage until you get the securitization closed.

That's right. We purposely designed -- I mean there were various opportunities to issue corporate debt in 2021 at pretty attractive levels. We weighed that on a 5-year time line, which comes pretty quickly, especially when you're investing in 3- to 5-year assets. We didn't want to have a maturity wall structure. We'd rather have the financing on a secured basis with respect to our assets and matched to our assets, which is why we utilize mark-to-market repo leverage, 1-year facilities on our BPL fix-and-flip loans because of the short duration.

We do -- again, as I mentioned earlier, we have 2 securitizations are outstanding there. We can recycle some of those assets, but we also have those assets on repo currently. And we think that is a good use of leverage there and ties well with the asset. But the goal is to stay very liquid, stay nimble and look for these opportunities. Now that's what we currently see today. However, various things will come into this market landscape and some of the discounted opportunities may not be realized. What we can do and we'll do in that time frame, if, for example, the expectation of the Fed pushing interest rates higher to curb inflation, which really the only way you do that is through higher unemployment rates. If that doesn't come to fruition, and we have a paragon of inflation, well, then some of our expectations on these dislocated opportunities will not come into play.

But as I said earlier, the market, given the liquidity situation of various market players, the market is for anybody's taking. You can come in and you can be one of the largest buyers of these markets today with the capital and with the understanding of on how asset manage these assets. So we can step into the market with the same type of asset classes that we're in today at higher rates or wait for this dislocation to occur, and we believe that our capital is better spent waiting for dislocation at this moment.

I would agree, and you guys are in a really good position with all the expertise in the various business classes. Appreciate it.

The next question is from Eric Hagen of BTIG.

How are you guys thinking about the warehouse funding for whole loans, your ability to source additional warehousing going forward, just the fungibility of those assets in general? Do you also have a breakdown of the type of collateral, which is on warehouse right now? And if I can just tack on another question, just what's the unfunded commitment in the BPL portfolio right now?

Yes. So warehouse funding-wise, we have proposals in front of us to upsize our warehouse lines. I think it's not something that we're concerned with at all given the availability to take the upsized request for proposals. We have a significant amount of capacity in our current warehouse line today. So given the repo loans to securitizations and reducing our repo balances there, the commitments we have from our warehouse lenders were kept the same. We have not reduced those. So we can re-lever those warehouse lines up if we felt like that was an opportunity to do so.

Again, our plan is not to do that. We see opportunity to do otherwise. But there's really no -- we don't see any issues on buying large portfolios and utilizing warehouse leverage for that.

As it relates to our BPL activity, we are generally funding around, I think, about $73 million a quarter. We expect that to occur for the next few quarters. But obviously, we expect it to also taper off given the -- for purposes of BPL distress or BPL bridge loans, we have a seasoned portfolio in that a lot of our ramp, if you look at our investment activity, the ramping of our portfolio really occurred in the fourth quarter of 2021 into the first quarter of 2022. So these are 18-month loans on average.

We've already kind of moved forward in time about 6 months. And we also have focused on a strategy of buying loans that had low utilization or low construction requirements. And our goal was to buy loans that would have very easy concepts to move forward in the plan for the operator. We have a chart in our supplemental that shows that activity. We have many assets where there was no requirement for repairs. So we limited the kind of ground-up construction and high repair situations, which then correlates to low go-forward draws for our portfolio.

And to answer your question in terms of what's in the warehouse lines, it's predominantly our BPL bridge loans. There's some, obviously, rental loans that's in there. That's the DSCR. But we are looking to move them into a securitization that's being priced. There's also our performing loan book or scratch and dent that's there. Our RPL portfolio are predominantly all securitized. It's about 99.5% of that portfolio is in securitization structures.

At this time, I would like to turn it back to Mr. Serrano for closing remarks.

Well, thank you, everybody, for taking the time today to be on our earnings call -- 2023 for earnings call. Thank you very much, and have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.