New York Mortgage Trust Inc (NYMT) 2024 Q3 法說會逐字稿

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Good morning, ladies and gentleman and thank you for standing by Now at this time, I would like to introduce Jason Serrano, Chief Executive Officer Jason. Please go ahead.

Hi, good morning. Thank you for joining Morge to third quarter. Earnest call. Joining me today is Nick Ma President and Kristine AOS CFO. The company reported sharply higher levels of income in the third quarter with earnings per share at 36¢. The improved earnings were a result of a portfolio plan which began over a year ago. The internal view was to build a consistent foundation of recurring earnings through interest income versus the previous strategy of relying on the monetization of total returns to support a dividend.

Thus, we began decreasing exposure to assets that contained either no carry or very low level of current interest primarily found within our multifamily portfolio and rotate that capital into high coupon short duration credit loans and agency RBS widespread with this activity. We believe we could obtain the dual benefit of meeting equity return targets set for our capital while also maintaining the flexibility for future capital mobilization said simply we wanted to retain option value of raising our earnings power through the higher return opportunities in event of subsequent market dislocation.

As we stated previously, we are concerned about a slowing us economy and the consequences it may bring to certain sectors that we monitor. Last quarter. We shared a graph of record high us consumer debt against a depressed consumer savings rate. Today, on page 8 of our supplemental, we show a similar predicament but on a much larger scale, the federal government is running a large primary deficit despite very low unemployment, which is historically a rare bet.

Ultimately, we are concerned about persistently high us debt levels and its potential to crowd out private market trades. With that said the market is performing extremely well. Today, there's plenty of liquidity within the warehouse financing and markets. We will further discuss our activity here of meeting our leverage objectives to minimize recourse mark to market financing risk with credit investments. On page 9, we show some important developments related to our balance sheet growth. We increased our portfolio by $1 billion or 17% from last quarter. Stepping back, the company's portfolio grew over third of your date.

Admittedly, we were underinvested earlier in the year and consequently did not achieve our earnings potential with 20 years of buyside experience in these markets. Our management team was in touch with large opportunities throughout the year to accelerate growth. However, we felt it was extremely important to maintain the course of a deliberate approach to balance sheet growth by prioritizing investments containing fundamentally income. It did not veer from our objectives. Despite a measured pace of capital employment each quarter, we have finally seen the momentum of the cumulative impact to our growth. We had over $100 million of adjusted interest income in the third quarter. A 39% year-to-date increase and a 22% year-to-date increase to adjusted net interest income.

Notably, we accomplished substantial portfolio growth without depleting our excess liquidity. At the end of the third quarter, we had $408 million or $6 million more than that of the first quarter of this year with strong levels of liquidity. We see tremendous opportunity for the company to build on quarterly earnings particularly without having near term corporate debt maturity to contend with. We're excited about extracting full earnings potential of our capital by continuing to rotate assets particularly from future expected redemptions received on nearly $300 million in our multifamily mezzanine lending book.

Lastly, I wanted to wrap up my comments by discussing company book value. While Christine will comment on the details of the relatively fat quarterly move. I wanted to highlight the composition of the book particularly against a 930 trading market cap which is shown on page 10 of the supplemental to start. Our balance sheet is very different from recent past and contains a solid foundation to build off of at the end of the third quarter. $5.08 per share is attributed to cash and capital allocated to the agency RBS trades. We believe that a capital allocation of approximately 25% to 35% for the company in the agency sector in the near term will provide downside support to our market cap from potential broader market dislocation.

Additionally, $3.22 per share is attributed to BPL bridge loans that is now mostly term finance inefficient securitizations. As Nick will show performance has been excellent, providing a steady source of recurring income to the company. After that, we show a total of 21¢ per share attributed to the Multifamily JV Equity Book. This strategy has been the primary source of previous book value volatility. However, after recent dispositions, which Christine will discuss $19 million of remaining exposures in material to the company today. Finally, the remainder of our asset less corporate financing is a $1.64 per share. An additional dollar 55¢ per share above book value can be potentially gained after consideration of our asset holdings maturing apart by maintaining a medium to long term view to shareholder value. We believe we are well positioned for growth in 2025 supported by a strong balance sheet and a growing income base. At this time. I'll pass the call over to Kristine to discuss our financial highlights, Kristine.

Thank you, Jason. Good morning. I will focus on the commentary on the main drivers of our third quarter financial results and refer to the quarterly comparative financial information section of our supplemental as Jason highlighted our continued focus on investing in assets that provide recurring income resulted in undepreciated earnings per share of $0.39 in the third quarter. As compared to undepreciated loss per share of $0.25 in the second quarter.

Our earnings were positively impacted by valuation improvements on our residential loan and bond portfolios due to changes in interest rates contributing $1.07 per share of unrealized gains which were partially offset by 67¢ per share in losses. Recognizing in our derivative instruments primarily consisting of interest rate swaps with the intent of rotating our investment portfolio into interest income earning assets. Our investment portfolio increased on a net basis by approximately $1 billion and $1.8 billion during the third quarter and year-to-date respectively ending at $6.9 billion as of September. As a result, net interest income contribution increased to 22¢ in the current quarter from 21¢ in the second quarter and 18¢ a year ago. Our quarterly adjusted net interest income also increased by $1.4 million to two and $8.7 million in the third quarter from $27.3 million in the second quarter. And as detailed in slide, 27 our yield on average interest earning assets has steadily increased over the last few quarters growing by 23 basis points during the quarter and 48 basis points. Year-to-date net interest spread was slightly lower in the quarter but has increased by 30 basis points. Year-to-date our interest rate swaps also continue to benefit our portfolio reducing average dancing costs by 63 and 72 basis points. During the quarter and year-to-date respectively.

We continue to make progress in the disposition of our multifamily real estate assets held on balance sheet during the quarter, we disposed of six multifamily real estate assets received and received net proceeds of approximately $34.7 million and realized $13.6 million of net gains for the company. These dispositions had a secondary positive impact that we will benefit from in subsequent quarters.

With these dispositions, we reduced the negative drag from these properties consequently decreasing our net loss from real estate from $13.1 million to $7.5 million. During the quarter, we are actively working to dispose of additional multifamily properties and we expect earnings to improve without the negative drag from these assets in the range of $1 million to $1.5 million per quarter.

Although total G&A expenses were essentially flat as compared to the previous quarter. The growth in our residential loan book resulted in an expected increase in portfolio operating expenses of $1.1 million. We also incurred debt issuance expenses of $2.4 million related to the issuance of two securitization deals which were fully expensed in the current quarter. And not amortized over a longer time horizon. Due to our fair value election, GAAP book value increased by 1.4% during the quarter. And adjusted book value per share ended $10.87 down 1.4 from the second quarter adjusted book value was lower due to a reduction in the fair value of our amortized cost. Liabilities caused by decreases in interest rates and a reduction in cumulative depreciation and amortization add back related to our multifamily property.

As of quarter end, the company's recourse leverage ratio and portfolio recourse leverage ratio move higher to 2.6 times and 2.5 times respectively from 2.1 times and two times respectively as of June 30th, due to our continued financing of investment securities, primarily agency RMB.

Our portfolio recourse leverage and our credit and other investments stands at 0.8 times up from 0.5 times at June 30 due to acquisitions during the quarter, partially funded by recourse repurchase financing with our utilization of secure tax financing for our credit assets. We do not expect to see a linear increase in our credit portfolio recourse leverage with the growth in our credit book.

We paid a 20¢ per common share dividend and change from the prior quarter. We remain committed to maintaining an attractive current yield for our shareholders and as we continue to rotate excess liquidity into reinvestment in assets that generate recurring income while optimizing expenses and growing fee revenue through third party joint venture arrangements, we expect recurrent earnings to move closer to the current dividend. I will now turn it over to Nick to go over the market and strategy update. Nic.

Thanks for staying the long awaited set pivot materialized in September with a sizable 50 basis points cut closing out an overall positive quarter for fixed income markets recently. However, volatility has increased due to robust labor market data, we are well positioned with a diversified mix of agency RMBS and credit investments to navigate this evolving market.

As Jason mentioned earlier, we also have meaningful capability and capacity to take advantage of market opportunities ahead.

We made over a billion dollars of residential investments in the third quarter led by $372 million of agency R&B S3, $178 million of short duration BP L bridge loans and $232 million of 30 year BP L rental loans. We have achieved seven consecutive quarters of increasing whole loan purchases. This steady uptick in capital deployment has been directly correlated with the growth and durability of overall adjusted interest income alongside the growth of our home loan investments. We were also a more active issuer of securitizations. This year, we have now completed a total of six securitizations in 2024 across several sectors making this our most active year of issuance in the firm's history.

Not only have base rates been trending lower but a healthy economy has been germane to lower credit spreads. Overall execution of these deals has improved compared to conventional repo financing, turning out financing of our loans into nonmark to market securitizations will contribute to more stable liquidity management in the future.

In executing our BP L bridge securitizations, we currently have $706 million of revolving debt that we can recycle to fund future purchases. We also have access to additional financing from $2.2 billion of available home loan rebuild capacity.

With the combination of revolving securitizations and repo, we can more efficiently utilize leverage and fund future investments.

As we mentioned previously, our conservative loan selection criteria also fits well within the parameters of rated BP L bridge securitizations. We have now completed two rated BP L bridge deals executing on our second one in the third quarter with a $238 million size at a 5.65% effective cost of funds.

This represents 112 basis points lower effective cost compared to our inaugural rated BP L bridge deal issued in the second quarter and more than 140 basis points lower effective cost compared to repo these incremental cost savings will aid in bolstering future net interest income.

We have restarted our BPL rental program this year and recently issued our first securitization in this sector since 2022 we were dormant in the BPL rental asset class for several quarters during a period of tightening monetary policy where the market experience heightened pricing volatility.

However, at the end of the fed hiking cycle came into view, we pivoted to increasing our exposure to BP L rental loans. Generally BP L rental loans have prepayment protection through prepayment penalties which can be beneficial in the declining rate environment.

Like our philosophy in BPL Bridge, we target high quality loans with strong characteristics and shy away from the incremental yield at the periphery of credit eligibility.

We will continue to opportunistically participate in this strategy on a go forward basis. With the goal of continuing to finance these assets through securitization.

In agency RMBS, current coupon mortgage spreads declined from 148 basis points to 129 basis points in the quarter as interest rate volatility declined.

Given the decline in spreads, we have slowed the pace of acquisitions with a 20% drop in agency purchase volume quarter over quarter overall. However, the portfolio is still growing.

The Agency rmbs book is now almost $3 billion which constitutes 42% of our asset portfolio and 23% of our capital allocation.

We expect the portfolio to continue to grow as Agency RMBS remains a core strategy for us in the near term.

The strategy trades at historically widespread and provides diversification for the credit portfolio.

Furthermore, the liquidity in our agency rmbs strategy allows us to rotate from this asset class when other opportunities arise or to lean into the strategy. When spreads move wider, our target assets are still current coupon spec pools due to the favorable carry profile. But we have also started to diversify our purchases to include some belly coupons as well.

The weighted average coupon of spec pools purchased was 5.34 this quarter across a mix of 65 and 4.5 coupon specs in BPL Bridge, we have invested over $4.5 billion to date since the inception of our strategy in 2019, we are focused on traditional credit profiles within this sector because of this, we have been rewarded by improving credit fundamentals along with preferential execution and bond investor interest in our rated securitization program.

We experienced a steady increase in our portfolio size through our acquisition pipeline with delinquencies continuing to decline on both an absolute and percentage basis.

We continue to avoid niche strategies such as ground up construction and multifamily lending with these assets accounting for only 18% of our overall BP L bridge portfolio.

The percentage of these niche sectors in our portfolio continues to decline. Given the focus on more traditional bridge product for our ongoing acquisitions in multifamily, we expect continued redemptions in our mezzanine lending and cross collateralized mezzanine lending portfolios. The strength of the portfolio lies in our borrowers having a combination of fixed rate, senior debt or hedged floating rate, senior debt keeping financing costs lower and supporting overall noy at the property level.

In the third quarter, our combined mezzanine lending and cross collateralized mezzanine lending portfolio redeemed at an approximately 6% rate.

We will reallocate this and future redemption proceeds into our core strategies to further drive interest income growth.

As we noted last quarter, we look forward to deploying capital into multifamily strategies through third party capital partnerships. We are proactively building a pipeline of investments in parallel to onboarding a JV partner in this space.

We will now open up the call for Q&A operator.

Thank you. At this time, we will conduct the question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced to withdraw your question. Please press star 11 again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Bose George with KBW. Your line is now open.

Everyone. Good morning in terms of your book value. Now, you noted that the JV piece now is pretty small. So do you feel like your book value is largely bottomed or is there, you know stuff on the in the multifamily piece that we should keep an eye on as well?

Yeah, thank you. As you know, as we noted in prior quarters, the book value volatility stemmed from our JV Equity book, as we noted, we have $19 million remaining in that position.

And in that position, there's seven total assets, you know, on the 74 of them, we have near near term near site visibility into resolutions. Our current holding value represents the the price of receiving in those lois and then the remainder remaining three is roughly about $1.4 million of total value. So when you look through, you know where that volatility has come from, you know, it has been centered around the JBF book and the fact that we're very close to actually winding down nearly all the assets with remaining value of $1.4 million after these oo I are in place, we see that book value, you know, that volatility will have given you this portfolio has now moved on.

Okay, great. Thanks. And then actually can we just get an update on book value? Where is your date? Any changes?

Sure. As of this week, we see adjusted book value down somewhere between 1 to 2%.

Okay, great. Thanks.

Thank you one moment for our next question.

Our next question comes from the line of Jason Stewart with Janney Montgomery Scott. Your line is now open.

Hey, good morning. Thanks for taking the question. Jason maybe Nick, could you just give us a high level take on where you see Gross ROE by strategy and maybe specifically on the agency side and the BP L side.

Sure. So I'll start with the BPL bridge side since we've done a few securitizations recently this year and have a pretty decent color in terms of where things are pricing out. So execution there continues to be very robust, just given the advent of rated rated RPL securitizations this particular year. So for that particular strategy, we do see 20 plus percent type gross roes on that on a leverage basis. On the agency side, there's been a fair amount of volatility. So end of the quarter, relatively tight on a spread basis has widened out to today a little bit wider. So I would say that there are somewhere in the mid 10s in terms of some of the other strategies that we have, we mentioned BPL rental strategy, which we've also had recent securitization prints. We see that something in the mid to high 10s type roes.

Okay. Thanks. And then on the agency side, given that you mentioned the volatility, I mean spreads are wider. So are we probably at the higher end of that range? Have you shifted capital allocation at all into that leaning into the widening?

Yeah, so I mean, you're seeing it from our activity that we're pretty market driven on the agency strategy, the trend line will still be higher. We intend to grow this portfolio, but we don't have to do it all in one particular quarter. So last particular quarter as spreads are tightened in, we have the emphasized agencies now with wider spreads, we expect to be more active in the agency space.

Okay, thanks. Just one last question on the overall. Just macro just curious, your take, I know multifamily on the JV side is down to something pretty nominal. But how is this increase in volatility rate, volatility impacted CRE and maybe especially multifamily deal activity.

So on the deal activity side, it certainly has slowed overall, you know, activity in the market purchase activity of properties. You know, we have a putting together the final touches of a JV agreement where we're focused on adding mezzanine loans to a third party capital that we noted last quarter. That could be up to about $300 million. And what we're seeing, you know, overall relating to our pipelines in that asset class for that third party capital is that it's, it's definitely, you know, lower your rear quarter recorder. I think this latest rate move higher, you know, deal activity was starting to be positive quarter record.

And then all of a sudden, you know, those who did not lock in fixed rate coupons or didn't have the hedges in place. We saw properties come off market and purchases that ended up just moving away. So I think overall, you know, particularly with respect to the election, there's not a lot of folks in the space that want to put long term duration risk on their balance sheet and then looking forward towards, you know, looking at what are the economic plans of whoever is in office and you know what that would mean for rates and, you know, deficit growth, et cetera to then step into the market as a whole. So, you know, the market is, I think has been basically been curbed a little bit as it relates to the timing of activity. You know, we're not going to see a lot of activity in November in this space and then generally December, CYCL is a low month. So I think you're going to see robust activity back into January and February given the slowdown of the last two months of this year.

Great. Thanks guys.

Appreciate it.

Thank you.

As a reminder to ask a question, you will need to press star one on your telephone and wait for your name to be announced one moment, please.

This concludes the question and answer session. I would now like to turn it back to Jason Serrano for closing remarks.

Thank you for your time this morning. We look forward to sharing our fourth quarter financial results early next year. Have a great.

Day.

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