New York Mortgage Trust Inc (NYMT) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the New York Mortgage Trust First Quarter 2021 Results Conference Call.

(Operator Instructions) This conference is being recorded on Friday, May 7, 2021.

A press release and supplemental financial presentation with New York Mortgage Trust's first quarter 2021 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 & Presentations section of the company's website.

At this time, management would like for 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 Mortgage Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, they 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 Steve Mumma, Chairman and CEO.

Steve, please go ahead.

Thank you, operator.

Good morning, everyone, and thank you for being on the call.

Jason Serrano, our President, will be speaking to our investment portfolio strategy today; and Kristine Nario, our CFO, will be speaking in more detail about our first quarter results.

We all will be speaking to our supplemental financial presentation that was released yesterday after the market close and is available on our website.

We will allow questions following the conclusion of our presentation.

The company completed another successful quarter, delivering an economic return of 2.1%, with $0.11 GAAP earnings per share and $0.12 comprehensive earnings per share.

Our book value remained unchanged at $4.71.

Our portfolio net margin expanded by 12 basis points to 2.42%, but more importantly, our portfolio net interest income increased by $4.4 million from the previous quarter or 17%.

We expect to see continued improvement in both our net interest margin and net interest income in future periods as we transition out of our lower-yielding CUSIP securities and focus increasingly on loans in both our single-family and multifamily strategies.

On the balance sheet side, we have continued to focus on expanding our access to longer-term non-mark-to-market financing arrangements.

As a testament to the strengthening of our balance sheet in recent quarters, we were pleased to close on our first rated unsecured bond deal in April, a $100 million, 5.75% 5-year financing, that serves as an additional non-mark-to-market financing option for the company as we continue to build out our credit portfolio.

Now going to the presentation, I will start on Slide 6. Our investment portfolio totaled $3.2 billion unchanged from the previous quarter.

Our market capitalization was $2.2 million, an 18% increase from December 31.

Our capital is currently allocated 75% to single-family and 24% to multi-family strategies.

Our portfolio growth continues to be focused on loan investments as we believe it can generate better risk-adjusted returns for more stable funding.

Going over to Slide 7, we'll go through some key developments, some of which I spoke to in the opening comments.

We declared a $0.10 common stock dividend, representing an 8.9% yield on our stock price as of March 31, and we had a total rate of return on our common stock of almost 24% for the period.

We purchased $347 million in residential loans and closed on a $10 million multi-family joint venture investment, our first since 2015.

We continue to opportunistically sell our CUSIP portfolio, selling $112 million during the period.

On our financing efforts during the period, we funded $160 million of business purpose loans on our non-mark-to-market line and in April, as I said before, we closed on our first rated unsecured bond offering of $100 million, giving us yet another option to further our credit portfolios, specifically our multi-family investment opportunities.

Both financings continue to reduce mark-to-market pressure back to the company.

On Slide 9, we cover key portfolio metrics on a quarter-over-quarter comparison.

Our net interest margin for the quarter was 2.42%, an increase of 12 basis points from the previous quarter.

Our portfolio weighted average yield was largely unchanged at 6.03%, however, our funding costs improved by 14 basis points, mostly attributable to the payout for non-agency securitization that we completed back in June of 2020.

Going forward, we expect to continue to improve on our asset yields as we start to see the full impact of recent loan investments that closed late in this quarter.

We expect to close at least 1 financing securitization in the second quarter and plan several others by the end of the year.

Our recourse portfolio leverage remains low at 0.2x as of March 31 as we continue to focus on ways to decrease our exposure to mark-to-market call risk back to the company.

Now Kristine Nario, our CFO, will go through the financial results in more detail.

Kristine?

Thank you, Steve.

Good morning, everyone, and thank you again for being on the call.

In discussing the financial results for the quarter, I will be using some of the information from the quarterly comparative financial information section included in Slides 23 to 30 of the supplemental presentation.

Slide 10 summarizes our activity in the first quarter.

We acquired residential loans for $347 million, closed on a multi-family joint venture investment of $10 million and purchased $6 million of investment securities.

We sold non-Agency RMBS and CMBS for proceeds totaling $112 million.

We also had total repayments of approximately $184 million primarily from our residential loans.

Most of these residential loans were purchased at a discount and the early payoff of the loans resulted in additional income of approximately $3.3 million, which is included in realized gain.

We also have 3 multi-family loans that redeem which generated $0.6 million of redemption premium income.

We had net income of $42 million and comprehensive income of $45 million attributable to our common stockholders.

Our book value ended at $4.71, unchanged from the fourth quarter.

Slide 11 details our financial results.

We had net interest income of $30.3 million, an increase of $4.4 million from the previous quarter.

Our interest income increased by $4.1 million primarily due to increased investment in higher-yielding business purpose loans.

Also, interest expense decreased by $300,000, which can be attributed to the repayment of debt associated with our non-Agency RMBS re-securitization that had a higher funding cost in the first quarter.

We had non-interest income of $39.7 million mostly from net unrealized gains of $26.2 million due to improved pricing across the majority of our asset classes, particularly our residential loans and investment and consolidated SLST.

We also generated $7.1 million of net realized gains from sales of investment securities and residential loan prepayment activity.

In addition, our multifamily preferred equity investments accounted for as equity, and our equity investments and entities that invest in residential properties and loans contributed $3.4 million of income during the quarter.

We had total G&A expenses of $11.4 million, an increase of approximately $1.8 million from the previous quarter.

The increase can be attributed to stock-based compensation expense related to 2021 annual Equity Awards, an increase in incentive expense related to improvement -- improved performance in 2021.

We would expect our G&A expense ratio to be approximately 2% of the company's stockholders' equity going forward.

We had operating expenses of $7.8 million during the quarter, which included $4.8 million related to our portfolio investments, which increased primarily due to growth of the business purpose loan portfolio and $2.9 million of operating expenses related to 2 multi-family apartment properties that we consolidate in accordance with GAAP.

As I mentioned earlier, included in our results for the quarter is the net income activity related to 2 multi-family apartment properties that we consolidate in our financial statements in accordance with GAAP.

These properties generated operating income of $1.5 million and incurred interest expense and operating expenses of 0.3 and $2.9 million respectively.

After reflecting the share in the losses of the non-controlling interest of $1.4 million, in total, these multi-family apartment properties incurred a net loss of $0.3 million for the quarter.

It should be noted that the net loss in these properties includes depreciation, amortization related to the real estate.

The graph on Slide 11 illustrates the change in our book value from December 31, 2019.

Our book value remained flat at $4.71 during the quarter but increased 21% from the end of March 2020.

Our stock price has also recovered significantly, increasing our price-to-book ratio to 95% from 40% at the end of March 2020.

We continue to focus on growing and strengthening our balance sheet by investing in our core strategies of single-family and multi-family investments and prudent liability management by placing greater emphasis in procuring longer-term and/or more committed financing arrangements such as securitizations and non-mark-to-market financing.

Jason will now go over the market and strategy update.

Jason?

Thank you, Kristine.

Speaking from Page 13, we were able to continue the elevated pace of investments with $358 million of new assets added in Q1.

Despite the unusual -- the usual slowdowns due to year-end activities at the end of the year in 2020, we were able to keep an elevated investment pipeline.

As discussed on previous calls, we are excited to add these assets to our balance sheet because we can generate a double-digit return with that application of recourse mark-to-market leverage.

In the case of BPLs, we are aggregating loans on a non-mark-to-market warehouse line for a term securitization take-out.

In the case of our direct multi-family JVs, return on assets in the low teens, the leverage is unnecessary.

Now, we only focus our capital allocation when the following are true: first, supply investable opportunities need to be meaningful, this is very different than just saying market size; secondly, we need to see favorable market pricing and market dynamics, which provide attractive risk-adjusted returns; and lastly, the opportunity fits within our core competency and have -- and we have the competitive advantage.

Thus the 3 investments on the right-hand side of this slide here all fit within the Venn diagram, which is why they are considered our core strategies.

Turning to Page 14, now we added a slide this quarter to basically explain why we invest in new strategies and using the market commentary as a way to do that.

On top-left side, the supply of housing is depressed across many regions of the U.S. Less than 1 million housing units are available to be purchased.

The U.S. has seen a decline in supply for 18 straight months.

New single-family construction is struggling to compete with existing inventory price points.

For new construction, input costs such as lumber, not to mention labor costs, have skyrocketed.

On the demand side, houses are selling at the fastest pace on record.

43% of homes going to contract within 1 week at list price with a very to little or no discount.

Both are at record levels.

In the BPL strategy, providing loans to local contractors through model existing age inventory is one of the most compelling ways we [raise] to take advantage of the strong market trends.

Today, improved existing inventory sell extremely well across selective markets in U.S. We see a continued tailwind to funding these loans, where the transition plan for the house -- for the home purchase by the contractor is not complicated.

At 73% LTV, a purchase for 64% LTV after the improvement work is done on the home, the loans have significant downside protection embedded.

To date, we have experienced 0 credit losses with respect to this strategy.

The proprietary channels were bolstered in 2020, a time when market participants for shut in with liquidity issues.

These events provide an opportunity to lock in new channels to buy a consistent flow of loans, which meet our standards.

Now looking at the center column and row, switching over to the middle section, in 2020 home originators -- home originations rose 25% year-over-year and finished with approximately $2.5 million of new loans produced.

However, since the peak volumes in 2020 -- in late-2020, the primary, secondary market mortgage spread collapsed 23%.

Lower volume coupled with lower gain on sale potential means evaporating margins for agency originators.

This describes the perfect storm for new scratch-and-dent investable supply.

Many originators utilize over 20x leverage for agency loans funded before they're delivered to the GSEs.

In 2020, originators used their excess profits to manage scratch-and-dent loan warehouse buyouts.

Today, the story is much different.

Due to lower profits, many originators need to instead find third-party liquidity and sell loans, which is where we step in.

Over 7 years, the team has evaluated the scratch-and-dent issues from over 100-plus sellers and we can discern from technical versus credit issues.

We buy at discount and take advantage of refinanced campaigns to shorten the duration of our investment and increase the total return.

The bottom row now on the last part of the slide shows why we focus on the multi-family direct loan opportunity.

U.S. interstate migration trends continue at a torrid pace where many Northeast residents are relocating to the Southeast for obvious reasons: lower taxes, more jobs, better weather, and now a normalized economy removed from lockdowns.

With population swings of approximately 5% in a single-family market, that offers little purchase options, multi-family property values are on the rise in the South and Southeast where 83% of the underlying properties are located in our portfolio.

We have witnessed cap rate compression of about 100 basis points due the pandemic, which enhances our credit support.

Since our multifamily origination typically contains certain early payoff minimum payment multiples, we have an opportunity for additional upside return with early payoffs.

We have seen a recent spike of early payoffs in recent months, which should continue to drive high returns for the strategy in a market with very stable fundamental backdrop.

As discussed before, we have never taken a credit loss since funding these loans over 7 years ago with respect to strategy, due to our deep credit experience and default management capabilities.

Turning to Page 15, to obtain double-digit returns within our core strategies, we limit utilization of recourse mark-to-market leverage -- our definition of portfolio leverage on this page.

The company's portfolio leverage is 0.2x, which is likely to stay at these ultra-low levels in order to purposely cap the company's liquidity risk.

We expect our securitization funding to be a growing source of leverage for the company and in fact, we'll be rolling out a new securitization program series into the market shortly.

With $1.4 billion of unencumbered assets, meaningful EPS growth can be gained by leveraging a component of this book.

Turning to Page 16, diving deeper into our single-family strategy, this quarter we broke out BPLs from performing loans.

We thought this would be helpful to separately assess both strategies given the growth in the BPL investment strategy on our balance sheet.

Across the board, if we look for high coupons at reasonable prices with low LTVs for strong borrower alignment.

The current environment is very supportive for these strategies, however, in the case of RPLs, we do see meaningful market supply, but investable supply is low due to very strong market prices.

I guess the best way to explain this is how one of our traders explained it to me on a recent internal market call.

In the RPL market, par is the new 95 and 105 is the new par.

On the security side, we continue to monetize the remaining discount with respect to the non-Agency portfolio and continue to look for favorable market to divest.

With respect to agencies, price took a slight hit with rates -- with high rates in the first quarter, but now with conforming coupons back below the 3% threshold, agency prices have recovered.

We do not favor the dynamics in the agency sector with the fed as a dominant buyer alongside other technical factors such as heavy treasury issuance calendar that may lead to crowding out of the agency guaranteed markets, especially for overseas accounts.

Turning to Page 17, we grew our single-family loan book by $347 million and monetized $72 million of non-Agency RMBS at a gain in the quarter.

As it relates to performance, much to our expectation, higher seasonal delinquency trends reversed in the first quarter.

With spread compression in the RPL market, our assets were valued higher at $96 at par.

We can monetize 4 points in average with respect to par payoffs and with nearly a 5% coupon until we are positioned to achieve a teens return with portfolio leverage, which is transitioning into term securitizations.

We added a state-by-state breakdown for RPL strategy and investments on this call.

State exposure was a question raised in recent calls.

As stated in the past, the portfolio is diversified at low LTVs but is less concentrated in the Northeast.

We took a purposeful tact to limit exposure to these markets at purchase of these loans.

The last column in the lower right table, FICO score is depressed due to recent delinquency history by the borrower.

Therein lies the upside opportunity for us frankly, and frankly for the homeowner.

Through service partners, we work to enhance the borrowers' credit score, so the borrower can obtain lower rates through a refi, which allows us to recapture the discount faster.

Now turning to Page 18, for more in-depth information on our BPL strategy, overall market has a wide array of loan types with underwriting that typically exposes a lender to either higher borrower credit risk, typically called hard money loans or high property risk, typically structured as an unsecured loan.

In both cases, the borrowing cost could be as high as 20%.

We thought it would be helpful to further explain where we invest in that structure within the BPL markets.

We prefer to give up some coupons for a stronger borrower and collateral risk profile.

We look for borrowers with credit score -- high credit scores, 720 on average on our portfolio; low LTVs to assure alignment; 65% after repair value, 73% with respect to the borrower cost basis; experience, our borrowers have successfully completed at least 10 -- at least 7 projects in recent past; and rehab cost.

We look for projects that have simple business plans with quick turnaround times.

Thus the rehab projects are lower on the cost spectrum with 28% requiring no rehab budget at all.

Switching over to Page 19, now I'll discuss our multi-family strategies.

Our multi-family loan business or direct originations is where we continue to focus.

As stated before, our exposure is in the secondary and tertiary markets to low-mid-rise properties, multi-family properties.

As a mezzanine or pref lender, at an 81% LTV on average, properties continue to have strong cash flows and high occupancy.

Thus the DCR (sic) [DSCR] level has been very stable at 1.4x.

We price this debt or pref position, which is really interchangeable at around 11.5%.

With origination fees incurred in early prepayment benefits we can generate a teens return without utilization of leverage.

We have originated this debt for over 7-plus years without ever taking a credit loss on any position as said before.

Recently, we started underwriting and pricing joint venture investments.

We do come across opportunities with our loan program where we are -- where the borrower is also interested in taking equity position and helping us helping with that equity decision take out.

But really related to management-proven monetization plan, which is where the borrower comes to us, we funded our first $10 million investment in this space in the first quarter and are excited to continue reviewing more opportunities in this sector.

Additionally, we have experienced recently is equity capital offerings that we can offer generated -- simply more demand for our multi-family direct loan portfolio.

We are able to work with more sponsors that would not typically consider our debt or debt-like instruments but after discussing the program in more detail, the sponsor flips to our debt options.

Switching over to Page 20, in the quarter we had 3 loan payoffs generating a 15.3% IRR or 1.5x life to date on those loans.

Again, with higher values in the market, borrowers are looking to re-cap or sell properties after business plans have been fully executed.

We benefit from this minimum return multiples on top of our 11.5% coupon.

The asset management team is actively working on 2 properties that have entered special servicing.

As stated on earlier calls, we expect both loans to pay off at par after execution of a change of control and sale.

The origination team is extremely busy with numerous proposals under evaluation.

We expect robust origination volumes in the second quarter and through this third quarter.

Now flipping over to Page 21, thanks for taking the time to listen to and read through our portfolio strategy update.

We are a nimble group with -- equipped to find, look, and locate compelling risk-adjusted returns across various markets and capital structures.

We are looking forward to reporting results of all the hard work that our employees have put into generating robust pipeline of high asset returns and further savings to our funding costs.

At this time, I'll send it back to Steve.

Thanks, Jason.

Thanks, Kristine.

Operator, you can go ahead and open it up for questions now.

Thank you.

(Operator Instructions) Your first question is from Bose George of KBW.

This is actually Mike Smyth on for Bose.

Just on the BPLs, there seems to be a lot of interest just given the movement-in rates in some of the dynamics in the housing market.

So I was wondering if you could just talk a little bit more about how pricing looks and your broader sourcing strategy.

Yes, for -- pricing wise, I mean we are funding these loans in the flow -- on flow basis at par.

We do see some opportunity in both portfolio purchases which will be slightly above par.

These are shorter-term duration portfolio, so there's not really high premium pricing on these types of loans.

The market is very robust as we talked about in this call.

There is very little inventory for sale in many markets.

So contractors are finding an ability to squeeze out margins for profitability even on properties that have no work completed and just better marketing campaign with respect to selling a home.

So in those cases, we are finding elevated origination volumes.

We were able to work with our partners that we've established early in 2020 and 2019 and we're continuing to basically fund those pipelines that are being delivered to us.

And then a lot of peers are taking equity stakes or acquired originators.

Just wondering if this is something you're looking at or consider doing.

Yes.

We have fielded several calls with respect to originators who would like to partner with a long-term capital partner in that space.

We have -- at the end of the day, this is a market that we're watching very closely.

There is time where this market is attractive and there's times when it's not.

And the concern about going long term with an originator is that you're basically forced to continue funding the supply in a case where the market is changing on you and you see that with supply volumes are each day flattening out.

I mean at the end of the day, these are contractors who're taking advantage of basically, a technical squeeze on supply and we'll continue funding these loans as long as that continues to happen.

But that could change quickly and we want to be able to manage our costs as a company and our overhead with respect to not having the slips in overhang when the market -- if the market does change.

So at the end of the day, we see this as a trade versus a business in many cases -- in many degrees.

This is -- again, the supply side less than around 2 months of more -- of housing supply in the market available for sale.

It shouldn't be -- we don't expect this to continue for multiple years.

I think when you buy into in a fix and flip originator, in particular, that's something that you really need to see for the course of next 5 years based on pricing of these originators.

And at this point, we don't want to expose ourselves with that overhead cost.

We like where we are right now with respect to flow purchases, we have good relationship with originators, and we're great liquidity provider for them; we have been in 2020 during that market downturn and we will continue to do so going forward.

And then in the press release you mentioned a transition away from the securities and more towards loans.

I was just wondering if you could elaborate a little bit on the timeline of the transition and the optimal balance between resi and multi-family and just what the transition could mean for run rate earnings.

Right.

So the transition in the security spaces.

We -- currently, we have as of the end of first quarter $491 million of market value.

We're seeing opportunities to monetize these assets.

The securitization market is a market where -- particularly for re-buyers is a market where you're buying mezzanine or junior parts of security structure.

The spreads on these assets don't provide for double-digits to teens returns.

So the way you get there is through repo leverage, and repo leverage is the primary method to achieve those types of returns.

We transitioned away from using -- given the liquidity squeeze in last March -- away from using quarterly rolling mark-to-market leverage, which means that the securitization strategies are very difficult to fund to achieve that double-digit return.

So at this point, what we're doing is we're taking our portfolio.

The assets where we can achieve a double-digit return without leverage, we will hold as long as we feel comfortable at the fundamentals there.

In the case of the other assets, we still have assets that are discounts, at slight discounts we're monetizing.

You should expect us to see further monetization of that book every quarter.

There is not a number as it relates to what the right level of hold, it's really just a function what the market will give us on the timing of these sales and with respect to the -- kind of the compression we've seen in spreads in this market.

So we feel very comfortable where we stand with these securities.

We sold down -- every quarter, we've sold down a number of positions and we'll continue to do so with respect to the tighter spreads.

The transition is a function of fact that we see better opportunity in the loan side.

It's a less liquid market on the loan side, we believe the securitization side is kind of overly liquid at this point where you have prices that continue to ratchet in, you have oversubscription levels on just about every securitization that's offered out there.

It's very competitive environment, so we see better risk-adjusted returns in the loan markets.

And it's Steve, whoever I'm speaking to, I don't think we have a set percentage of what we want to be in terms of residential or single-family versus multi-family.

It's just a matter of the single-family side requires some kind of securitization to generate a double-digit return, the multi-family doesn't.

So in general, the asset size is going to be larger in the single-family in terms of just raw dollars; but we continue to build out both pipelines with opportunities and not really focus on which one is going to generate what percentage.

It's the total return of the portfolio and where the best opportunities lie, it's how it will go over time.

And just one more.

Can you just give some thoughts on how book value has trended during the month of April and into May?

Yes.

I mean the market continues to be very strong and we don't see -- as it relates to the credit assets, we're seeing an improving economy, certainly, as people get vaccinated and more things open up, so we would anticipate either better performance across credit assets in the short term for sure, especially with the amount of liquidity that's coming from the government into the system.

And so we will continue to see credit assets perform very well.

The interest rate market is something that we have to get a sense for, given the size of government requirements in the second quarter, it remains to be seen where that takes us in rates over the next 3 to 6 months.

So we would say it's up.

Your next question is from Doug Harter of Credit Suisse.

Looking at Slide 15, can you just help us understand what kind of -- what level of unencumbered assets you need to hold and whether the unsecured debt deal that you did recently, I guess how that plays into kind of your need for unsecured -- sorry, unencumbered assets?

Yes, I mean there is no level of unsecured assets we need to hold on our portfolio.

This is a purposeful tack in limiting our portfolio leverage as well as assets that we have teed up for securitizations.

So there is no other requirement to hold any other assets in the unencumbered book.

And your question was on our debt financing we just did, is that right?

Correct, yes.

So the debt financing is a 5-year paper.

It actually has the right tenor for our multi-family strategy and many aspects.

Our multi-family strategy is an unlevered strategy we have.

The average duration on that -- expected duration is around 3.5 to 5 years, so it pairs well with that.

It was also a cheaper way of funding without recourse leverage or mark-to-market and at the term financing.

So there was an opening in the market for us to issue debt given some other market prints and we saw an opportunity to take advantage of that.

We also thought it'd be helpful and important for us to have a security on market that's rated, it gives us another source of financing over time, which we could tap in later years or months.

We have our convertible debt coming due in January of 2022.

So this just gives us another option that we can consider as we go forward on what we want to do in terms of how we look to replace that, if we want to replace that in overall liquidity.

But certainly, it takes a little more pressure off the company's capital stack when you can issue unsecured debt at attractive levels relative [to] where we can issue convertible debt today.

And then I guess just sticking kind of here, obviously this will be dependent upon kind of the ultimate mix of the portfolio, but I guess if you were to hold mix constant today, I mean what level of leverage could this current mix of assets that you have today kind of support and I guess how should we think about where that 0.2x leverage could kind of go over time?

Yes, I think the 0.2 -- I think there was 2 questions, one, leverage, so we will be adding securitized leverage, which obviously doesn't move that 0.2 number.

So this 0.2 will probably gravitate between 0.2 and 0.4 because we'll be rotating those loans that are being financed on those lines into securitizations.

And so we really see the portfolio growing from $3.2 billion to $4 billion to $4.5 billion largely from securitizations.

And so we don't really see that portfolio of 0.2 changing significantly unless the market changes dramatically and where you have to -- where the CUSIP strategy does look like it comes back into play where that offers interesting opportunity for us on a risk-adjusted basis, but we don't see that in the near future for us or certainly now for the next 12 to 18 months.

That would be the only place where I would say you could see it grow substantially, but right now I think it's going to be fairly stable between 0.2 and max, a 0.5.

Your next question is from Eric Hagen of BTIG.

I've got 2 questions.

The first is, can you say how much taxable income you estimate that you had in the first quarter and how you see that trending, and in the case that you do have taxable income, are there any carryforwards to offset it?

The second question is the securitization you expect to do this quarter, I assumed you're referring to seasoned re-performing loans but I think I heard you say you might be introducing some new collateral into the market.

So I just wanted to hear more about what you expect to finance and some of the deal economics you expect there.

Sure.

Yes, from a tax standpoint, we don't really talk to the tax.

But as you look at the components of our income, certainly as the net margin increases, our taxable income goes up.

To the extent that we're generating realized capital gains, which we did, we certainly have realized capital losses from 2020 that can offset and shelter those gains of significant amounts.

So there certainly won't be any taxable distribution as it relates to realized activity going forward for a decent amount of time.

From the net margin standpoint, which does not get shielded from the realized capital losses, that is something that we look to, but we don't -- we have that and currently are not disclosing what that number is.

I'll let Jason speak to the securitization.

Yes.

On the securitization side, the -- we're looking at rolling out a new program with respect to a BPL securitization and that will be more of a program series where we would expect to issue multiple deals in the future.

Our first deal we're outlining up for this quarter and expect to issue that.

As it relates to RPLs, we are also working and have been looking at the RPL market as a way of accessing term securitization leverage and are continuing working on that space and looking to see what is the most optimal portfolio for the securitization strategy, and then looking to continue rolling out RPL loans into that framework in the future as well.

So those will be the primary sources of our funding strategies.

As we talked about earlier, we did establish a non-mark-to-market warehouse line for our BPL loans and we'll continue utilizing that as an aggregation strategy -- an aggregation facility to the securitization market.

Can you say what the advance rate and cost of funds that you expect on the securitization and the zip code that it might end up in?

We know -- we have a pretty strong feeling that it will be lower than our current funding, but we're going to let the market speak to that and we're imminently going to be issuing that.

So I don't want to get in front of anybody who's looking at the senior part of the capital structure just yet, so we'll wait to see where that comes out.

(Operator Instructions) Your next question is from Christopher Nolan of Ladenburg Thalmann.

Where do you see the capital allocation for single-family increasing to?

Yes.

I mean, it is 75% right now.

We have a very -- we've put a lot of the assets that we put on the books this quarter, the first quarter, were primarily focused on residential.

We have a very active pipeline in multi-family and I would expect that the multi-family percentage will probably start to grow relative to the residential as we go to the rest of the year just because of where the multi-family pipeline is building up to.

I'll also add in.

More of a technical differential is that our securitizations that we're looking at has a higher advance rate than our current funding.

So that would technically lower our assets on our balance sheet with respect to the securitizations, at least the equity position versus our current portfolio.

But that, with an unlevered strategy on multi-family and in more of a higher securitization advance rate, we should see multi-family increasing as a percentage basis.

Of equity.

On equity.

And then I guess within the single-family segment, should we see BPLs taking more of a portion or percentage of the portfolio there?

Yes.

I mean again, BPLs, we're looking at securitization and from a technical standpoint, it may lower -- initially lower our equity interest in the strategy simply because we're availing yourself to that term securitization financing.

We are continuing to see strong pipelines there, as well as scratch-and-dent, which is really had a kind of an inflection point this year as I described earlier for various reasons related to the originators' profitability.

So that strategy was a slower growth strategy in the third and fourth quarter that is scratch-and-dent, which we're now seeing picking up quite a bit.

But we -- our flows in business purpose loans are still elevated and we're going to continue funding into the strategy with these short duration type of loans until we see -- until the fundamentals and technicals of the markets continue to play out, which they are in the South and Southeast with the migration trend.

So you should expect us to continue seeing decent allocations to BPL strategy as we have in recent quarters.

On multi-family, I know you guys are focused on the Southeast.

At what point do you start looking at the Northeast in terms of when valuations get cheaper, or is there no scenario where you look at the Northeast?

Yes.

I mean, right now, we're just not seeing the opportunity.

The properties are in the sponsorship that we are seeing it from the supply standpoint just aren't as attractive as what we're seeing in the South.

There is cap rate compression I just mentioned of about 100 basis points.

But with the demand, there is a dynamic transitional effect that's happening with the migration that's happening in these markets.

And single-family has a play in the multi-family side, as discussed.

When you relocate to a market you can't find available single-family in a timely manner, which is happening in many markets with bidding wars on houses, et cetera.

The multi-family especially low-rise and mid-rise concept is a very valuable alternative.

So we're seeing that play into these markets with the technical squeeze in housing and being able to continue flat to slightly higher rental rate increases, as well as very, very high occupancy trends.

So we're going to continue focusing on that market foreseeable future.

And obviously, you need a capitulation from the Northeast or North type of properties that are there; we haven't seen that yet either, capitulation on the lower prices.

So the sellers are obviously well funded on the multi-family side with 10-year kind of term leverage.

So we're not seeing value drop in those markets for an opportunity for our sponsors or for ourselves in the JV side.

There are no other questions in queue.

I'd like to turn the call back to Steve for any closing remarks.

Thank you, operator.

Thank you, everyone, for being on the call.

Please remain safe, and we look forward to talking about our second quarter results in early August.

Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation.

You may now disconnect.