Q1 2020 Earnings Call
Star followed by the one Oh, you're Touchtone phone if he would like to withdraw your question. Please press the pound <unk>. If you are using speaker equipment, we do I see you. Please with the handset before making your selection. This conference is being recorded on Friday may 22nd 2000, wanting a press release, a supplemental financial presentation, but.
York Mortgage Trust first quarter 2020 result was released yesterday.
The press release and supplemental financial presentation are available on the company's website at Www Dot and why and trust dotcom. Additionally, we're hosting a live webcast of today's call. Once you can access and 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 maybe deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, Although New York Mortgage Trust believes the expectations were selected and any forward looking statements are based on reasonable assumption it can get.
No assurance that its expectations will be attained factors and risks that could cause actual results to differ materially. Some expectations are detailed in yesterday's press release that from time to time and the company's filings with 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's want or President will also be speaking this morning, as we talk through the first quarter presentation.
I will be speaking to the Companys financial summary sections, well, Jason will be speaking to our investment strategy its business outlook section.
First quarter was defined by two periods January 1st to March nine where the company continues to execute their plan raising $500 million, an accretive capital and deploying it into residential and multifamily credit investments and post March nights, where we saw unprecedented market disruptions from the cobot 19 global Pam.
Jeremy.
As a response to these disruptions we took decisive action to restructure our portfolio and focus on our core strengths residential multifamily credit opportunities and at the same time, we focus on reducing our exposure to what we can't control short term mark to market borrowings on or no repos.
Beginning on March 20, Threerd and continue through the quarter end, we sold over $2 billion in assets, reducing our outstanding repurchase agreements by $1.7 billion.
Finishing the quarter with $173 million in cash liquidity $1.4 billion, an unencumbered assets in a portfolio leverage of 0.7 times.
In early April we completed a 250 million dollar borrowing against our unencumbered residential loan portfolio combined with the proceeds we received from the settlement of security sold in March we really we were able to repay an additional $560 million its securities repo.
After giving effect to these transactions the companys liquidity improved over $200 million.
While reducing our portfolio leverage further to 0.6 times.
These actions did come at a significant cost as a company had its worst quarter in its history seen its book value declined by 33%.
And temporarily suspending its quarterly dividends.
However, we believe our efforts have better positioned the company to weather the oncoming economic storm caused by the pandemic. It to be covers some of the $300 billion of unrealized losses carried on our balance sheet.
Allowing us to return to delivering the results delivering the results to our stockholders that they have come to expect.
I will now move over to slide six overview section.
As of March 31st 2020, our investment portfolio totaled $3 billion and our total market capitalization was $800 million.
As of last Friday's close our total market capitalization had moved up to $1.1 billion.
Today or investment portfolios, 100% focused on credit strategies, choosing the managers choosing to manage to our strengths of asset management in both residential multifamily, while reducing our dependency on mark to market leverage.
We have 57th professionals employed across three offices, all working home since March 13th.
Moving over to slide eight well discuss market conditions in housing fundamentals.
On the economic front Cobot 19 has impacted the global as well as our countries' economies significantly.
Our first quarter GDP contract at 4.8% and is expected to decline further in the second quarter.
Unemployment rate was close to 15% last month, and we saw a lifetime lows and the 10 year Treasury.
Housing sales declined 17.8% last month and home price appreciation as expected decline, one or 2% into the next year.
In response to these factors the U.S. government initiated several programs to help both businesses and consumers committing upwards of three trillion dollars to deal with this crisis.
One of these initiatives the carriers act, which gives borrowers opportunity the for mortgage payments directly impacts our business.
We have a history of dealing with payment interruptions from our borrowers and we go we feel confident that as we emerge from this crisis, we will be able to assistant manager bar was back to their pre crisis performance.
In addition, given the dislocation in the mortgage credit markets. We believe this will present opportunities not seen over <unk>, but we've not seen over the last several years.
It flies 910, 11, I will address the cobot impact as it has had on our markets our company and our response.
The U.S. some more specifically the mortgage market started feeling the effects of cobot 19 in early March March 16th we started experienced increased margin calls and by March 20. That's it was clear we ran a full blown liquidity crunch.
He was a combination of factors that impacted our company and our industry.
Reduce liquidity access from the dealers for all types of collateral decreased availability for credit sensitive securities and accelerating price declines due in part to increase margin calls and a lack of buyer participants which were quickly transitioning from return on equity investors to return on asset investors.
On March 23rd we stop meeting margin calls and began to sketches on some form of for bears relief from our securities lenders.
Over the course of the next two weeks, we sold over $2 billion assets, including 100% or agency portfolio and 100% of our Freddie K PEO portfolio.
Reducing our securities repurchase borrowings by over $1.6 billion.
By April 7th we were able to pay an additional $560 million and repurchase agreements.
By utilizing a $213 million in proceeds from sales initiated in March and $250 million, an increased borrowings from our residential loan portfolio.
As of today. The company is three lenders with a total outstanding of $1.1 billion in borrowings we are in good standing with all and ultimately we never entered into any formal forbearance agreement.
In addition, we have over $200 million in cash and $1.5 billion, an unencumbered investments today.
On slide 12.
You can see the you can see the changes in the portfolio leverage of the company from December 31st 2019 to March 31st 2020.
Our company has a history of managing through volatile markets, but never have we experienced such rapid price declines without the corresponding underlying acid deterioration.
Our decision to liquidate the agency and Freddie K portfolios was a difficult.
But necessary as we needed to reduce low margin high leverage strategies, and unlevered noncash illiquid assets from or portfolio.
We believe our remaining portfolio credit investments gives us the best path to recover the book were booked value declines that we've incurred.
We will maintain a disciplined and measured approach as we continue to monitor effects of Coburn 19 on our markets and focus on credit assets that rely less on leverage from short term mark to market financing.
In addition, we continue to focus on financing transactions that have longer committed terms and minimal or no exposure to mark to market.
As we move which is a financial results. We've included included on Slide 26 to 34 is our quarterly comparative financial information section.
That will help and eating discussions of our performance our financial performance.
On slide 14 will go through the first quarter financial snapshot, which you can see our basic and diluted GAAP loss per share of $1.71.
Comprehensive loss per share of $2, an 11 cents.
Our economic return for the quarter was a negative 32.6%.
We temporally, we temporarily suspended both our common and preferred dividends on March 20 Threerd.
We continue to evaluate market conditions, and hope to reinstate or dividends in the near future.
Our investment portfolio totaled $3 billion, with 70% and credit asset in residential credit assets and 20% focus on multifamily credit as well.
Our average net net margin net interest margin for the first quarter was 2.92%.
Up two basis points from the previous quarter.
Our average asset yields decreased by 16 basis points, but that was more than offset by the 18 polices point decline in our cost of financing primarily due the fed actions, which began late last year.
With two being though as an asset sales and related reduction of $1.7 billion and borrowings our quarter end portfolio leverage was 0.7 times center overall leverage ratio was pointed times.
As I previously stated our current portfolio leverage is 0.6 times today.
On slide 15.
Our first quarter summary.
You can see that we had 512 million dollar loss in the first quarter I'm, sorry, we had $512 million in equity raised in the first quarter with two successful raises.
One in January and one in February generating 20 mean dollars ever created capital.
In addition, we had $633 million in purchases through the first week of March.
The last two weeks of March we sold $2 billion and securities and loans and we had a GAAP net loss of $599 million and a comprehensive loss of $241 million.
Going in the slide 16, where there's further details of our financial results. You can see that we had net interest income of $47.1 million, an increase of $3.1 million from the previous quarter.
We would expect second quarter net interest income to decrease due to the sale the portfolio sales that took place at the end of March.
However, we don't expect a significant decrease in our net interest margin in terms of basis point spread.
We had noninterest losses totaling $622 million, including $153 million unrealized losses, and $397 million an unrealized losses.
These losses were primarily related to the $2 billion, an asset sales and the markdown of our quarter end portfolio valuation.
Sales included $1.4 billion of agency and non agency securities $550 million and Freddie K first laws, peos and $50 million in loan sales.
Also included in the realized and unrealized losses was the impact of unwinding, our entire swap portfolio.
Company as there were $300 million of unrealized losses still on its balances balance sheet, which we believe we can substantially recover in the future as a world Reopens post Covance 19.
We had total DNA expenses of $10.8 million for the quarter, an increase of $1.5 million from the previous quarter.
This increase was largely through the $1 million related to long term incentive costs amateurs amortization costs and a 500000 dollar increase the professional fees primarily related to the expenses incurred over the last two weeks of the quarter.
For presentation purposes, the calculation that loss attributable to common stockholders includes our preferred dividends.
Even though they were not declared preferred dividends must be paid in full prior to any con common stock dividends and therefore included when determining net income for common stockholders.
The graph on the page shows that shows the five quarters the book value.
The first quarter 2000, and for the first quarter of 2020, we broke out the realized and unrealized losses for the purpose of illustrating that almost two thirds of the book value decline is related to unrealized losses, which we believe we can substantially recover in the in the future.
I'll now turn the presentation over to Jason Who'll go through our investment strategy Jason.
Thank you Steve good morning.
Starting on page on slide 18.
As Steve mentioned, our book is now weighted towards single family at 78% versus 20% of multifamily on 12, 31, we had $1.5 billion of a repo.
Against $2.4 billion of assets.
Looking at the end of the for the quarter. We ended with about a billion dollars of assets with about $118 million, a total securitization repo, which only get into the second where a lot of the liquidity issues arose dot 180 million is net of restricted cash.
On page 19.
We're looking at here in the single family credit strategy.
It starts with the residential loans, which is our distressed loan portfolio, where we purchasing sub performing loans that had a.
A checker delinquency history in the past, but showed elements of being able to continue paying in the mortgage loan with servicing oversight help.
That case we.
I spent time with our service are working on the borrowers in determining their servicing strategies and looking at different ways. We can maintain a borrowers current payment from being let's say 30, 60 days delinquent to being coming a current loan or 12 on current loan which is the goal.
Obviously with respect to the Koby 19 outcome and economic distress, we're spending obviously more time with our servicers, ensuring that bars are getting that the released that they need and or just understanding the terms of their loans.
So this is not in energy unusual strategy for us in working with bars that Weve managed nonperforming and sub performing portfolios collectively for over 10 years on average on our team.
So we have with our calls with our services, we have design strategy to meet the <unk>. The the issues that have arose out of koby 19.
On the performing loan strategy.
Sure.
Most of those assets other than outside of 94 million as relates to shred scratch and Dent loans. These are assets. We then purchasing at discounts to par.
With respect to some kind of technical issue at origination of that loan that was supposed to be sold to a two either the agency or a non agency conduit.
In that case with lower rates, we're seeing a pickup of a prepayment rates on our portfolio, which is in shortening the duration of our discount which is actually increasing return of that asset class performance has been.
Has been has done well through this period as well on the performing side.
On the security cyber in less than most of my time is where the where we saw liquidity trap at the end of March lower prices.
Led to higher margin calls led to more sales led to lower prices and honored.
In that case, we saw and an opportunity to sell 405 million, mostly in securities to reduce our exposure to mark Mark liquidity increase our liquidity against the margin calls.
Today with on the security side as I said early with $118 million total repo balance outstanding after effective restricted cash our focus is going to be on looking at.
The cost a billion dollars unencumbered assets and looking to obtain term financing structures, Steve mentioned earlier that there was.
The $900 million a potential term structures that were looking out for our portfolio.
We have a number of proposals out there and we will be executing a few in a few weeks next few weeks looking to reinvest those caught that cash into.
Assets that will have shorter duration low LTV in high coupon carry which I'll talk about imminent.
Now going over to page 20, we're looking at this the distressed loan strategies and and servicing strategy update.
Again, our SPL characteristics, we have been focusing on buying loans in this space at low LTV, 73%.
With a high cash carry on coupon relative to the conforming markets.
In March we actually saw the highest collections in our history of managing these types of loans, which we started the year.
Again in 2019, with an 18% increase and total borrowers that are paying.
Two in one quarter, we had a 6% increase as of March 30 Onest.
After March.
It's in Middle of March we saw the largest per endeavor and job losses of 23.15 million, which is about 8.7 times. We saw in any four week time period during the great financial recession.
We quickly went from looking at some opportunities and refinancings and other strategies to shorten duration to more of a defensive posture and managing our loans for for the delinquencies that we would see given job losses and income losses altogether.
Today, we have a well as of March 30, Onest, our portfolio had 7% cobot forbearance, which is actually at that time was in line with.
The Fannie and Freddie NGC underlying forbearance rates around 6% to 7%.
Again this is a sub performing loan book to the equal to performing loan book and forbearance rates is quite or.
Quite an achievement.
Fast forwarding to it to Fourthirty, we had 21% of loans that entered into forbearance relief plans.
Those loans of those loans.
55% or about 95% of the total loans were current.
In the month in 2020, so while its 21% looking further into the data.
It shows that owning 9.5 personal loans were current prior to code.
So increasing our Ur cobot forbearance rate from seven to about 9.5%.
Again, we spend weekly calls with our Servicers, we have designed strategies for these types of outcomes.
It's going to the servicing industry is going to be owners.
Lot of pressure over the course of the next few months as those were Barents plans in place with respect to the cares act or where borrowers are calling and getting updates and finding plenty out they're going to get extended or not.
And our strategies, we tried to deal with the borrower.
One by one and have design strategies for each borrower that were coming in and asking for relief.
We think we don't see a one size fits all strategy here with respect to servicing outcome.
We are outside the cares act given these are private loans and therefore, we are able to.
Provide we think better relief efforts and Warner standing relief efforts for these borrowers.
On page join us skipping over and multifamily were 20% of our portfolio currently sets.
We as Steve mentioned, we sold out over first loss position.
Which was mostly the billion dollars of sales, we did and in the quarter.
We delivered out of the the first loss and and basically moved up the capital structure into the Mezz bonds that we own our balance sheet, where we currently own today.
So in doing so we.
We sold down about $800 million of Peos first loss positions.
And today, we have portfolio with a minimum of 7% credit support in that security line item of 260 million.
7% credits for against a portfolio loans, which were underwritten at origination by our multifamily team, we feel very comfortable with exposure there limited limited exposure to the student fan to student housing.
In fact, when you look at the forbearance rates, it's a fraction of what we're seeing.
From the bulk from single family side and this is due to.
Hired.
Lease rollovers from from expectations.
As well as landlords that has actually proactively reached out to tenants and help them with securing.
Government aid as relates to job losses, or or or PPP plans et cetera as relates to the cares Act, we think those efforts as well as solid fundamentals in the multifamily space has really helped keep the pay raise your high and the delinquency rates low on the on the underlying loans.
Thanks.
Going to page 22 spending more time now in our direct loan exposure were half of our our exposure is in multifamily space are.
We call direct exposure is.
Loans to multifamily properties typically 150 300 units. These are loans, mostly in the southeast part of the United States.
Where.
The underlying.
Borrower has is taking on a senior loan with respect to like the Freddie Mac and the average loan portfolio suction box right. You can see that loan is around 29.8 million on average, where we provide a $6.2 million average mezz loan or pref.
To from a 60 LTV to an 82% LTV at our position.
Again. These are loans that are two properties in most of the south east probably on states, where we see the best demand characteristics and migration from.
From the northeast, particularly to those markets job losses in those markets. We think would will be given the economies are already in most cases.
Come back with respect to.
Isolation measures, we think we'll have a faster return and.
No.
We will outperform the northeast markets with respect to the multifamily in this in our portfolio we have.
50, mezzanine loans were Prof loans, where we have one loan as of.
For 30 that was in and as of today that is in a state of cobot forbearance.
Prior to to up to 330, when we didnt have any loans that are needed for Barents relief. We would you have one loan today.
That comprise roughly 1% of portfolio, we're actively reaching out to our two to the property managers in the sponsors on all these properties to go assessment of their forbearance related plans with respect to their tenants.
To date, we've been surprised on the the level of activity and and general performance in line portfolios.
This is an area that we will likely overweight with respect to the cash raising from financing in the near future. So the expectation here is that we will continue investing.
Into this asset class.
Thanks.
So Joe on page 23, where we sold the agency exposure as Steve mentioned earlier, we took advantage of the liquidity that was being off in the market. Our agency book, we sold off the position to Delever increased liquidity paid on margin calls.
Today. This is an asset class that we've we find challenge with respect to John generating any mean for return as of Friday, the yield in the south of cost was about 1.1% you have.
Very short duration down in this market is the modeled out about one half years versus five in half year duration in January.
So with respect to.
Well all the interest rate volatility is definitely lower there is no structural changes coming to this market that that will have to be analyze it we've never seen before as relates to cobot plans forbearance release.
And different measures FH, if they may roll out for those vertical for forbearance plans, where those loans get bought out of the portfolio or stay in the portfolio will change as CPR rates. So these are additional factors that it will be very hard to model. There's no real history on on that those that type of activity.
And therefore, we think this.
This is definitely an asset costs it will be underweighting.
We will continue using the agency CMBS space as a incubator for cash to extend that we were looking to raising capital and put into the market.
That is an area, where we don't see negative convexity risk given the fact that the the borrowers in that line on multifamily CMBS from Freddie Mac in particular are locked out from any kind of prepayment potential. So then so the the premium assets you can buy there have durations that are that are well can be will analyze.
And modeled out.
On page 25.
Just looking at our the outlook for the second quarter.
Well, obviously, we're going to continue our credit focus where we have ample and experienced looking at both the stress and delinquency and dislocation in both the multifamily and single family asset classes.
In this market we can target.
Higher discounts and look for better upside with respect to the low rate environment.
I mentioned earlier, we were looking at some.
In particular short duration strategies, and multifamily bridge loans et cetera, where a sponsor was likely going to take out 8-K series or Freddie Mac senior loan and looking at the underlying fundamentals may want to wait a year or two to take out that seem on walk him in for 10 years, that's an opportunity to pro.
Right bridge loan financing at high.
Low double digit and total teens return opportunity to a 50 65 LTV type of of property.
Under very short duration.
In single family, we're finding value in the scratching at markets, where we're looking at assets.
With an ATM dollar price 88 handled our price.
Where we see rates continued to come down and more prepayment optionality for those borrowers that are getting into that we're supposed to go into a Fannie Mae securitization, Freddie Mac securitization and did not make it because some of the technical issue. So our ability to refinance those bars into a Fannie Freddie deal on the fall is something we think we'll add value.
On our honor.
Can redeploy that capital into a market that has opportunities in both single family multifamily.
In that particular case.
The goal for us is to focus on credit.
In credit to look focus on low LTV product, where there's ample credit support protection to protect against early twenties, some moderate unemployment rate in this market. So.
The prices in this market of definitely reflecting the the unemployment rate that we've seen.
Different measures of economists have looked at on point rate coming back from Twentys level to a 13 AFE to even 11%.
Outlined over the course of 2021. So these are the types of scenarios that we have to abide by and look at when we're looking at any of these anything in the credit space to to ensure that as the downside protection.
And being able to utilize our expertise and managing distress.
So with that I'll pass it over to Steve.
Thanks, Jason.
Operator, why don't we opened it up for questions now.
As a reminder to ask a question you want me to press Star one telephone to withdraw your question Greg Abovsky. Please stand by what we compile the Q unable posture.
Our first question comes from the line of Doug Harter from Credit Suisse. Your line is now open.
Thank you.
Given given the commentary you made around kind of.
Target asset mix.
What do you think what type of leverage do you think your balance sheet.
On a sustained right now and I'm kind of what should we think about about it terms of pacing to get there.
Yeah, I like that going forward.
I think all the all of US who are in credit the credit market are going to look to put more secure financing in place. So as we look as we as Jason mentioned, we're in a process of.
Working to get some of our over a billion dollars of unencumbered securities out on some longer term financing of 12 to 18 months non mark to market. So it's going to definitely be on a lower leverage amount, probably ltvs of 60% to 65%. So I would imagine at our 0.6 to 0.7 times longer.
And we probably start to look like between one and one and a half times.
And that will depend on the asset underlying assets, but as we if we continue as we think we are going to do given the opportunities today focus on more loan oriented type investing either direct lending or residential loan purchasing they'll be combined with some kind of longer term financing. So again given the kinds.
Advance rates were seeing my guess would be between one and one the half times.
And kind of.
Just I guess, how should we think about the net interest margin.
Kind of in that environment, and now I'm, just trying to using one one and a half turn of leverage and kind of backing into what that would mean from yes and are are we kind of after preferred dividends and after the expenses that you know I guess, just trying to figure out how that.
What that sort of penciled out too and you know or they're going to be other sort of fee income that you've generated in the past.
Yes look I think you know to some extent selling some of the assets that we sold the Freddie K Peos for example.
No. If you think about the assets we did sell we sold the agency, which was a lower yielding high leverage strategy and we sold appeals, which was obviously a high yielding lower levered, but still levered strategy.
The net margin was 292 basis points I think at the end when we get done with it we're going to be around the very similar neighborhood to 80 to 9500 basis points.
And if you look out if you take the leverage out.
I'm keeping in mind that we have much lower cost of interest expense because of the lower leverage I mean, I think we will still move towards generating a high single digit low double digit yield in this difficult environment, you know as we get more comfortable and get more financing in place its longer term and we understand the cost of that financing which has chosen.
Annually from our discussions that started to take place in the beginning of April to today.
It's probably come in three or 400 basis points.
Well better able to judge what that looks like.
As we go into the end of the second quarter into the third quarter.
Great. Thanks.
Sure.
Thank you. Our next question comes from the line of Eric Hagen from Kb W. Your line is now open.
Hey, Hey, gentlemen, good morning, and hope you guys are doing well hey, a few questions here.
On the preferred equity and debt side, where where their marks on those positions during the quarter.
And then absolutely.
Yes, I'll just kind of doesn't my question.
Okay.
Yes, and then on the $300 million and in unrealized losses that you think are recoverable.
Versus the 390 something million that were unrealized taken during the quarter can you just help us tie together the difference there I'm sure. It looks like maybe maybe the unrealized losses are sitting let's say the resi credit portfolio, but can you get more specific on where those.
Losses set and then finally you guys noted that there were some settlements of sales.
Place.
Post quarter end, where it was there any impact on book value from that and what's the outlook for the dividend.
Yes, so the first one on sure. Thanks, Eric on the first the question I don't know in Mark to market on the preferred so we account for the preferred in two different buckets. One if it from an accounting standpoint qualifies as alone it shows up as it individual line as alone.
And if it doesn't qualify as alone it shows up as an investment unconsolidated subsidiary, but across those two asset classes. There was about $9 million an unrealized losses. Those losses are calculated based on how you go through any fair market valuation assessment the level three assets. We're looking at the current rates that prefer.
Words are being issued that today in terms of our lending rates that were active in the marketplace than our competitors as well as the underlying properties. So it was about $9 million on that portfolio.
Jason pointed out are there was only today at April Thirtyth is only one loan that's the linked when is $3 million of the 311 all of them are meeting their cash flow commitments to us so far.
And when you look at trying to reconcile the on realizing this is where a GAAP accounting does doesn't do favors. The people look at financial statements. So if you think about realized versus unrealized realizes the difference between the amortize purchase costs in the sales price and unrealized is where are you last marked it too.
Amortized costs, so we end up with $300 million on the balance sheet, but as you can imagine we were in a positive position on some of those asset classes. So as you transition from up 102 down 300, that's regenerate your 400 or 396 in another part of the aspect of the 396 is yeah.
Unwinding of the swap book.
Where it showed that we had a $73 million realized loss, but that was offset by $43 million of unrealized losses previously taken so really a net of 28. So the 300, meaning that ends up on the balance sheet is across the residential portfolio.
And I think the best way to look at that area. Because if you look at the fair value table in the 10-Q as filed next week it will lay out exactly where all those unrealized losses said.
I don't have that right in front of me as always I'd give you the numbers, but I don't have it sitting in front of me. So I don't want to guess off the top of my head, but they will be disclosed Tuesday, when we file the 10-Q.
Super and then how about the the impact on and then the sales yeah as it relates to the sale dividend as well.
Yeah. The sales it took place in early April really sales that we entered into at the end of the March on a trade a basis and just settle in the first week of April and then as a dividend. We are we continue to evaluate.
The markets.
We'd like to goes through the gene first.
Payment cycle to see the Delta change in the covert.
Cash payment flows, but we were very hopeful that will be reinstating the dividends in the near future.
Great and not to be to dance on the book value, but it sounds like no real meaningful impact from the ended the quarter on book value.
No I mean look we know from the other people that have come out and announced a there's several reads that have come out and so their book values are up look there's no question. The securities portfolio is up there's there's no question that at some of other asset classes have improved liquidity started to improve in terms of you are starting to see two way flows of of securities.
Loan transacting securitizations being done.
We're still continue to evaluate the residential loan market as it relates to forbearance. So we would prefer not to go out of why we feel comfortable that the book value is higher we don't really want to put a number on what how much hired is.
Got it. Thank you so much and have a nice holiday weekend.
Thanks, Eric you too.
Thank you all our next question comes on the line.
Cars from Jewel Peakers. Your line is now open.
Good morning, gentlemen.
I Hope I hope you do have an enjoyable weekend.
My question concerns the likelihood going forward.
Their margin calls.
Has that exposure changed and if so what direction.
Yes, I mean look.
Just from the mere fact that weve almost taken $1.7 billion of liabilities off the balance sheet that in itself has reduced the margin calls, which was one of the goals that a company.
We we have one we have one non agency security can add on the repo.
Which has been marked down significantly and we believe the marks on that portfolio represents.
Are you probably lower than where they actual price of the security is today. So we don't we don't foresee significant margin calls and then in the future and then the remaining part of our borrowings on our residential loan portfolio, which has been marked to where we think represent market clearing levels on a loan side. So while the case there can be additional margin calls we don't think we're in a sense.
Two ways and we will have significant amounts of margin calls I put the company and a distress again unknowingly.
Thank you.
Sure Thanks sort of question.
Thank you. Our next question comes on the line of Stephen Laws from Raymond James Your line is now open.
Hi, Good morning, Steve Good good to hear from you guys hope everyone is doing well.
Wanted to to follow up maybe I apologize if I missed a comment but a question earlier on similar on the dividend, but really more taxable income.
I think one of the.
In the.
Release was 170 million of unrealized gain reversal.
Was that in tax one Tom and that's been distributed where does that leave you from a distribution requirements standpoint, and from a taxable income basis. How do we think about what is losses on security sales, where theyre floored at zero and can offset ordinary income versus what's normal course of business in Canada offset ordinary income.
What we owed to drive that taxable income.
It's a very good question Steve.
We obviously when we look at our our taxable distribution requirements for the year. It's a yearly requirement that we have to meet and so when we did set when we suspended the dividend that was 100% related to meeting mirrored near term liquidity concerns.
And as we go forward and set our dividend policy, obviously, we're going to take all those into consideration, but as we sit today.
We feel confident that given where we think when we reinstated the dividend and our ability to generate the return to cover those dividends.
We won't have any significant mismatch of what's what we're required to pay and what we are.
Okay. Thanks for that color and and I know you have to.
Still early in the year for Devon did right Antares I understand that yep.
To think about cash flows a little more and then just interest income on the loan portfolio I. Appreciate the reconciliation to the 7% that the that's maybe nine and a half roughly I believe Jason said at the end of April.
Where do you.
Do you have any thoughts and where that goes or can you give us color on the geographic.
Footprint of those loans and then as they do go into some forbearance plan, how does that work with regards to accruing interest you accrue interest for say 90 days or certain period of time, when your income statement or or does it not run through the income statement once it starts taking forbearance.
Yes, so on the servicing side.
The overall, what we're seeing is a market that is going to trend to about a 20% forbearance rate.
And I think in totality on the non agency side of the equation.
Including new performing loans that were renewed in 2019, we think that number's going into 2000.
Our portfolio at 20% plus.
Coded relief plant effort, which most of those loans, 35% of those loans were.
Early delinquent prior to the Koby plans, we're giving Max relief.
Without.
Pursuing for closure measured et cetera.
We think we're going to continue to see that increase we think we've seen that the largest increased to date in that.
The last month the cycle in April.
We have seen in number of borrowers that have made payment. After the koby plan has been in place for a one month referral remember.
Our servicing strategies do not just simply have to offer a six month or 12 month forbearance. We're also looking at month to month deferrals as well.
To ensure that the bar.
It is not being put into situation, where he won't be able to access credit in the future such as a refinance with a longer they forbearance.
With.
Hi, everybody has read is that the.
As a long doesn't forbearance the payment disruption is not reported to the credit bureaus, but what is.
It is reported as affected the bar went into forbearance, so having forbearance on your credit actually does limit your capability of the accessing.
At refinance at lower rates, so we're very careful not to.
How would that be.
Headwind against the bar and and lowering his overall payment in accessing record low mortgage rates, which we expect to see over the course of next six months.
So that is on a case by case basis and again, we do expect that number to increase but.
We think we've seen the largest increase the date in the month of March.
Sorry month of April.
As you can see our portfolio we bought these loans with a number these loans are 80 delinquent.
From from the start we're working with a loan servicer in Servicers that.
That's experience and.
One of our largest services dedicated personnel to our servicing book. So we're not taking a performing loan servicing strategy and trying to figure out for Barents related to really plans, we've been active conversation with a number of these borrowers.
For over a year and that your conversations continue through these were barron's plans. So.
We have bars that understand relief efforts that are service has been provided to them and we have a servicing team that is was basically selected and built to deal with with high level not at Bluelinx point loans. So we feel pretty comfortable about our ability to service through this environment.
Yes.
The question of total.
Delinquencies will be a function of total job losses.
And where those job losses are your question earlier as where our portfolio in a footprint, we have a national footprint portfolio, we have underweighted.
Portfolios in selection in the northeast probably United States.
For a number of years simply related to for the foreclosure.
Delinquency.
Those are timelines that are associated a market like New York that could take up to five years to pursue a foreclosure.
We are in buying our portfolio. We are looking at loans that are more aligned with us in the fact, we have a 70 ish percent LTV. So.
So there's plenty of equity in those loans for borrowers to want to keep access that equity going to forbearance or delinquency jus reduces the LTV or the bars equity position.
And that's something that they want to avoid as well as us. So again, we're aligned in these really plans and.
And do you expect to on the habit.
Outperform the market as a whole and potentially even the agency market with respect to their forbearance really plans on a 100% perform loan portfolio.
Great. Thanks.
The last part of your question about the accrual you know if if they go into the for bands plan. We would stop accruing immediately typically you do 90 days and then you stop but if somebody's going into a plan, we would stop accruing at that point.
Great. Thanks to the cash basis, our model Yep, that's that's right as I think about my models.
Got that clarified.
Last question, if you don't mind really should flow shouldn't deck and the financial tables I wanted to ask one on page 14 regarding the investment portfolio.
Given the shift in mix should we expect that yield on average earning assets to go up without the agency assets have these been historically adjusted to remove the impact of the lower Yearling agency securities or how do we think about yield on average interest earning assets going forward without the CMBS.
Yeah, I mean, if he is so we really sold two large blocks of assets the low yielding agency portfolio in the higher yielding Freddie K first loss Peos and so interestingly enough when you take out those two portfolios. The net margin overall for the company doesn't change significantly I would.
You know I did the calculates that we've obviously done the calculations forward.
And I would say, it's going to be within 10 to 15 basis points of where we were last quarter first quarter 292.
As we sit right.
I know you mentioned the stable spreads during your prepared remarks, but I wasn't sure things were yen shifting off no no that.
Yep Yep, great. Thanks, a lot Stephen Jason I appreciate it.
Thank you.
Thank you all our next question comes from the line of Christopher Nolan from Landenburg Thalmann. Your line is now open.
Hey, guys.
Starting on the comments on the comments that you guys made in terms of ramping up to a high single digit low double digit or are we.
What should we expect for the next couple of quarters, I mean should you be able to key somewhere in that range.
In the second quarter third quarter.
I mean, Chris look I think the difficulty of coming down with with a very specific ramp on where and when we're going to get there.
Really I mean, one of the reasons why weve hesitated to reinstate or dividends as we want to get our handle around this june 1st cycle.
Begich payment to come to the borrowers and exactly as these states start to reopen how is the economy react again, how quickly do we think it's going to happen. So you know as we go in put these longer term funding against our unencumbered portfolio that will give us some excess cash that will you know as we start to reinvest some of that cash we'll get a better sense.
Of exactly when we think we're going to meet those goals.
So we don't really at this point want to put a timeline a specific timeline on that.
Great and then on the mezzanine for the direct lending.
Jason do you.
On the mezzanine parts of the direct lending.
You are sort of in a position on the capital structure for your.
Your borrowers, which you know going into a credit down cycle I think for multifamily I mean, I guess look to limit your losses on that.
One of the the loans are structured as more of a shorter duration type of opportunity that the the premise of the bar taken alone was that there was some capital improvements on management issues that were underline that property when the though the new.
Sponsor took it over so there's an expectation there that you'd have casual improving underlying property and that loan could be refinanced out our mezzanine loan could be refinanced out with the agency supplemental.
You have to remember that the multifamily market is backstopped by by the.
Fannie Freddie multifamily lending senior lending so there's plenty of liquidity on the senior loans that exist in that market part of the crisis that we've seen.
In the securitization space in residential loans is the fact that lending disappeared. So you're you're our away or we return now became the same return, but on an early basis and that basically brought the price down 2025 points in some cases.
So with where there is still lending and still active financing.
You have not seen price declines to that extent.
And this is one of those cases, the multifamily space with this with senior lending is still.
As is basically backstopped by Fannie Freddie.
Our case were mostly folk are assets given the size or assets are mostly supported by senior loans from Freddie Mac so to extend that.
Their management plan what in place.
There is potential supplemental they'd be taken out but overall, we have seen cash flows.
We have seen cash flows.
To be are pretty stable with respect to these assets again, our portfolio is mostly in the south southeast par the United States. So.
With a one loan delinquency as of today.
We are seeing very stable trends to that market.
[music].
Obviously unemployment rate benefits and Jan Triple P. benefits have been helpful to the underlying tenants.
We are supported by a 82% LTV on those loans and extend our portfolio just wasn't originated obviously this month we have.
A seasoning in these loans were the LTV is actually decreased due to six six and half percent increase in property value prices or more given the location of these assets again in south southeast United States, where you've had.
Lot of appraisal of up to high single digits and these marks an annualized basis. So we feel comfortable about our position we feel comfortable about our sponsors.
Part of the reason the loan that we provide the reason why provide these loans. These sponsors that they're well capitalized sponsors they are not sponsors that come in with one loan opportunity and.
Or not comfortable or don't know how to run a building their seasoned veterans in the space have ample liquidity ample access to the Fannie Freddie pipe securitization financing channels. So.
We think that the the liquidity in the sponsors are strong the only real assets have improved could we see increases delinquencies with tenants et cetera, yes, absolutely.
There are reserves interests are is built into these loans as well.
And.
There are various mechanisms that the senior lending.
Forbearance plans will allow.
Freddie Mac as part is looking at up to 190 120 days of forbearance for the landlords, which obviously will create income and help.
Support that Landler's, if he has any liquidity issue so.
We're not expecting a large increase of delinquencies in this space, given where the bars, where the where the assets are located in the sponsors that support them.
And Chris we one of the reasons, we like this asset classes given the the legal protection that we have in the sense that the seniors sitting at 60% LTV, we're sitting at 82% LTV and to the extent they don't meet the terms of our loan we can take over the property. So there's a significant amount of equity in the properties that we think that protects us and.
Has protect as a protect that has historically.
We have one exposure to a student housing is very small amount as a portfolio.
Which is probably the probably the highest concern right now and the one loan that's in the forward delinquency was alone that has had issues from a property manager operation standpoint, it's more poor execution as oppose of a bad property. So while they've chosen a co bid forbearance plan because that's what the market's allow.
Them to do it is something that we're watching but we don't have right now as we said we feel very good about the properties.
And they continue to perform above expectation, given where given what they could be performing.
Yes, my concern would be not so much the LTV, it's more the debt service coverage that these guys have after they pay off their first lien mortgage.
That's right well, yes, and part of the protection is look there is no cash distribution out until all of our payments are made so there is a cash trap affinity structures, which is helpful to entice them to make sure that they get these things back cash flowing properly. So they can take cash out of the property, but look thats why most of our loans or the seniors.
Freddie or Fannie and as Jason said, there is programs from both those institutions to lend money to let them help them meet their cash flow requirements.
Great. Thanks, guys.
Sure.
Thank you. Our next question comes from the line of Matthew Howlett from Nomura. Your line is now open.
Oh isn't as good thanks for taking my question.
Look it's a monumental if you get the financing that it's going to be a lot of cash.
You are correctly, you're going to sort of deploy it slowly things go.
I want to sort of put it out there with to reinstate the preferred and common.
Biopsies to look at sort of there is pressure capital stack is that something you'll you'll look at when you look at sort of capital deployment option.
Yes, absolutely absolutely amount I mean, I think the question is you know as weak as we as we look forward to opportunities and we think about our business model.
We need to figure out ways to create longer term financing structures that eliminate or reduce the mark to market exposure, the which going into March we thought we were low levered, which we were at one of the half times.
But with over at the beginning of March we had over billion dollars unencumbered assets, but we still were unable to we still had difficulty meeting margin calls and so therefore, we do some portfolio, but as we go forward and raise it and get additional capital that those returns as incremental investments are going to be driven towards reenter.
In a dividend income, making sure that we covered the dividend with cash.
Got it and then just when I look at the model.
Going forward because it will always had.
Net interest margin also realized gains and sort of part of those that npis, that's still going be part of the core model right sort or looking at it going forward. These gains you take on the whole loans and other studies that's right.
No that's right I mean, that's absolutely right look I mean part of the $300 million of unrealized loss sitting on the balance sheet.
Theres going to be some recovery of that and realize and that's going to be an aspect of everybody's income in the REIT sector.
Our our direct Len generate fees that will always be part of our income.
And.
We will continue to invest in App sets that we think are distress that give us a chance for capital appreciation. It will never be just a 100% net spread model. That's just not our core DNA and we think is better opportunities in buying distressed opportunities.
Right, Okay certainly.
Never been Terry part of it and then on the residential transitional loans comment on anything that's left in the portfolio what you look at.
Look at that market today, where the opportunities could be or is it something that.
We see value in opportunities elsewhere.
Do you mean fixed and flipped.
Is that once you, yes, yes, so the fixed and flip market.
We have underweighted that we have roughly $90 million exposure there on our performance in that performing loan category.
And Weve underweighted simply because of the refinancing that was happening in those underlying pools in the fixed split market that was taking a lot of the bars out.
Out of the fixing flip loan into a 30 year loan invest in the non QM market now with the Nike market essentially closed there's definitely more pressure on on the underlying.
Bars, there to to make payment.
Obviously selling houses is more difficult in this environment. So we think theres going be more extensions on the fixing flip market I think eventually.
That will play itself out in the very near term, we're extensions will increase some odd probably beyond 20%, 30% ratios if not more and then the question is what happens those properties after that.
Weve.
We are very confident our ability to take over properties to managed properties, whether its rental cash flows or into.
To a sale.
I see more of a distressed I see two options there a distress option at the by delinquent.
Loans in that space, where there's lack of servicing from an originator that didnt have the searching personnel to manage a 20 or 30% delinquent book.
Where he can transfer servicing.
And based utilize our servicing capability that we have built up to do that and the other side is that you're going see more bridge loan opportunities in the space shorter duration.
The hard money financing, if you will to very strong sponsors, which could also provide an opportunity for us.
And those cases in the past few Utica.
A seven ish percent type of net net coupon and any lever that.
One times are so with the market was doing.
Today, you can do that on a liver basins still generated double digit return, which is obviously attracted the question is tracking that sponsor and their ability to move the asset or rental or rent the assets ensuring that the cap rates in those markets supportive of the debt that you are taking so.
Again high coupon debt that some of that we'll have to be in a form of the flip. So we're evaluating all we know the players in the space. We there's large portfolios that are been market out for sale.
Hundreds and millions of range.
That we've been tracking and we think that there may be better opportunity down the line from here than today.
Yes, it sounds like you guys have really.
Kind of different opportunities in the last question I am as I'll throw it in there you guys really on the few research demanded successfully financial crisis, you got through came out very strong and the other Ed just any broad comments in terms of.
Cycle versus what you saw during that cycle it.
And.
How you're going to position the company today versus what you did last time around just any broad thoughts. Thank you appreciate it.
You're talking about the O. eight cycle versus this cycle.
Correct.
Yes look I think the problem with the cycle today is I think we're still in the middle of it right I mean.
We have massive amounts of people out of jobs.
The hope is as we get to reopening these economies a large percentage of those people go back to work immediately and we see the unemployment dropped significantly.
But we need to see that first before we try to figure out exactly how we're going to come out of this thing. So I think these opportunities are going to continue to unfold over the summer and into early fall and that's why we're hesitant Matt to put out specific guidance of where we think the opportunities are going to be but you know I think the big difference here is you had a slow.
You had a overlevered overpriced assets and debt in 2008 on almost every single asset category today, it's really being driven right now just by the social distancing stay at home, where the comps and literally shutdown. So the asset price deterioration, we don't know where it's going to end up yet.
And it's as it cannot be a factor in function of how much government support is going to be pumped into the economy, both to consumers and businesses and how quickly we can reopen and or get a vaccine to get to place back to whatever the new normal is going to big.
I'll further add that there is little bit differences in asset selection and where the stresses in the system. So in 2008, the average borrower innocent non non QM space over 100 LTV.
Today, a lot of the financing that was done is at lower levels.
You can see it today in in Homesale homes on the market for sale, you're at basically three and half month of supply.
Number jumped.
Over 10 months of supply.
Quickly in 2009 into 10.
So you're not seeing the stress on the supply side.
Yes, we have a contraction of homes on the market and again, there was a home shortage to begin with par decoded and now that its exacerbated by the lack of.
Assets are on the market.
Yeah.
In some markets you may see.
Home price appreciation because of that we're in some markets where there's.
Still coated related shutdowns, you may see double digit type of declines, particularly in the service sector.
In particular markets like Las Vegas, where the economy is supported by the service sector and you have.
So lots of unemployment play borrowers.
The other side the coin is that.
The asset over the last eight years that performed the best has been basis, the smaller lower dollar properties across the market, where you can earn a higher coupon and advance those assets at similar rates.
In this environment, we're with respect to job losses again in the service sector versus other markets like in information technology.
Sectors like that you've had basically one third of the job losses in information technology and service sector. So economies that are supported by.
By those types of economies, you will see better results and better results in the middle.
In middle price range of houses so you'll see the simply looking at Ginnie Mae versus Freddie Mac.
Forbearance ratios you are seeing basically two to three X increase.
I believe we'll see about two to three acts of forbearance plants in the Jimmy space versus the.
Pretty much space.
And you will see an increase of supply in the low income housing or at lower price range than you would see in the mid price range because of this before it was across the board and all asset classes across all.
Tiers of price of price.
On prices and today I think that you'll see more exacerbated distress in the lower income lower price range.
Great information a great long weekend guys. Thank you.
Thanks.
Thank you. Our next question comes from the line of Jason Stewart from Jones trading your line is now open.
Hi, good morning. Thanks.
Based on the forbearance comments and I understood correctly, nine and a half percentage to forbearance.
I guess structures today were current and are now forbearance the rest for Tom.
Our delinquency and arent forbearance about the right way to think about that.
Yes.
And when you in your comments on can you give us the average terminal forbearance agreement if you don't mind.
Yes. So we were we've elected to do more deferments than forbearance and that's simply because the borrower, we'll have more liquidity and as mortgage loan.
After effective cobot related shutdowns than a forbearance.
Gses just last week pass through.
New servicing rights and.
With those that establishes that borrowers after forbearance will go into deferment, we're already doing that now so we thought that was about a model from the beginning at which is why we elect to go through to deferment.
And it adds less stress on the servicer as well to track it.
It also because our borrowers.
Often speak to our servicing part the search and personnel that are that is allocate that loan on this also creates kind of a monthly dialogue on what's happening and so we can design a longer term structure if necessary.
Some of these bars that even obviously didn't know the extent of their job loss or income loss.
And so it'd be hard pressed to say that three months six month anomalous or 12 months as appropriate so taking a month to month type of approach. We thought was it better result, and then structuring into what could be a more of a long term solution ones.
The effects of the cover 19 economy is been.
Impacted and overcome so.
Yes, so again forbearances is not utilized to extend is on the Fannie Freddie portfolio as you see out that's been reported.
And in the case of Deferments it is a month to month.
You know.
Forbearance, if you will.
Okay, and I would expect that part of that plan is to keep contact or a top and I think to your comment I just wanted make sure understood. This correctly you think that at the end of this cycle.
We'll be in its portfolio back to pre covered parent levels is that what's what's you're characterizing this plan as an ultimate outcome.
Yes, I mean look theres going to be is going to bifurcate, we have loans at a 45% 4.78% coupons the.
The refinance market days will likely approached 3% if not lower so there is substantial.
Spread for these bars to refinance into to achieve lower financing costs, which is one of our goals and so that will sell the on one side of equation, where bars are not long term impacted with cobot related distress and can continue paying and take advantage of low rates and we want avail or bars to that that outcome.
On the other side, there will be bars that will not build it continue paying lost a job.
Perhaps some kind of permanent.
Damage in there in their fiscal side of equation. So those of situations, we're going have to work out with with the other last minute plans. We havent plays such as didn't lose or shoretels to avoid foreclosure.
The extent, we could ramp back the property to those bars.
We will assess that as well.
Which are all plans, we put in place after 2010, managing tens of thousands of mortgage loans are there were nonperforming loans space. So.
We.
You have to assess where the bar has the ability or not and then put the bar into the right plan. When that assessment is done. We just believe that was too early in March to make that determination front, which is why we want the high contact ratio and we think it serves the servicer and the borrowers better by over communicating.
Understood. Okay, and then one on one high level question. When you think about current financing in and I don't need to I don't need details on which are currently discussing but generically the high level over the medium term what the current financing look like for structured credit and the mezzanine part of the capital structure and what impact more specifically do you think that has over time on asset prices.
I would imagine loss adjusted yield is one component, but if you could remove that just talk about the impact.
What financing looks like in the impact on on asset prices over overtime I would be helpful. Thanks, Yes, yes, I mean, we expect asset price improve as these terms structures are more utilized across the market again.
In March you basically loss, we built financing across the entire securitization market.
When I say loss, yes, obviously margin calls, but also in ability to add assets onto facilities to meet margin calls.
In the fixed rate in March counter parties want to cash or treasuries and did not want increase their book with respect to new assets to meet Martin call. So there was a complete shutdown of securitization market bodies Mezzanines asset classes were sold with it with the with the concept of taking repo leverage against these assets that generated double digit return in the most.
So when you lose the financing you have to back.
Back out the price decline to get to generate a double digit return thats. What you saw in the market in margin into April.
So as the term financing structure me more utilize you do expect prices too.
Two.
To increase we've already seen.
Since 331 at a pretty meaningful increase in asset prices in the security space.
Which was the most distressed part of the market.
And that's due to to financing pulls out there I would also mentioned that financing proposals, we've we've seen France and proposed from for number of Counterparties evaluated.
Number of proposals and initially the proposals were fairly expensive in March and into April we took us dance of waiting for better clearing levels once.
Hey.
Some of the some players were selling out large positions and eat emergency financing.
Since that is cleared for the most part we've seen level we've seen pricing.
I'm down from high single digits on a separate portfolios to mid.
Mid single digit type of financing costs. So.
We were rewarded by waiting and we were only able to wait because we didn't have the same we'd have a cash liquidity issue into April which would have forced us to take that financing at these these higher level. So we had ability to be patient with the financing use it opportunistically.
We have done.
We will likely put one in place shortly.
And likely will be in that.
Type of range single digit.
Yields with advance rates and.
Anywhere from 55% to 75%, depending on the asset and the securitization type.
Thank you.
Thank you. Our next question comes from the line of Jon Evans from as GE Capital. Your line is now open.
Can you just talk a little bit about maybe in the medium term or longer term, how you kind of view the capital structure now with where you are where you want to get to from a leverage standpoint relative to kind of the preferred et cetera, do you expect to get more term financing and.
Not raise more preferred that Steve.
Can you just talk about your guys just thought process seems relatively expensive now.
Yes, I mean, it look I think given where the stock's trading both preferred and common.
No interest and going and access in the market at these levels I think we feel like to the extent that we can get longer term structured finance.
Against the assets that were investing in thats going to be the way that we're going to focus in it.
In the foreseeable future right I mean, I think if you look historically, what the company's ton accessing the equity in preferred markets. It's been when we can raise accretive capital and.
We got we want to get on we've got to get our stock price back closer to where but they should be before you even contemplate that an.
Our prefers are trading in the.
16 to $18 range that doesn't make any sense gigawatt do.
10% or 11% preferred so I think we have better access to lower cost in capital and structures loan structures than we do and actual equity capital markets and from a a ratio of preferred to common we have $2 billion of equity.
And we have about $500 million of preferred so wanted to half.
Obviously, we took the 700 million dollar hit to our common side. So.
The preferred is a little bit larger percentage, but we've also the dividend and they prefer to dividend common are closely track each other so it's a one is not that much more accretive or or destructive right now as we sit here today and we need to reinstate all the dividends before we get a better sense a cost of capital where our stock starts to perform after we reinstate the dividends.
And then just relative I know, it's a board decision and in the future, but some of your peers have have paid their their common dividend with stock is that something that you guys look to do to preserve cash.
You know we right now that's not a consideration, especially when our stocks trading at less than 50% of book value, We don't need to do that and we would prefer not to reinstate a dividend with dilutive stock issuance.
We'd rather wait until we feel comfortable that we can meet all the dividend requirements in cash which act like we've said on the call that we hope that's in the near term.
Okay. Thank you for your time I appreciate it.
No. Thank you.
Thank you. Our next question comes from the line of Douglas Okay from an age holding your line is now open.
Hi.
Quick and relatively simple question first on the balance sheet you have.
Equity as you said.
Start your point Sevenmillion liabilities.
As a real point sixx leverage ratio.
Just wondering which those why building just regard.
Yeah, well so the liabilities is a lot of securitized debt on our balance sheet.
So we're only when we will be defined if you look at the definitions back in the glossary and the notes on a particular pages without the leverage ratios calculated we use whats called callable debt.
So let's see if you go to page 12 under presentation.
That's you know and you look at the financing were really just reflecting the debt that we think that that is callable nature in the portfolio side the $1.4 billion a debt is really what we consider callable.
Other debt that's in the balance sheet on the and the balance sheet statement is securitized debt would surely doesn't have any call back to the company a requirement. So it's it's collateralized by very particular assets that are in a structure that doesn't have any risk back to the company.
Well following up on that though that the same where your classified the multifamily loans in the past seven standpoint.
Having the liquid that's right that's right. The 17 a billion dollars of multifamily that was related to Securitizations and if you look at our balance sheet. Today, we don't have any of that that's all gone.
Okay and so the the liabilities that are left that has securitize that.
As we have $1 billion residential securitized debt and another 31.03 $4.038 billion. So.
Total those two is about a billion about a billion won and securitized debt. That's not has no call back to the company.
Well there are no margin calls there on that 17 point is going and previously no no none zero.
They were involved and Martin can you just look where they've got to help you other than the other mark well the peos. So the $17 billion is related to this structure at the securities were issued off of the Peos that we actually owned we add them out on repo that was mark to market and was receiving margin calls and Thats one of the that's one of the ask.
Classes, we elected to sell to reduce as margin calls.
Second quick question with regard to the multifamily second mortgage positions, where Fannie and Freddie or.
Or whatever senior.
They go into.
Forbearance agreement.
And why them.
ER physician, allowing payable are not payable forced also forbearance.
They are forced into forbearance, but what does happen is the the property itself is cash strapped and so they need to come current with our forbearance interest prior to taking any cash out of out of the.
Out of the structure.
Right now.
We only have one property that's in a senior forbearance, which is the one that we're in for Barents on.
And then there were there and on your forbearance the cash obviously I mean, obviously was properties still generate cash that cash right.
Well typically yes, typically what happens is obviously the reason they're going to the agencies as well for Barents is they have a higher percentage of renters not paying rent.
Which is not the case, so far in our portfolio, but in the case, where it does happen and they're asking for relief.
The money that they receive on their rents is distributed forward. It's just it's just a net number that theyre being led to cover the DSE art.
Requirements for the month to not getting lent the entire amount of rental income for the month or getting that they're getting limit the amount of money to fix is that essentially fills up the bucket.
And that traditional lending.
Yeah.
Right.
Second mortgage that's right, but the way that lending is currently structured from the agencies is that is alone phrase shorten freight a 12 month period that they need to repay.
So now so I think Thats one reason why many of.
That's one reason why many have elected not to take it I mean, it's a 12 month mandate, but does it really solve their problems. So I think many of these sponsors have liquidity to meet the needs. So far and so I think they look at the cost of that debt from forbearance versus their other liquidity options and Thats where.
They're making the decisions.
Thanks.
Thanks.
Thank you know our next question comes from the line of Mark Devry is from Barclays. Your line is now open.
Yes. Thanks appreciate this maybe a difficult question, but of the you know the 23% hit the book.
Quarter from unrealized losses that you're.
Optimist, you'll get that you have a sense for how much of that is due to the market pricing on higher defaults and how much of it is higher discount rates and also just how are you thinking about.
What the market as pricing and from a default perspective relative to two toward you expect I'm just trying to get a better sense.
How much of that could ultimately come back to your either through reversal of marks are just realized cash flows.
Yes, I mean, the initial hit the market took on these prices a function of lack of financing and then also for sales, which then cause more markdowns.
Then more selling so that negative feedback loop that was created in March.
Was it mostly the the.
More of a technical decline.
So that initially brought prices down now.
The markets go back to work in some communities and steel measures are and others market is evaluating the the unemployment rate and the credit side of equation.
Through the last month, obviously again, a lot of reporting on unemployment rate per market and.
What the Governor's plans our per state.
We've had increases across the board in the asset classes in the securitization spec sector, so because of the.
The modeling done on on unemployment rate was.
It was only as a fraction of the losses have taken on the bonds relative to the liquidity issues that were experienced due to lack of financing. So as I mentioned earlier with financing channels coming back more in terms structure orientation versus monthly mark to market.
Hello.
Yes, we do expect prices the to increase.
To withstand.
For.
Back into basing our we have a double digit versus our EBIT double digit.
Okay got it thank you.
Thank you at this time showing no further questions I would like to turn the call back over to Steve Moore for closing remarks.
Thank you operator.
The company's priority continues the centered around the health and safety of our staff partners and community.
We believe our business continuity planning and infrastructure has positioned us well for the reality of working remotely.
While these last six weeks has caused us to maintain a more defensive approach to investment in liability management, our long term goals of delivering attractive risk adjusted returns remains in place.
We appreciate all your questions during the call today, and we look forward to discussing the second quarter in August I have a safe and healthy Memorial day holiday weekend. Thank you very much for your participation.
Thanks, operator late.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.
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