Q2 2022 Altisource Asset Management Corp Earnings Call
Okay.
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And welcome to the a a M C investor call today's call is being recorded at this time I would like to turn the conference over to Mr. Kevin Sullivan.
Please go ahead Sir.
Good morning, everyone and welcome to our August Investor call I'm, Kevin Sullivan General counsel at the AGM today.
Today, we'll discuss the material referenced at our Investor presentation, which was issued earlier this morning and can be found on the Investor Relations page of our website at Www also source AFC Dot com.
Information on forward looking statements appears on the Investor presentation, when we direct your attention to that information.
This audiocast is copyrighted material it may not be duplicated reproduced or rebroadcast without our consent.
Today by our Chief Executive Officer, Jason contract at our Chief Financial Officer, Stephen Colbert will be answering the question at the end of the prepared materials.
Sure.
Now I'll hand, this over to Jason who will update you on the company's strategic plan.
Thank you Kevin.
I would also like to welcome everyone to our call I'm excited to speak to you. This morning and to be leading AMC in this new direction for today's call I will start by describing the business. We are building in the areas of focus in the near term I will then discuss some recent developments for those of you I haven't met or spoken with previously had been.
The mortgage industry for more than 25 years, most recently with Morgan Stanley as among other royalty senior executive and the residential mortgage team who sat across trading.
Housing securitization in investment banking.
Joined AMC and made because I believe it provides a compelling opportunity based on the company's strong balance sheet.
Expertise of its existing employees and the opportunities in the alternative lending space not serviced by banks.
Our immediate plan is to provide an source private credit for real estate in the non bank space or fixed income accounts pursuing alternative assets.
Initially we were focused on bridging rehab loans space, where single and multifamily homes and ground construction due to bank and ability to efficiently support the space.
Despite the material rise in interest rate environment has caused a normalization and home sales theres still an estimated four to 5 million shortage of housing in the United States.
We have a plan to help provide credit to build affordable housing and we expect to be executing on it shortly.
As we continue to grow and develop our origination platform, we plan to expand into other areas within private credit both secured and unsecured.
We are leveraging off the talent of our existing team.
For example, our team in India has underwritten and led the acquisition of over 14000 single family rentals and over $4 $1 billion in nonperforming mortgages and Oreo.
The team is to asset manage over 30000 single family rentals nonperforming mortgage and oreos.
We have a deep experience in managing well over $2 5 billion of warehouse lines and securitization.
Our management team has over 100 years experiencing real estate and on the Street.
Let me now turn to what we have accomplished so far.
We have entered into a $50 million warehouse line with Flagstar, we're excited to partner with flagstar as they are very experienced in the housing and whole loan space and our.
We're providing a new source of capital to finance our growth as of August eight we have received more than $40 million of funding from flagstar.
We have opened a new office in Tampa as headquarters for our sales staff led by our new head of sales Brendan Chile Brendan.
Brian brings over 20 years of experience in the institutional hold on and housing space and has begun to build out our origination team both in Tampa and remotely.
As part of our build out we have initially hired six specialists in the private credit space and the expectation is to further grow the team.
Due to the demand we are experiencing over the last few months, we have grown our India operations by 47% and are expecting to increase head count there and then St. Croix by another 50%. These hires consist of additional analyst underwriters and other supporting staff.
Let me now briefly walk through our current portfolio.
As of August eight we have purchased 105 million of long statements. This is an increase from approximately $53 million at the end of the second quarter.
Weighted average yield across our portfolio of seven 9% an increase from six 7% as of the end of the second quarter.
That summarizes where we are today. This is just the first phase in our growth.
We plan on driving growth through originating in sourcing private credit products via direct to real estate developers and investors wholesale originations and correspondent lending with originations being our primary focus.
Originations allow us to better control the creation of assets to buyers of alternative assets and we will be more accretive to our shareholders in purchasing loans, we do not plan on being an aggregator.
We are not aware of comparable public companies that are exclusively platforms similar to those we are building.
More relevant comparisons are the origination platforms that have recently been acquired by sophisticated institutional fixed income investors. For example, Jkr bought Tarek <unk> bought anchor loans and our Z bought Genesis now known as rhythm MFA bought Lima. One these are significant investments by well respected investors who see this.
As an area of growth for alternative investment strategy.
Utilizing data technology and analytics will be critical to our success. We are developing a data driven proprietary system, which would dramatically allow us to increase our reach to existing and new clients.
We are also creating an enterprise data management system to help us utilize information for purposes of understanding our markets client needs and the overall customer experience. Our management team has a long history of money managers insurance companies that in credit funds and other institutional.
To show investors.
We believe our key strength will not only be to originate and source private credit, but also the ability to distribute various credit products into the deep demand for alternative assets. Among large fixed income accounts as we optimize our platform through the leveraging of technology combined with feedback from our fixed income investors in the market, we will be able to adjust originate.
And to fill that gap accordingly.
Unlike some of our competitors, we are independent and not constrained by one set of yield and credit requirements.
We do not want to limit ourselves to the securitization market as our only takeout partner, but rather we are focused on partnering with balance sheet accounts due to their stable source of funding finally, I want to update you on a couple of recent developments last month, we announced that we had purchased some shares in our company.
While we are not actively looking to buy back common stock purchase of Putnam stake is consistent with our strategy of being opportunistic in the use of the firms capital.
The NYSE announced in late May.
AMC was not in compliance with NYSE listing standards, we submitted our plan to regain compliance to the NYSE at the end of June we are confident in our plan, we expect to hear soon whether or not the NYSE has accepted our plan.
Lastly, we continue to actively monitor the recent developments in the crypto markets.
Interest has always been in helping clients transact between crypto currency and Fiat currency and not taking balance sheet positions and crypto assets.
We still plan to move forward in the crypto ATM space.
That concludes the prepared material for today I'm now happy to take questions.
While we wait while we wait to see questions come into the queue. We will answer some questions that we received in advance of the call.
Have you bought back any shares in addition to the <unk> shares and can you tell us a little bit more about detail about why you purchase a deposit of shares was the purchasing department shares at a discount that market with compelling opportunities to provide value to our shareholders can also eliminate the risk of large scale sale the stock we offer.
Terminated patents most favored nation clause related to any future settlement of the company's preferred stock litigation, so that was important to us.
As I mentioned earlier.
We're not looking to actually buy back shares we have not repurchased any shares other than our partner state our plans to use the cash to build the business.
Are there any plans for future insider purchases.
Thought about it but nothing at the moment as planned we have been more focused on the build out of the business and resolving other issues.
Have you begun originating and selling loans.
As I've mentioned, we hired a number of private credit specialists and expect to close our personal loan today, we expect volume to increase as we begin to direct mark direct market to clients are selling of loans. We are in discussions with multiple investors and are targeting the completion of our first distribution this quarter.
How does the selling origination in selling loans work, which ones do you plan to keep on your books.
With that.
Purchase with intent to aggregate our goal is to distributed credit partners in the fixed income space.
We plan on selling our products that you're pulling method to aggregate to aggregate loans to investor partners, primarily between whole loans in the bond space. The goal is to maximize velocity and preserve liquidity.
Where do people apply for them.
We will be launching our website and marketing very soon but until then you can apply for loans and the AA emcee homepage or reach out to the representative directly at sales at all lending Dot com.
You asset managed below that are sold and what kind of fee is that.
Yes, we will estimate the loans sold and are discussing the fees that we receive with our investors. There is a general market range of income strips that we expect to be in that range.
What will margins look like and what are the costs associated with the business.
And purchasing of closed loans, we are targeting 200 to 250 basis point strip directed borrower loans would be between four and $4 50 loans closed via wholesale will be in between we leveraged cost efficiencies of our India team as well as data driven nature of our model. We also have a tax benefit from being in the USPI, which we view as compelling.
When you sell alone what fees do you get upfront do you get any residual income.
While each loan product and be different the shorter duration product has an interest rate protocol, whereas the loan the longer duration product comes with a more of a premium. We also expect to receive an asset management fee keep in mind on direct origination in wholesale there is often an origination fee involved.
What kind of origination volume do you expect is it still $600 million a year.
We felt comfortable that we will meet or exceed those numbers in the next 12 months, where we were not expecting the correspondent business to be a critical part of the business. However has turned out to be material to our business.
Operator could you jump in right now I can repeat how people can put a question in the queue.
They want to.
Thank you if you like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Thats press star one to ask a question.
Thank you.
While we wait for any questions in the queue. We will go through again some of the other questions that were submitted before are.
Are you looking into increasing the capacity of your line of credit we're getting another line or lines from other institutions.
Yes, we believe we need to constantly assess our sourcing capable capable for mobile for mobile institutions, and we are looking to expand our credit line.
How does the current interest rate environment affect the business.
So we believe that the market has adjusted the origination interest rates upwards too.
Much probably within three to four points up from where it was four months ago, we have seen a more normalization within the housing sector.
The fundamentals still seem to be driving demand for our product.
Why locate the office facility in Tampa.
We contemplated a number of locations and determined Tampa offer the best combination of access to talent and overall business climate.
Can you walk us through your thoughts on the Kirkdale ATM business, we still view crypto is an exciting opportunity, but in the current regulatory environment. We are still focused on finding a bank partner, we've always viewed the crypto opportunity at assisting tivo and transact in between crypto and Fiat not taking principal risk by holding crypto assets.
Could you give us any guidance or projections of future earnings.
We are focused on building out the business and not prepared to give any targets or projections at this point.
What is the Levered return on equity target by AMC with a warehouse line and how does that compare to competitors again to be clear and I think the point for people to keep in mind. Our goal is to optimize our velocity and distribution. We are not looking to aggregate as such we don't have a target leverage Roe.
We're looking to put out just yet as we further develop the business, we will provide investors with updated financial targets for the alternative lending group business.
What are the credit products do you plan to move into in the near future.
We expect the <unk> slash non owner occupied rental loans would be a big part of our business and we expect to go live. This quarter. We also expect multifamily bridge to be a bigger part of our business going forward.
Do you plan to raise additional capital either debt or equity.
Analyzing data at this point and we believe that the demand that we're experiencing may require additional capital to support our growth.
Can you update us on the status of the Luxor litigation.
While I can't comment much on the ongoing litigation I can note. The summary judgment motions were filed last month.
And lastly for the preferred.
Questions. We received advanced what is the NOL situation.
Much income could you hypothetically shield okay.
The majority of the historical losses incurred by the company or in the USPI location, the NOL would offset future USPI based income.
At the reduced USPI rate tax rate of 10% of the current federal tax rate in place as of December 31, 2021, we had a deferred tax asset of $637000 to offset against future taxes and USPI.
Thanks, Operator, we're happy to take the first question in the queue.
Thank you we'll take our first question from Edward Wiley with Es Hutton. Please go ahead. Your line is now open.
Hey, guys. Thanks for taking my question.
Pre submitted questions really took care most of my questions but.
I'm, just wondering how quickly youre able to sell after its originated.
So again as we mentioned earlier, we're going to be we expect to be doing our first.
Shale and its going to be in bond Forum, where we expect that sale to get done in the next several weeks on a going forward basis. Our plan is to earn our goal is to execute on a weekly basis, but typically when you are an ideal form youre doing a sale and whole loans you can do it every three to seven days, we plan on going bond form and we expect to do it weekly.
Okay, what that means and then we're not looking to aggregate a velocity model. Our goal is not to aggregate, but to create velocity go ahead.
Yes, yes, so with the velocity you expect $600 million in originations this year.
I'm just wondering how you expect that to grow over time.
Well again Thats next 12 months that we have there is three channels you have direct origination to business developers and investors you have wholesale and you have closed loan purchases. So closed loan purchases has been the primary business as of to date and.
It's actually going to be material amount going forward, but originations. We we I think we're closing our first origination today, we have marketing and lead generation kicking in over the next several weeks, we expect the direct to borrower in the wholesale originations to ramp pretty quickly.
We will have more data over the next 30 to 45 days, but we feel very confident that the core of our business will be originations.
That we will be hitting or exceeding that 600 million over next 12 months, we feel good about those numbers that we provided.
Okay.
Okay great.
Just wondering about the operations in India.
Tampa.
Could you provide us a little clarity on.
On what the specific focus is for each location.
We referenced earlier in the presentation, our India team has incredible experience.
Hey, Matt demands over 30000 single family rentals, nonperforming mortgages and <unk> they've also underwritten those same assets so.
Our analytics, our underwriting our processing our funding our database and all that.
How's the India and they've done a fantastic job frankly, there their experience allowed us to quickly pivot into this business and I think we've received a lot of good comments from clients indicate that our team understands the space very well. So that's been great. We've increased staff there we're continuing to increase the staff in India.
The facing customer front, we needed to have that presence in the U S. So we evaluated plenty of areas and evaluate Dallas, we value other geos throughout the United States, We felt Tampa.
For many reasons was the best location. So effectively in Tampa is can be primarily salespeople, we probably will have some there'll be some support staff there like processes and other support staff.
But again, our sorts of support staff, primarily based in India, and our sales and customer facing staff will be base throughout the United States with a sales headquarters in Tampa.
Okay Awesome. Thanks, guys I appreciate it that's it for me.
We will take our next question is from the line of Mike Grondahl with Northland Securities. Please go ahead. Your line is now open.
Hey, guys. Good morning, just a little bit of a follow up what you were saying about originate.
So in asset management fees.
Jason just on average.
At a high level I'm, saying, okay, youre going to originate $600 million of paper, what's the average origination fee. The average selling CEB average asset management fee, yes. It was.
Really good question.
The $600 million.
So those are good questions. So again, let's let's break it out by channel.
On a directive borrower front.
So that's again, it's us face Nabarro directly your originations are anywhere on a low side of 50 basis points to typically 150 basis points. So the average median will be about 150 basis points for the bridge product for the SCR product, it's about one point.
When you sell the bridge this again leased so.
So that applies for the direct origination on the wholesale youre getting about 50 basis points on the bridge and 50 basis points on the CR for wholesale I'm, sorry, Let me back up you get 50 basis points for the direct origination for <unk> CR and then for wholesale you're getting nothing on the origination front and then in <unk>.
Those loans you get nothing on the front.
When you look at.
The asset management fee, you typically get about 50 basis points across the board except for <unk>. So on the bridge product.
The market is about 50 basis points for asset management fee. That's the market. Okay. It does vary.
But on <unk>, you don't get that so you get that strip for bridge. So typically 12 to 18 month product.
Then.
When it comes to interest strip.
You typically on the bridge product on the closed loan purchases you guys referenced in your presentation you between 202 hundred 50 basis points on the wholesale.
You are about 400.
About 400 to 450 basis points and the retail direct I should say directed borrowers about 400 to 450 basis points on that.
Again, <unk> the interest grip.
So again, you have 200 to 254 closed loan purchases 400 to 450 on both wholesale and direct originations for the interest rate now <unk> paper is sold at a premium so typically it varies in the market and the market has been pretty wild this year, but right now the market for DSLR product any over anywhere from 103 to 104.
Whereas if a premium on the <unk> product.
Does it help me, yes very helpful. Thanks, guys.
And then just to be clear.
Our closed loan purchases, we didnt really break baked that into the presentation back in March and April but the close on purchases.
<unk> is a line of business. We see continued we continue going forward, we see it as being a material part of our business.
That's an area that.
Surprise upside for us.
Once again, if you'd like to ask a question. Please press star one.
Okay. So look I appreciate <unk> time today as there are no more questions. We would like to thank everybody for joining the call. Please don't hesitate to reach out to our investor relations email or phone number with any questions I look forward to speaking with you soon thank.
Thank you very much.
This concludes today's call. Thank you for your participation you may now disconnect.
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