New York Mortgage Trust Inc. Q1 2023 Earnings Call

May 4, 2023

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

Welcome to the New York Mortgage Trust first quarter 2023 financial results Conference call.

During todays presentation, all parties will be in a listen only mode.

Following the presentation the conference will be opened for questions.

You have a question. Please press the star followed by one one on your Touchtone phone.

If you would like to withdraw your question. Please press the pound key.

You are using speaker equipment, we do ask that you. Please lift the handset before making your selection.

This conference is being recorded on Thursday may four 2023.

Our press release and supplemental financial presentation with New York Mortgage Trust first quarter 2023 results was released yesterday.

Both the press release and supplemental financial presentation are available on the Companys website at Www Dot N Y M. T. R U S T dot com.

Additionally, we are hosting a live webcast of todays call, which you can access in the events and presentations section of the company's website.

At this time management would like me to inform you that certain statements made during the conference call, which are not historical maybe deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.

Although New York Mortgage Trust believes the expectations reflected in any forward looking statements are based on reasonable assumptions. It can give no assurance that its expectations will be attained.

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

Now at this time I would like to introduce Jason Serrano Chief Executive Officer.

<unk> please take it away.

Thank you operator, good morning, everyone. Thank you for joining our first quarter 2023 earnings call on the call with me today is Nick <unk>, President and Christine <unk> Chief Financial Officer.

I'll begin by providing some market information and briefly touch on the first quarter performance before passing the call to Christine who will discuss our quarterly results in more detail. Nick will then discuss an update to our portfolio and market opportunity for.

Left with a material portion of fixed rate assets or at below fed funds rate. Some regional banks are caught in liquidity crunch liquidity is locked up in these assets and pushed into the distant future. We recently witnessed three of the four largest banks failures in U S history total assets of the deposits of approximately 550 billion compared to a tote.

Half related to quarter over quarter change the lending standards, which are on the rise and this was noted before the regional bank liquidity issues.

On page seven of our presentation, we highlighted the obvious fact that the entire yield curve is inverted but the not so obvious fact is that the month of inversion are now beyond or very close to when recessions where previously triggered.

Whether you look at the trends.

Or <unk> money supply growth or which was negative one.

1%, which is the lowest integrate progression for our manufacturing ASM index, a variety of other leading our stores leading indicators.

This is likely the most advertisers session in U S history, no recession or the same and we do not see U S housing leading the decline in this downturn in fact, we believe U S housing, including multifamily asset class will outperform in this market on the right side of the page seven we discussed how the previous 2000 teams and the great financial crisis or simply.

Relative today, mainly U S mortgage is predominantly fixed rate and underwritten with highest Lennox barron's than 2007 mortgage payment shocks are not an issue like it was at that time with after the fed's aggressive rate hikes also the incentives for homeowners to walk away from their mortgage and rents.

The supply side of the housing remained stubbornly low less than 1 million units for sale in the United States with less than three months of supply. This is a comfortable area to keep HPA range bound. This is primarily due to a block market, where sellers do not want to lose their low cost of financing, but also may have issues.

Finding replacement housing on the other side, new homebuyers are delaying purchase plans with borrowing costs above five 5% and little inventory to choose from.

However, we know that the housing market is not insulated from higher loan default risk wage loss due to layoffs. As an example will push delinquencies higher for the U S housing credit market. The loss given default should be should prove to what to be somewhat stable primary to underwrite much different than 2007.

And the recessionary concerns we believe the opportunity will open up this year and attractive risk adjusted returns in a dislocated market with two decades of residential housing investments and loan and property.

Level <unk> experience in both single family multifamily, we are well equipped to unlock value in this market.

'twenty two.

We set plans to sharply reduce our investment pipeline, which was running at $1 billion per quarter.

In Q3, 2022 asset acquisition totaled only $118 million and have stayed quite low since we have remained steadfast in our defensive posture in order to be a meaningful often as a player in that down in a down market we.

We believe the income potential in this new cycle will exceed earnings our capital over the past year. If it was fully redeployed simply said, we believe the opportunity cost of holding cash over the past 12 months was extraordinarily low we are confident the investment opportunity will be highly attractive sizable to create significant long term value for the company.

On the right side of the graph shows our portfolio size over the past five quarters in late 2020, we targeted bridge loans, because we were attracted to high coupon low LTV and short duration in the second quarter of 2022, we reached a peak of business purpose loans, despite multiple opportunities to continue growing the portfolio.

The company is primed to be liquidity provider in a downturn to grow earnings over a longer time horizon.

Time preferred stock in the first quarter.

At this time I'd like to pass the call to Christine to provide more financial color and then to Nick to discuss our portfolio update and strategy Christine.

The fair value changes related to our investment portfolio continued to have significant impact on our earnings and during the quarter. We recognized 31 per share of unrealized gain primarily due to improved pricing on our residential loans and bond portfolio.

In the first quarter, we had noninterest related income of $66 8 million or <unk> 73 per share as previously discussed prices in a majority of the assets in our investment portfolio increased during the quarter and contributed 31 per share and income. In addition, our consolidated multifamily JV properties can.

This can be seen through an 11% rental growth rate in 2022 with an additional 3% growth rate in the first quarter of 2023.

Success in this new environment may be achieved through organic accretion of liquidity tactical asset management and prudent liability management for our book value protection.

And as a REIT, we are particularly excited about our excess liquidity advantages permanent capital can have in a dislocated market.

So with that I'll pass it back to the operator for questions.

Thank you at this time, we will conduct the question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Draw your question plus our one one again please.

Please standby, while we compose our Q&A roster.

Our first question will come from Doug Harter of Credit Suisse. Please go ahead.

Hi, Thanks can you talk about.

The two properties, where you took the impairment.

On the multifamily and kind of what Mike.

Differentiate those versus the other 2017 in the portfolio.

Yes, so the two properties.

Our properties, where we are in advanced stages of of.

Of the sale and.

This is a proud of these two properties are in the middle of a transition plan. These are value added class b properties that we.

Conducted the.

Our Capex program.

And we're deciding here that it may make sense to sell the property for the Capex plan is fully completed.

As we may as we find that the capital that we received back we will add more value to the company and then keeping that asset in those markets with the Capex plan in place. So we're expecting.

A transition plan that would take probably another 15 18 months.

And I think with exceptional about these properties is that the decision to sell before the Capex plan is completed as something we realize and hence the reason why we're taking the adjustment on our value.

And then so if that's two of the six that I guess you have agreements on can you just talk about the other four.

Sort of what's the gains losses relative to kind of where their card carrier.

Yes, I mean as Christine mentioned.

We take the lower of the value of the property or our cost and given that we did not reduce the value of those properties. Obviously, we feel like the properties are worth either our cost or more.

We'll disclose.

The sale proceeds and in pricing related to those those assets in the next quarter.

Okay. Thank you.

Thank you very much.

Please standby please standby, while we compile our Q&A roster.

As a reminder, if you'd like to ask a question. Please press star one one on your telephone.

And our next question comes from Matthew Howlett B Riley Matthew Please go ahead.

Hey, Jason Thanks for taking my question just like you guys had a very prudent with the capital management I know you don't have a crystal ball here, but I mean, what could you tell us looking at the next 12 months ago.

All of that excess liquidity be deployed.

I think the issue with the financial crisis was things went down and then people places and then went down further so.

What do you need to see for things to bottom things trading right now they are clearing levels established.

Yeah. So far we've seen a couple of regional bank sales. These are not of entities that have been seized by the FDIC.

Those sales were from the FDIC or mostly.

Low coupon MBS, which is not a particular.

The trading strategy for us and we think there's lots of supply of that that will be coming out and obviously its very tough to make.

NIM off of a three 5% coupon MBS bond.

So it's more capital appreciation and that's more of a longer and longer dated view on rates.

So at the end of the day.

We are looking at us.

Single family loan.

We're looking at a market, where you have about $120 billion of.

Senior loans for multifamily properties that will be coming due there may be a lot of gap financing.

The possibilities are on the multifamily side on the single family side, obviously, there is a major reduction of.

Credit availability.

That's occurred and we highlighted that last quarter.

Paul mentioned that on his call yesterday that there has been a big pullback in lending and that's an area that we can.

Could could exploit.

More so on the secondary market side or in the primary market size and that there'll be a lack of financing on some loans and then hung and we can look to restructure those loans with our servicing capabilities. So we're excited about the opportunity obviously the market is experiencing some significant headwinds.

We have been preparing for this for over a year with our excess liquidity and low.

Margin debt as well as keeping our balance sheet clear of any near term maturities. So we can use our cash.

To the fullest extent and not hold back for our maturity schedule and I also believe that as I said in my final comment that our permanent capital will provide.

Distinctive advantages in this new market.

To your point in 2007, you had a downturn over the market and things were cheap and then obviously it turns lower than 2008, nine and finally recovered with the green shoots in 2010.

I think that was a market also where pricing discovery and understanding. The fact that there is such a thing as home price declines could existing United States. It was also a factor in a lot of the early <unk>.

<unk> of potential pricing, we've looked at this market we've been in the Mark for two decades.

Annualized 2007 have been involved in buying assets in that market through different cycles and on the multifamily side.

We feel pretty confident about our ability to understand the values in this market. It is impossible to time the bottom.

So in our view is that that's where the permanent capital advantages come in place, where we feel we can earn.

Equity type of returns on a.

Senior loan is an exciting opportunity for us.

<unk>.

Given the confidence we have in our capability, we're not going to be shy to put capital to work.

And looking forward to generating.

What we believe is going to be exceptionally risk adjust returns over the subsequent year. So very we think we're positioned all excited for the opportunity.

Well said and looking at <unk> ratios has always had a history of being.

Visionary you said that you were the leaders that are out of the financial crisis are doing interesting trade.

And interesting assets, what can you tell us.

Again, I know you don't have a crystal ball, but a year from now I mean with all the superbowl These cheap assets.

You have the asset manager, which is great, but when you look longer term measure with New York Mortgage Trust, what they look to acquire an operating business you see a secular change happening with the banks may be coming out that you could take in <unk> and a new direction anything.

That could be.

You've got all this capital excess capital is terrific going into this market, but long term do you look at buying an originator is still staying away from that or doing something else.

Yes, so youre keying on a particular point, which is our G&A level that we kept low and the reason why it's low is because we havent.

Vertically integrated into a significant originator servicing platform.

And just the the single family loan markets.

We have looked at.

Kind of originators and investor loan markets, but your point is well taken and that the that we do believe there's opportunity for us.

On the operational side.

We have looked at various platforms to date last year that there was many platforms have held for sale, we didn't feel like the timing was right there.

That in a dislocated market, we think we can pick up operating businesses.

For a little cash or potentially you get paid to take them in some cases and those are the options. We're looking for.

We think it also helps.

Generate sourcing and distressed.

So we're excited about opportunities that may come from that.

But yes, absolutely we're focused on that.

And we will I think likely use some of our excess liquidity to find some of those opportunities. So.

We still believe the timing is not quite there.

But we think it's given the lack of origination the liquidity concerns that exist.

Antibodies like us become pretty attractive partners, given our lack of debt and also the highest cash. So that's something we're definitely looking forward to.

Yeah, let me start with the lowest leverage in the space and certainly acknowledged a low operating cost so.

We'll look forward to that thank you.

Thank you.

These standby, while we bring us our next question.

And our next question will come from Eric Hagen with <unk> go ahead Sir.

Hey, Thanks, good morning.

Maybe starting off here, just how should investors think about <unk>.

<unk> of the portfolio like how much cash flow do you expect maybe on a.

Taken on maybe like a quarterly basis.

If you wanted to Delever the portfolio just from pay downs.

Do you feel like you are doing that.

And then sort of related question on top of that is like is there a way to think about the earnings which are cash versus non.

Noncash or discount accretion.

And the portfolio right now thanks.

Yes. Thank you so as it relates to the duration.

Starting basically the end of 2020, we focused on <unk>.

We grew that portfolio to about.

$1 $7 billion, which is the peak in the second quarter of 2022.

<unk> mentioned this multiple times on calls which is.

This was a trade for us not necessarily a business in that we felt that are using our cash.

In this manner, where you could basically.

Organically raised capital by just letting the portfolio wind down was probably the most prudent thing we could have done a couple of years ago.

We had timing of when dislocation would come was very tough but.

Wanted to do was be early on the call on slowing down.

Your pipelines. So you can get that cash back in time for search for opportunities or.

As we indicated on page nine of our presentation.

We're letting that plan play out.

That plan has.

Taken a portfolio from $1 7 billion to $1 1 billion and as Nick mentioned, we're in a very season stage of our portfolio related to an 18 month kind of maturity type of loan. So we do expect that portfolio to pay down pretty quickly and also to pay down our debt.

As a result.

So.

That with also our press.

The mezzanine book.

We're experiencing in roughly around 15%.

Our loans that are paying off on a quarterly basis.

That's also a very seasoned portfolio also portfolio that we stopped.

Really allocating or meaningful capital back in Q2 2022.

So that is allowing us to run off as well on top of that we have our JV equity portfolio, which I mentioned in her six assets that are in the late stage process for a sale, we're looking to monetize the entire portfolio.

We're focused on reducing our exposure there and using that capital for lending opportunities. So there's a lot of things that we're doing organically just letting portfolio runoff theres, the JV equity, which is a capital market sale.

And then on the.

The remainder of the portfolio, we don't have a lot of <unk>.

Capital allocated them to.

Two.

To margin that Christine mentioned that point and that we've been.

Systematically reducing margin debt from our portfolio, we have various plants in our presentation that showed that effort.

So not a lot of exposure there.

And the transition from kind of repo debt from March 2020.

Two securitizations and non marginal longer term financing facilities is something that we set it to.

To complete which we've been working on.

Now two years, so we feel like we're in a good position there.

That was really good detail I appreciate that.

One more on the BPL, how would you characterize maybe the conditions for the borrower like is there a way to compare the returns that they're getting they're expecting now versus call. It 12 or 18 months ago.

The cost of debt was lower but home prices may have been higher and conditions were obviously a little different.

Yes, I think the Bora expectation.

Hard to hear.

Hard to estimate exactly what theyre going to be thinking because thats going to be highly dependent on home price appreciation.

Oftentimes when the projects come come to us.

The business really is.

Putting in some degree of rehab and then capturing value through that rehab and not really relying on home price appreciation. However, there has been a very strong HPA environmental last few years. So regardless. So there was just a much larger margin of error to the extent that we don't execute as well or your projections were off home.

Price appreciation did help you now.

Now it is a slightly different environment.

And I would say that for what we're seeing is that we're having more experienced borrowers come through the pipeline in terms of new purchases today than newer borrowers and I think it's because the the more seasoned professionals have a better way to execute.

And they feel more confident in the way that they can execute so because of that they don't have to rely as much on home price appreciation. So I think I think the dynamics of have definitely changed.

It's really coming from both sides on the lending side.

<unk> are less inclined to lend to people without the experience and then in terms of people looking seeking out this more expensive debt it tends to be more of the seasoned professionals that have there have confidence in their ability to execute are the ones who are actually take out of this debt and take out of this market for future opportunities.

Yes, it's definitely a market that's growing quickly. Thank you guys. So much I appreciate it.

Okay.

Thank you for your questions I would now like to turn it over to Jason Serrano CEO for closing remarks go ahead Jason.

Yes. Thank you for your time today, we look forward to speaking with you on our second quarterly earnings call have a great day.

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

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New York Mortgage Trust Inc. Q1 2023 Earnings Call

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