Q1 2023 Granite Point Mortgage Trust Inc Earnings Call
[music].
Good morning, My name is Kevin and I'll be your conference facilitator at this time I'd like to welcome everyone to granite point mortgage Trust first quarter 2023 financial results Conference call all participants will be in a listen only mode.
After the Speakers' remarks, there'll be a question and answer period. Please note today's call is being recorded I'll now turn the call over to Chris Petta with Investor Relations for Granite point, Chris. Please go ahead.
Thank you and good morning, everyone. Thank you for joining our call to discuss granite Point's first quarter 2023 financial results.
On the call. This morning are Jack Taylor, our President and Chief Executive Officer, Marschner Magic, Our Chief Financial Officer, Steve out part of our Chief investment Officer, and co head of originations Peter morale, Chief Development Officer, and co head of originations and steep plus our chief operating officer.
After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities.
Art will discuss our portfolio and Marcia will highlight key items from our financial results.
The press release and financial tables associated with today's call were probably yesterday with the SEC and are available on the Investor Relations section of our website along with our Form 10-Q.
I would like to remind you that remarks made by management. During this call and the supporting slides may include forward looking statements, which are uncertain and outside of the company's control.
Forward looking statements reflect our views regarding future events and are subject to uncertainties that could cause actual results to differ materially from expectations.
Please see our filings with the SEC for a discussion of some of the risks that could affect results.
We do not undertake any obligations to update any forward looking statements.
We will also refer to certain non-GAAP measures on this call.
This information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of these non-GAAP financial measures. The most comparable GAAP measures can be found in our earnings release and slides, which are available on our website.
I'll turn the call over to Jack.
Thank you, Chris and good morning, everyone. We would like to welcome you all to our first quarter 2023 earnings call and thank you for joining us today.
Our business delivered strong operating results in the first quarter, despite the challenging macro backdrop and negative sentiment around commercial real estate.
Our well diversified conservatively underwritten and granular floating rate senior loan portfolio continues to benefit from higher short term interest rates as our first quarter distributable earnings increased to 20 cents per basic share and covered our common stock dividend.
Given the highly uncertain market environment, our balance sheet remains defensively positioned benefiting from a well diversified funding mix.
Average that is meaningfully below our target range and a strong liquidity position.
We continue to emphasize protecting our balance sheet and our stockholders' capital, while actively asset managing our portfolio and rationalizing our liabilities.
The diversity of our funding and the strength of our lender relationships support the execution of our objectives.
During the first quarter, we successfully deleveraged our F. L. Two CLO and released a substantial amount of capital further strengthening our liquidity position.
The loans underlying the legacy CLO, where refinanced on one of our large bank credit facilities, highlighting our good standing with lenders and their ability to refinance our assets even during periods of major market dislocations.
Despite some signs of Phi and recently emerging signs of some more liquidity in the real estate capital markets. We continue to main our conservative approach to new loan originations.
However, we have been opportunistic with respect to deploying capital into our own securities when they present attractive relative value.
We bought back our common stock capitalizing on a deep value opportunity created by what we believe to be an unwarranted market discount versus our book value.
We repurchased about 1 million common shares generating attractive returns and meaningful book value accretion for our shareholders, while maintaining our strong liquidity position.
These repurchases have largely used up our prior stock buyback authorization asked from time to time, we have been an active market participant over the last couple of years Accretively repurchasing almost 4 million of our common shares.
As a result had to provide us with more flexibility to actively manage our capital over time, our board has increased our buyback authorization by an additional 5 million common shares or almost 10% of our outstanding shares.
What we've done in the past, we will remain opportunistic with respect to our repurchases taking into consideration multiple factors as we manage our business.
Given our conservative stance on loan originations, we have been emphasizing proactive asset management and collaboratively working with our borrowers to ensure successful loan repayments and resolutions.
In general our borrowers continue to support their properties and protect their investment as they recognize the embedded value in those assets and wait for the markets to stabilize and transaction volumes to begin returning to more normalized levels.
In the near term, we believe that the recent developments in the regional banking sector are likely to further delay market recovery and impact liquidity for commercial real estate assets, given the reasonable bank significant historical presence in this market.
It remains unclear when the market environment stabilizes, the commercial real estate markets improve and for how long the fed keeps short term interest rates elevated.
Accordingly, we further increased our seasonal reserves on our portfolio in the first quarter to about three 8% of our total loan commitments as the ongoing market disruptions, especially for certain properties located in some of the more challenging cities are likely to continue to create uncertainty.
We remain focused on the macro trends in the office market and the individual performance of our office loans.
We are keenly aware of the headwinds in the office market.
But the office market is not monolithic and the performance depends on the specific market fundamentals and the particular asset.
Properties located in our portfolio markets, such as Miami continue having favorable demand characteristics and fundamentals.
Other markets that were more impacted by the pandemic and where the trend of returning to the office is more delayed such as Minneapolis, there had been greater challenges.
Fortunately, we have a very diversified and granular office portfolio across 19 Msas.
We have little to no office exposure in some of the most impacted markets such as San Francisco, Washington, D C Portland and Seattle.
Yeah.
As far as specific asset characteristics, approximately 90% upper office assets by U P. B R either class a or recently renovated.
So while we are witnessing greater stress and challenges in some of our loans for which we have established reserves and where we are working with the borrowers on resolutions.
These situations are not indicative of the balance of our portfolio.
In addition, we take comfort in the strong sponsorship profile of the owners of the office property securing our loans.
The substantial cash equity invested in these properties to date.
And at the sponsors are generally committed to supporting their properties. During this period of dislocation.
Over the last year, our portfolio of borrowers have contributed over 140 million of additional equity in support of their properties.
In the near term, we will maintain our conservative stance and actively managing our business protecting our balance sheet and maintaining lower leverage well emphasizing liquidity and collaboratively working with our borrowers.
As we have said in the past, we believe that the U S. Commercial real estate market provides attractive long term opportunities and the significant amount of capital, which is currently on the sidelines waiting for more market stability.
We will ultimately be deployed providing support for the sector.
As the environment stabilizes and likely increased regulations for banks occur.
Once we are on the other side with the current disruptions. This will allow us to take advantage as a non bank lender of attractive investment opportunities.
I would now like to turn the call over to Steve help part to discuss our portfolio activities in more detail.
Thank you Jack and thank you all for joining our call. This morning.
We ended the first quarter with an aggregate committed balance of $3 5 billion and an outstanding principal balance of about $3 3 billion with only $205 million of future funding commitments accounting for less than 6% of our total commitments.
Our portfolio is well diversified across regions and property types and includes 88 investments with an average loan size of approximately $38 million.
Our loans continued to deliver an attractive income stream with a favorable overall credit profile generating a realized portfolio yield of about 8% with a weighted average stabilized LTV at origination of 63%.
Given our cautious stance on originations due to the market environment. During the first quarter, we funded about $17 million on existing commitments.
Our repayments and loan pay downs totaled approximately $60 million in the first quarter, which outpaced loan fundings and resulted in a slight decline in our portfolio of balance over the quarter.
As of March 31st our portfolio weighted average risk rating was 2.6, which was largely unchanged from the prior quarter of 2.5.
During the first quarter, we downgraded a $27 $5 million senior loan collateralized by an institutional quality full service hotel property located in downtown Minneapolis to a risk ranking of five.
The property was recently substantially renovated and reflect.
It's owned by a well regarded institutional sponsor who invested significant cash equity to purchase and then renovate the property.
Although the property's performance and the market in general have shown recent signs of improvement operating performance has continued to be negatively affected by the ongoing impact of delayed business travel trends and the Minneapolis, CBD and from the lingering impact of social unrest.
We are actively working with the owner of the property, who was elected to market the property for sale.
We anticipate the property will be lifted soon and are hopeful for a resolution this year, although the exact timing is hard to predict.
As of March 31, we have five loans that are risk rated five and on non accrual status totaling $275 million in new P. D for.
For which we established specific reserves of about $67 5 million.
Which implies an average estimated loss rate on those loans of about 25%.
As we mentioned in the past we are in active discussions with all five of these borrowers and are evaluating a variety of potential resolution alternatives and we'll provide more information as these situations develop over the course of the year.
Four of our non accrual loans are backed by office properties, each with its own characteristics and attributes.
As we evaluate a variety of resolution options for these office assets.
Some include a conversion to an alternative use.
While not all office properties are amenable to such outcomes, we would like to point out that the Phoenix and San Diego office loans are to where the highest and best use could be other than an office building.
The property is configuration lays out quite well for a conversion to residential use for which there is demand in the market.
Similarly, the San Diego Office property has an excellent location is recently and extensively renovated and can be converted to hotel residential or mixed use.
The building physical and locational attributes lend itself well to conversion and in fact, the borrow was under contract to a buyer who plan to convert the property to a hotel, but it fell out of contract shortly after the failure of Silicon Valley Bank.
For both the Phoenix and San Diego assets, we are working with the borrowers to take possession of the properties and have had multiple indications of interest for purchase for conversion.
We are evaluating a range of resolution alternatives, which could include a foreclosure or deed in lieu followed by a sale of a property.
I will now turn the call over to Martin for a more detailed review of our financial results.
Thank you Steve Good morning, everyone and thank you for joining us today.
Yesterday afternoon, we reported our first quarter GAAP net loss of $37 $5 million of 72 cents per basic share.
Which includes a provision for credit losses of $46 $4 million or <unk> 89 per basic share.
Compared to the prior period, our GAAP GAAP net loss widened due to an increase in our seasonal reserves driven by the unsettled market conditions.
The statement of earnings for the first quarter were $10 $7 million or 20 cents per basic share.
As compared to a distributor or a loss last quarter, which was mainly impacted by the resolution of one of our non accrual loans in Q4.
On a pre loss basis quarter over quarter, our distributor earnings improved by about three cents per basic share.
Driven by higher net interest income as our <unk>.
Floating rate portfolio continues to benefit from increases in short term interest rates.
Our distributor earnings covered our common dividend in the first quarter, despite us carrying over $200 million in cash which represents over 20% of our equity our balance sheet leverage meaningfully below our target levels and the five non accrual loans, which we estimate impacted our interest income by over five.
Million dollars in Q1 or about 10 cents per share.
Our first quarter book value declined by about 78 cents per common share or about 5% to $14.08 and was mainly affected by the increase in our seasonal reserves, which was partially offset by an estimated <unk> 19 per share benefit from our share buybacks.
As Jack mentioned earlier during the first quarter, we repurchased about 1 million shares of our common stock.
Given what we believe is a deep value opportunity our stock price currently represents.
Our board's increase in our buyback authorization of an additional 5 million shares for them.
Our ability to over time be opportunistic in the market, given our flexible and shareholder focused capital allocation strategy.
Our seasonal reserve at quarter end stood at about $33 million or $2 54 per share.
Representing about three 8% of our portfolio commitments.
The $46 million increase in our seasonal reserve quarter over quarter.
Was it mainly related to a higher allowance on our collateral dependent loans and.
And more recessionary my assumptions used in our analysis, reflecting the uncertain market environment.
As disclosed in our earnings supplemental slightly more than half of our CTO of islands are about $67 million is allocated to the five non accrual loans.
Turning to our capitalization.
And liquidity as.
We announced in March we successfully refinanced our legacy 2019 F L. Two CLO.
And funded the $269 million of loans with one of our bank facilities, which improve the efficiency of our loan level borrowings and released about 85 million desert capital further strengthening our liquidity position.
This is our second refinancing of this type following a similar transaction in the second quarter of last year related to our legacy 2018 F. One CLO and our term financing facility.
We believe this highlights the strong general quality of our loan portfolio, our ability to finance our assets during challenging market conditions and the strength of our long standing relationships with our lending partners as they look to do more business with us.
In connection with this refinancing we upsized, our JP Morgan financing facility to $425 million. Additionally, post quarter end. We also extended the maturity of our Morgan Stanley facility to June 2024.
As a result of the CLO refinancing our total leverage ticked up at quarter end to two five times from two three times in Q4.
We ended the quarter with over $220 million in cash and continue to actively manage our liquidity focusing on protecting the balance sheet and our investors' capital given the market environment.
Thank you again for joining us today and now we would like to open the call for questions.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset.
Before pressing star one one moment, please while we pull for questions. Our first question today is coming from Steve Delaney from JMP Securities. Your line is now live.
Good morning, everyone and thanks for taking my question well look for starters, we really applaud the share buyback I think it's a nice way to reward your shareholders. During these difficult times.
Both what you've done and the increase that you plan I'm wondering if you've also considered trying to buy back some of your convertible notes through reverse inquiry or other method, we have noticed in this earnings call.
A couple of commercial mortgage Reits have had some opportunities and bought back some debt. So any thoughts there I'd appreciate it. Thanks.
Sure Good morning, Steve It's Marcin. Thank you for joining us for your questions.
Appreciate the nice words on the buybacks, we thought it was a good use of capital.
This is the price evaluation.
To your to your appointment of converts yes. It is something we've considered and it will continue to consider.
We've had some we've had some discussions around this internally. So it is it is on the table.
So use of our liquidity, obviously given the upcoming.
Upcoming went through in the fourth quarter. So yes. It is something that's that's been debated internally.
Great that's good to know and I Wanna apologize you.
The Dallas office loan that was new in the fourth quarter I don't think I ever really asked her or dug into that but a couple of things pop up I mean, you were thank you for the the details on the new Minneapolis Hotel loan, but I kind of like I said I kind of Whiffed on this one.
You know, it's a smaller loan obviously 32 million compared to.
A couple of your other office loans that are that are much larger, but here's what jumps out.
Yeah.
It's a 2017 lens so it's six years old.
35 million loan balance.
Pricing is high at L plus 540, and the other thing I noticed.
$35 million loan, it's it's almost 400 square feet, which is similar to many in San Diego, but those loans are 90 million. This 135.
Just help me understand that picture as to what is unique here and I'm just curious whether that's a <unk>.
Dallas is an older an older property or just not as attractive an area you know what why the differences between Dallas and those other two office loans in your watch list. Thank you.
Hey, Steve It's Steve I'll Park. The morning. Thank you for your question sure.
So like I think you heard you heard Jack saying earlier in your prepared remarks that.
About 90% of our portfolio our office loans are class a or recently renovated so they're not all in that category.
We've had other assets in the Dallas market.
We think the market has had some good trends in it.
It's obviously building by building Submarket by Submarket and this is an asset that's underperformed.
And the leasing has been sluggish so back to the point that yes.
Monolithic in every one of these is a different story. This has just been an underperformer for a number of years.
And and we talked about resolution strategies on a few of the App that this one kind of falls in the same general category.
Can extrapolate that.
You know we're looking at all the typical options here you know, we're collaborative discussions with our borrower.
All options are on the table and.
A sale of the property.
Directly by the borrower or possibly a foreclosure or deed in lieu followed by our sale of kind of like on the menu and it's something that we're actively working on but I can't say anything is imminent.
This call.
Okay. That's helpful to understand the status and is there a I assume theres a specific reserve on this loan can you share with me with that amount would be.
Yes, so we so the five loans that are rated five.
Yes, I have an AG.
As a specific reserve of about 66, 67 5 million, that's about 25%, okay, but they're all they're all a little bit different but there you can kind of maybe estimate based on what the aggregators.
Got it I understand and also I understand probably what it's not a great idea to put your specific reserve out there when you're negotiating with buyers et cetera et cetera. So thank you. Thank you very much for the comments I appreciate it.
Thank you Steve.
Thank you next question is coming from Stephen laws from Raymond James Your line is now live.
Hi, good morning.
Yes, one second what what Steve said about the buybacks.
That's a good sign to support your stopped giving concerns in the market.
Especially at these valuations where its so accretive.
First question really more on the portfolio. It seems like in total four and five rated loans there were nine of them and I know the hotels moved from four to five where there are many changes from three to four back and forth or are we seeing the portfolio kind of separate into.
These nine loans that are four and five and you feel good about everything else kind of can you maybe talk about that a little bit.
Sure, It's Steve I'll start again, Hey, Steve Good morning.
So we we talked about our aggregate risk rating was relatively stable in the quarter.
Two 5% to $2 six that was not movement in the fours and fives as a group, except we did move that Minneapolis hotel loan.
Four to five but the total of those four or five loans is the same.
And then as far as the rest of the portfolio.
We did have a couple of other downgrades.
Generally fall in the category.
Good performers that.
We're not moved to four obviously, but they moved from let's say a two or three where we think you know it was on track Everything's fine, but just given the market environment.
We thought it is prudent to maybe it will be one notch, but.
It was more along those lines not nothing that we're at this moment concerned about.
Great.
As you have discussions with borrowers around you know extensions or modifications.
Are those discussions going any pushback or inability to buy by new caps.
Are there other protections that you'd like to see in an extension or modification, maybe instead of a cap at this point kind of how I can talk about how those discussions are at all borrowers.
Original maturity date.
Yes.
The tone of the conversations we've talked about this in prior quarters it still constructive.
We have a we have a good playbook.
Where if a borrowers coming up on a an extension or more recently, maybe even a final maturity.
In exchange for Paydowns additional economics spreads fees structure, we will work with those borrowers who are doing everything right.
Some of those conversations that you can imagine.
We're getting.
All things being equal we'd like to have a new cap the majority of our portfolio has either.
Active cap in place or other structure around the cap.
So it's all in some cases, if a borrower wants to put money into a reserve account debt service reserve account, that's something that we would consider.
But we look at the cap or other structure is important so we're almost always get them one on one or the other.
Great I appreciate the comments this morning. Thank you.
Okay.
Thank you as a reminder, that star one to be placed in good question queue. Our next question is coming from Douglas Harter from Credit Suisse. Your line is now live.
Can you talk about how much of the Oh, how much debt you have against the current non non accrual loans and or risk credit risk rated five months.
Okay.
Sure Good morning, Doug Thanks for joining us. Thanks for your question. So I would say most of the most of those loans in terms of U P. B.
Our financed on the two new facilities that we've put in place.
In Q3, and Q4, so you see it as over $100 million.
Of leverage.
Against three of those assets I would say that that's the majority of the borrowings against those loans, there's a little bit more on the other two but this is the this is the majority of the leverage against them.
Great.
I appreciate it.
Any update on the properties that Steve gave gave.
Any more clarity on far as timing as to when you might be getting some of that capital back or theater. Then you just for the new buyback authorization or.
Or for new loans.
Yes.
Again, so we are as you can imagine actively working on all five of these loans are all on a different path.
Ideally we'd like to resolve.
Some or all of these in the next couple of quarters.
Just given the market the timing is hard to predict but.
High level, you know look we certainly don't want to be.
And we're not going to be a force sellers, we're trying to be thoughtful about it but certainly the objective is over the next couple of quarters to start resolving many of these as we can.
Great. Thank you.
Thank you next question today is coming from Jade Rahmani from <unk>. Your line is now live.
Thank you very much.
Beyond the risk five rated bucket of office.
How is everything else going you you have a substantial amount of office loans.
Some of which are probably stated slated for maturity. This year given the origination date. So wondering if you can give an update there.
Hi, Jade this is Jack.
So it gives a more general update and Steve if you want to say something more specific.
Yeah, the headwinds are pretty intense in office, nowadays I would say that the.
The majority of the conversation, we're having with borrowers about it relates not to work from home dynamics and things like that but which seems to dominate the press quite a lot, but really the absolute level of rates.
And it's.
<unk> has imposed on the market.
The cost of carry as they move through this so.
The.
Which I believe is the main driver or stress in real estate commercial real estate and office. So for the rest of our portfolio. So we've gone through a risk rankings and our seasonal reserves. There are some that we have our eyes on and are having more significant conversation.
But as we said.
Our.
Portfolio is supported by borrowers that are looking at the embedded value over time.
Uh huh their assets and are putting money in to support it.
No.
Difficult when rates are so high.
To navigate all of them, but I'll point out another thing too with what we've observed.
Is in the more middle market with a substantial institutional owners, but not so much the mega funds if you will.
They scramble a lot more to support their properties because its more meaningful to them as opposed to some of the larger fund operators, who view it as an opportunity maybe just to move on to the next one that they've already raised and they will exercise their put option. If you will for the lender.
So we're seeing that it's kind of a funny dynamic in that.
You might think that the bigger.
Fund operators would be those that would stand behind their properties more.
We're seeing it actually bifurcate a bit and.
The middle market.
Well, our property say that $50 million with $30 million alone.
They are really stepping up to the plate I want to say, though that this is not I'm not guaranteeing that we're not going to see any more credit migration downward, it's really path dependent I believe largely around the fed.
And I think there's a lot of dynamics about the effective rates not just on the intentional destruction of value.
That they thought.
But also the effect on a much broader swath of the economy.
Things like major city centers and the <unk>.
<unk>, putting up municipalities. So those those pads are very uncertain still.
And we're watching it very closely and in deep discussions with our borrowers on a daily or weekly basis.
Yeah.
How many how on top of these loans are you in terms of asset management, what's your level of dialogue I mean, right now there's four loans.
Within the office portfolio.
I don't know I think it's beyond the fed that's affecting office I think that the fed is affecting the other property sectors multifamily industrial et cetera, where we've seen cap rates widened, but not the level of distress playing out in office office, it's a complete inability to underwrite rent and <unk>.
Lack of demand I think yes, you are seeing some leasing activity and I think the best most renovated buildings are seeing demand, which is also somewhat surprising given your comments about the two conversions those are freshly renovated projects, but what level of dialogue are you currently having.
These borrowers I mean, there's many loans that were originated years ago.
Can you also talk about the magnitude the dollar amount of office maturities, you'll be facing in the next one.
So Jay let me, let me address.
I thought I heard you I'm, sorry, if I misheard you I thought you were asking me.
About the nature of the conversations on what we're seeing with them and so we are in a repeat.
Frequent asset management dialogue with our borrowers.
There's many that are doing.
Doing quite well.
There are some that are in between and then Theres the wasn't decided and and so I do agree with you that rates are affecting all of commercial real estate you know for example.
Multifamily that were originated bought originated last year and put them to close.
Coming under significant stress compared to.
The cap rate levels that they were bought at the level of rates.
But sticking with us where we are in intense.
Touch with these.
The these borrowers on the office side and I did not mean to say if you took it this way I did not mean to say that.
It was not a factor I think it's a quite significant factor I think in the near term, though the bigger factor is about liquidity liquidity and liquidity with demand.
Effects, yet, but when you have an out of favor asset category liquidity first range from it we'll see where it goes next right, but I personally believe that there will be a healing in the capital markets and in the office market generally.
Our outlook, reflecting what our borrowers are reflecting back to us about where their main stresses are.
And practically speaking in terms of let's just say across the office portfolio are you in touch with all of the borrowers and what's the frequency of dialogue.
Well, Steve maybe you can address it the answer is yes.
And it varies right.
The situation.
And some of them. It's a it's not a weekly discussion when there's not that much to be concerned about in others. It's more frequent and intense Steve do you want to elaborate.
Yeah, So I'd say the way we are.
The way we're set up.
The originations team that.
The loan underwrites and closes alone is responsible for that loan to repayments or there's a real kind of.
Soup to nuts approach here.
No.
We're not really originating right now so we have so this is our focus point for our DLT.
The amount of the amount of touch we're having is pretty significant.
You know just conversations about it to the mod coming up will be a little bit more intense.
We're looking at leases were reviewing leases the site tours Theres business plan reviewing business plan budgets.
Are there still draws going on for Capex some leasing.
So the amount of talks were having you know it's certainly not daily.
Although it can be daily at certain points, but it's it's.
We're very much in touch with with all these borrowers.
You can imagine.
Four or five right along might have more more of a touchstone of one or two.
But I would say the level of dialogue.
Both with us and our borrowers often our lenders as it kind of daily weekly ongoing and constructive.
And then Jay I just wanted to.
Point back to a little bit you know we have.
Uh huh.
Over 20% and repayments during the close to 2022, including running on a run rate running through to December and.
And over half of that was in office and while we fully expect that we're going to see a decrease in the amount of prepayments this year because of the market environment.
All the shocks to the system by the continued raising of rates.
So those office loans that repaid last year.
We're financed or blocked by parties.
Including through the end of December and we're seeing I don't want to say a anywhere.
Anywhere near the robust pace as last year, but at a significant pace of repayments insight now, including four office loans now.
That's evidence that you are working with our borrowers and being in touch with them and accommodating or demanding depending on the situation.
All their needs.
As we go on and so it is it is something where we think that plan of working with them extending out renegotiating for higher rates et cetera, as proven fruitful for us.
Thank you and on the multifamily side I know everyone's focus is on office generally I would say summarizing first quarter earnings multifamily has been pretty good.
Probably better than expected. However, there have there have been a few problem areas.
One of your competitors, which has a GSE servicing business, Freddie Mac delinquencies spiked quite notably within the portfolio and just today the wall Street journal's talking about performance in CLO deteriorate or are you seeing the multifamily performance.
Yeah.
Dave you want to talk about performance then I'll make another comment.
Sure Yeah, so not not Wednesday, notwithstanding the rising rates and the economic environment. The multifamily properties in our portfolio are generally.
Exhibiting healthy fundamentals and we feel we feel good about them.
The portfolio is fairly diverse.
It's mainly A's and B's our largest concentrations are in the southeast and southwest where not just in the southeast and southwest.
Those business plans typically involve renovation capex plan pushing rent not so much growing rents.
As market rent growth, but more looking at the property next door and saying if we do this amount of renovation work. We can get the rents you guys are getting next door.
So we are still seeing.
As rent Rolls turned monthly quarterly we are still seeing borrowers getting.
Getting those underwritten rent bumps.
Obviously, the you know the housing market.
It's expensive and rates are high so that's that's helping the multifamily market.
We're certainly we're certainly seeing rents flowing.
You know, we we did some but not a ton of business I think when the say late 2021 into early 2022.
So we don't have a ton of that vintage the vintage that we what we did do that time period.
We have dialed back leverage probably on average about five points and we had pushed off exit that yields. So I fully expect that there'll be some multifamily loans that are going to need another turn or two of the rent roll to get to the exit but these are obviously three plus one plus one and in good markets they might pay off in two or three years, maybe some need an extra year.
And we have one right now by the way that we did kind of near the peak of the market that.
They ended up putting in less Capex got higher rent bumps undertaking at that non agency deal I'm, not saying everything's going to look like that but I would say in general.
We saw the headlines.
In general.
We feel good about the multifamily.
That's great to hear thanks, so much.
Thank you Jade.
We've reached the end of our question and answer session I'd like to turn the floor back over to Jack <unk> for any further or closing comments.
I'd like to thank everybody for joining us for today.
Really appreciate your time and attention.
And I'd like to thank our team for all the hard work.
You've been putting in to maintain.
We maintained our portfolio and the quality of it and I, especially want to thank our investors for the support you've shown to us.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.