Q4 2024 New York Mortgage Trust Inc Earnings Call
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Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by welcome to the New York Mortgage Trust's fourth quarter 2024 results conference call.
Speaker Change: During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will be opened for questions. If you have a question. Please press star one on your telephone.
Speaker Change: Would like to withdraw your question. Please press star one again, if you are using us.
Speaker Change: Equipment, we do ask that you're pleased with the handset before making your selection. This conference is being recorded on Thursday February 22025, I would now like to turn the conference over to Kristy. This Allen Investor Relations. Please go ahead.
Kristy: Welcome to the fourth quarter 2024 earnings call for New York Mortgage Trust, a press release and supplemental financial presentation with New York Mortgage Trust's fourth quarter 2024 results was released yesterday.
Speaker Change: The press release and supplemental financial presentation are available on the company's website.
Speaker Change: <unk> W. W Dot and why I'm Truckstop com.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 such expectations will be attained.
And the 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.
Speaker Change: No at this time I would like to introduce Jason Serrano, Chief Executive Officer, Jason. Please go ahead.
Speaker Change: Good morning. Thank you for joining New York Mortgage Trust fourth quarter earnings call. Joining me today is Nick Meyers, President and Kristina <unk> CFO.
Speaker Change: Discuss the full year recap and insights into 2025, Christine will provide commentary on our fourth quarter results.
Speaker Change: Nick will follow with an update to our portfolio positioning and focus.
Speaker Change: After restricted monetary campaign by the fed that began in early 2022, just below inflation. The policy stance reversed in 2024 with 100 basis points of rate cuts. However, mortgage rates remained elevated as the market focus on the supply side that Patrick Treasury issuance calendar for years to come.
Speaker Change: With the new administration, the market will be attempting to assess the benefits of the new policies against the current forecast.
Speaker Change: Slowing macroeconomic data.
Speaker Change: For example, the benefits of onshoring manufacturing jobs and deregulation to spur economic growth may be neutralized by a slowing economy reinforced by cuts to the federal stomach.
Speaker Change: When you look directly at the U S housing fundamentals the market continues to show signs of resiliency, but strong fundamentals due to low average mortgage rates held by the U S homeowners.
Speaker Change: Just over 4% the higher rate environment will continue to keep housing supply in check.
Speaker Change: Cable housing trends and the presence of a positive sloping yield curve has the potential to enhance company earnings. This can be achieved by focusing on sustainable reoccurring income through strategic deployment of excess liquidity with this goal in 2020 for the companies portfolio grew by 44% relative to same time in 2023 driven by.
Speaker Change: At $4 $1 billion of acquisitions, and primarily liquid agency bonds and through higher spread bridge loans as a result.
Speaker Change: The adjusted interest income rose, 60% year over year after consideration of financing costs. Adjusted net interest income contributed 36 EPS in Q4, a 10% improvement from a year earlier.
Speaker Change: Strong balance sheet growth in 2024 was necessary following a period of low investment activity for the company.
Speaker Change: This period also allowed us to execute a significant portfolio restructuring center around the divestment of our underperforming multifamily JV equity holdings.
Speaker Change: We explained back in early 2022 that the effort would take time to complete and that we would be patient in our approach to focus on medium to long term value for our shareholders. We are happy to note that we reached the final stages at this point last year.
Speaker Change: In 2024, we issued six Securitizations and kicked off 2025 with an issuance of a detailed bridge securitization alongside an $83 million baby bond issuance earlier in January we continue to pursue attractive funding strategies to allow for prudent growth in our investment portfolio. Our goal is to focus on accessing nonrecourse.
Speaker Change: Non mark to market leverage so we can efficiently access the company's excess liquidity totaling $343 million at the end of the year.
Speaker Change: <unk> substantial growth in our portfolio, we were able to control costs with expense reduction plan to keep our G&A just about 3%. We believe our execution in the year provide the company with increased portfolio of flexibility to pursue and optimize returns in 2025, and we look forward to accomplishing this task over the year.
Speaker Change: Given this dynamic we believe <unk> share price presents compelling value with embedded upside as a reoccurring earnings continued to improve.
Speaker Change: As illustrated on page 10 of our Q4 supplemental <unk> shares traded at a 41% discount to adjust the book value at year end market capitalization was 90% covered by the Companys cash and agency bond portfolio, along with $388 million of book value or $4 29 per share a potential upside.
Speaker Change: To year end market capitalization.
Speaker Change: Furthermore, the companys balance sheet holds $272 million or $3 <unk> per share and net discount to par assets, which can be recaptured through paydowns reversing to help discount.
Speaker Change: With additional income growth through access to the excess liquidity and utilization of our securitization market, we see significant value upside to our current market capitalization levels, especially after consideration of a 13% plus dividend yield.
Speaker Change: At this time I'll pass the call over to Christine to provide for fourth quarter financial highlights Christine.
Christine: Thanks, Jason Good morning, all.
Christine: Cover the key factors behind our fourth quarter financial results and reference the comparative financial section in our supplemental.
Christine: The company had underappreciated loss per share of <unk> 44 cents in the fourth quarter as compared to underappreciated earnings per share of 39 cents in the third quarter, our ongoing commitment to investing in assets that generate recurring income has led to an increase in quarterly adjusted net interest income EPS contribution to <unk> 36 per share in the.
Christine: The fourth quarter compared to 32 cents per share in the third quarter and 26 cents per share a year ago.
Christine: This represents a 12, 5% increase in the fourth quarter compared to the third quarter and a 38% increase year over year.
Christine: Additionally, as detailed in slide 25, our net interest spread has shown improvement over recent quarters, increasing by five basis points in the quarter and 35 basis points year to date.
Christine: Moreover, our interest rate swaps have continued to benefit our portfolio, reducing our average financing cost by 38 basis points for the quarter and 61 basis points year to date.
Christine: Our earnings were primarily affected by higher benchmark interest rates, which reduced the fair valuation of a residential loan and bond portfolios.
Christine: During the quarter, we recognized net unrealized losses totaling $131 6 million due to lower asset prices, primarily on our agency MBS portfolio and residential loan book.
Christine: These unrealized losses were partially offset by 92 million and gains from our derivative instruments, mainly interest rates swaps. Additionally, we recognized losses of $9 9 million or 11 cents per share primarily from foreclosed properties are still remain on balance sheet, which are carried at lower of cost or market.
Christine: Due to lower valuations compared to their previous carrying cost.
Christine: We are nearing the completion of our divestment of multifamily JV equity with only four assets remaining totaling 21 million as of December 31.
Christine: During the quarter, we successfully disposed of five multifamily real estate assets, resulting in net gains of $4 9 million attributable to the company.
Christine: These transactions have also create a secondary positive impact that will benefit us in future quarters by reducing the negative earnings drag from these properties on a go forward basis.
Christine: In the quarter. These dispositions decreased our net loss from real estate from seven 5 million to $5 9 million.
Christine: Total G&A expenses remained essentially unchanged compared to the previous quarter and portfolio operating expenses decreased by $1 5 million, primarily due to reduced expenses associated with our nonperforming residential loan portfolio.
Christine: Additionally, we incurred debt issuance expenses of $1 9 million related to a BPL rental securitization. These expenses were fully recognized in the current quarter, rather than amortized over a longer period due to our fair value election.
Christine: GAAP book value decreased by five 6% during the quarter and adjusted book value per share ended at 10 35 down four 8% from the third quarter.
Christine: Our adjusted book value per share was positively impacted by the reduction in the fair value of our amortized cost liabilities, primarily due to the increase in rates.
Christine: As of quarter end, the company's recourse leverage ratio and portfolio recourse leverage ratio move higher to three times and two nine times from two six times and two five times respectively.
Christine: As of September 30, due to our continued financing of investment Securities primarily agency MBS.
Christine: Our portfolio of recourse leverage on our credit and other investments rose to one one times from two eight times at September 30, resulting from partial recourse repurchase financing of fourth quarter acquisitions.
Christine: Given our continued use of securitized financing for our credit assets, we expect the growth in our credit portfolio recourse leverage to be slower than the growth in our credit books.
Christine: We are dedicated to ensuring a competitive current yield for our shareholders and have maintained a dividend of <unk> 20 per common share unchanged for five quarters. We also issued a $2 5 million of unsecured notes in January of this year, which were earmarked and now been fully deployed into asset acquisitions.
Christine: Significant portfolio restructuring over the past three years has enhanced our ability to generate recurring earnings that align closely with the current dividend.
Christine: I will now turn it over to Nick to go over the market and strategy update Nick.
Nick Meyers: Thank you Christine two.
Speaker Change: <unk> 2024 was the firm's most productive year in asset acquisitions. The fourth quarter activity was just as robust with a company entering with the $923 million of residential investments.
Nick Meyers: Around 61% of these purchases were in residential credit investments and the rest were in agency MBS.
Nick Meyers: In the quarter, the largest sectors of residential credit investments, where BPL bridge loans with 345 million of purchases and BPL rental loans with $188 million.
Nick Meyers: We expect acquisition volume to be more balanced between BPL bridge loans and BPL rental in 2025.
Nick Meyers: Throughout 2024 relatively range bound agency spreads allowed us to steadily deploy capital into the sector at attractive return profiles, while we try to increase the pace of acquisitions during periods of wider spreads in the markets. The portfolio has been on a consistent growth trajectory over the last eight quarters.
Nick Meyers: As a core strategy. The agency MBS portfolio is currently $3 1 billion market value as of quarter end, which is 42% of our asset portfolio and 23% of our net equity.
Nick Meyers: We still see a favorable environment to invest in agency MBS, given the still attractive spread levels as we enter a monetary easing cycle.
We will continue to take advantage of the opportunity with our available capital.
Nick Meyers: Over the quarter current coupon mortgage spreads widened by six basis points to 135 basis points. The intra quarter volatility was noteworthy however, with spreads, peaking at 154 basis points right before the election before normalizing into year end.
Nick Meyers: <unk> spread movements provided us better entry points into agency MBS trades. Furthermore, persistently high spreads are positive for us as portfolio growth remains our goal.
Nick Meyers: Our strategy in the agencies over the course of the year was to prioritize positive carry profiles across low pay up spec pools in the quarter, we targeted close to current coupon spec pools for purchase.
Nick Meyers: The positively sloping yield curve that materialized in the fourth quarter will allow us to participate in a wider range of coupons in the future and still maintain a positive NIM.
Nick Meyers: In the quarter were predominantly purchased five and a half coupon spec pools lowering the weighted average coupon of the portfolio down slightly to $5 seven 7% from 580%.
Nick Meyers: The portfolio is still a relatively differentiated high coupon portfolio.
Nick Meyers: We continue to favor the liquidity our return profile of the agency MBS strategy.
Nick Meyers: And BPL bridge loans, we have now invested over $4 8 billion and the strategy to date since 2019 bolstered by consistent purchase activity over the last few quarters.
Nick Meyers: Having executed on three BPL brick securitizations in 2024, we now have $706 million of revolving debt that can be recycled to fund future investments.
Nick Meyers: The bridge securitization markets saw deal issuance grow from $3 billion in 2000 $23 billion to $8 billion in 2024 with momentum for further growth this year.
Nick Meyers: 2024 also saw the emergence of rated break securitizations, improving the institutionalization of the asset class.
Nick Meyers: The combination of efficient securitization financing and strong housing market technicals will fuel the continued growth in this market.
Nick Meyers: As the U S is still grappling with low housing inventories and an aging housing stock there is a market need for fixed and flip projects and its associated loans, our target assets remained within a tight band of conservatively underwritten single family bridge loans minimizing.
Nick Meyers: Up construction and avoiding multifamily bridge altogether.
Nick Meyers: All credit philosophy has resonated with bond investors and has enabled us to be a repeat issuer in the rated BP operates securitization space.
Nick Meyers: And BPL rental we issued a $295 million securitization in the fourth quarter I'll first in this sector since 2022 weeks.
Nick Meyers: We continue to allocate capital to the BPL rental strategy and expect to be a more consistent issuer of securitizations in this asset class in 2025.
Nick Meyers: We source most of these loans through the same channels as our BPL bridge loans by providing a more holistic takeout across more product lines for our originator partners. We also strengthen our overall sourcing capability.
Nick Meyers: Furthermore, this aligns with our goal of increasing our duration exposure to residential credit as we enter into a potentially lower rate environment. The recent steepening of the yield curve in the fourth quarter has already been accretive to the overall securitization economics for these loans.
Nick Meyers: Expanding the asset classes that we participate in across residential credit will support the pace of growth of our investment portfolio interest income overtime.
Nick Meyers: The multifamily segment, what's a good tractor of earnings for Us in 2024 by the restructuring of the portfolio has put us on a positive trajectory for the coming year.
Nick Meyers: In 2024, we made significant progress in winding down the JV equity book to an immaterial size relative to our broader investment portfolio.
Nick Meyers: The mezzanine lending and cross collateralized mezzanine lending assets have been stable investments for the company and provide excellent risk adjusted returns.
Nick Meyers: Our combined portfolio of mezzanine loans has experienced high payoff rates at year end with 11% redeeming in the fourth quarter.
Nick Meyers: Due to the seasoning of this portfolio and our loan call features we expect the pace of chaos to accelerate in 2025.
Nick Meyers: We will reinvest this capital into higher yielding and more liquid assets.
Nick Meyers: Across both single family and multifamily we achieved milestones in our portfolio in 2024, and we are excited about the prospects for this upcoming year.
Nick Meyers: We will now open the call for Q&A operator.
Nick Meyers: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone.
Nick Meyers: To withdraw your question. Please press star one again.
Nick Meyers: We also ask that you wait for your name and company to be announced before proceeding with your question one moment, while we compile the Q&A roster.
Speaker Change: The first question today will be coming from the line of Bose George of K BW. Your line is open.
Speaker Change: Everyone. Good morning.
Speaker Change: Thank you I was just trying to think about sort of normalized earnings like if you strip out the mark to market.
Speaker Change: The unrealized gains and losses.
Speaker Change: And then the foreclosure cost since you guys mentioned.
Speaker Change: What would the run rate earnings.
Speaker Change: Like so what do you think the earliest like people huddle that noise now that you've largely exited from those the JV stuff.
Speaker Change: But I think the growth in earnings for 2024, with our prepared commentary with adjusted interest income increasing its 36 cents this quarter compared to 26 cents a year ago, along with really rotation of underperforming assets and pace of acquisitions in the fourth quarter and also really good at.
Speaker Change: Acquisition activity here in the last few months of the year of.
Speaker Change: 2025 supports that we have.
Speaker Change: We are getting close to aligning with our current dividend in terms of recurring earnings we have 20 cents of dividend.
Speaker Change: 20 of current dividend rate and anticipate that our recurring earnings will align with that dividend.
Speaker Change: Okay, Great and then just in terms of the excess liquidity, how would you characterize that at the moment.
Speaker Change: I missed the last part of the question but.
Speaker Change: As it relates to our excess liquidity.
Speaker Change: We will continue looking to rotate that into <unk>.
Speaker Change: Both the agency market and within rents or credit on the residential credit side, we've noted in the past.
Speaker Change: Kept our durations shorter by accessing the BPL Bridgewall markets.
Speaker Change: It aligns well with our view with respect to the outlook.
Speaker Change: U S housing market and the economy as a whole.
We are more constructive on the balance with respect to agency Bon acquisitions earlier in this year and likely in the short term here due to the normalization of the interest rate curve, which has been attractive for spreads.
Speaker Change: And <unk> as well as.
Speaker Change: Just looking at the different effects of the new administration and different policies that will likely cause some volatility with respect to some macro data, particularly rates. So our goal is to.
Speaker Change: Portfolio be immunized through kind of re volatility as well as some credit weakening and in that space, we like to see our portfolio shorter on the credit side.
Speaker Change: And in a liquid agency market, which we see.
Speaker Change: Turns in the 14% to 16% range today.
Speaker Change: Okay, great. Thanks.
Speaker Change: Okay.
Speaker Change: Thank you one moment to the next question.
Speaker Change: And our next question will be coming from the line of Doug Harter of UBS. Your line is open.
Speaker Change: Thanks can.
Speaker Change: Can you talk about the.
Speaker Change: G&A and portfolio expense outlook.
Speaker Change: How how do you think that trends in 2025, if you continue to kind of.
Speaker Change: Deploy capital and grow the portfolio.
Speaker Change: From a portfolio operating perspective, we did see a decrease in the quarter.
Speaker Change: Related to lower expenses reduce expenses, our nonperforming book due to some resolutions that we've completed in the quarter as well as in previous quarters.
Speaker Change: In terms of G&A, we do anticipate and see opportunities.
Speaker Change: It decreasing as we continue efforts similar to those in 2024 and and identifying and implementing further.
Speaker Change: Measures to further reduce our G&A costs.
Speaker Change: Great and then maybe you are looking at a run rate of G&A.
Speaker Change: Sorry.
Speaker Change: Maybe a run rate on G&A of 11% to $11 5 million per quarter.
Speaker Change: Great I appreciate that.
Speaker Change: That clarity.
Speaker Change: Any update you can give us on how book value has performed so far in the first quarter.
Speaker Change: Sure we see as of this week that adjusted book value is up somewhere between 1% to 2%.
Speaker Change: Thank you.
Speaker Change: Thank you one moment for the next question.
Speaker Change: And our next question will be coming from the line of Matthew Elsner.
Speaker Change: Of Jones trading your line is open.
Speaker Change: Hey, good morning, guys. Thanks for taking the question so I'd like to kind of touch on these four remaining multifamily assets within the JV last quarter on the call. You guys mentioned that you had line of sight kind of into a resolution.
Speaker Change: For multifamily assets I was curious.
Speaker Change: If that is these four.
Speaker Change: If there is any update that you can kind of provide there.
Speaker Change: Yes, so we have four remaining JV equity assets on our balance sheet.
Speaker Change: There is two distinct strategies between the four two of the assets located in Florida.
Speaker Change: With a equity basis of about $19 million.
Speaker Change: We are in the market for for sale. So we had been marketing those assets and expect to sell those assets.
Speaker Change: In the near term.
Speaker Change: So thats just didn't line of sight.
Speaker Change: And thinking of where that is going and the fact that it's it's out on the market and we've positioned the property we think to receive.
Speaker Change: A decent offering on those properties.
Speaker Change: Two assets with a they are both located in Texas.
Speaker Change: The equity basis on that is about $1 3 million.
Speaker Change: And those two we've had a recent improvement in occupancy rates on those portfolios from high it is to kind of low ninety's. When you see actually improvement from there. So our view on those two properties.
Speaker Change: <unk>.
Speaker Change: Kind of weighed out and show the improvement in income on those units.
Speaker Change: Yes, before we actually market for sale, which we think will have a better sale price.
Speaker Change: In the medium term relative to selling those assets take given the recent improvement in occupancy.
Speaker Change: NOI in the portfolio, so again, that's $1 $3 million and.
Speaker Change: To exit that over the course of the year.
Speaker Change: Got it that's very helpful color. There. Thank you for that and then kind of as we think going forward you mentioned, the mezz portfolio kind of running off and then ideal scenario what would the capital allocation be between the agency strategy in the resi credit strategy.
Yeah in the mezzanine.
Speaker Change: Portfolio, we do you expect to see increased and prepayment activity.
Speaker Change: There are certain call features.
Speaker Change: Our embedded in those deals that we hold and can drive.
Speaker Change: Prepayment activity.
Speaker Change: They tend to do that throughout the course of the year. So.
Speaker Change: So we do expect now to see that continue to increase.
Speaker Change: As I mentioned earlier on the balance we were more constructive related to the agency's market versus our credit. So the expectation is that we would.
Speaker Change: To continue rolling that with a higher allocation to the agency RBS market versus.
Speaker Change: Single family.
Speaker Change: Mortgage loans.
Speaker Change: But.
Speaker Change: And at the end of the day, we will be invested in both asset classes, but I think over the from particularly from last quarter.
Speaker Change: Yes.
Speaker Change: Our purchase price pipeline higher and the residential credit space I think that will reverse and we will see higher pipelines in the agency MBS market.
Speaker Change: Awesome. Thank you for taking the questions.
Speaker Change: Okay.
Speaker Change: Thank you one moment to the next question.
Speaker Change: And the next question will be coming from the line of Eric Hagen of <unk>. Your line is open.
Speaker Change: Hey, Good morning. This is Jake <unk> on for Eric Thanks for taking my questions first one could you talk about your outlook this year for prepayment speeds and the Rps portfolio.
Speaker Change: Sure, we think that the RTL portfolio has exhibited a pretty consistent speeds through 2024.
Speaker Change: And as you may know that the speeds are relatively robust they range anywhere between the <unk> of CPR to 60% CPR.
Speaker Change: <unk> seen that pull through effectively different types of environments.
Speaker Change: As these projects are in some ways interest rate sensitive insensitive.
Speaker Change: And it's really driven by the fact that these projects are at that point of completion, and then eventually get sold or they get refinance into a longer term debt. So we for 2025, regardless of our look we actually do see we do see that the prepayments will still remain relatively robust.
Speaker Change: Great. Thank you and then do you see any opportunities to potentially call and re lever any of your securitized debt this year.
Speaker Change: And are any of the deals currently callable. Thank you.
Speaker Change: Yes, we do we do have several deals that are callable today.
Speaker Change: That is a strategy that we do employ sometimes it is an economic decision.
Speaker Change: There are some pieces of that debt.
Speaker Change: The coupon rate step ups are still cheaper than executing a new deal in the market.
Speaker Change: But then there are also benefits in terms of being able to re lever and take out additional capital where you can then redeploy so that's the decision that we make on.
Speaker Change: On a deal by deal basis.
Speaker Change: And that asset class by asset class basis.
Speaker Change: Yes, I mean, theres going to be part of our part of our portfolio and part of our portfolio strategy.
Speaker Change: And given the robust nature of the securitization market really from last year going to this year.
Speaker Change: We do expect that trend to continue.
Speaker Change: Great. Thank you guys.
Speaker Change: Thank you.
Speaker Change: Like to ask a question. Please press star one on your telephone.
Speaker Change: At this time Im showing no more questions in the queue now I'd like to turn the call back over to Jason Serrano for closing remarks. Please go ahead.
Jason Serrano: Well. Thank you for your time today, we look forward to speaking you regarding our first quarter results have a great day.
Jason Serrano: This concludes today's conference call. Thank you for participating you may now disconnect.
Jason Serrano: Okay.
Jason Serrano: [music].
Jason Serrano: Okay.
Jason Serrano: Okay.
Jason Serrano: [music].