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spk00: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust First Quarter 2021 Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the star followed by the one on your touchtone phone. If you would like to withdraw your question, please press the pound key. If you are using speaker equipment, we do ask that you please lift the handset before making your selection. This conference is being recorded on Friday, May 7, 2021. A press release and supplemental financial presentation with New York Mortgage Trust's first quarter 2021 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.nymtrust.com. Additionally, we are hosting a live webcast of today's call, which you can access in the events and presentation section of the company's website. At this time, management would like for me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 Steve Mumma, Chairman and CEO. Steve, please go ahead.
spk03: Thank you, Operator. Good morning, everyone, and thank you for being on the call. Jason Serrano, our president, will be speaking to our investment portfolio strategy today, and Christine Naria, our CFO, will be speaking more TCL about our first quarter results. We will all be speaking to our supplemental financial presentation that was released yesterday after the market closed and is available on our website. We will allow questions following the conclusion of our presentation. The company completed another successful quarter, delivering an economic return of 2.1%, with $0.11 gap earnings per share and $0.12 comprehensive earnings per share. Our book value remained unchanged at $4.71. Our portfolio debt margin expanded by 12 basis points to 2.42%, but more importantly, our portfolio net interest income increased by $4.4 million from the previous quarter, or 17%. We expect to see continued improvement in both our net interest margin and net interest income in future periods as we transition out of our lower-yielding QSIP securities and focus increasingly on loans in both our single-family and multifamily strategies. On the balance sheet side, we have continued to focus on expanding our access to longer-term, non-mark-to-market financing arrangements. As a testament to the strengthening of our balance sheet in recent quarters, we were pleased to close on our first rated unsecured bond deal in April, a $100 million, 5.75% five-year financing. It serves as an additional non-market-to-market financing option for the company as we continue to build out our credit portfolio. Now going to the presentation, I will start on slide six. Our investment portfolio totaled $3.2 billion unchanged from the previous quarter. Our market capitalization was $2.2 million, an 18% increase from December 31st. Our capital is currently allocated 75% to single family and 24% to multifamily strategies. Our portfolio growth continues to be focused on loan investments as we believe that we can generate better risk-adjusting returns for more stable funding. Going over to slide seven, we'll go through some key developments, some of which I spoke to in the opening comments. We declared a 10-cent common stock dividend representing an 8.9% yield on our stock price as of March 31st, and we had a total rate of return on our common stock of almost 24% for the period. We purchased $347 million in residential loans and closed on a $10 million multifamily joint venture investment, our first since 2015. We continue to opportunistically sell our QCIP portfolios, selling $112 million during the period. On our financing efforts during the period, we funded $160 million of business purpose loans on a non-mark-to-market line. And in April, as I said before, we closed on our first rated unsecured bond offering of $100 million. giving us yet another option to fund our credit portfolios, specifically our multifamily investment opportunities. Both financings continue to produce mark-to-market pressure back to the company. On slide 9, we cover key portfolio metrics on a quarter-over-quarter comparison. Our net interest margin for the quarter was 2.42%, an increase of 12 basis points from the previous quarter. Our portfolio weighted average yield was largely unchanged at 6.03%. However, our funding costs improved by 14 basis points, mostly attributable to the payoff for non-agency securitization that we completed back in June of 2020. Going forward, we expect to continue to improve in our asset yields as we start to see the full impact of recent loan investments that closed late in this quarter. We expect to close at least one financing securitization in the second quarter and plan several others by the end of the year. Our recourse portfolio leverage remains low at 0.2%, at 0.2 times as of March 31st, as we continue to focus on ways to decrease our exposure to market-to-market call risk back to the company. Now, Christine Nario, our CFO, will go through the financial results in more detail. Christine?
spk01: Thank you, Steve. Good morning, everyone, and thank you again for being on the call. In discussing the financial results for the quarter, I will be using some of the information from the quarterly comparative financial information section included in slides 23 to 30 of the supplemental presentation. Slide 10 summarizes our activity in the first quarter. We acquired residential loans for 347 million, closed in a multifamily joint venture investment of 10 million, and purchased 6 million of investment securities. We sold non-agency RMBS and CMBS for proceeds, totaling 112 million. We also had total repayments of approximately 184 million primarily from our residential loans. Most of these residential loans were purchased at a discount, and the early payoff off the loans resulted in additional income of approximately $3.3 million, which is included in realized gain. We also had three multifamily loans that redeemed, which generated $0.6 million of redemption premium income. We had net income of $42 million and comprehensive income of $45 million, attributable to our common stockholders. Our book value ended at 471, unchanged from the fourth quarter. Slide 11 details our financial results. We had net interest income of $30.3 million, an increase of $4.4 million from the previous quarter. Our interest income increased by $4.1 million, primarily due to increased investment in higher-yielding business-purpose loans. Also, interest expense decreased by $300,000, which can be attributed to the repayment of debt associated with our non-agency RMBS re-securitization that had a higher funding cost in the first quarter. We had non-interest income of $39.7 million, mostly from net unrealized gains of $26.2 million due to improved pricing across the majority of our asset classes, particularly our residential loans and investment in consolidated SLSD. We also generated $7.1 million of net realized gains from sales of investment securities and residential loan prepayment activity. In addition, our multifamily preferred equity investments accounted for as equity, and our equity investments in entities that invest in residential properties and loans contributed $3.4 million of income during the quarter. We had total G&A expenses of $11.4 million an increase of approximately $1.8 million from the previous quarter. The increase can be attributed to stock-based compensation expense related to 2021 annual equity awards, an increase in incentive expense related to improved performance in 2021. We would expect our G&A expense ratio to be approximately 2% of the company stockholders' equity going forward. We had operating expenses of $7.8 million during the quarter, which included $4.8 million related to our portfolio investments, which increased primarily due to growth of the business purpose loan portfolio and $2.9 million of operating expenses related to two multifamily apartment properties that we consolidate in accordance with GAAP. As I mentioned earlier, included in our results for the quarter is the net income activity related to multifamily apartment properties that we consolidate in our financial statements in accordance with GAAP. These properties generated operating income of $1.5 million and incurred interest expense and operating expenses of $0.3 million and $2.9 million, respectively. After reflecting the share in the losses of the non-controlling interest of $1.4 million, in total, These multifamily apartment properties incurred a net loss of 0.3 million for the quarter. It should be noted that the net loss in these properties includes depreciation and amortization related to the real estate. The graph on slide 11 illustrates the change in our book value from December 31, 2019. Our book value remained flat at 471 during the quarter, but increased 21% from the end of March 2020. Our stock price has also recovered significantly increasing our price-to-book ratio to 95% from 40% at the end of March 2020. We continue to focus on growing and strengthening our balance sheet by investing in our core strategies of single-family and multifamily investments, and prudent liability management by placing greater emphasis on procuring longer-term and or more committed financing arrangements, such as securitizations and non-mark-to-market financings. Jason will now go over the market and strategy update. Jason?
spk02: Thank you, Christine. Speaking from page 13, we were able to continue the elevated pace of investments with $358 million of new assets added in Q1. Despite the unusual slowdowns due to year-end activities at the end of the year in 2020, we were able to keep an elevated investment pipeline. As discussed on previous calls, we are excited to add these assets to our balance sheet because we can generate a double-digit return without application of recourse mark-to-market leverage. In the case of BPLs, we are aggregating loans on a non-mark-to-market warehouse line for a term-securization takeout. In the case of our direct multifamily JVs, return on assets in the low teens, so leverage is unnecessary. Now, we only focus our COP allocation when the following are true. First, supply and investable opportunities need to be meaningful. This is very different than just saying market size. Secondly, we need to see favorable market pricing and market dynamics, which provide attractive risk-adjusted returns. And lastly, the opportunity fits within our core competency and we have a competitive advantage. Thus, the three investments on the right-hand side of this slide here all fit within the Venn diagram, which is why they are considered our core strategies. Turning to page 14, we added this slide this quarter to basically explain why we invest in these strategies and using the market commentary as a way to do that. On the top left side, the supply of housing is depressed across many regions of the U.S. Less than one million housing units are available to be purchased. The U.S. has seen a decline in supply for 18 straight months. New single-family construction is struggling to compete with existing inventory price points. For new construction, input costs such as lumber, not to mention labor costs, have skyrocketed. On the demand side, houses are selling at the fastest pace on record. Forty-three percent of homes go into contract within one week at list price with very to little to no discount. Both are at record levels. In the BPL strategy, providing loans to local contractors who model existing age inventory It's one of the most compelling ways to take advantage of the strong market trends. Today, improved existing inventory is selling extremely well across selective markets in the U.S. We see a continued tailwind to funding these loans where the transition plan for the home purchase by the contractor is not complicated. At 73% LTV at purchase or 64% LTV after the improvement work is done on the home, the loans have significant downside protection embedded. To date, we have experienced zero credit losses with respect to this strategy. The proprietary channels were bolstered in 2020, a time when market participants were struggling with equity issues. These events provide an opportunity to lock in new channels to buy a consistent flow of loans which meet our standards. Now, looking at the center column and row, switching over to the middle section, in 2020, home originations rose 25% year-over-year, and finished with approximately $2.5 million of new loans produced. However, since the peak volumes in late 2020, the primary secondary market mortgage spread collapsed 23%. Lower volume coupled with lower gain on sale potential means evaporating margins for agency originators. This describes the perfect storm for new, scratch-and-dent, investable supply. Many originators utilize over 20 times leverage for agency loans funded before delivered to the GSEs, In 2020, originators used their excess profits to manage scratch and dent loan warehouse buyouts. Today, the story is much different. Due to lower profits, many originators need to instead find third-party liquidity and sell loans, which is where we stepped in. Over seven years, the team has evaluated the scratch and dent issues from over 100-plus sellers, and we can discern from technical versus credit issues. We buy at discounts and take advantage of refinance campaigns to shorten the duration of our investment to increase the total return. The bottom row now on the last part of the slide shows why we focus on the multifamily direct loan opportunity. U.S. interstate migration trends continue at a torrid pace where many northeast residents are relocating to the southeast for obvious reasons, lower taxes, more jobs, better weather, and now a normalized economy removed from lockdowns. With population swings of approximately 5% and a single-family market that offers little purchase options, Multifamily property values are on the rise in the south and southeast, where 83% of the underlying properties are located in our portfolio. We have witnessed cap rate compression of about 100 basis points through the pandemic, which enhances our credit support. Since our multifamily origination typically contains certain early payoff minimum payment multiples, we have an opportunity for additional upside return with early payoffs. We have seen a recent spike of early payoffs in recent months, which should continue to drive higher returns for this strategy in a market with very stable fundamental backdrop. As discussed before, we have never taken a credit loss since funding these loans over seven years ago with respect to this strategy due to our deep credit experience and default management capabilities. Turning to page 15. To obtain double-digit returns within our core strategies, we limit utilization of recourse mark-to-market leverage. our definition of portfolio leverage on this page. The company's portfolio leverage is 0.2 times, which is likely to stay at these ultra-low levels in order to purposely cap the company's liquidity risk. We expect our securitization funding to be a growing source of leverage for the company, and in fact, we'll be rolling out a new securitization program series into the market shortly. With $1.4 billion of unencumbered assets, meaningful EPS growth can be gained by leveraging a component of this book. Turning to page 16. Diving deeper into our single-family strategy, this quarter we broke out BPLs from performing loans. We thought this would be helpful to separately assess both strategies given the growth in the BPL investment strategy on our balance sheet. Across the board, we look for high coupons at reasonable prices with low LTVs for strong borrower alignment. The current environment is very supportive for these strategies. However, in the case of our PLs, we do see meaningful market supply but investable supply is low due to very strong market prices. I guess the best way to explain this is how one of our traders explained to me on a recent internal market call. In the RPL market, PAR is the new 95 and 105 is the new PAR. On the security side, we continue to monetize the remaining discount with respect to the non-agency portfolio and continue to look for favorable market to divest. With respect to agencies, price took a slight hit with high rates in the first quarter, But now with conforming coupons back below the 3% threshold, agency prices have recovered. We do not favor the dynamics in the agency sector with the Fed as a dominant buyer alongside other technical factors such as heavy treasury issuance calendar that may lead to crowding out of the agency guaranteed markets, especially for overseas accounts. Turning to page 17. We grew our single-family loan book by $347 million and monetized $72 million of non-agency RMBS at a gain in the quarter. As it relates to performance, much to our expectation, higher seasonal delinquency trends reversed in the first quarter. With spread compression in the RPL market, our assets were valued higher to $96 a par. We can monetize four points on average with respect to par payoffs, and with nearly a 5% coupon in tow, we are positioned to achieve a teen's return with portfolio leverage which is transitioning into term securitizations. We added a state-by-state breakdown for RPL strategy investments on this call. State exposure was a question raised on recent calls. As stated in the past, the portfolio is diversified at low LTVs but is less concentrated in Northeast. We took a purposeful tact to limit exposures to these markets at purchase of these loans. The last column in the lower right table, FICO score, is depressed due to recent delinquency history by the borrower. Therein lies the upside opportunity for us, frankly, and frankly for the homeowner. Through service partners, we work to enhance the borrower's credit score so the borrower can obtain lower rates through a refi, which allows us to recapture the discount faster. Now turning to page 18. For more in-depth information on our BPL strategy, overall market has a wide array of loan types with underwriting that typically exposes the lender to either higher borrower credit risk typically called hard money loans, or high property risk, typically structured as an unsecured loan. In both cases, the borrowing cost could be as high as 20%. We thought it would be helpful to further explain where we invest in that structure within the BPL markets. We prefer to give up some coupon for a stronger borrower and collateral risk profile. We look for borrowers with high credit scores, 720 on average in our portfolio, Low LTVs to assure alignment, 65% after repair value, 73% with respect to the borrower cost basis. Experience. Our borrowers have successfully completed at least seven projects in recent past. And rehab costs. We look for projects that have simple business plans for quick turnaround times. Thus, the rehab projects are lower on the cost spectrum, with 28% requiring no rehab budget at all. Switching over to page 19, now discussing our multifamily strategies. Our multifamily loan business, or direct originations, is where we continue to focus. As stated before, our exposure is in the secondary and tertiary markets to low mid-rise properties, multifamily properties. As a mezzanine or PREF lender, at an 81% LTV on average, properties continue to have strong cash flows and high occupancy. Thus, the DCR level has been very stable at 1.4 times. We price this debt or prep position, which is really interchangeable, at around 11.5%. With origination fees incurred in early prepayment benefits, we can generate a team's return without utilization of leverage. We have originated this debt for over seven plus years without ever taking a credit loss on any position, as said before. Recently, we started underwriting and pricing joint venture investments. We do come across opportunities with our loan program where the borrower is also interested in taking an equity position and helping us help them with that equity position takeout. Specifically related to a management-approved modernization plan, which is where the borrower comes to us, we funded our first $10 million investment in this space in the first quarter and are excited to continue reviewing more opportunities in this sector. Additionally, we have experienced recently is equity capital offerings that we can offer generated significantly more demand for our multifamily direct loan portfolio. we were able to work with more sponsors that would not typically consider our debt or debt-like instruments, but after discussing the program in more detail, the sponsor flips to our debt options. Switching over to page 20, in the quarter, we had three loan payoffs generating a 15.3% IR, or 1.5 times life-to-date on those loans. Again, with higher values in the market, borrowers are looking to recap or sell properties after business plans have been fully executed. We benefit from this minimum return multiples on top of our 11.5% coupon. The asset management team is actively working on two properties that have entered special servicing. As stated on earlier calls, we expect both loans to pay off at par after execution of a change in control and sale. The origination team is extremely busy with numerous proposals on evaluation. We expect robust origination volumes in the second quarter and through the third quarter. Now... Flipping over to page 21, thanks for taking time to listen and read through our portfolio and strategy update. We are a nimble group equipped to find and locate compelling risk-adjusted returns across various markets and capital structures. We're looking forward to reporting results of all the hard work of our employees that put into generating a robust pipeline of high asset returns and further savings to our funding costs. At this time, I'll send it back to Steve.
spk03: Thanks, Jason, and thanks, Christine. Operator, you can go ahead and open it up for questions now. Thank you.
spk00: As a reminder, if you would like to ask a question, you may do so by pressing star, then the number 1 on your telephone keypad. Again, that is star 1 if you would like to ask a question. Your first question is from Boze George of KBW.
spk07: Hey, guys, this is actually Mike Smith on for Boze. Just on the BPLs, there seems to be a lot of interest just given the movement in rates and some of the dynamics in the housing market. So I was wondering if you could just, you know, talk a little bit more about how pricing looks and your broader sourcing strategy.
spk02: Yeah, for pricing-wise, I mean, we're funding these loans on flow basis at PAR. We do see some opportunity in bulk portfolio purchases, which would be slightly above PAR. These are shorter-term duration portfolios, so there's not really high premium pricing on these types of loans. The market is very robust, as we talked about in this call. There is very little inventory for sale in many markets. So contractors are finding an ability to squeeze out margins or profitability even on properties that have no work completed and just better marketing campaign with respect to selling the home. So in those cases, we are finding elevated origination volumes We're able to work with our partners that we've established early in 2020 and 2019, and we're continuing to basically fund those pipelines that are being delivered to us.
spk07: Great. That's all really helpful, Culler. And then a lot of peers have taken equity stakes or acquired originators. I'm just wondering if this is something you're looking at or consider doing.
spk02: Yeah, I mean, we have fielded several calls with respect to originators who would like to partner with a long-term capital partner in that space. At the end of the day, this is a market that we're watching very closely. There's time where this market is attractive, and there's times when it's not. And the concern about going long-term with an originator is that you're basically forced to continue funding the supply chain. in a case where the market is changing on you, and you see that with supply volumes higher, HPA flattening out. I mean, at the end of the day, these are contractors that take advantage of basically a technical squeeze on supply, and we'll continue funding these loans as long as that continues to happen. But that could change quickly, and we want to be able to manage our costs as a company and our overhead with respect to not having the sniffing overhang if the market does change. So At the end of the day, we see this as a trade versus a business in many cases, in many degrees. You know, this is, again, the supply side listing around two months of housing supply in the market available for sale. You know, it shouldn't be – we don't expect this to continue, you know, for multiple years. I think when you buy into a fix and flip originator in particular, you know, that's something you really need to see for, of course, the next five years based on pricing of these originators. And, you know, at this point, we don't want to expose ourselves with that. that overhead cost. We like where we are right now with respect to flow purchases. We have a good relationship with originators. We're a great liquidity provider for them. We have been in 2020 during a market downturn, and we will continue to do so going forward.
spk07: That's helpful. And then in the press release, you mentioned a transition away from the securities and more towards loans. I was just wondering if you could elaborate a little bit on the timeline of the transition and the optimal balance between resi and multifamily. and, you know, just what the transition could mean for run rate earnings.
spk02: Right. So the transition in the security space is, you know, currently we have, as of the end of the first quarter, $491 million of market value. We're seeing opportunities to monetize these assets. You know, the securitization market is a market where, you know, particularly for rebuyers, is a market where you're buying mezzanine or junior parts of the security structure. The spreads on these assets don't provide for double-digit to teens' returns. So the way you get there is through repo leverage. And repo leverage is the primary method to achieve those types of returns. We transitioned away from using, given the equity squeeze last March, away from using quarterly rolling mark-to-market leverage, which means that the securitization strategies are very difficult to fund to achieve that double-digit return. So at this point, what we're doing is we're taking our portfolio and The assets where we can achieve a double-digit return without leverage, we will hold as long as we feel comfortable with the fundamentals there. In the case of the other assets, we still have assets that are at discounts, at slight discounts, and we're monetizing. You should expect us to see further monetization of that book every quarter. There's not a number as it relates to what the right level of hold. It's really just a function of what the market will give us on the timing of these sales and with respect to the kind of the compression we've seen in spreads in this market. So, you know, we feel very comfortable where we stand with these securities. We've sold down a, you know, every quarter we've sold down a number of positions and we'll continue to do so with respect to the tighter spreads. The transition is a function of the fact that we see better opportunity in the loan side. It's, you know, it's a less liquid market on the loan side. We believe the securitization side is kind of overly liquid at this point where, you know, you have prices that continue to ratchet in. You have oversubscription levels on just about every securitization that's offered out there. It's a very competitive environment, so we see better risk-adjusted returns in the loan markets.
spk03: And Steve Mummo speaking, too. I don't think we have a set percentage of what we want to be in terms of residential or single-family versus multifamily. It's just a matter of the single-family side requires some kind of securitization to generate the double-digit return. The multifamily doesn't. So, in general, the asset size is going to be larger in the single-family in terms of just raw dollars. But we continue to build out both pipelines with opportunities and not really focus on which one's going to generate what percentage. It's a total return of the portfolio, and where the best opportunities lie is how it will go over time.
spk07: Great. I appreciate the detailed answer. Just one more. Can you just give some thoughts on how book value has trended during the month of April and into May?
spk03: Yeah, I mean, the market continues to be very strong. And, you know, we don't see, you know, as it relates to the credit assets, we're seeing an improvement in the economy, certainly, as people get vaccinated and more things open up. So we would anticipate, you know, better performance across credit assets in the short term for sure. especially with the amount of liquidity that's coming from the government into the system. And so we would continue to see credit assets perform very well. The interest rate market is something that we have to get a sense for, given the size of government requirements in the second quarter. It remains to be seen where that takes us in rates over the next three to six months.
spk07: But we would say it's up. Great. Thank you for taking the questions. Sure.
spk00: Your next question is from Doug Harder of Credit Suisse.
spk05: Thanks. Looking at slide 15, can you just help us understand what level of unencumbered assets you need to hold and whether the unsecured debt deal that you did recently, I guess how that plays into your need for unsecured, sorry, unencumbered assets.
spk02: Yeah, I mean, there's no level of unsecured assets we need to hold on our portfolio. This is a purposeful tact in limiting our portfolio leverage as well as assets that we have teed up for securitizations. So there's no other requirement to hold any other assets in the unencumbered book. I think your question was on our debt financing we just did. Is that right? Correct. Yeah, so the debt financing is a five-year paper. It actually has the right tenor for our multifamily strategy in many aspects. Our multifamily strategy is an unleveraged strategy. We have the average duration on that, expected duration is around three and a half to five years. So it pairs well with that. It was also a cheaper way of funding without recourse leverage or marked market and have a term financing. So there was an opening in the market for us to issue debt, given some other market prints, and we saw an opportunity to take advantage of that. We also thought it would be helpful and important for us to have a security out in the market that's rated. It gives us another source of financing over time, which we could tap in later years or months.
spk03: We have our convertible debt coming due in January of 2022. So this just gives us another option that we can consider as we go forward on what we want to do in terms of how we look to replace that if we want to replace that in overall liquidity, but certainly it takes a little more pressure off the company's capital stack when you can issue unsecured debt at attractive levels relative to where we can issue convertible debt today.
spk05: That makes sense. And then I guess just Sticking kind of here, you know, obviously this will be dependent upon kind of the ultimate mix of the portfolio. But I guess if you were to hold mixed constant today, I mean, what level of leverage, you know, could this current mix of assets that you have today kind of support? And, you know, I guess how should we think about, you know, where that 0.2 times leverage could kind of go over time?
spk03: Yeah, I think the 0.2, I think there's two questions. One, leverage. So, we will be adding securitized leverage, which obviously doesn't move that 0.2 number. So, the 0.2 will probably gravitate between 0.2 and 0.4 because we'll be rotating those loans that are being financed on those lines into securitizations. And so, we really see the portfolio growing from, you know, $3.2 to $4.5 billion largely from securitizations. And so, We don't really see that portfolio of 0.2 changing significantly. You know, unless the market changes dramatically and where you have to – where the QSIP strategy does look like it comes back into play, where it offers an interesting opportunity for us on a risk-adjusted basis, but we don't see that in the near future for us, or, you know, certainly not for the next 12 to 18 months. That would be the only place where I would say you could see it grow substantially. But right now, I think it's going to be fairly stable between 0.2 and – The max of 0.5.
spk05: Great. Thank you, Steve.
spk03: Sure.
spk00: Your next question is from Eric Hagen of BTIG.
spk06: Hey, thanks. Good morning. I've got two questions. The first is, can you say how much taxable income you estimate that you had in the first quarter and how you see that trending? And in the case that you do have taxable income, are there any carry-forwards to offset it? The second question is the securitization you expect to do this quarter. I assumed you were referring to seasoned re-performing loans, but then I think I heard you say you might be introducing some new collateral into the market, so I just wanted to hear more about what you expect to finance and some of the deal economics you expect there. Thanks.
spk03: Sure, Eric. Yeah, from a tax standpoint, we don't really talk to the tax, but, you know, as you look at the components of our income, certainly as the net margin increases, our taxable income goes up. To the extent that we're generating realized capital gains, which we did, we certainly have realized capital losses from 2020 that can offset and shelter those gains of significant amounts. So there certainly won't be any taxable distribution as it relates to realized activity going forward for a decent amount of time. From a net margin standpoint, which does not get shielded from the realized capital losses You know, that is something that we look to, but we have not and currently are not disclosing what that number is.
spk02: I'll let Jason speak to the... Yeah, on the securitization side, you know, we're looking at rolling out a new program with respect to a BPL securitization, and that would be more of a program series where we would expect to issue multiple deals in the future. Our first deal we're lining up for this quarter. and expect to issue that. As it relates to RPLs, we are also working and have been looking at the RPL market as a way of accessing term securitization leverage and continue working on that space and looking to see what is the most optimal portfolio for the securitization strategy and then looking to continue rolling out RPL loans into that framework in the future as well. So those will be the primary sources of our funding strategies. As we talked about earlier, we did establish a non-mark-the-market warehouse line for our BPL loans, and we'll continue utilizing that as an aggregation facility to the securitization market.
spk06: Got it. Can you say what the advance rate and cost of funds that you expect on the securitization, the zip code that it might end up in? Thanks.
spk02: We know we have a pretty strong feeling that it will be lower than our current funding, but we're going to let the market speak to that, and we're immediately going to be issuing that. So I don't want to get in front of anybody who's looking at the senior part of that capital structure just yet, so we'll wait to see where that comes out.
spk06: Thank you so much.
spk00: Sure.
spk03: Thanks, Eric.
spk00: As a reminder, if you would like to ask a question, please press star 1. That is star one to ask a question. Your next question is from Christopher Nolan of Leidenberg-Fallman.
spk04: Hey, guys. Where do you see the capital allocation for single family increasing to?
spk03: Yeah, I mean, it's 75% right now. You know, we have a very, you know, we put a lot of assets that we put on the books this quarter, the first quarter, we're primarily focused on residential assets. We have a very active pipeline in multifamily, and I would expect that the multifamily percentage will probably start to grow relative to the residential as we go to the rest of the year, just because of where the multifamily pipeline is building up to.
spk02: I'll also add in more of a technical differential is that our securitizations that we're looking at has a higher advance rate than our current funding. So that would technically lower our assets on our balance sheet with respect to the securitizations and just the equity position. versus our current portfolio. But with an unleveraged strategy on multifamily and more of a higher securitization advance rate, we should see multifamily increasing as a percentage basis on equity. Great.
spk04: And then I guess within the single-family segment, should we see BPLs taking more of a portion or percentage of the portfolio there?
spk02: Yeah, I mean, again, BPLs, we're looking at a securitization, and from a technical standpoint, it may initially lower our equity interest in the strategy simply because we're availing ourselves to that term securitization financing. We are continuing to see strong pipelines there as well as scratch and dent, which has really had kind of an inflection point this year, as I described earlier, for various reasons related to the originator's profitability. So that strategy was was a slower growth strategy in the third and fourth quarter. That is scratching the end, which we're now seeing picking up quite a bit. But, you know, our flows in business purpose loans are still elevated, and we're going to continue funding, you know, into the strategy with these short-duration type of loans until, you know, we see, until the fundamentals and technicals of the market continue to play out, which they are in the south and southeast with the migration trend. So you should expect us to continue seeing growth you know, decent allocations to the BPL strategy as we have in recent quarters.
spk04: Great. Multifamily, I know you guys are focused on the southeast. At what point do you start looking at the northeast in terms of when valuations get cheaper or is there no scenario where you look at northeast?
spk02: Yeah, I mean, right now we're just not seeing the opportunity. The properties and the sponsorship that we are seeing from the supply standpoint just aren't as attractive as what we're seeing in the south. You know, there is cap rate compression, as I just mentioned, about 100 basis points. But with the demand, there's a dynamic, you know, transitional effect that's happening with the migration that's happening in these markets. And single family has a play in the multifamily side, as I discussed. When you relocate to a market and you can't find available, you know, single family in a timely manner, which is happening in many markets with bidding wars in houses, et cetera, the multifamily, especially low-rise and mid-rise concept, is a very valuable alternative. So we're seeing that play into these markets with the technical squeeze in housing and being able to continue flat to slightly higher rental rate increases as well as very, very high occupancy trends. So we're going to continue focusing on that market for the foreseeable future, and obviously you need a capitulation from the northeast or north type of properties that are there. We haven't seen that yet either, capitulation on lower prices. So the sellers are obviously well-funded on the multifamily side with 10-year kind of term leverage. So we're not seeing value drop in those markets for an opportunity for our sponsors or for ourselves on the JV side.
spk04: Great. Thanks, Jason.
spk00: There are no other questions in queue. I'd like to turn the call back to Steve for any closing remarks.
spk03: Thank you, operator. Thank you, everyone, for being on the call. Please remain safe, and we look forward to talking about our second quarter results in early August. Thanks, everyone.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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