Yahoo Finance

Kristine Nario-Eng

Thanks, Jason. Good morning. I'll cover the key factors behind our fourth quarter financial results and reference the comparative financial section in our supplemental.
The company had undreciated loss per share of $0.44 in the fourth quarter, as compared to undepreciated earnings per share of $0.39 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 $0.36 per share in the fourth quarter compared to $0.32 per share in the third quarter and $0.26 per share a year ago.
This represents a 12.5% increase in the fourth quarter compared to the third quarter, and a 38% increase year over year. Additionally, as detailed in slide 25, our net interest spread has shown improvement over recent quarters, increasing by 5 basis points in the quarter and 35 basis points year-to-date.
Moreover, our interest rate swaps have continued to benefit our portfolio, reducing our average financing costs by 38 basis points for the quarter and 61 basis points year-to-date.
Our earnings were primarily affected by higher benchmark interest rates, which reduced the fair valuation of our residential loan and bond portfolios. During the quarter, we recognized net unrealized losses totalling $131.6 million due to lower asset prices, primarily in our agency RMBS portfolio and residential loan book.
These unrealized losses were partially offset by $92 million in gains from our derivative instruments, mainly interest rate swaps. Additionally, we recognize losses of $9.9 million or $0.11 per share, primarily from foreclosed properties that still remain on balance sheet, which are carried at lower of cost or market due to lower valuations compared to their previous carrying costs.
We are nearing the completion of our divestment of multi-family JV equity, with only 4 assets remaining, totaling $21 million assets December 31.
During the quarter, we successfully disposed of five multi-family real estate assets, resulting in net gains of $4.9 million attributable to the company.
These transactions have also created 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.
In the quarter, these dispositions decrease our net loss from real estate from $7.5 million to $5.9 million. Total GNA 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 non-performing residential loan portfolio.
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.
GAAP book value decreased by 5.6% during the quarter, and adjusted book value per share ended at 10.35%, down 4.8% from the third quarter.
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.
As of quarter end, the company's recourse leverage ratio and portfolio recourse leverage ratio move higher to 3 times and 2.9 times from 2.6 times and 2.5 times respectively, as of September 30, due to our continued financing of investment securities, primarily agency RMBS.
Our portfolio recourse leverage on our credit and other investments rose to 1.1 times from 0.8 times at September 30, resulting from partial recourse repurchase financing of fourth quarter acquisitions. 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 book.
We are dedicated to ensuring a competitive current yield for our shareholders and have maintained a dividend of $0.20 for 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.
The significant portfolio restructuring over the past three years has enhanced our ability to generate recurring earnings that aligned closely with the current dividend.
I will now turn it over to Nick to go over the market and strategy update. Nick.

Nicholas Mah

Thank you, Khristine. 2024 was the firm's most productive year in asset acquisitions. The fourth quarter activity was just as robust, with the company entering into $923 million of residential investments. Around 61% of these purchases were in residential credit investments, and the rest were in agency RMBS.
In the quarter, the largest sectors of residential credit investments were BPL bridge loans with $345 million of purchases and BPL rental loans with $188 million. We expect acquisition volume to be more balanced between BPL bridge loans and BPL rental loans in 2025.
Throughout 2024, relatively range bound agency spreads allowed us to steadily deploy capital into this 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. As a core strategy, the agency RMBS 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.
We still see a favorable environment to invest in agency RMBS 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.
Over the quarter, current coupon mortgage spreads widened by 6 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.
These spread movements provided us better entry points into agency RMBS trades. Furthermore, persistently high spreads are positive for us as portfolio growth remains our goal.
Our strategy and 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.
The positively sloping yield curve that materialized in the 4th quarter will allow us to participate in the wider range of coupons in the future and still maintain a positive nim.
In the quarter, we predominantly purchased 5.5 coupon spec pools, lowering the weighted average coupon of the portfolio down slightly to 5.77% from 5.80%. The portfolio is still a relatively differentiated high coupon portfolio.
We continue to favor the liquidity and return profile of the agency RMBS strategy.
In BPL bridge loans, we have now invested over $4.8 billion in this strategy to date since 2019, bolstered by consistent purchase activity over the last few quarters.
Having executed on 3 BPL bridge securitizations in 2024, we now have $706 million of revolving debt that can be recycled to fund future investments.
The bridge securitization market saw deal issuance grow from $3 billion in 2023 to $8 billion in 2024 with momentum for further growth this year.
2024 also saw the emergence of rated bridge securitizations, improving the institutionalization of the asset class.
The combination of efficient securitization financing and strong housing market technicals will fuel the continued growth in this market.
As the US is still grappling with low housing inventories and an aging housing stock, there is a market need for fix and flip projects and its associated loans. Our target assets remain within the tight ban of conservatively underwritten single family bridge loans, minimizing ground up construction and avoiding multi-family bridge altogether.
Our credit philosophy has resonated with bond investors and has enabled us to be a repeat issuer in the rated BPL bridge securitization space.
In BPL renal, we issued a $295 million securitization in the fourth quarter, our first in this sector since 2022. 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.
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.
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 4th quarter has already been accretive to the overall securitization economics for these loans. Expanding the asset classes that we participate in the across residential credit will support the pace of growth of our investment portfolio and interest income over time.
The multi-family segment was the detractor of earnings for us in 2024, but the restructuring of the portfolio has put us on a positive trajectory for the coming year.
In 2024, we made significant progress in winding down the JV equity book to an immaterial size relative to our broader investment portfolio.
The mezzanine lending and cross-collateralized mezzanine lending assets have been stable investments for the company and provided excellent risk adjusted returns.
Our combined portfolio of mezzanine loans has experienced high payoff rates at year end, with 11% redeeming in the fourth quarter.
Due to the seasoning of this portfolio and our loan call features, we expect the pace of payoffs to accelerate in 2025. We will reinvest this capital into higher yielding and more liquid assets.
Across both single family and multi-family, we achieved milestones in our portfolio in 2024, and we are excited about the prospects for this upcoming year.
We will now open the call for Q&A operator.

Question and Answer Session

Operator

Thank you. As a reminder, if you would like to ask a question, please press 11 on your telephone. If you would like to withdraw your question, please press 11 again.
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.
The course first question today will be coming from the line of both George of KBW. Your line is open.

Bose George

Everyone, good morning. Actually, I was just trying to think about sort of normalized earnings. Like if you strip out the mark to market, the unrealized gains, losses, and then the foreclosure costs that you guys mentioned, what would the run rate earnings, look like? So yeah, what do you think the ROE is like, if you pull out all that noise now that you've largely, exited from those, the JV stuff.

Kristine Nario-Eng

Well, I think the growth in earnings for 2024 with, in our prepared commentary with adjusted interest income increasing of $0.36 this quarter compared to $0.26 a year ago along with really rotation of underperforming assets and pace of acquisitions in the fourth quarter and also really good acquisition activity here in the in the last few months of the year.
Of 2025 supports that you know we have we are getting close to aligning with our current dividend in terms of recurring earnings. We have $0.20 of dividend of $0.20 of current dividend rate and anticipate that our recurring earnings will align with that dividend.

Bose George

Okay, great. And then just in terms of the excess liquidity, how would you characterize that at the moment?

Nicholas Mah

I missed the last part of the question, but as it relates to our excess liquidity, our goal is to continue looking to rotate that into both the agency market and within residential credit. On the residential credit side, we've noted in the past that we've kept our durations shorter by accessing the BPL bridge loan markets.
I think that aligns well with our view with respect to the outlook of of the US housing market and the economy as a whole. We are more constructive on the balance with respect to agency bond acquisitions earlier in this year and like in the short term here due to the normalization of the interest rate curve, which has been attractive for spreads and NMS as well as.
Just looking at the, different effects of the new administration and different policies that you know will likely cause some volatility with respect to some macro data, particularly rates. So our goal is to, help the portfolio be unionized through kind of re volatility as well as some credit weakening and in that space we'd like to see our portfolio, shorter on the credit side and in a liquid agency market which we see. You know returns in the 14 to 16% range today.

Bose George

Okay, great.

Operator

Douglas Harter of UBS. Your line is open.

Douglas Harter

Thanks. Can you talk about the, GNA and portfolio expense outlook, how do you think that trends in 2025 if you continue to kind of, deploy capital and grow the portfolio?

Kristine Nario-Eng

From a portfolio operating perspective, we did see a decrease in the quarter, related to, lower expenses or reduced expenses are non-performing book due to some resolutions that we've completed in the quarter as well in previous quarters in terms of GNA, we do anticipate and see opportunities of it decreasing as we continue efforts similar to those in 2024 and. In identifying and implementing further measures to further reduce our GNA cost.

Douglas Harter

And.

Kristine Nario-Eng

Maybe you're looking at a run rate or GNA of sorry maybe a run rate on GNA of 11 to 11.5 million per quarter.

Douglas Harter

Great, appreciate that clarity, any update you can give us on how book value has performed so far in the first quarter?

Nicholas Mah

Sure, we see as of this week that, just the book value is up somewhere between 1% to 2%.

Douglas Harter

Thank you.

Operator

Matthew Elder. Of Jones trading your line is open.

Hey, good morning guys, thanks for taking the question. So I'd like to kind of touch on these 4 remaining multi-family, assets within the JV last quarter on the call you guys mentioned that you had a line of sight kind of into a resolution, of four multi-family assets, I was curious if that if that is these 4, and if there's any update that you can kind of provide there.

Nicholas Mah

Yeah, so we have four remaining JB equity assets on our balance sheet. There's two distinct strategies between the 42 of the assets located in Florida with an equity basis of about $19 million are in the market for sale. So we have been marketing those assets and expect to sell those assets in the near term.
So that's just, the line of sight in thinking of where that is going and the fact that it's out on the market and we've positioned the property we think to receive, a decent offering on those properties two assets that are with, they're both located in Texas, the equity basis on that is about $1.3 million, and those two we've had.
And recent improvement in occupancy rates on those portfolios from high 80s to kind of low 90s, and we see actually improvement from there. So our view on those two properties, is to kind of wait out and show the improvement in income on those units, yeah, before we actually market for sale, which we think will have a better sale price.
In the medium term, relative to selling those assets, given the recent improvement in occupancy, and NOI in the portfolio. So again, that's $1.3 million and we got to exit that over the course of the year.

Got it. That that's very helpful color there. Thank you for that, and then, kind of as we think going forward, you mentioned the mes portfolio kind of running off, in an ideal scenario, what would the capital allocation be between, the agency strategy and the resi credit strategy?

Nicholas Mah

Yeah, in the mezzanine portfolio we do expect to see increase in prepayment activity.
There's certain call features that that are embedded in those deals that we hold and can drive a higher prepayment activity, and we intend to do that throughout the course of the year. So we do expect to see that continue to increase, as I mentioned earlier on the balance, we we're more constructive related to the agency market versus credit.
So the expectation is that we would to continue rolling that with a higher allocation to the agency, the RBS market versus, single family mortgage loans, but at the end of the end of the day, we will be investing. In both asset classes, but it, I think over the from particularly from last quarter where we, had our purchase pipeline higher in the residential credit space, I think that will reverse and we'll see higher pipelines in the agency RMBS markets.

Awesome thank you for.

Operator

Taking the questions.
Thank you one moment for the next question.
And the next question will be coming from the line of Eric Hagan of BTIG. Your line is open.

Eric Hagen

Hey, good morning. This is Jake Katzika on for Eric. Thanks for taking my questions. First one, could you talk about your outlook this year for pre-payment speeds in the RPL portfolio?

Nicholas Mah

Sure, we think that the RTL portfolio has exhibited pretty consistent speeds through 2024, and as you may know that the speeds are relatively robust. They range anywhere between the 50s of CPR to 60s of CPR.
We have seen that hold through effectively different types of rate environments. As these projects are in some ways interest rate sensitive, insensitive, and it's really driven by the fact that these projects are at that point of completion and then they eventually get sold or they get refinanced into a longer term debt. So we for 2025, regardless of rate outlook, we actually do see, we do see that the pre-payments will still remain relatively robust.

Eric Hagen

Great thank you and then do you see any opportunities to potentially call and re lever any of your securitized debt this year and are any of the deals currently callable?
Thank you.

Nicholas Mah

Yeah, we do have several deals that are callable today. We, there that is a strategy that we do employ sometimes it is an economic decision. There are some pieces of debt that with the, with coupon rate step-ups are still cheaper than executing a new deal in the market. 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 that is a that is a decision that we make on the deal-by-deal basis and an asset class by asset class basis. So yes, I mean that's going to be part of our part of our portfolio and part of our portfolio strategy and given the robust nature of the securitization market really from last year going to this year, we do expect that trend to continue.

Eric Hagen

Great, thank you guys.

Operator

(Operator Instructions) I'd like to turn the call back over to Jason Serrano for closing remarks. Please go ahead.

Nicholas Mah

Well, thank you for your time today. We look forward to speaking to you regarding our first quarter results. Have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.