Madison Square Garden Sports Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 20, 2025

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust Fourth Quarter twenty twenty four 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. This conference is being recorded on Thursday, 02/20/2025.

Operator

I would now like to turn the conference over to Christie Lasallam, Investor Relations. Please go ahead.

Speaker 1

Welcome to the fourth quarter twenty twenty four earnings call for New York Mortgage Trust. A press release and supplemental financial presentation with New York Mortgage Trust's fourth quarter twenty twenty four 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 Presentations section of the company's website. At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker 1

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 expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission. Now at this time, I would like to introduce Jason Serrano, Chief Executive Officer. Jason, please go ahead.

Speaker 2

Good morning. Thank you for joining New York Mortgage Trust's fourth quarter earnings call. Joining me today is Nick Ma, President and Christine Nereo, CFO. As I discussed a full year recap and insights in 2025, Christine will provide commentary on fourth quarter results and Nick will follow with an update to our portfolio positioning and focus. After restrictive monetary campaign by the Fed that began in early twenty twenty two to slow inflation, the policy stands reversed in 2024 with 100 basis points of rate cuts.

Speaker 2

However, mortgage rates remained elevated as the market focused on the supply side of heavy treasury issuance calendar for years to come. With the new administration, the market will be attempting to assess the benefits of the new policies against the current forecast of slowing macroeconomic data. For example, the benefits of on shoring manufacturing jobs and deregulation to spur spur economic growth may be neutralized by slowing economy reinforced by cuts to the federal spending. When looked directly at The U. S.

Speaker 2

Housing fundamentals, the market continues to show signs of resiliency with strong fundamentals. Due to low average mortgage rates held by The U. S. Homeowners of just over 4%, the higher rate environment will continue to keep housing supply in check. Stable housing trends and the presence of a positive sloping yield curve have the potential to enhance company earnings.

Speaker 2

This can be achieved by focusing on sustainable reoccurring income through strategic deployment of excess liquidity. With this goal in 2024, the company's portfolio grew by 44% relative to the same time in 2023, driven by $4,100,000,000 of acquisitions and primarily liquid agency bonds and through higher spread bridge loans. As a result, the adjusted interest income rose 60% year over year. After consideration of financing costs, adjusted net interest income contributed $0.36 to EPS in Q4, a $0.1 improvement from a year earlier. Strong balance sheet growth in 2024 was necessary following a period of low investment activity for the company.

Speaker 2

This period also allowed us to execute a significant portfolio restructuring center around the divestment of our underperforming multifamily JV equity holdings. We explained back in early twenty twenty two 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 of this PON last year. In 2024, we issued six securitizations and kicked off 2025 with an issuance of a BPL Bridge securitization. Alongside an $83,000,000 BabyBot issuance earlier in January, we continue to pursue attractive funding strategies to allow for prudent growth in our investment portfolio.

Speaker 2

Our goal is to focus on accessing non recourse, non mark to market leverage so we can efficiently access the company's excess liquidity totaling $343,000,000 at the end of the year. Despite substantial growth in our portfolio, we were able to control costs with expense reduction plan to keep our G and A just above 3%. We believe our execution in the year provides the company with increased portfolio flexibility to pursue and optimize returns in 2025, and we look forward to accomplishing this task over the year. Given this dynamic, we believe the MYMT share price presents compelling value with embedded upside as our reoccurring earnings continue to improve. As illustrated on Page 10 of our Q4 supplemental, MYNT shares traded at a 41% discount to adjust the book value at year end.

Speaker 2

Market capitalization was 90% covered by the company's cash and agency bond portfolio alone with $388,000,000 of book value or $4.29 per share potential upside to year end market capitalization. Furthermore, the company's balance sheet holds $272,000,000 or $3.05 per share, a net discount to par assets, which can be recaptured through pay downs reversing the held discount. With additional income growth through access of 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. At this time, I'll pass the call over to Christine to provide for fourth quarter financial highlights. Christine?

Speaker 1

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 undepreciated 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.

Speaker 1

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 five 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 totaling $131,600,000 due to lower asset prices, primarily in our agency RMBS portfolio and residential loan book.

Speaker 1

These unrealized losses were partially offset by $92,000,000 in gains from our derivative instruments, mainly interest rate swaps. Additionally, we recognized losses of $9,900,000 or $0.11 per share, primarily from foreclosed properties that still remain on balance sheet, which are carried at lower cost from market due to lower valuations compared to their previous carrying costs. We are nearing the completion of our divestment of multifamily JV equity with only four assets remaining, totaling $21,000,000 as of December 31. During the quarter, we successfully disposed our five multifamily real estate assets, resulting in net gains of $4,900,000 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.

Speaker 1

In the quarter, these dispositions decreased our net loss from real estate from 7,500,000 to $5,900,000 Total G and A expenses remained essentially unchanged compared to the previous quarter and portfolio operating expenses decreased by $1,500,000 primarily due to reduced expenses associated with our non performing residential loan portfolio. Additionally, we incurred debt issuance expenses of $1,900,000 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.

Speaker 1

As of quarter end, the company's recourse leverage ratio and portfolio recourse leverage ratio move higher to three 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 $0.2 per common share, unchanged for five quarters. We also issued a 2,500,000 of unsecured notes in January of this year, which were earmarked and now been fully deployed into asset acquisitions.

Speaker 1

The significant portfolio restructuring over the past three years has enhanced our ability to generate recurring earnings that align closely with the current dividend. I will now turn it over to Nick to go over the market and strategy update. Nick?

Speaker 3

Thank you, Christine. Twenty twenty four was the firm's most productive year in asset acquisitions. The fourth quarter activity was just as robust with the company entering into $923,000,000 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 $345,000,000 of purchases and BPL Rental Loans with $188,000,000 We expect acquisition volume to be more balanced between BPL Bridge Loans and BPL Rental Loans in 2025.

Speaker 3

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 $3,100,000,000 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.

Speaker 3

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. 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 in agencies over the course of the year was to prioritize positive carry profiles across low pay up spec pools.

Speaker 3

In the quarter, we targeted close to current coupon spec pools for purchase. The positively sloping yield curve that materialized in the fourth 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 5.8%. The portfolio is still a relatively differentiated high coupon portfolio. We continue to favor the liquidity and return profile of the Agency RMBS strategy.

Speaker 3

In BPL bridge loans, we have now invested over $4,800,000,000 in this strategy to date since 2019, bolstered by consistent purchase activity over the last few quarters. Having executed on three BPL bridge securitizations in 2024, we now have $7.00 $6,000,000 of revolving debt that can be recycled to fund future investments. The bridge securitization market saw deal issuance grow from $3,000,000,000 in 2023 to $8,000,000,000 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.

Speaker 3

As The U. S. 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 band 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.

Speaker 3

In BPL Rental, we issued a $295,000,000 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 originated partners, we also strengthened 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.

Speaker 3

The recent steepening of the yield curve in the fourth quarter has already been accretive to the overall securitization economics for these loans. Expanding the asset classes that we participate in across residential credit will support the pace of growth of our investment portfolio and interest income over time. The multifamily segment was the detractor of earnings for us in 2024, but the restructuring of the portfolio has put us on a positive trajectory for their 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.

Speaker 3

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 multifamily, 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 and A.

Speaker 3

Operator?

Operator

Thank you. The first question today will be coming from the line of Bose George of KBW. Your line is open.

Speaker 4

Hey, 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 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?

Speaker 1

Well, I think the growth in earnings for 2024 with in our prepared commentary with adjusted interest income increasing to $0.36 this quarter compared to $0.26 a year ago, along with really the rotation of underperforming assets and pace of acquisitions in the fourth quarter and also really good acquisition activity here in the last few months of the year of 2025 supports that we have we are getting close to aligning with our current dividend in terms of recurring earnings. We have $0.2 of current dividend rate and anticipate that our recurring earnings will align with that dividend.

Speaker 4

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

Speaker 2

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. We think that aligns well with our view with respect to the outlook of The U. S. Housing market and the economy as a whole.

Speaker 2

We are more constructive on the balance with respect to agency bond 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 and NIMs as well as 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 help portfolio be immunized through kind of rate 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 mark, which we see returns in the 14% to 16% range today.

Speaker 4

Okay, great. Thanks.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Doug Carter of UBS. Your line is open.

Speaker 5

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

Speaker 1

From a portfolio operating perspective, we did see a decrease in the quarter related to lower expenses or reduced expenses on nonperforming book due to some resolutions that we've completed in the quarter as well in previous quarters. In terms of G and A, we do anticipate and see opportunities of it decreasing as we continue efforts similar to those in 2024 and identifying and implementing further measures to further reduce our G and A costs. And maybe you're looking at a run rate for G and A sorry, maybe a run rate on G and A of $11,000,000 to $11,500,000 per quarter.

Speaker 2

Great. Appreciate that

Speaker 5

clarity. Any update you can give us on how book value has performed so far in the first quarter?

Speaker 3

Sure. We see as of this week that adjusted book value is up somewhere between 1% to 2%.

Speaker 5

Thank you.

Operator

Thank you. One moment for the next question. And our next question will be coming from the line of Matthew Eldner of Jones Trading. Your line is open.

Speaker 6

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 of four multifamily assets. I was curious if that is these four, and if there's any update that you can kind of provide there?

Speaker 2

Yes. So we have four remaining JV equity assets on our balance sheet. There's two distinct strategies between the four, two of the assets located in Florida with a equity basis of about $19,000,000 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.

Speaker 2

Two assets that are with a they're both located in Texas. The equity basis on that is about $1,300,000 and those two we've had a recent improvement in occupancy rates on those portfolios from high 80s to kind of low 90s. 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 before we actually market for sale, which we think will have a better sale price in the medium term relative to selling those assets taken in the recent improvement in occupancy and NOI in the portfolio. So again, that's $1,300,000 and we expect to exit that over the course of the year.

Speaker 6

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. In an ideal scenario, what would the capital allocation be between the agency strategy and the resi credit strategy?

Speaker 2

Yes. In the mezzanine portfolio, we do expect to see increased in prepayment activity. There are certain call features that are embedded in those deals that we hold and can drive 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.

Speaker 2

As I mentioned earlier, on the balance, we were more constructive related to the agency's market versus credit. So the expectation is that we would continue rolling that with a higher allocation to agency, the RMBS market versus single family mortgage loans. But at the end of the day, we will be investing in both asset classes, but I think over the from particularly from last quarter where we had our purchase pipeline higher in the residential credit space. I think that would reverse and we'll see higher pipelines in the agency RMBS markets.

Speaker 6

Awesome. Thank you for taking the questions.

Operator

Thank you. One moment for the next question. And the next question will be coming from the line of Eric Hagen of BTIG. Your line is open.

Speaker 7

Hey, Good morning. This is Jake Katzikas on for Eric. Thanks for taking my questions. First one, could you talk about your outlook this year for prepayment speeds in the RPL portfolio?

Speaker 3

Sure. We think that the RPL portfolio has exhibited pretty consistent speeds through 2024. And as you may know, the speeds are relatively robust. They range anywhere in 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 is 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.

Speaker 3

So we for 2025, regardless of rate outlook, we actually do see that the prepayments will still remain relatively robust.

Speaker 6

Great. Thank you. And then do

Speaker 7

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.

Speaker 3

Yes. We do have several deals that are callable today. We that is a strategy that we do employ. Sometimes it is an economic decision. There are some pieces of that with coupon rate step ups are still cheaper than executing a new deal in the market.

Speaker 3

But then there are also benefits in terms of being able to relever and take out additional capital where you can then redeploy. So that is the decision that we make on a deal by deal basis and an asset class by asset class basis. So yes, I mean, that is going to be 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.

Speaker 7

Great. Thank you, guys.

Operator

At this time, I'm 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.

Speaker 2

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.

Powered by Quartr
Earnings Conference Call
Madison Square Garden Sports Q4 2024
00:00 / 00:00