Q4 2024 Earnings Summary
- Adjusted interest income EPS contribution increased by 38% year-over-year to $0.36 per share in Q4 2024, aligning closely with the current dividend of $0.20 per share. Management anticipates that recurring earnings will cover the dividend, suggesting potential for dividend sustainability.
- The company expects to reduce G&A expenses, targeting a run rate of $11 million to $11.5 million per quarter, which would enhance profitability as the portfolio grows.
- Adjusted book value per share increased by 1% to 2% so far in Q1 2025, indicating improvement in the company's financial position.
- Uncertainty Regarding Alignment of Recurring Earnings with Dividend: Although management anticipates that recurring earnings will align with the current dividend of $0.20 per share, they have not yet achieved this alignment, and there is uncertainty about when this will occur.
- Modest Improvement in Adjusted Book Value May Not Offset Previous Declines: The company reported a 1% to 2% increase in adjusted book value so far in the first quarter of 2025, which may not be sufficient to recover from the 4.8% decrease in adjusted book value per share in the previous quarter. This modest improvement suggests ongoing challenges in rebuilding shareholder value.
- Potential Risk from Shift Toward Agency RMBS Investments: Management indicated a shift toward increasing allocations in the Agency RMBS market, moving away from residential credit investments. This strategy could expose the company to interest rate volatility and spread widening, potentially impacting earnings negatively if market conditions deteriorate.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Severe contraction in Q4 2024 | Q4 2024 Total Revenue reached $80,713K, a marked decline compared to prior periods. In earlier quarters (e.g., Q3 2024), robust increases were driven by a $43.2M boost in interest income and a $138.8M surge in other income from gains on real estate sales. The Q4 contraction appears linked to a pull‐back in these revenue components amid tougher market conditions. |
Operating Income (EBIT) | Sharp decline into negative territory (–$31,799K in Q4 2024) | Operating Income deteriorated sharply in Q4 2024 compared to prior improvements. In Q3 2024, EBIT benefitted from reduced real estate losses and significant gains in other income; however, in Q4 2024 increased operating expenses and the loss of one‐time gains suggest a reversion to negative core margins. |
Net Income | Reversal from a positive net income (+$32.4M in Q3 2024) to a loss (–$41,828K in Q4 2024) | Net Income shifted dramatically from a Q3 turnaround to a Q4 net loss. In Q3 2024, factors like valuation improvements, gains on real estate sales, and increased net interest income drove a recovery from Q3 2023’s deep losses; in Q4 2024, these gains reversed, and higher impairments and expenses overwhelmed earnings. |
EPS | From a positive EPS (+$0.36 in Q3 2024) to –$0.46 in Q4 2024 | Earnings per Share declined steeply in Q4 2024. The Q3 improvement was largely driven by a combination of net interest income gains and real estate sale gains; however, the Q4 net loss translated into an EPS of –$0.46, reflecting the amplified negative impact of impairments and higher costs compared to previous periods. |
Interest Expense | Increased further to $91,542K in Q4 2024 | Interest Expense continued to rise in Q4 2024. Building on Q3 2024’s increase (e.g., from $48.4M to $88.1M YoY) driven by escalated repurchase agreement financing and higher base interest rates, the further rise underscores persistent high financing costs. |
Adjustments for Non-Cash Items | Very high at $248,513K in Q4 2024 | Non-cash adjustments remain substantial in Q4 2024. These adjustments, reflecting depreciation, amortization, and significant unrealized gains or losses from revaluing portfolios, appear even more pronounced than in earlier periods, indicating continued market volatility affecting asset valuations. |
Proceeds from/Repayments of Debt | $271,600K in Q4 2024 | Debt financing activity remains very active. Following Q3 2024’s trend—where securitizations and re-securitizations were used to replace short-term repurchase agreements—the Q4 2024 figure shows continued reliance on structured financing, representing an ongoing strategy to secure non-recourse, longer-term funding. |
Dividend Payments | Lower absolute payments ($18,116K in Q4 2024) | Dividend disbursements have been cut further in Q4 2024. Compared to prior quarters (down from $0.30 or $0.20 per share), reduced dividend payments reflect declining book value and inconsistent economic returns, prompting the company to conserve cash and prioritize reinvestment in higher-yielding assets. |
Net Change in Cash | Negative –significantly outflow in Q4 2024 | The net change in cash turned increasingly negative in Q4 2024. While Q3 2024 saw heavy investing outflows partly offset by financing inflows, Q4 2024’s more pronounced cash outflow is largely driven by continued, significant investing activities (e.g., purchases of securities and loans) that outpaced available financing, in line with prior period trends. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Portfolio Growth | Q3 2024 | no prior guidance | Expects robust market activity to resume in January and February following a slowdown in the last two months of the year | no prior guidance |
Capital Allocation | Q3 2024 | no prior guidance | Plans to maintain a capital allocation of approximately 25% to 35% in the agency sector | no prior guidance |
Earnings Potential | Q3 2024 | no prior guidance | Recurring earnings expected to move closer to the current dividend | no prior guidance |
Book Value | Q3 2024 | no prior guidance | Anticipates reduced book value volatility as it winds down its JV equity book | no prior guidance |
Agency RMBS Strategy | Q3 2024 | no prior guidance | Intends to grow the Agency RMBS portfolio and remain active when spreads widen | no prior guidance |
Interest Income Growth | Q3 2024 | no prior guidance | Plans to reallocate proceeds from multifamily redemptions into core strategies to drive interest income growth | no prior guidance |
Recurring Earnings Alignment with Dividend | FY 2025 | no prior guidance | Anticipated recurring earnings to align with the current dividend of $0.20 per share | no prior guidance |
Excess Liquidity Deployment | FY 2025 | no prior guidance | Plans to rotate excess liquidity into both the Agency RMBS market and residential credit investments, focusing on shorter durations | no prior guidance |
Capital Allocation | FY 2025 | no prior guidance | A higher allocation is expected for the Agency RMBS market compared to single-family mortgage loans | no prior guidance |
Prepayment Activity | FY 2025 | no prior guidance | Increased prepayment activity is expected in the mezzanine portfolio due to embedded call features | no prior guidance |
Adjusted Book Value | FY 2025 | no prior guidance | Expected to increase by 1% to 2% as of the first quarter of 2025 | no prior guidance |
G&A Expenses | FY 2025 | no prior guidance | Projected to run at $11 million to $11.5 million per quarter in 2025 with further cost reduction measures | no prior guidance |
Prepayment Speeds in RPL Portfolio | FY 2025 | no prior guidance | Expected to remain robust, ranging from 50% to 60% CPR | no prior guidance |
BPL Bridge Loans and Securitizations | FY 2025 | no prior guidance | Acquisition volume expected to be more balanced between BPL bridge loans and BPL rental loans while continuing to leverage the securitization market | no prior guidance |
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Prepayment Speeds Outlook
Q: What's your outlook for prepayment speeds in the RPL portfolio?
A: We expect prepayment speeds in the RPL portfolio to remain robust, ranging from the 50s to 60s of CPR, throughout 2025, regardless of the rate outlook. This consistency is due to projects reaching completion and then being sold or refinanced into longer-term debt. -
Releveraging Securitized Debt
Q: Any opportunities to call and relever securitized debt this year?
A: Yes, we have several deals that are callable today, and we plan to employ a strategy of calling and releveraging securitized debt. This allows us to take out additional capital for redeployment. Decisions are made on a deal-by-deal and asset class basis, considering economic benefits, as some existing debt with coupon rate step-ups is still cheaper than new market deals. We expect this trend to continue due to the robust securitization market. -
Capital Allocation Strategy
Q: What will be the capital allocation between agency and residential credit?
A: We expect to allocate more capital to the Agency RMBS market, especially as the mezzanine portfolio experiences increased prepayment activity. While we will invest in both agency and residential credit assets, our purchase pipeline will shift towards agency RMBS, due to favorable market conditions and a more constructive outlook on the agency market compared to credit. -
Multifamily JV Assets Update
Q: What's the update on the four remaining multifamily JV assets?
A: We have four remaining JV equity assets. Two assets in Florida, with an equity basis of about $19 million, are currently on the market for sale and we expect to sell them in the near term. The other two assets in Texas, with an equity basis of about $1.3 million, have seen improved occupancy rates from high 80s to low 90s. We're waiting for further income improvement before selling these, aiming for a better sale price later in the year. We expect to exit these over the course of the year. -
Book Value Update
Q: How has book value performed so far in the first quarter?
A: As of this week, our adjusted book value is up between 1% to 2%. -
G&A Expense Outlook
Q: How will G&A and portfolio expenses trend in 2025?
A: We anticipate decreasing G&A expenses, targeting a run rate of $11 million to $11.5 million per quarter. This reduction is due to continued efforts to cut costs, similar to those in 2024, and lower expenses from resolutions in the nonperforming book. -
Run-Rate Earnings and Dividend Alignment
Q: What would run-rate earnings look like after adjustments?
A: With adjusted interest income increasing to $0.36 this quarter compared to $0.26 a year ago, along with asset rotation and acquisitions, we are getting close to aligning recurring earnings with our current dividend of $0.20. We anticipate that recurring earnings will align with the dividend. -
Excess Liquidity Deployment
Q: How would you characterize your excess liquidity currently?
A: We aim to rotate excess liquidity into both the agency market and residential credit. On the residential credit side, we're keeping durations shorter by accessing BPL bridge loan markets, aligning with our outlook for the U.S. housing market and economy. In the agency market, we're more constructive due to the normalization of the interest rate curve, which has been effective for spreads and NIMs. We see returns in the 14% to 16% range today. Our goal is to immunize the portfolio against rate volatility and potential credit weakening.
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