AJX - Earnings call transcript Q4 2019 | Rithm Property Trust Inc.

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Operator

Good day, and welcome to the Great Ajax Fourth Quarter 2019 and Year End Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Lawrence Mendelsohn, CEO. Please go ahead.

Lawrence Mendelsohn

and Ajax everybody call. fourth much, for joining very Great the quarter you thank for you, us Thank XXXX conference happy everybody. to Super Also, Tuesday On of the out, that we’ll to the just about. harbor statements Page talking get safe some we started, point about disclosure be X, I before want

joint XXXX significantly. a December good loans primarily in late net multiple an from value building As sources, pretty was introduction, asset we venture expanded our and QX bought very structures quarter. We closing

when We the closing our third performance quarter the grew rated NAV continues structure and discuss at approve value with continued talk financing rated asset-based to our look market first more and The loans call the grow of will bond quarter increase of migration to all in this assets in a terms we and current rates histories. first to non-clean securitized conditions. loan enclosed, AAA about our even including for it and of the pay XXXX. fourth structure and long-term continues further market on significantly Intrinsic we so

highlights that the end. Page we'll jump the we'll and and a quarter overview with and get into X brief year then And do to of

transactions. We We here transactions at XXXX. to closed QX We've Great nine and continued privately over buy negotiate Ajax. XXX made our lifetime transactions in

ability our types Our we to is to acquire the sourcing important very network of loans want.

originators ever funds. than sellers before, and are banks more Our

banks some be We from and with now in later force that this case of expect C-E-C-L. the well. have larger is the seen and increase approached CECL an in selling will has as the as we smaller banks year

loans, determine Gregory develop important. -- analytics We choosing those servicer data amount a loans, and algorithms for and pattern Funding. to driving managers’ the pricing of characteristics our loans of loan servicing analyze our through use target large recognition very We to

own provide. value. value result, enables equity XX.X% zero that basis, before book Our a really mentioned analytics and oversight manager we've the up show at to managers’ partners not us it's of JV our as our We it cost of as does our in rely on and the

with our we'll to performance about manager partners. drive significant of it has or NAV to us talk portfolio. service and approach the that investors And JV our institutional created later as the Similarly, really increases, also loan servicer, analytics helps to today causes

We of economics part, also our level most We of mark-to-market own the the including moderate leverage. over leverage, for leverage use servicer. non quarter, corporate the XX% average

Leverage in For in and did low QX the brings joint XXXX X.Xx. increased was leverage is we the of current significant a us. December alone that closing some being was securitizations, as and ventures. X.Xx pretty leverage to for still two and asset-based That said, environment opportunity the

$XXX all at quarter, loans ventures, million joint those acquired ballpoint, if in the closed you we of first For in December. the look of

we So, quite they're but them, didn't from all receive important. income a significant

$XXX,XXX decrease On in net by income. income versus partially income, offset This gross in the $XXX,XXX XXXX approximately driven interest net interest which QX by interest side, primarily was decreased by 'XX. $XXX,XXX interest in QX was decrease income

Most of early have purchased If in purchasers the our in had December. net would increased. income fourth closed we quarter actually interest these quarter, assets

in had QX, loans joint investments lower mortgage balance we venture balance a in a our higher quarter, average investments. of the For we of than average but had

loans. of and items, of our the income joint share our joint mind, venture Because interesting from that are come we it's in securities these servicing paid have ventures shows for a high not keep GAAP investments, venture for the average out securities important up waterfall. balance interests, And of joint in from fees

of interest gross of is joint is servicing actually from income servicing from ventures net fees. income which fees, interest loans, unlike our So,

interest growing slower venture interests. income faster result, purchase joint servicing joint a than our the we loans on investments, by if investments are the amount GAAP will the fees since our of grow loan venture As than directly direct

also a significantly as portion cash balance considerable the important QX, loan interest million cash payment a we well. of we an which for For this QX, more of income had average The than of is re-performance of $XX during had and quarter, most portfolio. part drag discussing the was our

at as XX portfolio at we made the the than principal payments, payment these loans. XX% This purchased only December of important significant loan discuss. of as issues you to status However, or unpaid I improvement want XX, compared our XXXX financial last to XX UPB of more least by to balance XX% leads three time

shorter default decreases. loans result income the of yields clean a decrease duration, percentage extending loans duration pay therefore that than interest current First, have much that and as and

more and above important, a weighted have our XX market Second average loans LTV paying of weighted with par, and coupon lower month especially loans X.XX%. average value

Our UPB. of amortized cost basis XX% is approximately

the through go page more numbers more NAV though. X will We the effect on detail specifically in in

ultimately generate funds and to overtime much cost financing cash than for well. flow loans lead as defaulted more them significantly Third, paying of loans lower

loans financing securitizations significantly. we and of will our rated structures, call As reissue decreasing these continue cost in funds

Additionally, of these was par significantly slower prepay expect in much QX although Fannie new Based of leading prepayments and increase we XXXX. XX loans in and for current quarter loans prepayment XXXX second conditions rates, XX extension. to are Mae more to market on to the likely duration would

both primarily On credit interests. of points our issuance of securitization the retained as side, decreased rated fourth venture our from Mortgage Ajax XXXX, loans overall lower Loan of XX our the as cost rates during and funds by approximately due XXXX-F of well interest funds to quarter joint repurchased Trust on basis cost on

of an XX cost has has cost. basis put well. additional securities QX our credit we place line commensurately the as lower venture for as In in lines decreased XXXX, credit points approximately materially, repurchase joint of decreased LIBOR As of repurchase our

expect decline as to to to joint we We interest rotate financing continue securities costs relating our ventures facility. that to

in rate this materially the to base asset per a residential interest significant in few level. swap In corporate to declines number, pool. XXX,XXX share, share. stockholders of attribute and be recent to Net common Florida income levels, so $X.XX. $X.XXX was that anticipate has funds Net quarter, impairment or million. continue in of are non-performing Waterfront per distorting about Given normalized There on approximately cost decline we at would decline we and cost $X.X income our a of treasury $X.XX will $X.XX acquisition the loan took about which $X.XX loan factors an been XXXX yields

new offset in XXXX loan then XXXX few pool, The one impairment in stopped in nonperforming loan Since late an this pool. to loan the which no are the took purposely immaterial however, effect performing to grouping early Strangely, loss rules reserves. would of became impairment our under larger need loans we this CECL there QX in to in and of portfolio it's is small book XXXX. and as remaining the XXXX, that not loans

QX required in we approximately are and not share. take per $X.XX in CECL was impairment effect the However, to of XXXX

securitization pricing This of the We have also underlying XXXX. accelerated XXX,XXX over would been of per months collateral. our XX instead amortized differed and in QX issuance charge full calling share re-securitizing taking costs $X.XXX the XXXX-A from of

or before get or get gains, time rarely at sale. took REO. becomes the is property down. costs it approximately an a These re-securitization REO Also, rather will payoff re-perform sells We loans come collateralizes third a write foreclosure than sale, then that nonperforming REO don't write the the for up XXX,XXX impairment as REO an collateral. related impairments over approximately of $X.XX usually REO which best funding considered we the we loans the per only to to to share. reduce materially However, party loan REO, REO

receiving of keep we XX% private a our income. XX.X% in a income Real in raise ownership of have mezzanine rather XXXX, million of subsidiary Ajax well. of properties, in for and urban but Since net Gaea’s Estate use XXX% Gaea lease of remember as of properties indirectly own A received XX% our our manager, only we subsidiary XX.X% a the of for primarily than November mixed you Gaea’s completed wholly continues manager we subsidiary new property manages our own owned of Gaea, manager, Gaea, raised a multifamily former capital one Great third we historically a and equity. of In mind, loans. more a triple Gaea. repositioning, common thing to than to manager little as Gaea’s result may Corp. XX.X invest Gaea quarter,

Taxable income by -- driven was That $X.XX was things. two the really share. income taxable a decrease really in

tax through newly REOs losses in taxable First, REOs we REOs generally -- properties foreclosure sold causes generally versus creates only XX creating foreclosure. REO through nine created income. generates Selling

up true quarter and short Loan a through rather loans default more pay to payments paying XXXX discount sale. more XXXX. than lower tax loan as extended maturity the the in XXXX half on prepayments cost Second, gets materially quarter to third contractual first taxable or XXXX. income loan performing foreclosure loans is in Pre-payments and quickly based There to second QX equal a than installments of early we capture prepays. fewer and increase on in for have were current of purposes. the of the increased, rates mortgage would Prepayments expect of foreclosures when similar QX

continue we at driven. primarily to Page look RPL we If be X,

Gaea of raise part at REO Real has as acquisitions of we QX XX-XX. see foreclosures QX. REO And on Corp Mostly direct decreased to our of created about Estate XX as Gaea. decline right sale, RPLs in hand also held XX XX capital continues from you typically new. and of significantly million QX result NPLs rental, side only for of X REO. equity was However, the consolidating can which as results loans from versus and selling a the sold

with value see mind, X, -- buy Keep lower loans page to XX.X% of approximately criteria, we buy use re-performance overall of of servicer help the a loans talked as we to continue later and use on based about, the RPL XX% well we the value on overtime of those can in purchase drive through of that our our to UPB. RPLs property increase number On price we that analytical re-performance. as you and LTV

On take the invested. purchased the loan in one impairment the having been absolute NPL is of for declining side, to reasons we dollars NPL have did. This

pooling aggregate pool is For remaining, few no XXXX by one reserves loan by recorded we quarter as impairment loans far was through can was which first Under CECL, RPL acquired. larger quarter they The NPL, of CECL the be we and done loss were pool and accounting, loan pool NPL QX there in offset pre and a XXXX offset. a well. so on by

is of If you our value that price sheet purchase balance purchase. is or nonperforming purchase price XX%. property and UPB to The the still the XX% loans approximately look at on remain

continues loans. small and to RPLs California in residential commercial portfolio both largest balance segment, have Our representing the

payment consistent Our performance San Diego also and seeing Angeles, centers. and Those California assets characteristic prepayment urban for Orange in locations are primarily consistent are We've borrower in seen patterns, Los subsets. patterns, particularly especially counties. certain we're the

QX the We've any our portfolio of not seen from recent impact portfolio. our in on wildfires

new are states seeing a Connecticut, effects definitely law, differences end Jersey New however, SALT out on having middle decrease the We end tax Illinois. provisions in property that between property the really New and York, material singled values deciles. and value with four higher seeing higher is We're

Florida The the both currency This in homes other and affecting higher we're thing emerging declines. market and Southeast trade Florida Florida. seeing in is is condominiums and from conflicts especially flight end capital less market,

Page X, my favorite page.

or XX XX payments portfolio better, payments, UPB our XX% that of look or of loans to XX loan time million at $X.XX of only at is loans the our of our are or you compared purchase. XX for XX or billion XX these $XXX If

up approximately balance basis on approximately and for XX par XXX loan of is XX% cost mark-to-market except it's when coupons. recent transactions we or LTV UPB. impairments, of based with our value XX none value this don't sheet. shows built-in loans XX better bad over for is on Our of our portfolio, these Since, Market on

relative get facilities. Number addition the cash allows our and our financing increasing to flow basis. rates our costs, NAV to to loan lowers and improvement materially, significant senior advance high classes us bonds two, It both securitized cost the repurchase asset-based performance of for also securitization loan in through

March. couple I that to of points to going If subsequent be we about. talk XX, turn it's events, Page half of a very to a on busy Number want one, second

continue what doing. XXs XXs as loans price We collateral buy for low values lower be to the purchase to to in we're or LTV continue

closing closing We have of and XXX NPLs expectation have in with of contract of of we million expectation March late million XXX under March. RPLs also late

X that’s small have closing. million also We of balance commercial

XX. Our dividend Board date, a March declared payable $X.XX record XXth, March

based is on our Given expectations very on comfortable Board the expected the and pay the loans, with performance maintaining intrinsic and dividend value prepayment income. for the coming performing taxable

and other depending buyback million as our those stock our upon thing XX, XX common is well. obviously February of of up Directors market to conditions The shares, of a on shares Board approved common availability

page. things If of we a point metrics couple to There’s jump the to financial I out. want

at Part of is If to the net impairment yield, of primarily impairments the of you to X.X%. discussed. many duration that X.X% performing. driven part loan way too from driven QX odd QX we due look by extension previously to It other XXX,XXX -- went ’XX. loan by average ‘XX in loans And from is

If you at servicing average XX the approximately of basis look that beneficial net points and fee. debt It's interests, securities also stayed same.

GAAP, -- So versus under have way XX in it to the servicing add you'd if average securities is interests present yields. on debt are compare we loans, you to loan Because the them to net. wanted rates fee servicing fee interest the the bps official

you page, even gone from X.X%. This level the to our asset debt at of it's If decrease will cost, in look X.X% that middle further.

debt are some to coming the basis and down, LIBOR repurchase middle through we asset will directly We declines, but it swap repurchase facilities facilities venture joint declined of have well our since to as a spreads Those continue but the QX. securitization expect almost both to related points costs XXX level decrease as securities, now loans. on on cost

closer itself, so XX leverage last significantly we if of loans, to go better. page, many XX XX months, bottom of the or the delevered From the over the we with

and financing with have securitization, this the to come we last few so However, more rates increase through down given we're very now in leverage especially weeks. materially comfortable asset-based expect

to take And questions was happy any might I'm that, anybody have.

Operator

come first B question from will Riley with Our Instructions] [Operator Hayes Tim FBR.

Tim Hayes

I taxable want question, trajectory first on income. of just My to touch the

on pretty its there. sales activity repayments highlighted for all You NPL pick held you the work tie that taxable see so sheet sale today's up impact the and maybe portfolio to given way net continues in to eventually income impact really as I portfolio you when to starting potential income the that and take more down flows the you off, from see guess expect cash you JVs small, you balance credit is move into especially have then, investments? cut as might REO rates the just that and versus taxable do won't and fed and and that much Can on

Lawrence Mendelsohn

we owning The share. is payments The two JVs we being joint One taxable income different with not the that cost loans pro equity and still place is the certificates from for is business taxable big our so the two, proportionate the income price. own interest from rata ventures in discount is And expense. our actually versus regular partners directly, because capturing JV versus places. purchase interest just of get occurs in our

materially XX price If you our purchase is is basis base XX look tax -- actually tax actually basis our is GAAP low lower UPB. our but of than

taxable income. generate of So significantly significant result, discount capture acceleration a that any as

GAAP points. Our X difference tax or is about X.X

million, X.X million GAAP So now. tax maturity. difference performing it's because And tax call it, XX through take that's of installments equal contractual a billion loans, about XX basis, you largely in right on

loan, a take you one So the GAAP on take based XXX on GAAP where each take expected you month months effectively you for life it purposes, loan of income. XXX

creates difference. a tax it So GAAP

rate Fannie performing X.XX%. coupon we pre-payment our current today from loan expect days is where about interest given lag loan material starting given would amount a of rates time now, is for the and expect on loans par that would because the are, about our XX Mae we originations weighted-average of Now, X.XX, occurring

as by the narrowing we narrow gap gap for a forward, in with mention closer prepayment up this gap. XXXX we well for also but loans acquired tax I XXXX is second the not and thing can, match that tax the methodology the we The exactly building difference, Deloitte closer with performing identical will to forward, for as up purposes. GAAP because tax on It's where XXXX came creating that its working GAAP, from large tax discount are want forward the loans and

tax a loan the ultimately, off You and pays GAAP when and ownership, identical. life over of know are tax

difference So were we in materially high payoff. our worth time that's well, that this tax which a of as Or a something. environment portfolio and percent of probably over closes loan the at GAAP obviously sell given we if to is par since QX, mid had certainly

do REITs have limitations they Now restrictions what of on sell. can

but way expense like assets refinancing existing some you by capture of materially it not interest it's So some facilities, less at bigger selling once, the that income. just capture rate all increases the it of by and and by by you interest making spread taxable some

Unidentified Analyst

guess of could cash just more you maybe that flows… question bit a have I on to little the the light And shed impact expect you cut one the the point is fed on

Lawrence Mendelsohn

in there's they and to is why see up So, of to factors lined based from of quarter. plenty for because in that reasons up getting owned the long cash cut, we provide. one started analytics quarter businesses We this that mid insights the things built we see we fourth quarter, time the two some first and can fed we in and the our started kind of investors’ second look coming fourth and our the on which of we at some late liquidity quarter

new XX cut four mean, fed’s swap you where If at -- clearly and origination you are the IO. mortgages X.X% get things. I can of shape of to going curve offering me yield look where on got arms see One, emails today two one the at are. rates you're the based and I

even a years was on ago So, three, and and were when those lag prepayment loans is XXX strangely, year loans amount to refinance result to fixed rates mortgage current those now it going they versus because today's can you're Fannie in generated ago par the Mae now years call to a completely XX significant that be several they're and four that X.X% in. everybody markets were to loans rate immobile the refinance as XXX of presumed more get done see never market the

the and So we in And expect is. the dollar LIBOR a that even rates, result we'll that which at the prepayment material see see credit month euro look where lower even change curve June are four if would curve you mortgages, prepayment significant accelerate as you in of into absent three rates you'll they would expect spreads maybe in and than on now, summer.

would economic NPLs we and term near decrease Based on value, the effect that. there to low bit, however have And property market the leverage that and and about the the part Number in is the little loans spreads basically what purchase the loan showing widened leverage in mortgage NAV that increase is leverage loan. near from is and two on pulled. the showing, a though bonds prices actually how and is you transactions cut on slowdown and in credit have income actually taxable have that market multiplier the side, rates high more have land actually which flip does RPL the our re-defaults rates mean the defaults sold have would of yield actually and sixties the yield RPLs a in our increase have fed but significantly number been rallied in it of on even off loans is related that term isn't

for shorter So time of a provide you would yield period that it would effectively. raise but it --

mortgage of relative a originated effect also Mae kind loans. be versus have mortgage, Freddie a small have through kind than GDP RPLs versus Fannie do prepaid multiplier higher re-default in have do negative to effectively to the able of you’d the do default. Fannie sell loan newly a RPLs And changes loan

flip or years RPL in Mae increase affect some period actually XX value Fannie nonperforming and negatively were know to XX intrinsic a it You would multiplier little loan. the newly total a at loan. our all the point for of side a more that a But subject than would originated of effect yield but on time, loans the the last they're

Unidentified Analyst

detail there. that's Got helpful a of lot it,

your dividend that taxable of kind just quarter? income here, not And this of given how despite do led trajectory all together, earnings dividend that so GAAP the think putting you out about covering you've the

Lawrence Mendelsohn

would right in to intrinsic time by with matched figure choice to re-defaults, would a Whether amount GAAP I over out. is to what $XX this to difference, tax million three. Board's not now But But Well, the a that's predict of of prepayment be because both the that to going our have this kind more -- the a gets takes think to reality floor hard being value the dividend overtime. going cycle little up, that million have or and is go suggest driven there sales, $XX I on all to pretty I up little don't we combination we're that dividend the determine is the kind and relative versus comfortable as on is the dividend. ceiling opposed think the that

Unidentified Analyst

are on recent and that attractive impact And market back you able selling? but any just bolstered seeing the you in get Are going mentioned effect, ask from you CECL or you cautious volatility? are more to assets pipeline more yields? more and but And by volatility, your queue, I'll forced the seeing can being get the touch pipelines on then, the one into you recent

Lawrence Mendelsohn

bigger the be different deal because as the not it’s bank larger smaller a some been and banks sellers as as and of is the big it bigger we'll they two for things, from couple smaller large We're year the banks, both traditionally CECL seeing now one From reasons. is driven of banks this because sellers But about later year. enforceable to large a banks. have by CECL continue the see yet not

curve of can in use a selling reserves they larger the banks these very earnings. ratios and manage some recapture where loans The capital they other environment, is flat and

larger manage banks any a enough of loans, you big -- earning big enough pool can by X% X.X% you in for sell quarter. If the number or

selling coming the clearly and seeing specific pools that. they're also larger of from are banks selling kinds we're what that in So

merely side. of raised buyers see different reactions price we're funds marketplace lot loan a the We panic large almost especially the very, seeing very, Number buying from the who as buyers, money a and is on loans. game just value the very agency some to to spread couple two, a And playing of a opposed what's opposed game. a of they they as to levels as get an enhancement result, value just think can arbitrage where rating as the they're

On the side, being we've a whether with as people and funds. total negotiate in lot of other don't the or be direct funds for subsets to the transactions like most to less we analytics sellers, or pools the cost relationships seen have buyers someone have banks institutional smaller of in able that loans and and they’d matter

that or So and long seeing and But we We're kind discounts. of buyers of million XX loans like no we're larger almost little by pools that, very to see way seeing and who are they're of on big going you're are we focused of seeing one panic call $XXX on XX miss kind which buying and bit those paying selling we're like out pools a we're million, million you'd afraid both. smaller at anymore. the panic to people from the side, if seeing flip attention are it

smaller three last four away. years, really buyers the has gone or the Over

Unidentified Analyst

Got it.

Okay, my questions. for Well, great. taking again thanks

Operator

next with Our Raymond question Laws James. Stephen

Stephen Laws

balance But believe on that's associated I you're things leverage, mentioned consolidated the that JV guess so that. increasing investments going the and behind kind of thinking your that. not I two sheet, on. so loans better the Great, you performing securities about couple with would leverage certainly leverage lower One, taking questions warrant

how a about capital here? see forward? think think So bit currently of do those across strategies good allocation we're about things of how trending? in a Or little going Are a spot going shift we and we we to mix two in kind do those just

Lawrence Mendelsohn

Sure.

entities servicer I of is revenue structures. and think Part owning the that of direct those other JV JV of is demand than JVs. allocations and that the we investments in pick for will XX% our in additional loans the from equity by part ways up increase in faster will manager

piece bond or And created other JV individually kind or a AAA down securitize is securitization loans and change as the right take so and we've as we deal land can will can and JVs securitization both facilities, has months percent The in or in LIBOR new them come of our and has of X.X%, with securities where in around XX swap are security. rates it XX come where both are down though cost each lower financing two points which can them bundle and securities and was four structured we dramatically those we finance basis that three at financing be is rated they new ago. than structure

seven So down, that we XXX about more month to you're to three worse can or getting aggressive. or with financing since leverage repurchase LIBOR in wanted get our better down basis kind costs are effectively points lenders sell on last over three we down or from probably LIBOR of in times continue still now well the A a XX come market to could dramatically to for the get XXX XX for or if down as XX% UPB and And six with basis cost going single of basis through so facility we today's sub time see LIBOR come months X.X%.

both big bank more to banks well. now, stand lowering we're spread put seeing If by right very and you're, and phenomenon it's been increasing there's and earn as facilities repo of costs that pressure earn rates the to advance or spread lot at a hard and on

it cycles industry never so the creates. always we said, like that from, set that being goes that in Now that it opportunity mortgage

Stephen Laws

about discount have as versus So this ownership afternoon, returns number? intrinsic for stock aren't you NAV do versus reflected investments the the view Sure. the capital? that a are buyback Well, for do I the book appreciate that view intrinsic service other question value NAV things announced you details. opportunity or the in how the value think the what new second and GAAP manager the color and you And there, on using you authorized. How Larry current valuation reflects I

Lawrence Mendelsohn

our multiple necessity, just we ATM the seeing shipping not used a who some was of QX first liquidity were of sense something investors when virus, could a from the there was We in by you X,XXX, the of to There’s follow be X,XXX going out a could pieces have pieces and couple around to actually of of see going our be have commodity long it Sure. little across that see follow, stock want could on the of caused didn't the was we that time things our to quarter the industries – we in different but we some going first you quarter. and know in you follow some bit pieces. we indicating continents, some that

the we first quarter of in liquidity at what from can we're to bit little a So the use get as people the first the lot ATM end you buying quarter. a see March, create of liquidity for ready some needed to some

with some think and based also sense the so the in of to the than some we of company, that convert what's likely stock we're to to it our cost Now where buy and the down market, on lower trades. going convert stock currently in given the on capital makes buy much

market buy to as likely the also converts well. in some in open we're of So the

Stephen Laws

Take care. comments Larry. Thanks for there the

Operator

Lawrence our I to Mendelsohn to turn would over conference back concludes question-and-answer closing any This session. the for like remarks.

Lawrence Mendelsohn

And of to at additional And here. business, free feel virus time if talking our us you cut, going have Tuesday, a appreciate XXXX rate and night. all questions, reach Thank joining things conference the XXXX time. on year-end and good We quarter out on fourth in Ajax this call. Super like for a the all have about always fed We you other to a given thanks. and everybody us the world Great

Operator

The conference has concluded. you attending today's Thank presentation. for now

You may now disconnect.

Rithm Property Trust (RPT) 3 Mar 202019 Q4 Earnings call transcript