New York Mortgage Trust (NYMT) Q4 2021 Earnings Call Transcript

New York Mortgage Trust (NYMT 1.98%)
Q4 2021 Earnings Call
Feb 18, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the New York Mortgage Trust fourth quarter and full year 2021 results conference call. [Operator instructions] This conference is being recorded on Friday, February 18, 2022. A press release and supplemental financial presentation with New York Mortgage Trust fourth quarter and full year 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 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. 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, executive chairman. Steve, please go ahead.

Steve Mumma -- Chairman and Chief Executive Officer

Thank you, operator. Good morning, everyone, and thank you for being on the call. As the company announced last December and becoming effective this year on January 1st, I've taken new role as executive chairman with the Jason Serrano stepping up to CEO. I leave the company in great hands and look forward to the company's continued success.

Now, Jason and Kristine will lead you through our fourth quarter financial presentation. Jason?

Jason Serrano -- President

Thanks, Steve. Good morning, everyone, and thank you for joining our fourth quarter 2021 earnings call. Kristine and I will be speaking to our Q4 2021 supplemental presentation that was released yesterday and is available on our website. We will allow questions following the conclusion of our presentation.

Before I begin, I want to thank Steve for the two decades of service at the company in which he successfully steered from a small managed originally to what is now internally managed, scalable, diversified credit business. Steve is a true professional and led with exceptional care for the company's shareholders and employees. I'm thankful to have worked alongside, side of you, Steve for the last three years and then look forward to following the path you car for the company's future. Now turning to Page 7, key developments.

Starting with the financial highlights on Page 7 of the supplemental, I will quickly summarize our quarterly performance as Christine will cover this in greater detail. The company generated $0.06 cents of gap earnings per share. Undepreciated EPS was $0.02 cents higher at $0.08 cents per share. Also, book value per share ended at fourth quarter at $4.70, or $4.74 per share on an undepreciated basis.

Due to a fourth quarter increase in direct investments, a real property through our multi-family JV program, we will provide an undepreciated earnings and undepreciated book value, which removes non-cash expenses related to depreciation and certain amortization expenses related to leasehold intangibles. After the fourth quarter dividend of $0.10 per share, our 2021 total rate return was 11.7%. And despite a full transition to loan and JV investments, G&A remained close to 2%. 2021 was a transformational year for the company as our capital redeployment strategy was executed in direct loan investments.

Generated from our single family origination partners and as it relates to our multi-family strategy, loans and JVs were generated internally at NYMC by our origination team. In the fourth quarter, we added nearly $800 million of new investments, which set a record for the company. However, our quarterly earnings did not fully benefit from recurring income related to those assets, as more than 70% of investment settled after late November and in December. With high investment activity, we were able to better optimize our balance sheet as our cash balances dropped below 10% capitalization, or $152 million of unrestricted cash net of 30 day debt maturities.

Working through previous periods of high cash balances allowed us to relive our unencumbered assets in the first quarter, which will be touching on a minute. We also continue to utilize mental recourse leverage for the poor book value and for book value protection and lower costs, with their preferred stock issue at 7%, which redeemed a 7.75% callable C series, reducing capital costs by 75 basis points. Lastly, due to the recent market volatility, we thought it was prudent to add $200 million buy-back program, which the board recently approved. Now turning to Page 8, subsequent developments.

Investment activity accelerated through the first six weeks of the new year at $325 million of assets were added. We are now on pace to exceed fourth quarter 2021 investment activity. On the financing side, we have been very active as well, with two securitizations completed thus far. The first in the early January against our RPO portfolio at 2.3% total cost of debt.

And in February, we completed our second bridge loan securitization revolver. Lastly, redeemed $138 million convertible note, which matured on January 15. Simply, we are committed to driving company earnings higher by growing our portfolio and have the capability to do so organically through our unencumbered loan book. We are excited to see this capital put to work and the earnings generated in subsequent quarters.

At this time, I'll pass it over to Kristine Nario, our CFO, to provide further detail in our quarterly financial results.

Kristine Nario -- Chief Financial Officer

Thank you, Jason. Good morning, everyone, and thank you again for being on the call. In discussing the financial results for the quarter, I'll be using some of the information from the quarterly comparative Financial Information Section included in Slides 29 or 36 of the supplemental presentation. Our financial snapshot on Slide 10 covers key portfolio metrics on a quarter over quarter comparison.

The company continued to deliver solid results in the fourth quarter, with GAAP earnings per share of $0.06 and GAAP book value of $470. This quarter, we are introducing two new metrics undepreciated earnings and an undepreciated book value, which are non-GAAP financial measures. Undepreciated earnings represent GAAP net income, excluding the company's share in depreciation and lease intangible amortization expenses related to operating real estate. Undepreciated book value represents the company's GAAP book value, excluding the company's share of cumulative depreciation and lease intangible amortization expenses related to operating real estate.

By excluding these, non-cash adjustments undepreciated book value reflects the value of the company's rental property portfolio at its undepreciated basis. The company's rental property portfolio primarily includes consolidated multi-family apartment properties. For the fourth quarter, undepreciated earnings per share was $0.08 and an our undepreciated book value ended at $474, down $0.02 from the previous quarter. Our net interest margin for the fourth quarter was $363, an increase of 38-basis-point from the previous quarter.

Our portfolio weighted average asset yield was $657, an improvement of 18-basis-point. The increase was largely attributable to our continued investment in higher yielding business purpose bridge loans. Our funding costs improved by 20-basis-point, ending at $294, largely due to the refinancing of our 2020 RPO strategy securitization, in the latter part of the third quarter, which resulted in 210-basis-point in cost savings. The company's recourse leverage ratio and portfolio recourse leverage ratio remain low at point four times and point two times.

Slide 11 details our financial results. We had net interest income of $30.8 million, relatively flat as compared to the previous quarter. Our continued investment in higher yielding business purpose loans during the quarter contributed to the point nine million increase in single family interest income, offset by a point five million decrease in multi-family interest income, partly due to redemptions over mezzanine lending investments accounted forced loans. Although there was a decrease in income from our mezzanine, lending investments accounted forced loans.

Income from our mezzanine lending investments accounted forced equity increased during the period, contributing $7.2 million in preferred return during the quarter. Have these mezzanine lending investments qualified for loan accounting treatment under GAAP. They would have contributed 46-basis-point in net interest margin. Interest expense on our single family portfolio decreased by $0.3 million, primarily due to the full quarter impact of the previously mentioned RPO refinancing securitization transaction at a lower cost.

We had non-interest income of $39.3 million, mostly from net unrealized gains of $15.5 million due to continued improvement in pricing on our assets, particularly our residential loans. We also generated $5.2 million of net realized gains, primarily from residential loan prepayment activity, offset by $4.1 million of net realized losses from sale of agency RMBS. The net realized loss from the sale of agency RMBS was offset by the reversal of unrealized losses recognized in the prior periods. In addition, as discussed earlier, our mezzanine lending investments accounted forced equity contributed $7.2 point two million of preferred return.

We also generated other income of $7.9 million, which is primarily related to $4.8 million of income recognized from equity investments in entities that invest in or originate residential properties and loans, and $3.1 million of redemption, premium and premium recognized from early repayment of mezzanine lending investments during the quarter. Included in our results for the quarter, is the net loss activity related to our multi-family apartment properties, in which, the company has equity investments in the form of preferred equity or joint venture equity. Because of certain control provisions, we consolidate these properties in our financial statements in accordance with GAAP. We received variable distributions from these equity investments on a pro-rata basis and management fees based upon property performance.

We pursue these investments for potential participation and value appreciation of the underlying real estate, which is realized only upon sale of the multi-family assets. These properties generated operating rental income of $7.6 million and incurred interest expense and operating expenses of $2.1 million and $13.5 million, respectively. Operating expenses incurred by these properties during the quarter is primarily related to depreciation expense and amortization of lease intangibles totaling $9.2 million. After reflecting the share in the losses to the non-controlling interests of $1.3 million in total, these multi-family apartment properties incurred a net loss of $6.6 million for the quarter.

We had total G&A expenses of $12.5 million, relatively flat compared to the previous quarter. We had portfolio operating expenses of $8.1 million, which increased primarily due to the growth of the business purpose loan portfolio. Slide 12 summarizes our activity in the fourth quarter. As Jason mentioned earlier, we accelerated our investing activity in the fourth quarter.

Acquired residential loans for $606 million, funded multi-family joint venture and mezzanine lending investments for $123 million and $66 million, respectively. We also sold non-agency RMBS agency and residential loans for proceeds totaling $194 million. We also had total repayments totaling $333, comprised of $245 million from our residential loans, $59 from our investment securities, and $28 million from our mezzanine lending investments. Jason will now go over the market and strategy update, Jason.

Jason Serrano -- President

Thanks, Kristine. Turn Page 14, relates to our strategy update. Our course strategies remain unchanged. We believe we are strategically positioned to take advantage of fundamental market strength.

With current agency mortgage coupons now at 4%, housing affordability is close to the long run average, where mortgage cost equals about 23% of first time homebuyers. Any refinancing in housing demand due to higher rates is not likely to correlate to lower home prices here. Like many sectors at this time, the supply side component determined price equal equilibrium is an overriding factor. December printed another record law.

Homes available for sale was below 1 million units. This correlates to 1.8 months of supply in the market, also, record law. Extreme and persistent low volume is likely the keep prices pinned at or above inflation rates, particularly in the south. We continue to see value in these and this market through short term bridge loans, where underlying investors can take advantage of a technical squeeze in housing supply and we can benefit from high coupons and a short duration loan.

With higher short term rates, we have two fixed rates securitization revolvers, out its POs January thins returns. Secondly, gain on sale has all but evaporated for agency, non-agency residential loan originators in the first quarter while market coupons we set higher, albeit at lower origination volumes, we see an excellent opportunity to pick up deeply discounted paper in the scratch net market. Also, secondary and tertiary MSAs in the south and southeast should continue to benefit from population migration trends as these markets provide a cheaper cost of living alternative. In a recent large scale US poll, more than 80% of workers suggested they would quit their job if employers asked them to report back to the office full time.

Thus, work from home is likely to transition from a health measure to retention measure, offered by employers to keep talent to keep out. We see great opportunity, attractive risk returns in the multi-family sector to take advantage of this migration due to this trend. Now turning to Page 15 to address sourcing, our sourcing approach. We recently looked locked in a flow agreement for 50% of production from a large originator in the BPO space.

We are excited about this arrangement and will add to our robust growth in the single family sector. In the higher rate environment, we have also increased our participation with our originators as we see better value offered. We are an investor of choice because we are scalable, reliable buyer in the market and do not directly compete against our partners. On the multi-family side and as a way of background in 2016, internalize riverbank and multi-family originator and asset management platform.

Since then, since this time we funded over 1 billion of loans on our balance sheet, generating a 15% life to date return on our assets as we do not utilize leverage within the strategy. We have built up organic sourcing opportunities with hundreds of sponsors. We are very excited about this program that offers portfolio across clutterization roll up opportunities. We close our first deal last November on 11 properties totaling more than 2,000 units.

We offer more than just capital to our multi-family regional sponsors. Our asset management platform helps our partners relieve certain operational pinch points. As an example, our technology can map into the jail of underlying multi-family properties to automate and review months reporting. This is just one of the ways we can help sponsors consolidate their assets.

Asset Management Program. On Page 16, our latest strategy update our transformation from early 2000 is evident with each of these graphs in the first graph, asset sales in early 2020 generated excess cash as we held a defensive posture in Q3 2020. After this time, we held a stubbornly high cash balance with a levered balance sheet. In the second graph, as prices recovered and term financing normalized, we increased our utilization of non-market market structures to reduce balance sheet risk and lower our cost of funds to optimize our balance sheet.

In the third graph, we monetize our securitization holdings and reinvested the proceeds into higher yielding loans and JVs. The gestation period for loans and JVs is much longer than bond investments, some of our larger opportunities, such as portfolio roll-outs, can take multiple course of close, which caused some inefficiency. These three graphs demonstrate how we manage through these transformation and pace and how we exhibit patience in doing so. In the fourth quarter, cash was brought below 10%.

We quadrupled usage of non-market structures and depends on short term borrowings, while also lowering our cost of bonds and be rotated out of security holdings to increase our yield on assets, the greatest level in the company's history. On Page 18, we are excited about our earnings potential from these activities. With anticipated high investment levels in the New Year, we are prepared for a busy first quarter to grow our portfolio by raising cash from mainly unencumbered assets on our balance sheet. We were active in this year's Asian market on day one of the New Year and through February 15, 2022, we have raised $584 million of cash with keeping a low rate of recourse leverage, which after effect to this funding is only point four times.

Simply putting half of the catch during narrated from the $788 million total financing completed, or in process at either a 9%, 12%, or 15%, we can generate a $0.02, $0.03, or $0.04 of incremental EPS, respectively. We believe hitting the upside to the growth potential is not out of the equation. We are excited to demonstrate that over the course of the year. Turn to Page 19, we believe we can do so by protecting book value under prudent financing structures, which limit company recourse and mark to market risk, as illustrated here.

Now turning to Page 20, as they go through the single family overview and just as a quick note regarding a single family allocation, we continue to stay up in credit with high FICO borrowers at low LTVs targeting to 12 to 15 RVs after second financing. We began adding DSCR loans in the fourth quarter, which are loans to rental investors. With guaranteed production from a floor agreement and coupons are nearly a 100-basis-point higher than at the beginning of the year. We feel confident adding exposure here with the intention of gestation to escalation.

This longer duration, mortgage loan requires term financing to prudently generate an equity return. We are confident we can now accumulate attractive levels for a rental loan pool securitization. Turn to Page 21, our portfolio highlights. While we are hitting our stride at multiple volume asset classes and single family sector, the performance of our credit assets remain positive.

Delinquency rates have flattened down on our bill book. On our scratch and dent book, we continue to benefit from PAR prepayments on our discounted loan purchases. While we do expect prepayments to slow in durations the length and this presents an opportunity to add to it these months with securitization and opportunity we have been recently executed for compelling go forward equity translates this asset class. Turning to Page 22, on our BPO bridge strategy, with nearly one billion of loans at the end of the fourth quarter.

BPO bridge loan continues to be our largest exposure. Performance has been great, which is expected with loans to 65 LTV after repair and a double digit HPM market. Equity buildup is substantial for the borrowers here that are experienced in their local markets to complete the rehab jobs focused on low-cost projects. Turning Page 23, our multi-family portfolio overview, 25% of our capital is now allocated to this asset class.

We believe this portfolio offers our security, our shareholders, a differentiated type of diversification in this market. Our ROEs of 12% to 17%, we are at the center of a sector that is in the process of fundamental landscape change. The market is efficient, workforce housing offering quality and affordability is an attractive proposition in today's post-COVID marketplace. In the JV portfolio, at $272 million, we are looking forward to sharing the equity upside with our sponsors on property repositioning strategies, more on that in a minute.

Turning Page 24, as expected, performance is excellent. One loan is delinquent and expected to resolve in a full recovery. Year over year rental growth rate for our portfolio is 8%, which is the highest level we have seen for our book. With low LTV presented here, that does not account for valuation changes that have occurred since the opportunity was funded.

We expect to continue our record of zero losses in the strategy to date in end term. With $71 million already closed in the first quarter and $152 million in underwriting portfolio growth will continue from Q4 levels. Turn to Page 25, the growth we have seen here is exciting with our origination platform, with the close of a portfolio roll up and cap recapitalization. We are now on a non-linear growth trajectory.

Joint venture is our leading product and as Kristine mentioned earlier, we will also report undepreciated EPS and book value to remove these non-cash costs to our income statement and balance sheet and these measures. We do expect depreciation and amortization cost to grow alongside our portfolio, particularly amortization, because high growth rates receive the rent in today's market. Thus, expect us to continue reporting these measures. On Page 26, the asset transition plan offered in high growth submarkets is a case where we invest in lower market quality property as a value play.

Typically related to deferred maintenance or a daily concept and utilize a cost effective capex plan that produces a refresh look meeting market competition. This has been the focus since 2014, while markets do change, we consistently see tenants desire for a neat product and affordable price point, and we expect to meet that growing demand. Now, on Page 27, we believe a diversified portfolio of growth strategy centered around recurring income streams will provide stability to earnings in 2022, with industry leading global company resource leverage and flexibility aided by our low cost operating structure. We have taken a more offensive posture to pursue opportunities in the high rate environment for continued portfolio growth.

We believe this is the path to enhancing rate earnings, and we believe the time is now. At this time, I would like to open up the call for questions. Operator.

Questions & Answers:

Operator

[Operator instructions] Our first question or comment comes from the line of Eric Hagen from BTIG. [Operator instructions] 

Eric Hagen -- BTIG -- Analyst

Hey, thanks. Good morning. I think just one from myself. Can you talk about the outlook and the opportunity to fix and flips this really just the competition which is developed there? How much you guys think you can source in that channel this year with the backdrop paying higher interest rates?

Jason Serrano -- President

Yes, thank you. We have put together a floor agreement which gives us 50% production of one originaire, we will also have increase our participation with a few other originators in the market. We do expect our fix and flip volumes to increase from what we presented in the fourth quarter. Given those arrangements, the market, because of the recent rate volatility, that market has taken a bit of a step back as relates to the liquidity on financing relative to these assets.

This year's Asian market is given rate increases is higher and therefore there's this transition period that has to come with respect to most originators out there with higher coupons. And in this period, that liquidity matters tremendously given, the change in rates. We have been a consistent buyer of this product with with our counter parties. We have been able to help them understand where coupons are going and migrating given just swap rates in the market.

So we've been able to stay ahead of this change and which has helped some of our our partners here. So we can we expect to continue to see portfolio growth there, particularly with the fact that we have one to generate 50% of our production.

Eric Hagen -- BTIG -- Analyst

That's helpful, color sense a lot.

Operator

Thank you. Our next question or comment comes from the line of Stephen Laws from Raymond James. Your line is open.

Stephen Laws -- Raymond James -- Analyst

Hi, good morning. Jason, can you talk about your comments toward a more offensive posture going forward as you look for new investment opportunity, where you see the best opportunities, you cited the rising rate outlook and what are those may be. And also, how do you think about those new investment opportunities versus the stock repurchase, with shares around a 25% discount on appreciated book value here?

Jason Serrano -- President

Yep, so starting with the opportunity and the offensive posture, now we have been analyzing looking at this market, we've had opportunities to buy larger portfolios in 2021, which we passed on. And part of the reason was that the markets I was offering very efficient and high liquidity financing, particularly in the short term. Part of the financing spectrum, which back in 2020, we saw the result of that and securities long term securities again, short term repo. The effect here is not as great, obviously, and the financial markets are completely open.

It's just it's costlier to finance. So our goal was to focus on the short duration product where we weren't taking large interest rate risk. Given the reset of these loans or the pay off these loans is fairly quick within a year or two to kind of 15 months, and the product would reset into higher loans. We also, like the opportunity of taking our borrowers that are resetting or paying off.

And I say resetting now more than paying off something because of a large part of the fix and flip market is now going into DSCR loan product. So the fix and flip investor is now likely to do a fix to rent. And with our portfolio, we, the ability to recapture that bar and to add a loan is great as well as resetting these coupons a bit higher in this market, which will give us better, better NIM earnings on those assets. So that is part of why we are becoming more aggressive in the last couple of months here on our portfolio.

We just like the fact that the coupons are at the highest levels we've seen in roughly two years. And and we we're going continue to take advantage of that as relates to our share buy-back program. We see an opportunity to grow our book value and grow EPS, which will allow our shares to appreciate if we are able to continue with that plan. Now the opportunity that we're seeing ahead of us today in assets, given where we're taking, we have low cash balances, we're taking loans that are unencumbered and in covering them through securitizations with and receiving cash back for that.

And we've allocated into investments and investment securities, which all investment assets, which will allow us to generate a thin's return, which we think that will bridge the GAAP, from this kind of GAAP that we're currently trading at. So, we're seeing an opportunity in the market and the extent that we see continued volatility with respect for shares. In the end, the fact that we are not able to hit some of our objectives with respect to our portfolio growth, then the consideration is there for a share buy-back, which is why we put it on and have the board approved this last couple of weeks.

Stephen Laws -- Raymond James -- Analyst

Great, thanks for the color. Kristine, thinking about the operating real estate portfolio, appreciate your prepared comments. As we look to model that forward, how should we think about run rate through 22 or kind of an outlook for the revenue and expenses for those investments?

Kristine Nario -- Chief Financial Officer

I think it's going to be a little bit significant, more significant. So in the first quarter, as majority of our JV investments that we closed in 2021 actually closed the latter part of December. So you would expect that number to grow. And as we continue obviously to invest in more JV type structures, these numbers, you would expect, would also grow.

Stephen Laws -- Raymond James -- Analyst

OK. Thanks. Appreciate the comments, this one. 

Operator

Thank you. Our next question or comment comes from the line of Christopher Nolan from Ladenburg Thalmann. Your line is open.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

How much do you anticipate taking multi-family up to as a percentage of your capital allocation?

Jason Serrano -- President

We expect it to grow from here. And the the difficulty in answering that question, why what we did present our pipelines to kind of estimate that when you take unencumbered assets off our balance sheets that are in residential loans and you securitize those loans your percent of market capitalization for that product does decline. If you reinvest that product into an equal allocation, then you expect, you know, multi-family to to increase from there. We are growing on both sides.

And as I mentioned earlier, we had record volume of acquisitions on both the single family and the multi-family side in the fourth quarter, and we're expecting similar results in the first quarter. There is not a hard target we're looking at we are opportunistic. We will look to see where the best returns are in the market and where we can do so with book value protection. So, there is not a set number we're targeting.

It's just a function of what the market is allowing and what the market is providing us and where we see the best opportunities. So we'll continue that approach versus a hard target of a certain percent.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Great. And Kristine, you mentioned, I think in your comments and net loss on multi-family, was that a GAAP net loss including the non-cash depreciation charges?

Kristine Nario -- Chief Financial Officer

Yes, it is a GAAP net loss.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

So going forward, we should be starting to look at this undepreciated EPS and book value as multi-family growth as a portfolio.

Kristine Nario -- Chief Financial Officer

That's correct. That's why we introduced this quarter because we see those numbers getting significant as we go into joint venture equity investments in multi-family properties where we have control.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

All right. And then Jason, given that you guys invest both common and preferred equity into these joint ventures, is your preferred equity from the sponsor standpoint, is your preferred equity technically equity when he goes and tries to get a first lean loan on his assets? 

Jason Serrano -- President

Well yes. So does it the way we look at it, we call them in the presentation, we call it MAS lending and MAS the lending is basically a second party in the cap structure for the sponsor. And in certain cases, there's provisions on a second or as long as relates to recapitalization of the first. So, it is a hybrid security instrument where it has that features and equity features, that features in the form of a coupon and equity features in the form of pick and other calculated measures.

So, from the sponsors perspective, it does give them flexibility as it relates to senior financing as relates to press versus a mezzanine loan, although the features of both those are very similar as relates to our return.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

And given all that, should we look at these as control investments or is there a scenario where there could be some control investments?

Kristine Nario -- Chief Financial Officer

There is going to be scenarios for preferred equity type investments that could be control when we have to take over the property. If the property is not doing well or some things being done by the operator, that's not that's not in accordance with our agreement. There's, I think, a couple of instances in a prior year where we took over these properties and by taking them over, we were able to make the property better and actually not incur any loss in those properties.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

OK. I'll follow up offline. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Doug Harter from Credit Suisse. Your line is open.

Doug Harter -- Credit Suisse -- Analyst

Thanks. Can you talk about how loan pricing has changed in 2022 then, given some of the back up we've seen in securitization spreads and pricing.

Jason Serrano -- President

Yeah, so I can speak to our portfolio directly. So, we looking at the latest changes for this week, we believe that we've estimated about a one a half percent loss to book value through the first quarter. That's related to this. Our securities that we still have on our balance sheet and in most of the longer duration mortgage loans that we have on the balance sheet as well, where a lot of those were that losses that have, we believe that losses have been incurred the market as a whole.

I mean, there's depending on what the underlying coupons are and what the duration is. It's more than just simply looking at swap rates and taking it duration and taking your price range from there. It's also some liquidity measures on some of the lower coupon on assets. So, when you're financing costs is greater than the spread or your asset coupons he doesn't know how much leverage you apply for that.

So staying away from those low coupon asset class has been a priority for us, which is why we focus on short duration, high coupon bridge. And we delayed our DSCR investment strategy until the better half of fourth quarter and mainly starting in the first quarter. The market is resetting and securitizations are also resetting. There's been a couple of deals that have been pulled off the market some of it, simply because nobody wants to step into a bond deal and have it marked down a few points next day when rates move another 25-basis-point.

So I think the market is waiting to reset. There's still plenty of capital on the sidelines for all these assets in securizations. But, there's kind of a wait and see approach in the market until rates kind of settle out.

Doug Harter -- Credit Suisse -- Analyst

I guess just then, on your ability to deploy capital, are there opportunities to take advantage of others kind of hesitancy given your current defensive positioning or do you kind of take that wait and see approach given given the current volatility?

Jason Serrano -- President

No, we've freed up capital on our balance sheet with early securizations in the quarter simply to take advantage of some illiquidity in the market that will allow us to buy it at lower prices. We are open for business. We have been looking at larger portfolios from a region, your pipelines that kind of got it stock without being able to place into the market and warehouse lines that were timing out. Our interest and our market presence in the scratching of market really helps us see a lot of activity, not just related to agency origination that is now scratching down, but just origination overall that can get kind of can get put in a period of hold where the buyer backed out and now they're kind of shopping.

That loan pool in the market is all we are evaluating opportunities to that end and we expect to continue seeing it. We are absolutely looking to take advantage of this technical change that's happened the market and at a deeper discount.

Doug Harter -- Credit Suisse -- Analyst

Great, appreciate it.

Operator

Thank you. Our next question or comment comes from the line of Matthew Erdner from Jones trading. Your line is open. 

Matthew Erdner -- Jones Trading -- Analyst

Hey, thanks, guys. Asking a question on behalf of Jason Stewart. So with the partnership with BPL Rental, what kind of origination volume are you guys seeing from them and what should we expect in the first quarter of this year and moving forward? 

Jason Serrano -- President

What we liked about our partnership here is that the originator has shown kind of a hockey stick at origination growth that we are excited about. And they continue to add new staffing to build out business. Right now, at current rates of origination, we expect a minimum of a half a billion dollars of loans in his first year, but they are growing and we do expect to be able to grow that portfolio along with them. On top of it, we also have the opportunity to purchase loans that we are seeing from other originators that it's not necessarily a contractual floor agreement, but we have been a very consistent buyer every month with these with these originators, which is what when you look at our asset acquisitions rallies in the BPO space, you can see consistent purchases.

That was around $250 million a month. Now we're now that number is going up, as you saw last quarter, and will definitely be higher in the first quarter this year overall. So this is just a partnership that allows us to, bring liquidity in certain markets such as this to originate, and there's potentially other originators that could follow in this kind of process with us. We think there's a low cost way for us to to benefit from origination platforms.

Matthew Erdner -- Jones Trading -- Analyst

Yeah, that's great, and then are they located in the areas where you guys have been active before?

Jason Serrano -- President

Well, they are, it's BPL origination. Their focus is mostly in the DSCR space. They do fix and flip as well. We are part of the hesitancy of going to the DCSR market was simply volume and being a secondary market buyer portfolio.

This is not a great way to grow a securitization book, given the lack of consistency and the fact that you do want to just take for a securitization portfolio take out. We would only look at this space if we had kind of guaranteed pipelines, which we do today, which is why that strategy is now one of our focal points that we just we walk through. Their BPL fix and flip book is growing, and we expect that to grow faster than their DSCR book. But again, this is one of many that we speak to and we buy loans from.

And we're just in this case, it was originally it was concerned about rate movements and also concerned about liquidity as relates to their operation and having a consistent buyer and that can come in and take loans off their balance sheet every month or once a week was important. So the funding timelines also increased relate to this opportunity for them, which was helpful relief cash and get it to put it back into the market and for us to acquire assets.

Matthew Erdner -- Jones Trading -- Analyst

Awesome, thank you. 

Operator

Thank you. Our next question or comment comes from the line of Bose George from KBW. Your line is open.

Bose George -- Keefe, Bruyette and Woods -- Analyst

Everyone, good morning. In terms, sort of where you are in the transformation, you guys obviously put a lot of money to work for you again in 1Q. Is there a way to think about what inning you're in terms of the transformation to a more normalized are we?

Jason Serrano -- President

What, Kristine, walk through and are in that purchase activity for the quarter, I think it's helpful to kind of cement that point. We added $324 of net activity for the quarter. We, it's been a struggle to add the net incrementally positive to our balance sheets simply because of the our asset sales that we've conducted in the securitization space. We sold a $193 million last quarter.

We are sort of at the end of that cycle for our security sales that we have on our balance sheet, which is will be helpful, obviously to continue to grow net positive, our balance sheet going forward. So, for those reasons, we do expect, further growth, prepayment and redemption activity. We had very high payoffs in our scratching that portfolio, which was a positive given bought those loans at discounts that we think that's going to moderate as well. Our RPO prepayments have been kind of consistent in kind of mid single to high single digit range that product is less sensitive to rates.

They have higher coupons already, and it's more of a change of life plan for the borrower that prepaid that loan after 10 years of pain on that loan and in multi-family. We, with the roll up opportunities that we're focusing on and working in this new environment in the south southeast part of the United States, we have really hit our stride with sourcing. We do speak to hundreds of sponsors, we do. And so it is an 80 20 rule here where 20% of our business comes to 20% of the sponsors provide about 80% of the business.

And we're going to continue being able to grow in those southern markets with the migration that we see. So we're excited about the growth that our portfolio could experience and the reason why we provided a projection, or at least a hypothetical relating to our EPS movements related to asset growth.

Bose George -- Keefe, Bruyette and Woods -- Analyst

OK, great. That's helpful. And then actually, in terms of returns, can you just talk about the returns on the operating real estate, just how that compares to the incremental returns on other assets?

Jason Serrano -- President

In relating to JVs.

Bose George -- Keefe, Bruyette and Woods -- Analyst

The JVs. Yeah.

Kristine Nario -- Chief Financial Officer

So the JVs, we're targeting about 12% to 17% of return, but that's going to be over the life of the investment, which would include kind of like an exit when we sell the property. And that's what we're looking to do. I mean, you'll see the pop at the end, but over time, what you'll see is, property income, less expenses, which would include depreciation and amortization expenses. And then at the end, you'll see a gain a capital gain, essentially.

Jason Serrano -- President

Yeah. The important note is that those assets are held at basis and we take depreciation against that, those assets every quarter. So the extent that we've had an 8% increase in rental rates in the first quarter, that's not going to the gain of those assets is not to be represented on our balance sheet as we hold it at cost. So its cost accounting on those assets with depreciation on Kristine's point, the gain would you have to expect to gain that we are working toward on a transformation of a lot of the property itself through capex plans or maintenance deferment cleanup is what we're how generate our return, as well as the rental payments we receive on a monthly basis.

Bose George -- Keefe, Bruyette and Woods -- Analyst

OK. And actually, If you said this already, what's the typical life for those properties? 

Jason Serrano -- President

Thanks for mentioning that. It's an important distinction. Part of the growth strategy for us also has been the fact that our mezzanine portfolio is more of a shorter duration instrument. Typically what happens is that the sponsor takes the RPFs that use for capex, improves the property and then looks to either recap the property or sell the property to to get paid on that improvement.

So, we've seen that duration anywhere from kind of like two and a half to two to four, four and a half years as the property gets transitioned. We do expect the JVs that of a longer duration in the fact that we are equity. We are equity alongside of the sponsor and making decisions on that sale have opportunity to take back the property in the case of a sale. So if the sponsors timelines are a bit shorter than ours, we have the opportunity to hold that property through a longer lifetime, which we really enjoy.

You know, a lot of the sponsors will focus on IRR, you we're focusing on on look on IRR and total cash. So, we love we think there's a great income producing asset is inflation protected, and we don't mind taking these assets for a bit of a longer duration, if need be, but we do expect it to be a bit longer than that prep.

Bose George -- Keefe, Bruyette and Woods -- Analyst

OK. Great, thanks. And then just one last one. You mentioned it earlier, but what was the book value of quarter date again, was that half percent and catch up.

Kristine Nario -- Chief Financial Officer

Undepreciated book value is $474, down $0.02 cents

Bose George -- Keefe, Bruyette and Woods -- Analyst

In the quarter since the end of the quarter. Like, what was the change?

Jason Serrano -- President

It's down about a half a percent.

Bose George -- Keefe, Bruyette and Woods -- Analyst

Half a percent. OK, perfect. OK, great. Thanks all.

Jason Serrano -- President

I'm sorry if the question was related to first quarter book value decline. We, see about a one and a half percent decline to date through this week, if that was the question.

Bose George -- Keefe, Bruyette and Woods -- Analyst

Yeah, that was it. Yeah, you just missed it. Anyways, thanks a lot.

Operator

OK, thank you. Our next question or comment comes from the line of Matthew Howlett from B. Riley. Your line is open.

Matthew Howlett -- B. Riley Financial -- Analyst

Hey, guys. Thanks for taking my question, first of all, congrats to you both, Steve. Good luck in your role, Jason. Congrats on the promotion.

Just a couple of questions on you would be the cabinet appointments. I just were to assume it happened on October 1st. All of it. I mean, they added to sense cents sort of dividend coverage.

We're getting close to that just curious on what the impact would have been.

Jason Serrano -- President

The impact if we were to add this as in October, hypothetically. 

Matthew Howlett -- B. Riley Financial -- Analyst

Yes.

Jason Serrano -- President

The impact is essentially what you're seeing on that hypothetical page that we presented. And it's simple math. You look at the average income, right? You look at the addition to the numerator in that quarter relates a full year, a full quarter cycle of interest earnings. And then you could see the incremental impact there.

So, it's pretty straightforward, which is why we presented it. And that's our expectation when you, if you were to add those assets.

Matthew Howlett -- B. Riley Financial -- Analyst

Got it. So we look at dividend coverage. We should look at the run rate of the company, and that is sort of the example you gave.

Jason Serrano -- President

Yeah. There, look there.

Matthew Howlett -- B. Riley Financial -- Analyst

Got a second question. Congrats on paying off the high cost convertible or let's look at the unsecured side, but what do you what are you seeing out there? Your cost of capital has come down, you've been able to issue cheaper and would you look to replace that something else of balance sheet?

Jason Serrano -- President

So we speak regularly with bankers in the space on corporate finance opportunities that's available very few of the number of calls this year despite higher rates. There's a couple of interesting transactions that they're out there as really if the whole business securitizations, which is securing a particular part of your asset portfolio and issuing debt off that portfolio so it's like a whole business kind of securitization related to the  grassapple that is something that is evolved over the course of the last couple of years. That product offering, I remember back in 2007 was pretty popular and that seemed to come back in the last six months. I mentioned it not as because we're actually considering doing a deal in that space right now, simply because there are new structures that we're seeing, which we're evaluating right now.

We have plenty of cash on our balance sheet with respect to financing that we've completed and expect to complete. So we're not in the market at the moment looking for a corporate finance opportunity related to the grassapple. But during the course of the year, depending on where you know, our portfolio migrates and and also what the opportunities on the sourcing side, we definitely will continue evaluating that. But we have plenty of equity for our pipeline so that we have established.

Matthew Howlett -- B. Riley Financial -- Analyst

Great. OK, we'll look forward to that, and on the subject of lower cost of capital, I look at Atlantis history, so we've had a great history of versification, first mover and as the classes. Now, look at the two sort of residential multi-family, particularly the recent growth and the role strategy of the JVs. Would you see these two strategies co-existing together? Could there be one be split out? I mean, do you think there's synergies of having them together? Would you look at some point to try to enhance the value of the multi-family business by spinning it out or some some other type of corporate restructuring?

Jason Serrano -- President

It's an interesting question. We believe at the moment it offers our shareholders interesting diversification that is, I think, unique in the market today. I definitely believe that the story we've talked more about the origination platform because we believe it's an important part of the value of the company and our sourcing capability, particularly the fact that we are internally sourcing in and originating those loans. And it's an asset class that has produce roughly $100 million dollars of origination volume net of over the course of the years.

And now we're obviously seeing opportunities to increase that. So, as that business continues to grow well, we'll evaluate, the opportunity and see what is in the best interest of our shareholders as it relates to that portfolio and the rest of the book. But at the moment, I think it provides a great diversification strategy for those that are looking at both residential markets and looking at the strength of the multi-family market that we have within our within our balance sheet today.

Matthew Howlett -- B. Riley Financial -- Analyst

Yeah, just look at all the sort of there's been a lot of private equity activity in real estate, so these and just look at that. That portfolio may not be getting the credit that it deserves and you know, your cost of capital should be lower as relates to that strategy.

Jason Serrano -- President

I mean, private equity, the property reach, had a great run of trade above book value. Obviously, depreciation plays a big role there. But there's been a big increase in valuations of those underlying properties giving rent rate growth rates. And today, we were following that same path as rates that GAAP accounting and we hope our shows see the value of that asset, our balance sheet.

Matthew Howlett -- B. Riley Financial -- Analyst

Yes, certainly familiar with that, we'll look forward to it and congrats again.

Jason Serrano -- President

Thank you.

Operator

Thank you. I'm showing no additional questions in the queue at this time, I would like to turn the conference back over to Mr. Serrano for any closing remarks. 

Jason Serrano -- President

Yes, thank you everybody for being on the call today, and we look forward to speaking you to on our Q1 2022 earnings call. Great. Have a great day. Thank you.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Steve Mumma -- Chairman and Chief Executive Officer

Jason Serrano -- President

Kristine Nario -- Chief Financial Officer

Eric Hagen -- BTIG -- Analyst

Stephen Laws -- Raymond James -- Analyst

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Doug Harter -- Credit Suisse -- Analyst

Matthew Erdner -- Jones Trading -- Analyst

Bose George -- Keefe, Bruyette and Woods -- Analyst

Matthew Howlett -- B. Riley Financial -- Analyst

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