New York Mortgage Trust (NYMT) Q1 2021 Earnings Call Transcript

New York Mortgage Trust (NYMT 1.34%)
Q1 2021 Earnings Call
May 07, 2021, 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 first-quarter 2021 results conference call. [Operator Instructions]. This conference is being recorded on Friday, May 7, 2021.

A press release and supplemental financial presentation with New York Mortgage Trust first-quarter 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's call, which you can access in the Events and Presentations section of the company's website. At this time, management would like for 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 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, chairman and CEO. 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. Jason Serrano, our president, will be speaking to our investment portfolio strategy today; and Kristine Nario, our CFO, will be speaking in more detail about the first-quarter results. We'll all be speaking to our supplemental financial presentation that was released yesterday after the market closed and is available on our website.

We will allow questions following the conclusion of the presentation. The company completed another successful quarter, delivering an economic return of 2.1% with $0.11 GAAP earnings per share and $0.12 comprehensive earnings per share. Our book value remained unchanged at $4.71. Our portfolio debt margin expanded by 12 basis points to 2.42%.

But more importantly, our portfolio net interest income increased by $4.4 million from the previous quarter or 17%. We expect to see continued improvement in both net interest margin and net interest income in future periods as we transition out from our lower-yielding CUSIP securities and focus increasingly on loans in both our single-family and multifamily strategies. On the balance sheet side, we have continued to focus on expanding our access to longer-term non-mark-to-market financing arrangements. As a testament to the strengthening of our balance sheet in recent quarters, we were pleased to close on our first rated unsecured bond deal in April, a $100 million 5.75% five-year financing that serves as an additional non-mark-to-market financing option for the company as we continue to build out our credit portfolio.

Now, going to the presentation, I will start on Slide 6. Our investment portfolio totaled $3.2 billion, unchanged from the previous quarter. Our market capitalization was $2.2 million, an 18% increase from December 31st. Our capital is currently allocated 75% to single-family and 24% to multifamily strategies.

Our portfolio growth continues to be focused on loan investments as we believe it can generate better risk-adjusted returns for more stable funding. Going over to Slide 7, we'll go through some key developments, some of which I spoke to you in the opening comments. We declared $0.10 at common stock dividend, representing an 8.9% yield on our stock price as of March 31st, and we had a -- total rate of return on the common stock alone was 24% for the period. We purchased $347 million in residential loans and closed on $10 million multifamily joint venture investment, our first since 2015.

We continue to opportunistically sell our CUSIP portfolio, selling $112 million during the period. On our financing efforts during the period, we funded $160 million of business-purpose loans on a non-mark-to-market line. And in April, as I said before, we closed on our first rated unsecured bond offering of $100 million, giving us yet another option to fund our credit portfolios, specifically our multifamily investment opportunities. Those financings continue to produce mark-to-market pressure back to the company.

On Slide 9, we cover key portfolio metrics on a quarter-over-quarter comparison. Our net interest margin for the quarter was 2.42%, an increase of 12 basis points from the previous quarter. Our portfolio weighted average yield was largely unchanged at 6.03%. However, our funding costs improved by 14 basis points, mostly attributable to the payoff for nine agency securitizations that we completed back in June of 2020.

Going forward, we expect to continue to improve our yields as we start to see the full impact of recent loan investments that closed late in this quarter. We expect to close at least one financing securitization in the second quarter and plan several others by the end of the year. Our recourse portfolio leverage remains low at 0.2 times as of March 31st as we continue to focus on ways to decrease our exposure to mark-to-market covers back to the company. Now, Kristine Nario, our CFO, will go through the financial results in more detail.

Kristine?

Kristine Nario -- Chief Financial Officer

Thank you, Steve. 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 23 to 30 of the supplemental presentation. Slide 10 summarizes our activity in the first quarter.

We acquired residential loans for $347 million, closed in a multifamily joint venture investment of $10 million, and purchased $6 million of investment securities. We sold non-agency RMBS and CMBS for proceeds totaling $112 million. We also have total repayments of approximately $184 million, primarily from our residential loans. Most of these residential loans were purchased at a discount, and the early payoff of the loans resulted in additional income of approximately $3.3 million, which is included in realized gains.

We also had three multifamily loans that redeemed, which generated $0.6 million of redemption premium income. We had net income of $42 million and comprehensive income of $45 million attributable to our common stockholders. Our book value ended at $471 million, unchanged from the fourth quarter. Slide 11 detailed our financial results.

We had net interest income of $30.3 million, an increase of $4.4 million from the previous quarter. Our interest income increased by $4.1 million primarily due to increased investments in higher-yielding business-purpose loans. Also, interest expense decreased by $300,000, which can be attributed to the repayment of debt associated with our non-agency RMBS resecuritization that had a higher funding cost in the first quarter. We had noninterest income of $39.7 million, mostly from net unrealized gains of $26.2 million due to improved pricing across majority of our asset classes, particularly our residential loans and investment in consolidated SLST.

We also generated $7.1 million of net realized gains from sales of investment securities and residential loan pre-payment activity. In addition, our multifamily preferred equity investments accounted for as equity and our equity investments in entities that invest in residential properties and loans contributed $3.4 million of income during the quarter. We had total G&A expenses of $11.4 million, an increase of approximately $1.8 million from the previous quarter. The increase can be attributed to stock-based compensation expense related to 2021 annual equity awards and increase in incentive expense related to improved performance in 2021.

We would expect our G&A expense ratio to be approximately 2% of the company's stockholders' equity going forward. We had operating expenses of $7.8 million during the quarter, which included $4.8 million related to our portfolio investments, which increased primarily due to growth of the business-purpose loan portfolio and $2.9 million of operating expenses related to two multifamily apartment properties that we consolidate in accordance with GAAP. As I mentioned earlier, included in our results for the quarter is the net income activity related two multifamily apartment properties that we consolidated in our financial statements in accordance with GAAP. These properties generated operating income of $1.5 million and incurred interest expense and operating expenses of $0.3 million and $2.9 million, respectively.

After reflecting the share in the losses of the non-controlling interest of $1.4 million, in total, these multifamily apartment properties incurred a net loss of $0.3 million for the quarter. It should be noted that the net loss in these properties includes depreciation and amortization related to the real estate. The graph in Slide 11 illustrates the change in our book value from December 31, 2019. Our book value remains flat at 471 during the quarter but increased 21% from the end of March 2020.

Our stock price has also recovered significantly, increasing our price-to-book ratio to 95% from 40% at the end of March 2020. We continue to focus on growing and strengthening our balance sheet by investing in our core strategies of single-family and multifamily investments and prudent liability management by placing greater emphasis in procuring longer-term and/or more committed financing arrangements, such as securitizations and non-mark-to-market financing. Jason will now go over the market and strategy update, Jason?

Jason Serrano -- President

Thank you, Kristine. Speaking from Page 13, we were able to continue the elevated pace of investments with $358 million of new assets added in Q1 despite the unusual -- the usual slowdowns due to year-end activities at the end of the year. In 2020, we're able to keep an elevated investment pipeline. As we discussed on previous calls, we are excited to add these assets to our balance sheet because we can generate a double-digit return without application of recourse mark-to-market leverage.

In the case of BPLs, we are adding loans on a non-mark-to-market warehouse line for a term stage securitization takeout. In the case of our direct multifamily JVs, return on assets in the low teens -- in the low teens, the leverage is unnecessary. Now, we only focus our capital allocation when the following are true. First, supply investable opportunities need to be meaningful.

This is very different than just saying market size. Secondly, we need to see favorable market pricing and market dynamics, which provide attractive risk-adjusted returns. And lastly, the opportunity fits within our core competency and have competitive -- and we have a competitive advantage. That's the three investments on the right-hand side of this slide here, all fit within the Venn diagram, which is why they are considered our core strategies.

Turning to Page 14. We added this slide this quarter to basically explain why we invest in these strategies and using the market commentaries as a way to do that. On top-left side, the supply of housing is depressed across many regions of the U.S. Less than 1 million housing units are available to be purchased.

The U.S. has seen a decline in supplies for 18 straight months. New single-family construction is struggling to compete with existing inventory price points for new construction input costs, such as lumber, not to mention labor costs, have skyrocketed. On the demand side, houses are selling at the fastest pace on record.

Forty-three percent of homes go into contract within one-week average price with very little to no discount. Both are at record levels. In the BPL strategy, providing loans to local contractors through model existing age inventory is one of the most important ways to take advantage of the strong market trends. Today, improved existing inventory sell extremely well across selected markets in U.S.

We see continued tailwinds of funding these loans with a transition plan for the home purchased by the contractor is not complicated as 73%. LTV purchased were 64% LTV after the improvement work is done in the home. The loans have significant downside protection embedded. To date, we've experienced zero credit losses with respect to the strategy.

The proprietary channels were bolstered in 2020, a time when market participants were struggling with liquidity issues. These events provide an opportunity to lock in new challenge to buy a consistent flow of loans which meet our standards. Now, looking at the center column and row, switching over to the middle section. In 2020, home originators -- home originations rose 25% year over year and finished with approximately 2.5 million of new loans produced.

However, since the peak volumes in 2020 and late 2020, the primary secondary market mortgage spread collapsed 23%. Lower volume, coupled with lower gain-on-sale potential, means that the operating margins forced agency originators. This describes the perfect storm for new scratch-and-dent investible supply. Many originators utilize over 20 times leverage for agency loans funded before delivery to the GSEs.

In 2020, originators used their excess profits to manage scratch-and-dent loan warehouse buyouts. Today, the story is much different. Due to lower profits, many originators need to instead find third-party liquidity and sell loans, which is where we step in. Over seven years, the team has evaluated -- and the scratch-and-dent issues from over 100-plus sellers, and we can discern from technical versus credit issues.

We buy at discounts and take advantage of refinance campaigns to shorten the duration of our investment to decrease the total return. The bottom low, now on the last part of the slide, shows why we focus on the multifamily direct loan opportunity. U.S. interest rate migration trends continue at a torrid pace where many northeast residents are relocating to southeast for obvious reasons: lower taxes, more jobs, better weather, and now a normalized economy removed from lockdowns, with population swings of approximately 5% in a single-family market that offers little purchase options.

Multifamily property values are on the rise in the south and southeast, where 83% of the underlying properties are located in our portfolio. We have witnessed cap rate compression of about 100 basis points through the pandemic, which enhances our credit support. Since our multifamily origination typically contains certain early payoff minimum payment multiples, we have an opportunity for additional upside return with early payoffs. We have seen a recent spike at royalty payoffs in recent months, which should continue to drive higher returns for the strategy, in a market with very stable fundamental backdrop.

As discussed before, we have never taken a credit loss since funding these loans over seven years ago with respect to strategy due to our deep credit experience and default managing capabilities. Turning to Page 15. To obtain double-digit returns with our core strategies, we limit utilization of recourse mark-to-market leverage, our definition of portfolio leverage on this page. The company's portfolio leverage is 0.2 times, which is likely to stay at these ultra-low levels in order to purposely cap the company's liquidity risk.

We expect our securitization funding to be a growing source of leverage for the company. And in fact, we'll be rolling out a new securitization program series into the market shortly. With 1.4 billion of unencumbered assets, meaningful EPS growth can be gained by leveraging a component of this book. Turning to Page 16, diving deeper into our single-family strategy.

This quarter, we broke our BPLs from performing loans. We thought this would be helpful to separately assess both strategies given the growth in the BLP investment strategy on our balance sheet. Across the board, we look for high coupons at reasonable prices with low LTVs for strong borrower alignment. The current environment is very supportive for these strategies.

However, in the case of our RPLs, we do see meaningful market supply, but investible supply is low due to very strong market prices. I guess the best way to explain this is how one of our traders explained to me on our recent internal market call. In the old par market, par is 95, and 105 is the new par. On the security side, we continue to monetize the remaining discount with respect to the non-agency portfolio and continue to look for favorable market to divest.

With respect to agencies, price took a slight hit with higher rates in the first quarter, but now, with conforming coupons back below the 3% threshold, agency prices have recovered. We do not favor the dynamics in the agency sector with the Fed as a dominant buyer alongside other technical factors, such as heavy treasury issuance calendar that may lead to crowding out of the agency guaranteed markets, especially for overseas accounts. Turning to Page 17. We grew our single-family loan book by $347 million and monetized $72 million of non-agency RMBS at a gain in the quarter.

As it relates to performance, much to our expectation, higher seasonal delinquency trends reversed in the first quarter. With spread compression in the RPL market, our assets were higher at $96 par. We can monetize 4 points in average with respect to par payouts and with nearly 5% coupon, and so we are positioned to achieve high-teens return with portfolio leverage, which is transitioning into term securitizations. We added a state-by-state breakout for our core strategy investments on this call.

State exposure was a question raised on recent calls. As stated in the past, the portfolio is diversified at low LTVs but is less concentrated in northeast. We took a purposeful tack to limit exposure to these markets at purchase of these loans. The last column in the lower-right table, FICO score is depressed due to recent delinquency history by the borrower.

Therein lies the upside opportunity for us, frankly, and frankly, for the homeowner. Through service partners, we work to enhance the borrowers' credit score, so the borrower can obtain lower rates to a refi, which allows us to recapture discount faster. Now, turning to Page 18. A more in-depth information on our BPL strategy.

Overall market has a wide array of loan types with underwriting that typically exposes the lender to either higher-bar credit risk, typically called hard money loans or high property risk, typically structured as unsecured loan. In both cases, the borrowing cost fee is high 20%. We thought it would be helpful to further explain where we invest in that direction within the BPL markets. We prefer to give up some coupon for stronger borrower and collateral risk profile.

We look for borrowers with credit score -- high credit scores, 720 average, on our portfolio, low LTVs to ensure alignment, 65% after fair value, 72% with respect to the borrower cost basis. Our borrowers have successfully completed at least 10 -- or at least seven projects in recent past and rehab costs. We look for project to have simple business plans for quick turnaround times. Thus, the rehab projects are lower on the cost spectrum, with 20% requiring no rehab budget at all.

Switching over to Page 19. We now discuss our multifamily strategies. Our multifamily loan business or direct originations is where we continue to focus. As stated before, our exposure is in the secondary and tertiary markets to low/midrise properties, multifamily properties.

As a mezzanine or pref lender, adding 81% LTV on average, properties continue to have strong cash flows and high occupancy. Thus, the DCR level has been very stable at 1.4 times. We priced this debt or proposition, which is really interchangeable at around 11.5%, with origination fees incurred in prepayment benefits. We can generate a high-teens return without utilization leverage.

We have originated this debt for over seven-plus years without ever taking a credit loss on any position, as said before. Recently, we started underwriting and pricing joint venture investments. We do come across opportunities with our loan program where we are -- where the borrower is also interested in taking equity decision and helping us help them with that equity position takeout. Related to management improved monetization plan, which is where the borrower comes to us, we funded our first $10 million investment in space in the first quarter and are excited to continue reviewing more opportunities in the sector.

Additionally, we have experienced recently is equity capital offerings that we can offer, generated simply more demand for our multifamily direct loan portfolio. We're able to work with more sponsors that would not typically consider our debt or debt-like instruments. But after discussing the program in more detail, the sponsor flips to our debt options. Switching over to Page 20.

In the quarter, we had three loan payoffs generating 15.3% IRR or 1.5 times life to date on those loans. Again, with higher values in the market, borrowers are looking to recap or sell properties after business plans have been fully executed. We benefit from these minimum-return multiples on top of our 11.5% coupon. The asset management team is actively working on two properties that have entered special servicing.

As stated on earlier calls, we expect both loans to pay off at par after execution of a change of control and sale. The origination team is extremely busy with numerous proposals on evaluation. We expect robust origination volumes in the second quarter and through the third quarter. Now, flipping over to Page 21.

Thanks for taking time to listen and read through our portfolio strategy update. We are a nimble group equipped to find and locate compelling risk-adjusted returns across various markets and capital structures. We're looking forward to reporting results of all the hard work our employees have put into generating robust pipeline of high asset returns and further savings to funding costs. At this time, I'll send it back to Steve.

Steve Mumma -- Chairman and Chief Executive Officer

Thanks, Jason, and thanks, Kristine. Operator, you can go ahead and open up for questions now. Thank you.

Questions & Answers:

Operator

[Operator instructions] Your first question is from Bose George of KBW.

Unknown speaker -- KBW -- Analyst

Hey, guys. This is actually Mike Smith on for Bose. Just on the BPLs, there seem to be a lot of interest just given the movement in rate and some of the dynamics in the housing market. So I was wondering if you could just talk a little bit more about how pricing looks and your broader sourcing strategy?

Steve Mumma -- Chairman and Chief Executive Officer

Pricing wise, I mean, we're funding these loans in the flow-on-flow basis at par, and we do see some opportunity in both portfolio purchases, which would be slightly above par. These are shorter-term duration portfolio, so there is not really high premium pricing on these types of loans. The market is very robust, as we talked about in this call. There is very little inventory for sale in many markets, so contractors are finding an ability to squeeze out margins for profitability, even on properties that have no work completed and just better marketing campaign with respect to selling off.

So in those cases, we are finding elevated origination volumes. We're able to work with our partners that we've established early in 2020 and 2019, and we're continuing to basically fund those pipelines that are being delivered to us.

Unknown speaker -- KBW -- Analyst

Great. That's all really helpful color. And then a lot of peers are taking equity stakes or acquired originators. Just wondering is this something you're looking at or consider doing.

Steve Mumma -- Chairman and Chief Executive Officer

Yeah. We have fielded several calls with respect to originators who would like to partner with a long-term capital partner in that space. At the end of the day, this is a market that we're watching very closely. There's times where this market is attractive and there's times when it's not.

And the concern about going long term with an originator is that you're basically forced to continue funding the supply in a case where the market is changing on and you see that with supply volumes higher, HPA flattening out. I mean at the end of the day these are contractors that are taking measures of basically a technical squeeze on supply, and we'll continue funding these loans as long as that continues to happen. But that could change quickly, and we want to be able to manage our costs as a company and our overhead with respect to not having the significant overhang if the market does change. So at the end of the day, we see this as a trade versus a business, in many cases -- in many degrees, this is, again, the supply side, listen, around two months of more housing supply in the market available to sell, it shouldn't be -- we don't expect this to continue for multiple years.

I think when you buy into a fix-and-flip originator, in particular, that's something you really need to see through, of course, the next five years, based on pricing of these originators. And at this point, we don't want to expose ourselves with that overhead cost. We like where we are right now with respect to flow purchases, we have good relationship with originators. We're great liquidity provider for them.

We have been in 2021 during the market downturn, and we will continue to do so going forward.

Unknown speaker -- KBW -- Analyst

And then in the press release, you mentioned a transition away from the securities and more toward loans. I was just wondering if you could elaborate a little bit on the timeline of the transition and the optimal balance between revenue and multifamily and just what the transition could mean for run rate earnings.

Steve Mumma -- Chairman and Chief Executive Officer

Right. So the transition in the security space is – currently, we have, as of the end of first quarter, 291 million of market value. We're seeing opportunities to monetize these assets. The securitization market is a market where -- particularly for buyers, is a market where you're buying mezzanine or junior parts of security structure that the spreads on these assets don't provide for double digit teens return.

So the way you get there is through repo leverage. And repo leverage is the primary method to achieve those types of returns. We've transitioned away from using given liquidity squeeze in last March away from using quarterly rolling mark to market leverage, which means that the securitization strategies are very difficult to fund to achieve that double digit return. So at this point what we're doing is we're taking our portfolio the assets where we can achieve double digit return without leverage, we will hold as long as we feel comfortable with the fundamentals there.

In the case of the other assets, we still have assets at discounts, that slight discounts or monetizing. You should expect us to see further monetization of that book on every quarter. There's not a number as it relates to what the right level of hold, it's really just a function with the market will give us on the timing of these sales and with respect to the kind of compression we've seen in spreads in this market. So we feel very comfortable where we stand with these with these securities.

We've sold down every quarter, sold on a number of positions and we'll continue to do so with respect to the tighter spreads. The transition is a function of fact that we see better opportunity in the loan side. It's a less liquid market on the loan side. We believe the securitization side is kind of overly liquid at this point where you have prices that continue to ratchet in, you have oversubscription levels on just about every securitization that's offered out there, it's very, very competitive environment.

So we see better risk-adjusted returns in the loan markets.

Jason Serrano -- President

And then, Steve, whom I'm speaking to, I don't think we have a set percentage of what we want to be in terms of residential -- or single family versus multifamily, it's just the matter of the single-family side require some kind of securitization to generate double digit return that multifamily doesn't. So in general, the asset size is going to be larger than single family in terms of just raw dollars. But we continue to build out both pipelines with opportunities and not really focus on which one's going to generate what percentage. It's the total return of the portfolio and where the best opportunities lies will go over time.

Unknown speaker -- KBW -- Analyst

Great. I appreciate the detailed answer. Just one more. Can you just give some thoughts on how book value has trended during the month of April and May?

Jason Serrano -- President

Yeah. I mean, the market continues to be very strong. And we don't see -- as it relates to the credit assets, we're seeing an improvement in economy, certainly, as people get vaccinated and more things open up. So we would anticipate better performance across credit assets in the short term, for sure, especially with the amount of liquidity that's coming from the government into the system.

And so we will continue to see credit assets perform very well. The interest rate market is something that we have to get a sense for given the size of government requirements in the second quarter, it remains to be seen where that takes us in rates over the next three to six months.

Unknown speaker -- KBW -- Analyst

Great. Thank you for taking the questions.

Jason Serrano -- President

Sure.

Operator

Your next question is from Doug Harter of Credit Suisse.

Doug Harter -- Credit Suisse -- Analyst

Thanks. Looking at Slide 15, can you just help us to understand what level of unencumbered assets you need to hold and whether the unsecured debt deal that you did recently, I guess, how that plays into kind of your need from unencumbered assets?

Steve Mumma -- Chairman and Chief Executive Officer

Yeah. I mean, there is no level of unsecured assets we need to hold on our portfolio. This is a purposeful tax in limiting our portfolio leverage, as well as assets that we have teed up for securitizations. So there is no other requirement to hold any other assets in the unencumbered book.

And then your question was on our debt financing we just did. Is that right?

Doug Harter -- Credit Suisse -- Analyst

Correct.

Steve Mumma -- Chairman and Chief Executive Officer

Yeah. So the debt financing is a five-year paper. It actually has the right tenor for our multifamily strategy in many aspects. Our multifamily strategies and unlevered strategy we have -- the average duration on that -- expected duration is around three and half to five years.

So it pairs well with that. It was also a cheaper way of funding without recourse leverage or mark to market and at the term financing. So there was a opening in the market for us to issue debt given some other market prints, and we saw an opportunity to take advantage of that. We also thought it would be helpful and important for us to have a security out market that's rated.

It gives us another source of financing overtime, which we could tap in later years or months.

Jason Serrano -- President

And we have our convertible debt coming due in January of 2022. So this just gives us another option that we can consider as we go forward on what we want to do in terms of how we look to replace that, if we want to replace that, and overall liquidity. But certainly, it takes a little more pressure off the company's capital stacks when you can issue unsecured at attractive levels relative where we can issue convertible debt today.

Doug Harter -- Credit Suisse -- Analyst

That makes sense. And then I guess just sticking kind of here, obviously, this will be dependent upon kind of the ultimate mix of the portfolio. But I guess if you were to hold mix constant today. I mean, what level of leverage could this current mix of assets that you have today kind of support? And I guess how should we think about where that 0.2 times leverage could kind of go over time?

Steve Mumma -- Chairman and Chief Executive Officer

Yeah. I think the 0.2 -- I think those are two questions, one leverage. So we will be adding securitized leverage, which obviously doesn't move that 0.2 number. So the 0.2 will probably gravitate between 0.2 and 0.4, because we'll be rotating those loans that are being financed on those lines into securitization.

And so we really see the portfolio growing from, $3.2 billion to $4 billion, to $4.5 billion largely from securitizations. And so we don't really see that portfolio point of 0.2 changing significantly, unless the market changes dramatically and where you have to -- where the case of strategy does look like it comes back into play where that offers an interesting opportunity for us on a risk adjusted basis. But we don't see that in the near future for us or certainly not for the next 12 to 18 months that would be the only place where I would say you can see grow substantially. But right now, I think it's going to be fairly stable between point 0.2 and max to 0.5.

Doug Harter -- Credit Suisse -- Analyst

Thank you, Steve.

Steve Mumma -- Chairman and Chief Executive Officer

Sure.

Operator

Your next question is from Eric Hagen of BTIG.

Eric Hagen -- BTIG -- Analyst

Hey, thanks. Good morning. I've got two questions. The first is can you say how much taxable income you estimate that you had in the first quarter and how you see that trending? And in the case that you do taxable income, are there any carrier forwards to offset it? The second question is the securitization you expect to do this quarter, I assume you're referring to seasoned reperforming loans that I think I already say you might be introducing some new collateral into the market.

So I just wanted to hear more about what you expect to finance and some of the deal economics you expect there. Thanks.

Steve Mumma -- Chairman and Chief Executive Officer

Sure. From a tax standpoint, we don't really talk to the tax. But as you look at the components of our income, certainly, as the net margin increases our taxable income goes up. To the extent that we're generating realized capital gains, which we did we certainly have realized capital losses from 2020 that can offset and shelter those gains of significant amounts.

So there's certainly won't be any taxable distribution as it relates to realized activity going forward for a decent amount of time. From a net margin standpoint, which does not get shielded from the realized capital losses that is something that we look to, but we haven't guided and currently are not disclosing what that number is. I'll let Jason speak to the –

Jason Serrano -- President

On the securitization side, we're looking at rolling out a new program with respect to a BPL securitization and that would be more of a program series where we would expect to issue multiple deals in the future. Our first deal we're lining up for this quarter and in respect to issue that. As relates to RPLs, we are also working and have been looking at the RPL market as a way of accessing term securitization leverage and are continue working on that space and looking to see what is the most optimal portfolio for the securitization strategy and then looking to continue rolling out RPL loans into that framework in the future as well. So those will be the primary sources of our funding strategies.

As we talked about earlier, we did establish a non-mark-to-market warehouse line for our BPL loans, and we'll continue utilizing that as navigation strategy -- aggregation facility to the securitization market.

Eric Hagen -- BTIG -- Analyst

Got it. Can you say what the advanced rate and cost of funds that you expect on the securitization and the zip code that it might end up in? Thanks.

Jason Serrano -- President

We know -- we have a pretty strong feeling that it'll be lower than our current funding. But we're going to let the market speak to that, and we're really going to be issuing that. So I don't want to get in front of anybody's looking at the senior part of that capital structure just yet. So we'll wait to see what comes out.

Eric Hagen -- BTIG -- Analyst

Thank you so much.

Jason Serrano -- President

Thanks.

Operator

[Operator instructions] Your next question is from Christopher Nolan of Ladenburg Thalmann.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Hey, guys. Where do you see the capital allocation for single family increasing to?

Steve Mumma -- Chairman and Chief Executive Officer

I mean, it's 75% right now. We have very -- we put a lot of that since that we put on the book this quarter, the first quarter, we're primarily focused on residential. We have a very active pipeline of multifamily and I would expect that the multifamily percentage will probably start to grow relative to the residential as we go to the rest of the year just because of where there the multifamily pipeline is building up to.

Jason Serrano -- President

I'll also add in. More of a technical differential is that our securitizations that we're looking at has a higher advanced rate than our current funding. So that would technically lower our assets on our balance sheet with respect to the securitizations to just the equity position versus our current portfolio. But that with unlevered strategy on multifamily and more of a higher securitization advanced rate, we should see multifamily increasing as a percentage basis on equity.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Great. And then I guess within the single-family segment, should we see BPLs taking more of a portion or percentage of the portfolio there?

Jason Serrano -- President

Yeah. I mean, again, BPLs we're looking at securitization and from a technical standpoint, it may initially lower our equity interest in the strategy, simply because we're availing ourselves to that term securitization financing. We are continuing to see strong pipelines there as well as scratch dent, which is really had it's kind of an inflection point this year, as I described earlier for various reasons related to the originators' profitability. So that strategy was a slower growth strategy in the third and fourth quarter that is scratch and dent, which we're now seeing picking up quite a bit.

But our flows and business purpose loans are still elevated and we're going to continue funding strategy with the short-duration type of loans until the fundamentals and technicals and markets to continue to play out, which they are in the south and southeast with the migration trends. So you should expect us to continue -- we expect us to continue seeing a decent allocation of the retail strategy as we had in recent quarters.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

On multifamily, I know you guys are focused on the southeast. At what point, do you start looking at the northeast in terms of when valuations get cheaper, or is there no scenario where you look at northeast?

Jason Serrano -- President

Yeah. I mean, right now, we're just not seeing the opportunity in the properties and the sponsorship that we are seeing from a supply standpoint, just aren't as attractive as what we're seeing in the south. There is cap rate compression, I just mentioned about 100 points. But with the demand, there is a dynamic transitional effect that's happening with the migration that's happening in these markets.

And single family has a play in the multifamily side as discussed. When you relocate to a market, you can't find available single family in a timely manner, which is happening in many markets, with bidding wars and houses, etc. The multifamily, especially in low-rise and midrise concepts, is a very valuable alternative. So we're seeing that play into these markets with the technical squeeze in housing and being able to continue -- flat to slightly higher rental rate increases, as well as very, very high occupancy trends.

So we're going to continue focusing on that market foreseeable future and obviously, you need a capitulation from the northeast or north type of properties that are there. We haven't seen that yet either capitulation on lower prices. So the sellers are obviously well funded on the multifamily side with 10 year kind of term leverage. So we're not seeing value drop in those markets for an opportunity for our sponsors or for ourselves on the JV side.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Thank you so much.

Operator

There are no other questions in queue. I'd like to turn the call back to Steve for any closing remarks.

Steve Mumma -- Chairman and Chief Executive Officer

Thank you, operator. Thank you, everyone, for being on the call. Please remain safe, and we look forward to talking about our second-quarter results in early August. Thanks, everyone.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Steve Mumma -- Chairman and Chief Executive Officer

Kristine Nario -- Chief Financial Officer

Jason Serrano -- President

Unknown speaker -- KBW -- Analyst

Doug Harter -- Credit Suisse -- Analyst

Eric Hagen -- BTIG -- Analyst

Christopher Nolan -- Ladenburg Thalmann -- Analyst

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