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Edited Transcript of OAKS earnings conference call or presentation 8-Aug-19 12:30pm GMT

Q2 2019 Hunt Companies Finance Trust Inc Earnings Call

New York Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Hunt Companies Finance Trust Inc earnings conference call or presentation Thursday, August 8, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brendan Gover

* James A. Briggs

Hunt Companies Finance Trust, Inc. - Interim CFO

* James Peter Flynn

Hunt Companies Finance Trust, Inc. - CEO & Director

* Michael P. Larsen

Hunt Companies Finance Trust, Inc. - President

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Presentation

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Operator [1]

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Good morning, and thank you for joining the Hunt Companies Finance Trust Second Quarter 2019 Earnings Call. Today's call is being recorded and will be made available via webcast on the company's website.

I would now like to turn the call over to Brendan Gover with Investor Relations at Hunt. Please go ahead, sir.

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Brendan Gover, [2]

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Thank you, and good morning, everyone. Thank you for joining our call to discuss Hunt Companies Finance Trust's Second Quarter 2019 Financial Results. With me on the call today are James Flynn, CEO; Michael Larsen, President; James Briggs, Interim CFO; and Precilla Torres, Head of Hunt Real Estate Debt Strategies.

On Wednesday, we filed our 10-Q with the SEC and issued a press release, which provided details on our second quarter results. We also provided a supplemental earnings presentation that can be found on our website.

Before I hand the call over to Jim, I'd like to remind everyone that certain statements made during the course of this call are not based on historical information and may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. When used in this conference, words such as outlook indicate, believes, will, anticipates, expects, intends and other similar expressions are intended to identify forward-looking statements.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Form 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of our Form 10-K.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures will be discussed in this conference call. A presentation of this information is not intended to be considered in isolation or as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC at www.sec.gov.

I will now turn the call over to James Flynn. Please go ahead.

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James Peter Flynn, Hunt Companies Finance Trust, Inc. - CEO & Director [3]

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Thank you, Brendan. Good morning, everyone. Welcome to the Hunt Companies Finance Trust Earnings Call for the second quarter of 2019. We appreciate you joining us today.

For the second quarter, HCFT reported net income of $1.4 million or $0.06 per share. Our core earnings for the quarter was $2.2 million or $0.09 per share, which is up $0.02 per share quarter-over-quarter. Jim Briggs will discuss our financial results in more detail shortly.

We have seen continued stability in our core earnings over the last several quarters now that we have transitioned to our investment strategy. At quarter end, we had $43 million of undeployed cash within our 2 CLOs, which we anticipate deploying over the remainder of the year.

During the quarter, we acquired and funded $53 million of floating rate CRE loans at a weighted average spread of 355 basis points over LIBOR. Competitive markets continue to pressure origination activity and in particular, loan spreads.

With that in mind, we will continue to be thoughtful, patient and opportunistic in our evaluation of the CRE debt investment opportunities for HCFT.

With that, I'd like to turn the call over to Jim Briggs, who will provide further detail on our financial results.

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James A. Briggs, Hunt Companies Finance Trust, Inc. - Interim CFO [4]

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Thank you, Jim. Good morning, everyone. Yesterday, we filed our quarterly report on Form 10-Q and provided a supplemental investor presentation on our website, which we will be referencing during our remarks. The supplemental investor presentation has been uploaded to the webcast as well for your reference. On Page 5 and 6 of the presentation, you will find key updates and an earnings summary for the second quarter.

As discussed in previous quarters, because the impact of certain gains and losses related to our legacy portfolio are not reflected in GAAP net income in prior periods, we believe that GAAP comprehensive income better presents the full GAAP impact of our operating results for those reporting periods that include our legacy portfolio.

For the second quarter of 2019, we reported comprehensive income to common stockholders of $1.4 million or $0.06 per share compared to comprehensive income of $1.1 million or $0.05 per share for the second quarter of 2018. As noted in previous calls, with the transition of our strategy, we do not anticipate any material differences between GAAP net income and GAAP comprehensive income going forward.

The current quarter was negatively impacted by noncore activity including a $459,000 decline in the value of our legacy mortgage servicing rights portfolio, which was primarily driven by falling rates and a corresponding increase in prepayment assumptions.

Core earnings attributed to common stockholders for the quarter was $2.2 million or $0.09 per share, which is up $0.02 per share quarter-over-quarter. Our view is that core earnings provide a better indication of our ongoing earnings capacity.

Our Q2 book value per share was $4.60 at quarter end compared to a book value per share of $4.61 as of Q1 -- the end of Q1. This decline was due to distributions being in excess of GAAP net income for the quarter, which was primarily due to this decline in MSR value.

I will now turn the call over to Michael Larsen, who'll provide details on our portfolio composition and investment activity.

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Michael P. Larsen, Hunt Companies Finance Trust, Inc. - President [5]

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Thank you, Jim. Expanding on the earlier comments, our focus for the last quarter has been to continue to invest in high-quality floating rate first mortgage investments. During the second quarter, we acquired 7 new loans and made future funding advances on 13 loans with the total incremental fundings of $53 million, 95% of these new loans were multifamily. We continue to anticipate that the majority of our loan activity will be related to multifamily assets. Our overall loan portfolio at quarter end increased from 84% to 88% multifamily.

New loans had a weighted average initial LTV of 71%, which is consistent with our historical origination activity and reflects our continued focus on ensuring we maintain credit discipline in our originations. These new loans had a weighted average spread over LIBOR of 355 basis points, which reflects the continued compression in spreads seen over the last year. We do anticipate some limited additional spread condition -- compression throughout the remainder of 2019.

We experienced $39 million of loan payoffs during the quarter, which resulted in a net increase in our loan portfolio of $14 million. Our total portfolio of floating rate loans at quarter end, had an outstanding principal balance of $600 million. The portfolio consists of 47 loans with an average loan size of $13 million and provides for a significant asset and geographic diversity. There are no defaults or delinquencies in the portfolio, and we have not seen any material change in the portfolio performance over the quarter.

Our loan portfolio continues to be financed with 2 CRE CLO securitizations, and therefore all financing against the portfolio is fully matched term with an average cost of financing of LIBOR plus 141 basis points.

Our first CLO has a reinvestment period that runs through February of 2020 and our second has a reinvestment period that runs through August of 2021, providing us with continued attractive, stable, non-mark-to-market financing.

We are exploring a refinance of our first CLO with plans to potentially execute a new series CLO transaction prior to the end of the first CLO's reinvestment period in this coming February.

We believe that the issuance market for CREs, CLOs remains strong, and a series CLO execution is an attractive option for the financing of our portfolio.

We've made significant progress in the strategic transition of HCFT in 2019. And as noted on prior calls, we completed the redemption of our preferred equity during Q1, which reduced our cost of capital. In addition, we've been focused on the management of expenses at HCFT. When Hunt stepped in as manager, we capped expense reimbursements to 1.5% of adjusted stockholders' equity, and in addition, commencing in the first quarter of this year, expense reimbursements were further capped at 1.125% of stockholders' equity for a period of time.

We've also been focused on reducing our G&A expenses by leveraging Hunt's broader relationships and have achieved meaningful reductions in our recurring professional fees, which we expect to begin to benefit from at the end of this year.

With that, I'll pass back the call to Jim for closing remarks.

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James Peter Flynn, Hunt Companies Finance Trust, Inc. - CEO & Director [6]

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Thank you, Mike. In summary, Hunt continues to be very excited about the progress made to date, and we remain positive about the company's outlook for growth prospects. With the transition to a portfolio of floating rate investments complete, we believe that the company is well positioned at this stage in the cycle.

We look forward to updating you all on the progress, and we appreciate your time and interest. And with that, I'll ask the operator to open the call to any questions.

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Operator [7]

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(Operator Instructions) And there appear to be no questions at this time.

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James Peter Flynn, Hunt Companies Finance Trust, Inc. - CEO & Director [8]

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Okay. Well, thank you to our shareholders and other interested parties for joining and look forward to speaking with you next quarter.

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Operator [9]

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Excellent. Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.