Mike Roper: All right. Thanks for the question, Bose. Yes, so I guess a few things on G&A. First year, exactly right, that we had a sort of non-recurring adjustment to our expense accrual in the fourth quarter that decreased that line item by about 3 million, so it makes it a little bit less comparable. Then the second big change there, and there’s a couple of smaller ones that sort of offset, but the second big change there is the acceleration of amortization of non-cash stock-based comp expense related to awards made to retirement eligible employees. So that expense would normally be amortized over the course of three years, but GAAP requires us to effectively recognize it in the first quarter. And you’ll see that there’s about a million dollars left of that to the second quarter, but going forward, that’ll go back to zero for the rest of the year.
Bose George: So okay, great. That’s helpful. Thanks.
Craig Knutson: Thanks, Bose.
Operator: Next we’ll go to, excuse me, next we’ll go to Steve Delaney with Citizens JMP. Go ahead, please.
Steve Delaney: Good morning, everyone. Thanks for taking the questions. In your deck, you comment on mid-teen returns on securitization. Looking at Lima One, obviously that was a very significant acquisition, and it’s proprietary. You have a lot more control there than having to buy slow NQMs [ph] from the streets. So I just wondered if you could comment on, specifically on the Lima securitization as far as between bridge and then some SFR, just the product mix and how those — can you tighten this down a little bit from the mid-teen kind of returns on securitization generally? Thanks very much.
Craig Knutson: Thanks Steve, that’s a great question, and I think your observation is a good one. When we were saying mid-teens, we’re kind of characterizing, I guess, code return on average, and we’ll understand, we’ll do sometimes too better and sometimes too worse, but to your point, the securitization that we did in the first quarter on the transition to loan securitization, the average coupon on the loans going into a deal was about 10.9%, and the average coupon on the bond we sold was about 7.10%. So, you can see that there’s a significant amount of spread that to the tune of over 350 base points, and so we sold 80% of that deal, and we kept the rest of it, but you can quickly get out to kind of 20% plus returns based upon how much leverage we’re doing in a deal and how much we’re selling, and it relates to kind of securitization execution.
Spreads have continued to come in this year. Spreads on the kind of A1 on the RTL side were probably as wide as 350 over the curve in October of ’23, and now they’re probably hovering over 250 over on the unrated side. And then on the rated type of execution, there’s a potential to do better. So we think, yes, I mean, those returns are quite effective. As it relates to the longer-term DSCR loans, we are creating assets that yield roughly, call it around high 7%, 8% yields, and the securitization cost of funds probably right now is anywhere in the kind of mid-sixes, and so we’re doing probably mid to high-teen returns there as well.
Steve Delaney: Right, that’s great color. And I think it was worth pointing out that since you own Lima One now, you really can’t control your risk return profile there working with the street. And to that point, obviously we’re getting no rate relief. But can you comment, Gudmundur, just generally on what the pipeline looks like looking out over the next six months or so for Lima One? What are they hearing from borrowers, and are they still busy as ever in terms of looking at new opportunities? Just some color on the pipeline? Thanks.
Gudmundur Kristjansson: Yes, I think so with Lima One, one of the strengths of the brand and the company is the breadth of product that they originate. So on the transitional loans for shorter-term products, Lima originates single-family bridge [ph] and transitional loans that involve some amount of rehab, single-family new construction, and small-balance multi-family transitional loans. So, there’s various, quote, pockets of marketplaces that we originated. And so, those can have different dynamics in terms of supply and demand. So from our perspective, what we usually — what we’ve seen is we’ve been able to often maintain steady levels of origination when various parts of that are changing. And then the fourth sleeve is, of course, the longer-term DSCR rental loans.
And so what we saw, for example, in ’22 and ’23, when rates rose, more of the origination shifted into the shorter-term transitional loans as opposed to the longer-term rental loans. And so, fast forward to today, I think that the initial rate shock, of course, over the last two years, has kind of subsided in a way that the market participants have obviously now started to build high rates into their expectations about executions and things of that nature, as it relates specifically to the operators on the ground. So, supply of homes is less than it has been historically. And it’s one of the factors we’ve highlighted as being very supportive of home prices, and that’s why home prices have risen, even though affordability for new home buyers is low.
Now, what that means is that, from the fixed-and-flip operators, sometimes they’ll have fewer properties to pick from. And so we’ve seen some of that. So in the traditional call it quick-flips or easy-flips, where people are trying to do live rehabs and turn them around fast, that activity has slowed down a bit. But the new construction or the heavy-rehab component on it feels like it’s relatively unchanged. And there’s a decent amount of demand there, because the housing supply is still very old in the United States, and there’s a lot of deficit of housing units relative to household formation, which we’ll think will continue to support the market going forward. And I guess the last piece from a callable perspective as well, it feels like there is a little bit more competition in our space, because rates are stabilized and the attractive nature of these returns.
So you do see more capital coming into this space, which is both positive and negative. It’s positive on the securitization side because it allows us to execute efficiently. What also means we have to compete a little bit more for the borrowers on the origination side.
Steve Delaney: That was great color, Gudmundur. Thank you so much and congrats to the team on hitting the $10 billion portfolio benchmark. Stay well.
Gudmundur Kristjansson: Thank you Steve.
Operator: Next, we’ll go to Doug Harter with UBS. Please go ahead.
Doug Harter: Thanks. I’m hoping we could talk a little bit more about the potential to call your prior securitizations. One, I guess, how are you seeing the — are you seeing enough investment opportunities that you would need the capital? And when you factor in the higher cost of funds, I guess how are you thinking about the level of accretion today from freeing up that capital?
