Adamas Trust, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Rebranding: Adamas rebranding symbolizes strength, durability, and a broader strategic vision beyond geographic affiliation.
• Earnings Growth: EDA rose to $0.24 per share for the quarter, sixth consecutive quarterly increase; dividend increased to $0.23 per share.
• Investment Activity: Third quarter had highest net investment activity in company history ($1.8 billion, 20% increase), with focus on Agency RMBS.
• Acquisition: Acquired remaining 50% of Constructive, viewing business purpose lending as a long-term opportunity due to housing affordability and supply constraints.
• Financial Results: Christine Nario noted EAD rose 9% quarter-over-quarter, adjusted net interest income per share $0.47; Constructive had $14.1 million mortgage banking income, $2.3 million return.
• Investment Strategy: Nick Mah discussed record investment activity ($2.3 billion), Agency RMBS portfolio growth, BPL Rental expansion, BPL Bridge decline, multifamily exit, and Constructive integration with strong origination.

Segment Performance

• Agency RMBS: Represented 57% of total capital at quarter end, nearly tripling capital allocation from a year earlier. Third quarter had net investment activity of $1.8 billion (20% increase), and the Agency RMBS portfolio stood at $6.7 billion.
• BPL Rental: Totaled $1.16 billion, with a 24% quarter-over-quarter growth. 98% of loans have prepayment penalties, and 60-plus days delinquencies were at 1.3%.
• BPL Bridge: Declined 4% to $919 million in the third quarter, with near-term allocations expected to continue declining.
• Multifamily: Successfully exited the joint venture portfolio, and the mezzanine portfolio had a 32.4% payoff rate in the quarter, well above the historical average.
• Constructive: Acquired remaining 50% interest, with third quarter origination volumes at $439 million, 9% higher than the prior quarter, and 94% of originations over the last 12 months being BPL rental loans.

Guidance

• EAD Momentum: Expect momentum to advance EAD in the fourth quarter.
• Agency Portfolio: Plan to target production coupons to maintain modest carry and lower duration profile; measured approach to agency allocation going forward.
• Capital Deployment: Capital from mezzanine and BPL Bridge to be deployed to Agency RMBS or BPL Rental; share repurchase considered as incremental capital allocation but balanced with asset opportunities.

Risks

• Factors Affecting Results: Factors causing actual results to differ from expectations detailed in press release and SEC filings.
• BPL Bridge Market: Competitive market with pressure on purchase volumes and pass-through rates.
• Market Conditions: Interest rate volatility and market conditions impacting portfolio performance.

Question and Answer

Q: How do developments with the GSEs impact capital allocation and agency leverage?

A: Jason Serrano discussed GSE reform impact and noted agency leverage target around 8x.

Q: Update on book value and its sources?

A: Adjusted book value up 2.5%-3% as of Oct 28, from both agencies and credit.

Q: Deployment of capital from mezzanine and BPL Bridge, and share repurchase?

A: Capital from mezzanine and BPL Bridge to be deployed to Agency RMBS or BPL Rental; share repurchase considered but balanced with asset opportunities.

Q: Mezzanine portfolio paydown pace?

A: Historical average barometer, may trend slightly higher in the near term