Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the equity markets, focusing on positioning metrics and investor sentiment as of June 16, 2025, provided by Goldman Sachs (GS) FICC and Equities Division. Core Insights and Arguments 1. **CTA Positioning**: - CTAs have a long position of $78 billion, ranking in the 66th percentile. Recent estimates indicate insignificant changes in the next week and month, with a downside skew [2][4][39]. - In the last week, CTAs bought $3.5 billion in equities globally [2]. 2. **Performance Estimates**: - GS Equity Fundamental Long/Short (L/S) Performance Estimate rose by +0.07% from June 6 to June 12, compared to MSCI World TR which increased by +1.43%. This was driven by a beta of +0.70% but offset by an alpha of -0.64% due to losses on both sides [2]. - The GS Equity Systematic L/S Performance Estimate fell by -0.14% during the same period, driven by short side losses [2]. 3. **Market Flows**: - Over the next week, sellers are expected to sell $0.35 billion, while buyers are expected to buy $0.88 billion. In a down market, sellers are projected to sell $20.65 billion [4]. - For the next month, significant selling is anticipated at $130.93 billion, with buyers expected to purchase $14.23 billion [4]. 4. **Investor Sentiment**: - The Sentiment Indicator stands at -1.2, indicating persistently light investor positioning in US equities despite a 21% rally in the S&P 500 since April [53][55]. - Mutual fund and ETF flows have shown outflows of $17 billion in June, contributing to the negative sentiment [58]. 5. **Sector Performance**: - The industrial sector has been the most net bought in the US, with gross/net allocations at 12.8%/11.8%, ranking in the 99th/55th percentiles over the past year [41]. - Seven out of eleven global sectors were net bought, with healthcare, financials, energy, and utilities leading the way [42]. 6. **Professional Investor Positioning**: - Professional investors are maintaining cautious positioning, with a significant decline in demand for levered equity exposure noted since the beginning of 2025 [70][71]. - The demand for oil options has reached extreme levels, with call buying pushing the oil put-call skew to its most extreme level in over 25 years, indicating expectations for significant upside [73]. Additional Important Insights - The overall book gross leverage increased by 3.6 percentage points to 292.4%, while net leverage rose by 0.2 percentage points to 78% [39]. - The trading activity in Asia (both developed and emerging markets) saw the largest increase in over five years, driven by long buys outpacing short sales [41]. - The sentiment indicator's components tracking mutual fund and ETF flows have remained low, reflecting a cautious outlook among various investor types [56][58]. This summary encapsulates the key points discussed in the conference call, highlighting the current state of the equity markets, investor sentiment, and sector performance as analyzed by Goldman Sachs.

Market Overview - The U.S. stock market displayed mixed signals on May 29, with the Nasdaq and S&P 500 gaining due to NVIDIA's strong quarterly results and a favorable ruling against Trump-imposed tariffs, while the Dow Jones declined amid economic outlook concerns and geopolitical uncertainties [1] Investment Strategy - In a volatile market, investors are advised to consider low-leverage stocks such as Novartis, ENGIE SA, MasTec, Dorman Products, and Sterling Infrastructure to mitigate potential losses [2] - Low-leverage stocks are preferred as they typically bear less financial risk, making them safer options during market turmoil [6][5] Understanding Leverage - Leverage refers to the practice of companies borrowing capital to operate and expand, primarily through debt financing, which can be risky if it does not yield returns exceeding the interest rate [4][5] - A lower debt-to-equity ratio indicates improved solvency and reduced financial risk for a company [7] Stock Selection Criteria - Stocks should have a debt-to-equity ratio lower than the industry median, a current price of at least $10, an average 20-day trading volume of 50,000 or more, and a percentage change in EPS greater than the industry median [11][12] - Additional criteria include a VGM Score of A or B, estimated one-year EPS growth greater than 5%, and a Zacks Rank of 1 or 2 [12] Company Highlights - **Novartis**: Launched a tender offer to acquire Regulus Therapeutics for $7.00 per share, potentially enhancing its RNA-targeted therapies pipeline. The Zacks Consensus Estimate for 2025 sales suggests a 7.1% improvement from 2024, with a long-term earnings growth rate of 7.9% [14][15] - **ENGIE SA**: Reported a 5.6% year-over-year revenue growth in Q1 2025 and has 8.5 GW of renewable and battery capacity under construction. The Zacks Consensus Estimate for 2025 earnings indicates a 22.9% year-over-year improvement [16][17] - **MasTec**: Announced a 6% year-over-year revenue increase in Q1 2025, with a Zacks Consensus Estimate for 2025 sales showing an 11% improvement and earnings expected to rise by 54.9% [17][18] - **Dorman Products**: Released hundreds of new automotive repair solutions, expanding its catalog and creating over 12 million new sales opportunities. The Zacks Consensus Estimate for 2025 sales indicates a 4.9% improvement [19][20] - **Sterling Infrastructure**: Reported a 7% year-over-year revenue increase in Q1 2025, with adjusted earnings per share surging by 29%. The company has a long-term earnings growth rate of 15% [21]

Core Viewpoint - Companies like AGNC Investment, Annaly Capital Management, and Delek Logistics Partners are identified as "monster dividend stocks" with yields exceeding 10%, making them attractive for generating passive income [1]. Group 1: AGNC Investment - AGNC Investment offers a dividend yield of over 16%, significantly higher than the S&P 500's yield of less than 1.5% [3]. - As a REIT, AGNC is required to distribute at least 90% of its taxable net income as dividends, contributing to its high yield [4]. - The company utilizes leverage to enhance returns, with potential returns in the low 20% range, but this strategy carries risks during market downturns [5]. Group 2: Annaly Capital Management - Annaly Capital Management, another mortgage REIT, has a dividend yield approaching 15% and has recently increased its dividend due to improved earnings [7]. - The REIT invests primarily in Agency MBS and has also ventured into higher-risk residential credit investments and mortgage servicing rights [6][8]. - Historical performance shows that Annaly has had to cut dividends in the past due to declining earnings, indicating a higher risk-reward profile [8]. Group 3: Delek Logistics Partners - Delek Logistics Partners operates as a master limited partnership (MLP) with a dividend yield of nearly 10.5%, the highest in the energy midstream sector [10]. - The MLP has consistently raised its distribution for 49 consecutive quarters, with a 3.7% increase over the past year [10]. - Its business model is supported by stable cash flows from long-term contracts, and it is diversifying its earnings by reducing reliance on its parent company [11].

Financial Data and Key Metrics Changes - For the quarter ending March 31, 2025, the company reported net investment income before taxes of $700,000 or $0.05 per share, down from $0.06 per share in the prior quarter [4] - The net asset value per share increased by $0.02 to $5.42 compared to $5.39 as of September 30, 2024 [5] - The fair value of the portfolio was $192.4 million, up from $191.6 million on December 31 [14] - Net assets increased by $500,000 from the prior quarter to $78.1 million [14] - The weighted average yield of the debt portfolio increased to 10.8% from 10.4% in the previous quarter [14] Business Line Data and Key Metrics Changes - The company invested in one new portfolio company and two existing portfolio companies during the quarter, with total fundings for new investments amounting to $5.1 million [10] - Realized investments totaled $7.3 million with an internal rate of return (IRR) of approximately 9.6% [10] - The largest industry concentrations by fair market value included professional services at 15.5%, containers and packaging at 9.2%, and trading companies and distributors at 8.6% [13] Market Data and Key Metrics Changes - The company noted a noticeable slowdown in new deal activity, particularly in M&A volume and sponsor-less financing [6] - Less than 20% of the portfolio may experience moderate direct effects from tariffs, with proactive measures being implemented to mitigate impacts [8] Company Strategy and Development Direction - The company remains focused on maintaining net asset value stability and sustainable net investment income while selectively deploying capital in high-quality opportunities [17] - The management expressed cautious optimism about potential investment opportunities in the second half of 2025 as market volatility decreases [17] Management's Comments on Operating Environment and Future Outlook - Management highlighted that the portfolio remains stable despite reduced investment activity and prepayment trends, with a significant reduction in non-accrual investments [5][6] - The company expects more stabilized profiles for the remainder of 2025, notwithstanding any macroeconomic shocks [6] - Management is optimistic about the potential for increased net investment income in the second quarter due to spread widening in new opportunities [32] Other Important Information - The Board of Directors declared a distribution of $0.12 per share payable in cash on June 14, 2025 [16] - As of March 31, the company had approximately $13 million in cash, with $10.7 million being restricted cash [16] Q&A Session Summary Question: How can the adviser scale or provide benefits to the BDC? - Management indicated that waiving fees is always a consideration and that scaling the private credit platform is an ongoing effort that will help absorb overhead and expenses [20][22] Question: What is the timeline for capital raising? - Management confirmed that they are currently in the process of raising another pool of capital, expected to benefit shareholders in the second half of 2025 [26][27] Question: Why not consider share repurchases given the current stock price? - Management acknowledged that share repurchases are a tool they consider but have no immediate plans in place [30] Question: Should there be an increase in net investment income in the second quarter? - Management suggested that there could be an increase in net investment income due to spread widening, holding other factors constant [32]

Core Viewpoint - Hudson Pacific Properties, Inc. (HPP) is trading at a significant discount, approximately 30% of its Net Asset Value (NAV), but this discount may be misleading due to high leverage and the overall capital structure [1][12]. Valuation Metrics - The consensus NAV for HPP is $7.61, while the stock is trading at $2.32, indicating a price to NAV of 29.71% [2][4]. - The market capitalization of fully diluted common shares is $338 million, with a NAV implied common value of $1.109 billion [7][8]. Financial Structure - HPP's total liabilities, including preferred shares, amount to $5.379 billion, with total debt at $4.176 billion [5][6]. - The asset value at NAV is $6.488 billion, while the market price implied asset value is $5.717 billion, resulting in a discount of 12% from asset value [10]. Leverage Impact - HPP's high leverage means that an 18% decline in asset value could lead to common shares being wiped out, taking NAV per share to $0 [12][13]. - The leverage amplifies both potential gains and losses, making the investment sensitive to changes in asset value [16]. Investment Thesis - For HPP to be a viable investment, there must be a belief in a turnaround story, particularly in stabilizing occupancy and returning to growth in office assets [14][15]. - The potential for significant returns exists if the office market improves, as leverage could enhance the gains on common stock [16].

Financial Data and Key Metrics Changes - Adjusted funds from operations (AFFO) for Q1 2025 were $0.75 per share, and funds available for distribution (FAD) were $0.71 per share, reflecting revenue and EBITDA growth, with leverage reduced to 3.7x debt to EBITDA [5][12] - Revenue for Q1 2025 was $277 million, up from $243 million in Q1 2024, primarily due to new investments and operator restructurings [9] - Net income for Q1 2025 was $112 million or $0.33 per share, compared to $69 million or $0.27 per share in Q1 2024 [10] Business Line Data and Key Metrics Changes - The percentage of private pay and other revenue increased from 8% ten years ago to 39% today, with expectations for continued growth in this area [8] - Maplewood paid $15.6 million in rent in Q1 2025, an increase of $3.3 million from Q4 2024, and occupancy for the Maplewood portfolio reached 94% as of April 2025 [20] Market Data and Key Metrics Changes - The UK market accounted for approximately 93% of total new investments in Q1 2025, with a strong pipeline of opportunities [23][25] - The trailing twelve-month operator EBITDAR coverage for the core portfolio increased to 1.51x as of December 31, 2024, indicating improved performance [18] Company Strategy and Development Direction - The company is focused on disciplined and sustainable investment decisions while expanding its operator base in both the US and UK markets [18][24] - Omega is looking to opportunistically fund investments with equity, positioning itself for outsized adjusted FFO growth [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability of Genesis to continue paying rent despite recent liquidity issues, citing strong coverage metrics [6][33] - The company remains optimistic about the overall coverage and fundamentals improving in the healthcare sector, despite potential Medicaid cuts [28][29] Other Important Information - The company raised and narrowed its full-year adjusted FFO guidance to a range between $2.95 to $3.01 per share [14] - The company has a strong balance sheet with $368 million in cash and full borrowing capacity of its $1.45 billion credit facility [12] Q&A Session Summary Question: Details on Genesis and its rent payment issues - Management indicated that Genesis's recent rent payment issues were a one-time event related to their ABL lender tightening availability, and they expect continued payments moving forward [31][33] Question: Insights on the UK portfolio acquisition - The UK acquisition was facilitated by a strong platform and relationships with multiple operators, allowing for a quick and efficient transaction [39][41] Question: Impact of immigration on labor availability - No significant impact on labor availability or wage pressures has been observed at this time [45] Question: Genesis's operating fundamentals - Coverage metrics for Genesis have improved, with the portfolio consistently above 1.5 times [47] Question: Provider tax and Medicaid changes - The greatest risk to traditional Medicaid is provider taxes, which may see slight reductions, but the overall impact remains uncertain [76][78] Question: Disposition strategy and market opportunities - The company executed dispositions to redeploy capital effectively, taking advantage of attractive offers for non-core assets [82][84]

Financial Data and Key Metrics Changes - The economic return for Q1 2025 was 3%, consistent with the previous quarter, with earnings available for distribution per share at $0.72 [18][19] - Book value per share slightly declined to $19.02, a decrease of less than 1% quarter over quarter [19][22] - The common stock dividend was increased from $0.65 to $0.70 per share, reflecting earnings momentum [7][19] Business Line Data and Key Metrics Changes - The Agency portfolio saw a notional growth of $3.5 billion, driven by purchases of intermediate coupon TBAs [10][11] - The Residential Credit portfolio decreased by $340 million quarter over quarter, ending at $6.6 billion in market value [12][13] - The Mortgage Servicing Rights (MSR) portfolio remained relatively unchanged at $3.3 billion in market value [15][16] Market Data and Key Metrics Changes - Economic leverage increased modestly to 5.7 turns, remaining at the low end of the historical range [9][19] - The housing market showed signs of regional disparity, with home price appreciation slowing down due to increased inventory and affordability issues [13][60] - Inventory levels increased by 18% year over year, impacting existing home sales, which were at their lowest since February [57][58] Company Strategy and Development Direction - The company aims to maintain a conservative leverage approach amidst market volatility while focusing on agency investments due to attractive returns [17][37] - The strategic alignment with industry-leading sub-servicing partners is expected to create competitive advantages in the MSR business [15][16] - The company is optimistic about the potential for regulatory reforms that could positively impact the market dynamics [32][71] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic environment remains uncertain, with volatility expected to persist [9][17] - The outlook for the housing market is stable in the long term, supported by low delinquencies and tight underwriting standards, despite short-term pullbacks [60][61] - The company is prepared for potential market fluctuations with a diversified and actively managed portfolio [17][22] Other Important Information - The company has approximately $7.5 billion in assets available for financing, reflecting a $600 million increase compared to the previous quarter [22] - The weighted average repo days extended to 50 days, indicating a strategic shift in financing [21] Q&A Session Summary Question: Update on book value quarter to date - The book value was off roughly 3.5% as of the latest update, improving from a 4.5% decline post-Easter [25] Question: Outlook for spreads and regulatory impacts - Swap spreads have tightened due to volatility, and regulatory reforms are anticipated to positively influence market conditions [26][32] Question: Thoughts on leverage amidst spread widening - The company is balancing the opportunity to increase leverage against the risks posed by high volatility [36][37] Question: Housing price moderation and systemic risks - Housing price increases are regional, with some areas experiencing declines, but overall, the market remains stable due to strong borrower equity [60][61] Question: Agency portfolio supply-demand dynamics - Demand from fixed income funds was strong before recent volatility, with banks and REITs also showing reasonable demand [85] Question: Impact of rate and spread volatility on loan acquisitions - The company is adopting a more defensive posture in response to increased spreads, but lock volumes remain stable [90]

Financial Data and Key Metrics Changes - The company reported earnings available for distribution per share of $0.72, consistent with the prior quarter, driven by lower average repo rates of 4.56% compared to 4.93% in the previous quarter [18] - The book value per share was $19.02, reflecting a modest decline of less than 1% quarter over quarter [18] - The economic return for Q1 was 3%, with individual business segments contributing positively despite a challenging macro environment [18] Business Line Data and Key Metrics Changes - The Agency portfolio saw a notional growth of $3.5 billion, driven by purchases of intermediate coupon TBAs [9] - The Residential Credit portfolio ended the quarter at $6.6 billion in market value, with a decrease of $340 million quarter over quarter due to opportunistic sales and increased securitizations [11] - The Mortgage Servicing Rights (MSR) portfolio remained relatively unchanged at $3.3 billion in market value, with $28 billion in principal balance settled during Q1 [14] Market Data and Key Metrics Changes - Economic leverage increased modestly to 5.7 turns, remaining at the low end of the historical range [6] - The housing market is showing signs of increased regional disparity, with some areas experiencing a modest reversal in home price appreciation trends [12] - Inventory levels have increased, with a year-over-year rise of 18%, impacting the spring selling season [58] Company Strategy and Development Direction - The company aims to maintain a conservative leverage approach amidst market volatility, balancing the opportunity to increase leverage with the risks associated with high volatility [38] - The focus remains on agency investments as spreads have cheapened, while also continuing to grow the OBX platform for loan acquisition and securitization [76] - The company is strategically aligned with industry-leading sub-servicing partners to enhance efficiency and technological investment in the mortgage industry [15] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the impact of U.S. trade policy on consumer and business confidence, which may affect economic growth [7] - Despite the uncertain outlook, the company believes its diversified and actively managed portfolio positions it well to perform across various economic scenarios [17] - The management remains optimistic about the housing market's long-term stability due to low delinquencies and tight underwriting standards, despite short-term pullbacks in certain regions [62] Other Important Information - The company increased its common stock dividend to $0.70 per share, underscoring earnings momentum [6] - The total assets available for financing increased to approximately $7.5 billion, reflecting enhanced liquidity [22] Q&A Session Summary Question: Update on book value quarter to date - The book value was off roughly 3.5% as of Tuesday evening, improving from a 4.5% decline post-Easter [26] Question: Outlook for spreads and regulatory impacts - Swap spreads have tightened due to volatility, and regulatory reforms are anticipated to positively impact market conditions in the future [27][33] Question: Thoughts on leverage given current market conditions - The company is maintaining a conservative leverage approach due to high volatility, despite wider spreads suggesting a potential increase in risk [37][39] Question: Supply-demand dynamics in the agency portfolio - There was strong demand from fixed income funds and banks, but foreign demand, particularly from Asian accounts, remains limited [87][88] Question: Impact of housing price moderation on the market - Housing prices have increased significantly since 2019, but recent inventory increases may lead to short-term pullbacks in certain regions [58][62]

Financial Data and Key Metrics Changes - In Q4 2024, the company reported AFFO per share of $0.33, in line with guidance, while proforma AFFO per share would have been $0.27 assuming the repayment of fixed-rate notes at the beginning of the quarter [19][20] - The net debt ratio concluded the year at 5.2 times, indicating a prudent approach to leverage and a robust balance sheet [22] Business Line Data and Key Metrics Changes - In Q4 2024, the company acquired properties worth $103.4 million at an average cap rate of 7.93% with a weighted average lease term of 11 years [6] - The portfolio consisted of 307 freestanding properties with an average remaining lease term of over seven years, maintaining strong occupancy at approximately 98% [12] Market Data and Key Metrics Changes - The company is targeting strong credit tenants in essential services, health and wellness, while avoiding casual dining and pharmacy sectors [33] - The exposure to the sit-down fast casual space decreased from 19.3% of ABR at the end of Q3 2024 to approximately 15% at the end of Q4 2024 [16] Company Strategy and Development Direction - The company aims to acquire assets at above-market cap rates, with a planned investment activity of approximately $175 million to $200 million in 2025 [9][24] - The strategy includes addressing tenant health issues and repurposing or selling troubled assets to maximize long-term value for shareholders [13][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in acquiring properties at above-market cap rates despite slight tightening in the marketplace [7][8] - The company anticipates that the majority of properties currently on the watch list will come back online by late 2025 at meaningful recovery rates [15][40] Other Important Information - The company has secured a new $250 million revolving credit facility and a $200 million term loan at favorable terms, enhancing financial flexibility [23] - A quarterly dividend of $0.215 per share has been declared for the first quarter, balancing shareholder returns with reinvestment into growth [27] Q&A Session Summary Question: Can you discuss the acquisition pipeline and cap rate trends? - Management highlighted a robust acquisition pipeline with average cap rates in the high sevens, focusing on strong credit tenants in essential services while avoiding casual dining and pharmacy sectors [32][33] Question: What is the current tenant health and bad debt guidance? - Bad debt expectations are projected to be in the 2% to 3% range for the year, primarily related to tenants on the watch list, with expectations of returning to normalcy by the end of 2025 [39][40] Question: Can you provide details on the timing of asset recovery? - Management is currently in negotiations for 12 assets, expecting a significant portion of lost rent to come back online, with a conservative estimate pushing recovery into late 2025 [44][50] Question: How does the underwriting for new leases compare with the existing portfolio? - Rental increases for new leases remain consistent with historical rates of 1.5% to 2%, with a high percentage of corporate credits among new acquisitions [52][53] Question: Who are the primary sellers of properties currently? - The company is seeing motivated sellers primarily in the private investor market, with many individual sellers facing distress in other parts of their portfolios [56][59] Question: What is the company's approach to leverage and acquisitions? - Management indicated a willingness to maintain leverage around 6 times net debt to EBITDA, monitoring share price fluctuations to guide acquisition activity [63][66]