Q4 2019 Earnings Call
[music].
Good afternoon, and welcome to the ladder capital Corp. earnings call for the fourth quarter of 2019.
At this time upper since our newest only mode question answer session will follow the formal presentation. If anyone should require operator systems. During the conference. Please press star zero in your telephone keypad.
At this time I would like to turn the conference call over to ladders, Chief compliance Officer, and senior regulatory Counsel Ms. Michelle Wallich. Please go ahead Miss wallet.
Thank you and good afternoon, everyone I'd like to welcome you to ladder capital Corp. earnings calls for the fourth quarter and your ended 2019.
With me this afternoon or Brian Harris, our company's Chief Executive Officer.
Well the Mccormick president.
Embark Fox, our Chief Financial Officer.
Brian I'm, a little more well share their comments about the fourth quarter and then we will open up the car the question.
This afternoon released our financial results for the fourth quarter and your ended December 31st 2019.
The earnings release isn't available in the Investor Relations section of the company's website at <unk> annual report on form 10-K will be filed with the FCC later this week.
Before the call begins I'd like to remind everyone that this call may include forward looking statement.
Actual results may differ materially from those expressed or implied on this call and we do not undertake any duty to update these statements.
I refer you to her most recent 10-K for a description of some of the risks that may affect our results.
Well walk to refer to certain non-GAAP measures on this call.
Reconciliation of these non-GAAP financial measures to most comparable GAAP measures prepared in accordance with yeah are contained in our earnings release.
With that I'll turn the call over to our President Pamela Mccormack.
Thank you Michelle and good afternoon, everyone.
During the fourth quarter latter produce core earnings of 48.6 million or 40 cents per share.
Selecting an after tax core return on equity of 11.5%.
For the full year 2019 lot of produce core earnings of $190.6 million.
Dollarssixty per share.
Covering our $1.36 cents per share annual cash dividends and delivering an 11.6% after tax core return on equity.
In 2019, we focused on identifying attractive investment opportunities in a competitive lending environment and further strengthening our liability structure.
Our multi cylinder business model continues to afford us with the flexibility to quickly pivot to take advantage of attractive opportunities as well the ability to be patient and identify that that risk adjusted returns in the market.
In the fourth quarter, we originated $858 million of loan.
54% of with where balance sheet long.
And we acquired $446 million security.
For the full year 2019.
We originated $2.5 billion alone.
The 1% of which were balance sheet loans.
And we acquired $1.6 billion a security.
As Brian and Mark will cover later.
We continue to strengthen the right side of our balance sheet by maintaining a diversified liability structure with maturities that are long dated and well staggered.
During 2019, we made meaningful progress in our path to investment grade.
As we prepare for issuance of a 750 million dollar unsecured seven year corporate bond offering at a coupon afford a quarter a landmark deal that closed in January 2020.
The issuance was complemented by corporate family rating upgrade from Moody's to be a one and fits to double before.
Which also triggered a 25 basis points stepped down in the interest rate on our unsecured corporate revolving credit facility.
Furthermore, since the end of the third quarter, we extended the maturity date on all of our secured funding facilities.
And our 266 million dollar corporate revolving credit facility.
We now enjoy an average remaining term of over 40 years.
On our secured loan purchase facilities.
We continue to maintain a strong and long standing relationship with our bank partner.
Several dating back lot of founding.
Through such efforts coupled with our continued commitment moderate leverage as disciplined approach to investing we're making meaningful progress towards our goal of achieving investment grade rating.
As I discussed our products in more detail I'll begin with our conduit business, which contributed $15 million to Q4 earnings from the securitization.
$421 million of loans, and a private sale $34 million conduit loans.
For the full year 2019.
Our conduit business contributed $39 million of core earnings from the sale of $1 billion alone.
For the first quarter 2020.
We sold $186 million alone.
Hundred $34 million with securitization and an additional $52 million through a private sale.
Both transactions closed in February and generated $6.2 million of core game.
We do not expect to participate in any further securitizations forsalebyowner during the quarter.
The gain on sale realized from our conduit loan securitization business continued to complement our recurring net interest margin and net rental income.
Turning to our balance sheet loan origination business.
We originated $466 million a balance sheet loans during the fourth quarter.
Almost all of which were floating rate with an average loan size of 23 million.
The weighted average spread of 385 basis points over why bore and a weighted average LTV of 68%.
During the quarter, we received $454 million to pay off.
Merrily comprised the floating rate loan with a weighted average spread of 537 basis points over LIBOR, resulting in a $12.3 million of net balance sheet loan originations.
For the full year 2019, we originated one of the half billion dollars, a predominantly floating rate balance sheet loans.
With an average loan size of 21 million.
The weighted average spread a 403 basis points over LIBOR and a weighted average LTV of 69%.
During 2019, our real estate equity portfolio continued to provide consistent net rental income from long dated cash flows.
Contribute to our recurring earnings.
At quarter end, we had $1.3 billion of real estate investment on an underappreciated basis.
Comprised primarily of net lease properties to credit tenants.
During the fourth quarter, we completed the sale of our last remaining condominium units at the your towers in Las Vegas.
Our $119 million investment in beer towers resulted in a net profit of $52 million and generated a 23.5% IR.
Like today.
As we look ahead in 2020.
We will continue to match, our real estate equity investments and contemplate the harvesting of embedded value in the portfolio.
In our security segment.
The fourth quarter before I started and $46 million highly rated securities.
For the full year 2019 acquisitions totaled $1.6 billion.
As of December 31st 2019, our securities portfolio totaled $1.7 billion.
From 1.4 billion at the end of the fourth quarter of 2018.
In summary, we were pleased to end the year characterized by strong earnings and steady loan originations and investment activity.
We're also pleased to start the new year as a double B plus company with a best in class capital structure.
With that I'll now turn the call over Smartbox, our Chief Financial Officer.
Thank you Pamela looking at our financial results more closely in the fourth quarter recurring income other forms of net interest income and that rental income totaled $46.6 million. The single income was complemented by $15.2 million of core games on the sale of loans $1.1 million or core.
Gains on sales of Securities and zero point $3 million of gains from real estate sales from this income we paid $41 million of dividends and distributions equivalent to 34 cents per share on 119.7 million shares, resulting in a payout ratio 85%.
Looking more closely at the balance sheet. It is noteworthy that as of December 31st 2019, 97% of our debt investments will senior secured senior secured assets plus cash comprised 79% of our total asset base, reflecting waters continued focus on investments at the top of the campus.
What's that.
During the fourth quarter, we experience to credit events that had a slightly positive not affect on our income statement. We were recorded a $2.25 million gain on foreclosure on a $5.7 million mezzanine loan secured by San Diego Hotel.
Was offset by 2 million dollar loss provision on a 23.6 million dollar land loan in Los Angeles, both of which defaulted during the quarter.
Turning to our capital structure, we continued to strengthen and diversify our funding base lot of remains committed to a target leverage ratio in the two to three times range and to the pursuit of investment grade credit ratings.
Bond investors recognize the progress we have made as evidenced by the pricing of our recent corporate bond issuance of 4.25% coupon rate was 100 basis points lower than our previous issuance and the credit spread reflected in that rate was 63 basis points tighter than the tightest prior letter.
Issuances.
The proceeds were used to pay downs secured debt the cost approximately 80 basis points less than the corporate bond financing, we view the increased cost as a sound investment.
Strength certainty and flexibility of the right side of our balance sheet that comes with long term committed unsecured bond funding.
We closed the year with a debt equity ratio of 2.97 times, excluding our portfolio of highly liquid and a highly rated securities our debt to equity ratio would be 1.92 times.
Undepreciated book value per share as up to 12, 31, 19 was 15 goals and 23 cents.
Encumbered assets at year end stood at $1.9 billion, reflecting a 1.62 to one unencumbered assets to unsecured debt ratio substantially over the 1.2 times requirement included in our corporate bond indentures.
Since the majority of our current unencumbered asset base was comprised the first mortgage loans securities backed by first mortgage loans and real estate the excess unencumbered assets represent a potential source of future funding.
As of February 27.
Over $2.7 billion of unencumbered assets and over $800 million of liquidity available to fund no investments.
On the accounting and reporting truck.
Flatter was calculated the impact of Cecil on our consolidated financial statements. We estimate that the initial comment expected credit loss reserve to be recorded in the first quarter of 2000 and wanting.
To be approximately $12 million or 36 basis points of our unimpaired balance sheet loan portfolio.
Important factors driving the seasonal reserve include the size composition and risk profile of our loan portfolio.
As well as Carlington projected future macro market conditions, we expect to see reserved to vary from quarter to quarter, reflecting changes in the size and composition of our portfolio.
And with that I'll now turn you over to our Chief Executive Officer, Brian Harris.
Thanks Mark.
Latter turned in a strong performance in 2019, and we're especially proud of our after tax our early of 11.6% for the year.
During 2019, we maintained a healthy activity in both our balance sheet and conduit lending programs, keeping our portfolio relatively flat year over year well. We also enjoyed a 65% increase in revenue contribution from securities as we continue to build our inventory of floating rate AAA CLL six.
Parties, which had been offered at relatively wide credit spreads.
Over the last few quarters, we have expressed a relative value preference for liquidity in our investment strategies, maintaining short dated investments across all our products and failing property types like apartments and warehouses.
We also expressed a preference for AAA securities over forcing marginal volume on loans in our balance sheet loan business. We expect that same theme to continue as we go further into 2020.
Given current volatile market conditions, we expect to continue to focus on our conduit lending program.
Our acquisition of highly rated securities and investments in owning high quality real estate.
We will do this while maintaining our balance sheet loan portfolio at or near its current size, albeit we will continue to be very selective.
LIBOR has fallen from 2.52% at the beginning of 2019 to about 1.6% today with a strong likelihood it will be going even lower.
We intend to remain prudent in the face of this environment, which is exacerbated by tighter credit spreads and strong competition.
Well net interest margin is likely to trend lower in 2020, we expect this to be somewhat offset by harvesting gains on mature real estate assets that are now ready for sale and our increased inventory of securities.
As rates and credit spreads felt.
As the new year began we successfully accessed the unsecured corporate bond market in January issuing $750 million of seven year bonds at a rate of 4.25%.
Well this caused a modest increase in our overall interest expense, we feel that the benefits far outweigh the increased cost because as we've told you before ladder isn't this for the long game always trying to increase our use of unsecured longer term debt.
This liability constructs suits us as it complements our conservative use of leverage and our effort to become an investment grade company.
We expect to continue our use of unsecured debt as we get later into the year. We have a previously issued five and seven 8% interest rate bond outstanding that is prepayable at par in August.
And we hope to refinance that obligation with new lower cost that lowering our overall cost of funds at that time.
The timing of our recent bond issuance it seems to be fortuitous at this point with volatility picking up.
We have lots of liquidity and expect to take advantage of market volatility to opportunistically invested assets that are being offered at lower prices than we've seen in quite a while.
I'll conclude by saying, thank you to all of our shareholders bondholders and our employees that ladder for their support of our efforts and what was a very successful 2019.
I look forward to catching up again with all of you at the end of April.
We can now take some questions.
At this time, we will be conducted question answer session. If you like to ask your question. Please press star one under telephone keypad, a confirmation tone. When can you. Your line is in the question Q you May press Star too if you like to remove your question from the Q.
For participants using speaker equipment, it maybe necessary to pick up your handset for person that's turkeys one moment, please while we pull for questions.
Our first question is from Tim Hayes B. Riley FBR. Please proceed with your question.
Hey, good evening guys. Thanks for taking my question. That's my first one.
You touched on 66 million a diversified Jerry acquisitions. This quarter I don't know if it was one asset or multiple but you know what type of asset door assets was it yeah last quarter, you made it sound like you're more likely to be a seller than a buyer of real estate. So just wondering what was so attractive about this deal or these deals.
Yeah, So I'll I'll I'll pick that up so what do you, what you're saying as you're saying the increase in the real estate portfolio.
And the increase in the real estate portfolio, we had a few acquisitions of dollar general stores, which has been a place where weve invested money and then also we have we met should we had foreclosed on two properties during the quarter. The hotel, it's worth 42, and a half million dollars and the student housing was worth $23.7 million.
Just to clarify one thing that hotel was $5.6 million mezzanine loan that there was the first in front of that that we stepped into so that's how you get to the higher basis on that that's correct.
Okay got it thanks for clarifying that.
And you know obviously, we don't know what type of impact or any impact at all the chronic virus might have.
But you know just wondering where you see that but potentially there being the biggest impact I know you have.
The Omaha Hotel you have some retail exposure do you think that's most likely to be impacted there or is it more kind of the capital market volatility and do you see that being I actually a catalyst or an opportunity for you guys to APA capital work creatively.
Ah, Yes [laughter].
Interesting day, certainly, especially at the end to end today, but.
Yeah, I kinda remember when what I mean is it always comes in a different package at the other day, but you know in what I see generally from a U.S. perspective, which is really the perspective. We take is he has a lot of fear I can I can hear now on the trading floor I can hear it in the building I can hear it on the on the train but.
Yes, what this is ultimately causing is energy prices to fall rapidly and there is certainly companies that don't do well when energy prices fall, but by and large I think it's actually a positive for most businesses.
And I sense, there's gonna be less travel you know certainly as a result of the virus. So what I see is lower gas prices people staying at home in the United States and in all likelihood of drive to market.
I think as far well, what little I know about you know Corona virus I would say I think the.
A lot of chatter about like keeping it out.
Country as if it's got walls around it but I don't see that as possible I think it's very likely we will be dealing with the corona virus and I think ultimately it'll turn out to be done not nearly as scary as it seems today.
But of course time will tell but I I do believe any kind of volatility extreme volatility that we're seeing today.
Absolutely presents opportunities or not.
If you've heard us over the last few quarters, we've been signaling caution.
You know moving from hotel to apartments, a the belief that the world was a little bit complacent and our our desire to really see more volatility because we think that we do very well and those kind of the markets.
Having just raised $750 million a few weeks ago, Oh, we have plenty of dry powder and we were deploying it today and so if we would never want to wish anything bad on anybody, but if we could see volatility like today for another week or so I think ladder capital would do very well.
Got it that's helpful. Appreciate the color there, Brian and then can you give us an update on the three m. bad quarter loan you know I saw the investor filed for bankruptcy earlier this year and installed the foreclosure process.
What do you think the potential timing of resolution as and and how confident are you that you can recover your basis and any accrued interest.
Well I think it's an interesting.
You know phenomenon again, our unit case, because the asset is one of the largest assets in Austin, Texas. It is located on 160 acres of land and has another million square feet of development rights are already associated with it the reason alone isn't default.
I don't think is because there's anything wrong with the real estate.
Sponsor has illegal problem and he's got several entities in bankruptcy because he owns many properties and until his or legal situation gets clarified which it has not been yet yeah. We are in Texas, and Texas does move through things a little bit faster, but I think our exposure on the.
The loan at $60 million is about $70, a square foot and near as I can tell in that area of Austin, Texas land is traveling at a price higher than that so we're very confident however, it I'd also say timing matters. The loan is currently accruing at a default rate of almost 14% and so yes that can be.
Difficult to pay after a few years, but a and when I say accruing I don't mean accruing at ladder capitals financials, we've got it on nonaccrual status, but when it comes to foreclosure if he wants to avoid it any wants to pay us off and recapitalize as we think you should be able to but a that will be in a pretty big windfall if we collect.
All that interest.
Got it Okay. That's helpful and just one more for me that I'll hop back in the queue conduit originations in sales are pretty strong. It seems like you're obviously very committed to that business going forward, even though this quarter seems to be yeah, I guess, the remaining part of the quarter should be.
Pretty a absent, but I'm just wondering how you see volumes and and gain on sale trending this year I didn't gain on sale might have come back a little bit even though as you know that very high levels over the past couple of quarters still still strong. So just looking for some color around that [noise].
Yeah that business does very well when interest rates are falling and interest rates are certainly been falling.
When interest rates are falling like they have been the last week or so.
That's kind of the wrong reason, because it's usually accompanied by widening credit spreads.
As of Tonight, I believe we only have $50 million in loans closed.
And for self in securitization and ER. So that that is very low exposure and as we close more and more loans. We think most of those will be closing into some attractive floors. So yes. We are very interested in staying in that business. The margins are acceptable the properties are performing well and you know the backdrop in the economy seems okay.
Too so we would like to do as much conduit as possible and or would you know it but I will say despite the fact that interest rates are quite low volume is not very high.
Oh, yeah. It there I think interest rates have been so loan for so long.
That.
I I, just <unk> I think it's gonna be a similar to last year.
Okay. That's helpful.
Thanks again for taking my questions.
Welcome.
Our next question is from Jade Rahmani KBW. Please proceed with your question.
Thanks, very much did you give an update of what CMBS.
Securitizations have been thus far this quarter I didn't really catch that.
Jay This is Sam or high do you mean for one can't or Oh, yeah. Unfortunately.
We did we completed so we did a we sold a couple of long separately and then we participated in and the Wells Fargo deal that that'll today. So we can actually talk about it. The total volume we did this for the first quarter and I do think this will be it for the first quarter is $133.9 million.
At around 3%.
Okay.
Thanks for that were there any securities purchases in the corner and it can you quantify the amount of sales that took place in fourth quarter.
[laughter] Martinez I'm sure you want you want to CMBS Securities your wants to add securitization just to be clear.
CMBS Securities.
The MBS securities during the fourth quarter, we sold $317.7 million worth of Securities.
And during that during the course of course look quarter. We purchased another 446 million the balance went down because we had a fair amount of amortization of prepayments, we ought to look $300 million of amortization.
Okay, and you can imagine the volatility that we've seen in the last a couple of weeks here, we've been adding two to our inventory.
Okay.
The can you talk to the Companys overall hotel exposure and.
How you're feeling about that also is there any new York hotel exposure and might that be one area, where do you anticipate a notable pick up in foreclosures are this year been hearing some.
Pretty scary stories about the New York Hotel market.
Yes. So we have in total we have about $450 million of hotels broken down by $385 million have loans and then the $60 million owned.
As Brian alluded to earlier first of all we have an average LTV of 70%. So we have a good equity question on them, but most of our hotels are 85% of my drive to market. So you know we don't have anything that stands out to us we have no New York hotels, and we don't have anything that stands out to us this problem out.
Nick at all.
And I would say TJ, while we have always we've been a little concerned about the New York Hotel market before what happened.
Corona virus, we're little concerned about air base, a little more than that so, but then I have heard some stories about you know a couple of assets here in their butts to tell you. The truth I think we're getting a little more interested in that market and as Paolo said, we don't have any right now, which I'm almost shocked by that but ER and so we're pretty comfortable with our exposure we have taken it.
Down quite a bit in our loan portfolio, it's only 11% and I know it was much much higher than that a few years ago.
Okay. In this current volatile fixed income environment, a wide widening credit spreads I'm sure I'm, assuming a you know what's going on that equity markets as spillover effects do you anticipate any mark to market or potential hedge losses that might transpire either on the conduit business.
The only mentioned 50 million in the pipeline, but just through your overall CMBS strategies.
Oh, no really I mean, yes, we do I'm, a little bit of that in the $50 million a conduit loans, but as you know we've been big fans of the CLL space in the AAA category are those are floating rate assets. We feel that's the right place to be with LIBOR at 160 at while the 10 years at 120.
That's a that's an odd optical there too, but so we're not expecting any margin calls are and we don't own anything at very high premiums you know the only thing I wish that.
If I could turn turn it down a little bit would be the 50 million in kind of what they will but again, we've just done somebody conduit deals with the we haven't own them long enough to be be hedged into too high of a premium yeah.
On the core loan portfolio, Oh repayments for the last three quarters have been in the $400 million to $450 million range.
I'm wondering if you expect any slowdown in repayment activity, perhaps based on the volatility or that's that's a number that we should assume a for on a quarterly basis.
I think safely you can assume.
At or about that it candidly it looks a little lighter at this moment, but but.
That range I think over the long term look right yeah, you're right. The last three quarters between that between 404 50.
A lot of that depends on what the lenders are doing also so I imagine you know the business itself might take a few weeks off here so things could be delayed I took it certainly won't accelerate any prepayments.
Okay.
Thanks for taking the questions.
Sure.
Our next question is from Joel Dryer LTC partners. Please proceed with your question.
Afternoon, everybody. Thank you.
I just wonder if you get a little more color on the on the a loan loss provision on that Los Angeles low land.
Okay, well, let me I'll get landmarks going to give you the provision, but I'll just tell you to that this was a land loan to a developer it's actually located a you know in one of the best areas of Los Angeles, It's located between West Hollywood and Sunset strip. So yeah. It's funny when we call that a landlord that's like a landlord.
The middle the New York City, but in any event the developer who came to us for alone.
Thought he was going to get up zoning of three three times, what what it had previously been and we did not think he would we thought it would get two times the Upselling and he got two times the Upselling and he did not get three so that's what ultimately but the loan into trouble sponsor had contributed $10 million I know in equity prior to our.
Our taking the asset, but that's a mark as far as a provision goes what does that you've got $2 million $2 million and so how big was the loan balance so along with 23.6.
Million dollars on about three quarters of land.
Thanks, Pamela so it goes without saying that you underwrote it to two or two X obviously.
Yes, and we don't build apartments, but we will either salad or or bring in a JV partner.
Fair enough to popping rebuilt.
And then Brian you mentioned something in Marianne to your comments, which were which was assets you're seeing assets at lower prices and you've seen in a long time I just little more color on that'd be helpful. Because it's such an important part of here of your book of business.
Yeah, I think whenever yeah.
Again, we've we've moved a little bit towards higher quality around here over the last year and in anticipation of something you know that we just felt there was a little bit too to join us out there and we didn't really see it's going quite as well as that but when I say you know cheaper assets for the most part we want to get involved with the assets that are short drew.
Ration if possible as well as you know just lower prices. So most of that comment would have been directed toward securities acquisitions, and so just a quick a anecdotal or the high yield index. The h. why GE that Bcf the people and many people invest and I think they're talking about $13 billion last.
Here, which was an extraordinary mountain, that's where cost so much pressure on high yield spreads, which is a surrogate for the corporate bond market.
I think they've had 5 billion and redemptions in the last two days. So when I came in this morning, you know I informed the people out on the on the desk there to start looking at a forced selling at the end of the day and we did see that and so we were participating in acquiring we're not selling anything and so.
Yeah. This does happen once in a while there's no it's not a credit problem in that market at all its illiquidity question and let problem. If if oil prices continue to fall that problem, we'll get more exacerbated.
On the other hand, you know to the extent that were able to acquire longer dated things like real estate and were able to finance it and interest rates for 10 years as low as 3% that creates an extraordinary opportunity also so if you had asked me you know in 2015 before the fed started to raise libel and rising short term interest rates in la.
The board moved with it.
I would I think I had said, we're gonna be investing in LIBOR floaters in anticipation of the fed moving rates higher and that's what they did.
And you know with LIBOR, having moved from 2.5% down to 160 in the last a 14 months, that's probably not going to be at the top of our priority list going forward. However, given how low overall interest rates are it's a great time to acquire real estate and we also has a great time to acquire short term securities that other people are being four.
The liquidate.
Okay. That's very helpful and so you watch that you watched asked a high yield bond index, we watched as JB ourselves. So yeah, there they all but they kinda mimic each other but what I. What do we do is why did we watch flows you Fund fund flows and when there's a lot of flows into either.
Yes that buy bonds, you can expect bounce to tighten when you have a lot of outflows things have to get solved.
Excellent. Thank you appreciate the answers sure.
Our next question is from Charlie arrested JP Morgan. Please proceed with your question.
Everybody. This is Charlie on for Ah Rick Today, I was wondering if you could talk a bit about.
Oh, you mitigate risk in the broader CMBS portfolio that you purchased directly versus what you originated the conduit business and if there's any a big differences in the collateral there.
Well, yeah, I mean, there the collateral may be similar that underlies the when you're originating loans for securitization youre originating loans and you actually synthetically owned the AAA through the unrated.
So until you sell it whereas when we buy securities, we almost always by Triple A.'s and double ice.
So by definition to subordination level on the securities that they're much safer than the whole loans and a AAA security can be sold and 60 seconds, whereas a whole loan cannot be sold usually inside of them three weeks.
Okay.
Preference for more liquid shorter duration assets.
We we always do that that's not unique to us as a result parana virus.
Are you asking me about a hedge by the way how we mitigate risks there.
Yeah, I mean, the color on the capital stack is definitely helpful. But if there's anything kind of specific to the broader portfolio today that would be helpful.
Well I think if you're asking us if we do take credit hedges no. We don't we don't use credit default swaps unless it's a particular name.
Sometimes we'll buy put options in our in our you know portfolio. So if we have I like Joel who just went before you here he knows we own a lot of dollar generals.
That's a credit that we have exposure to only happen to like it.
But there are ways to mitigate exposure to that but the the real risk. We do mitigate is anything longer than three years in duration, we interest rate hedge, but as I said earlier, that's only a little over $50 million right now in a 6 billion dollar portfolio.
We have as small.
And interest rate exposure today than I think I've ever seen in my life and maker and.
In books that I've handled.
Got it okay.
And then switching gears a little bit I don't think I heard in the prepared remarks, but could you give an update on LIBOR floors and the lending portfolio.
Sure.
As of a 12 31, our weighted average LIBOR floor was one oneseventy pardon me there was 184.
And at that point in time libel was 176.
The LIBOR floors that we had at that point in time, 59% of or more in the money.
So it's about 1 billion and a half dollars' worth of floating rate loans.
And and they were on a weighted average basis on that $1.5 billion worth loans about 41 basis points would be the amount that we are running.
So you're talking about little over $6 million, a floor income per year on that basis.
Okay, Great and my last question for me some of your peers have been particularly active in Europe over the last two quarters are you guys seeing any opportunities there that'll have compelling or you mostly staying domestic.
Well, 100% domestic where you could see us that we have lot of experience in Europe, but most of US worked in a credit Suisse or you be up where we were there has it real estate at that time.
But I'm not seeing anything compelling. However, I believe if we were to go into Europe I don't think it would be on the loan side I think it would be on the equity side.
Where we would be a borrower.
Okay. Thanks for taking the questions.
Well.
As a reminder, we're now conducting a question answer session if you'd like to ask your question. Please press star one under telephone keypad for participants using speaker equipment, and maybe necessary to pick up your handset before Christmas turkeys, one of them piece, while we pull for questions.
Our next question is from Chris smaller JMP Securities. Please proceed with your question.
Hey, guys. Thanks for taking my question most of them I've been asked already but I guess last one here is can you guys are estimate or the positive impact on book value from the securities portfolio in the fourth quarter.
And that is it fair to assume that there's further appreciation there in the first quarter. Thanks.
Yeah in terms of the impact on securities portfolio, the fourth quarter.
It was not substantial at all we have you one thing to always recall is that we are very short duration on the portfolio. The weighted average duration is 29 months.
And so we don't see it we don't see a massive amount of fluctuation there and most of it is floating rate and most was floating rate exactly we can we can directly through to the.
Other comprehensive income a portion of our what are you call. It a equity reconciliation statement in the financial statements and your Bill will see the exact amount I also want to point out if you remember we tend to use our securities portfolio.
During special time, so youre not volatility as high then wouldn't then it becomes a profit center, but for the most part we use it to.
Allow us to be very patient in our loan origination process, because we because of the way were funded were able to buy very short AAA securities and lever them into a seven or eight or 9% yield. So we'll just sit there for a while until something better comes along in the loan book. So we don't usually use it for.
Price appreciation, although given what's gone on you know certainly in interest rates, a yet there, they're probably up a little bit but a two year AAA does not have a lot of price volatility.
Got it that's helpful. Thank you.
Sure.
Our next question is from Jason Weaver Compass point. Please proceed with your question.
Hi, Good evening first I Wonder if you can speak to what you're seeing in new long spreads burst in this quarter versus the Threeeighty Viper originations in Fourq you.
I I'll, let pamela and so the answer that actually handles it but I will cover off in the beginning of this and just tell you that as a up until this week you know panel will give you some of those answers what I'd tell you. It today spreads mean nothing.
Because with a 120 10 year, a you know typical spreads a month ago order 160, or one of 70 over the 10 year 160 over the 10 year today would be at went to 280 and.
And I think most of the street is not closing loans anyway, right now I think many market.
Macs are being exercised and at that however were somewhat protected because we've been closing loans with floors and I've interest rates have fallen that's been a phenomenon. We saw throughout 2019 seeing it again in 2020, so with that I'll, let Pamela described what we have close but anything in the pipeline.
You know if something is and if something is under application that to 10 over the over the 10 year. The real rate today. If we were at a rate lock it has to 50 over.
I think you asked about balance sheet loan are you looking for me that you can give you more yeah down that balance sheet log is what I would what I was 65 right where are we on so we we are weighted average for fourq here with creative five and I would say.
Got it trended up a little bit, but don't want to be too optimistic there because we haven't you know we're early in the quarter and I would say to think about it similarly for now.
Most of the loudest floaters.
See come through for approval a there in the floor also at this point.
So I mean, it's a floating rate instruments, but do I LIBOR plus 350 loan that was asked them couple of months ago, It's probably LIBOR plus 400 now because of the floor.
Got it and just one clarification on it on a previous question, where you addressed as of 12 31, the weighted average or was it 184 and you mentioned a 1.5 billion dollar figure at 1.5 billion out of your existing portfolio loans are the ones that feature floors correct.
No there all the floating rate loans about $2.5 billion of loans floating rate.
Our balance sheet loan portfolio, a $1.5 billion were in the money. Okay. There at the floor now bear <unk>.
Yeah, there there in the my 41 basis points. So that's how you get to that.
Got it and then one on almost the same subject given the the fixed rate senior unsecured are using comparatively more hedging versus the overall floating rate portfolio there.
No.
We did not take worried about.
No I did not.
Got it.
Okay, well, thanks for taking my call you think it functions as a hedge against.
So for instance, I mean <unk> high yield is widening right now and that is a double b bonds. So yes. It is outstanding and we're very fortunate to have gotten a done.
In early January, but but we do not is we did not swap out now.
Alright, well, thank you for taking my questions.
Okay.
That concludes our question answer session I'll now return the call to Brian Harris, the Companys Chief Executive Officer.
Well at the end of a long day for all of US I'm sure. So thank you for hanging around after work here and listening to us or you know the audit always takes a little bit longer. So we were a little bit later announcing here. So we won't be too done for too long that we'll be right back talking again about the first quarter I think at the end of April.
All right. So thanks everybody.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.