Q4 2020 Colony Credit Real Estate Inc Earnings Call
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Greetings and welcome to the colony credit Real estate, Inc. Fourth quarter, 2000, and 'twenty earnings call. At this time, all participants on a listen only mode. A question and answer session will follow the formal presentation you for.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to your host David Bellamy General Counsel may begin.
Good afternoon, and welcome to colony credit Real estate, Inc, fourth quarter, and full year 'twenty and 'twenty earnings Conference call. We will refer to colony credit Real estate, Inc. And C. O N Z colony credit real estate colony credit for the company throughout this call speaking on the call today are the company's president and Chief Executive.
Officers, Mike Massey.
Chief operating officer, Andy Witt, and Chief Financial Officer, Frank Sparacino.
Before I hand, the call over please note that on this call certain information presented contains forward looking statements. These statements are based on management's current expectations and are subject to risks uncertainties and assumptions and potential risks and uncertainties could cause the company's business and financial results to differ materially including the potential adverse.
And heightened risks associated with COVID-19.
For a discussion of risks that could affect results. Please see the risk factors section of our most recent 10-Q and other risk factors and forward looking statements and the company's current and periodic reports filed with the SEC from time to time.
All information discussed on this call is as of today.
Are you worried and 'twenty four 'twenty and 'twenty, one and the company does not intend and undertakes no duty to update for future events or circumstances and.
In addition, certain financial information presented on this call represents non-GAAP financial measures and the company's earnings release and supplemental presentation, which was released this afternoon and is available on the company's website presents reconciliations to the appropriate GAAP measures and and explanation of why the company believes such non-GAAP financial measure.
Yours are useful to investors and now I'd like to turn the call over to Mike Madden, President and Chief Executive Officer of colony credit real estate.
Mike.
Thank you David.
Welcome to our fourth quarter earnings call.
On behalf of the CRC team and we'd like to start by wishing everyone well and I. Thank you for joining us today.
I'd also like to welcome Frank Saracino to his first earnings call as the company's Chief Financial Officer.
These past 12 months have been challenging for all of us to say the least we extend our thanks to those providing support and cash on the many different front lines of the pandemic.
I also thank our dedicated employees, who are rising to meet the challenges they face both personally and professionally.
That said the CRC team has accomplished much during this time.
First solidifying our balance sheet by dramatically, reducing debt and increasing liquidity, which stands at 689 million today.
Specifically, we have substantially reduced our C. MBS Securities Holdings and have fully paid off our see MBS securities repo lines as well as our corporate revolver.
Further the legacy non strategic portion of our portfolio has for all intents and purposes been resolved.
And as now accounts for an immaterial portion of the total portfolio at less than 1% of sale on CS at share net book value.
And finally, we have begun originating new loans and growing earnings.
And the culmination of all these accomplishments has resulted and the reinstatement of a quarterly dividend.
With that I'd like to and I'll cover some of the key financial highlights for the fourth quarter.
For the quarter, we had a GAAP and distributable loss per share of 41 cents and 20 cents respectively.
Excluding realized gains and losses and fair value and other adjustments we generated total company adjusted distributable earnings of <unk> 20 per share.
At yearend <unk> unrestricted cash position was $473 million or approximately $3.59 a share.
Furthermore, our year and GAAP and underappreciated book value per share with $12 96, and 14 14, respectively.
Now turning to the business, we are executing on our plan to transition our asset base towards floating rate first mortgages as such on mortgage origination activity has increased dramatically.
Since recommencing with loan originations and mid September we have committed $690 million and new loans of which nine loans have closed with a total commitment of $335 million and an additional 13 loans are and the closing pipeline representing total commitments of $355 million.
And we may utilize some of these new loans as replacements and our current CLO should there be loan pay offs prior to the reinvestment period and date. This October.
Beyond that we anticipate generating enough production in order to issue our second CLO later this year.
At this time, we have deliberately focused on loan originations on multifamily and selective office properties.
This has been driven both by market conditions created by COVID-19, and our desire to reshape our portfolio.
And the last nine months overall investment property sales have slowed considerably.
And also continues to be a lack of visibility and a recovery time line and a number of asset classes, most notably the hospitality sector.
In addition, the retail property sector overall has incurred lasting damage from the pull forward of e-commerce with malls and big box centers viewed less favorably than grocery anchored properties.
For these reasons, while many commercial real estate lenders have re entered the market there was a supply and demand imbalance for credit as well as the capital and mismatch for cross property sectors.
Most lenders are focused on multifamily industrial and select office properties, while being especially hesitant on retail and hospitality.
Over the near term this imbalance could lead to an increasingly competitive lending market.
But as a positive offset to this we expect acquisition activity and long refinancings to increase and the second half of 2021 as the economy continues to reopen and therefore.
And therefore, as we see economic conditions improve C. O M. G will selectively expand as loan originations to other property types.
Another positive is on the liability side of the balance sheet here, we see continued strengthening and demand for CLO securities driven by fixed income investors increased preference for floating rate bonds also our bank counterparties have been keeping abreast with the market by improving on both their funding costs and loan advance rates.
This continued improvement and liability pricing coupled with the expected economic expansion should allow us to maintain satisfactory returns on equity.
Overall, we are optimistic and 2021 about <unk> business model and this type of operating environment.
Finally, while our share price has improved in recent months, we recognize that Fiat and C continues to trade at a discount to our book value built.
Building earnings and growing dividends are obvious cornerstones to continuing to improve our valuation.
In addition, we have sought to further enhance our disclosures to provide investors with more information to this and we have added some additional information on some of our loans and on real estate assets and this quarters form 10-K filing.
In summary.
2020 was a challenging year, but the CRC team has made a number of key accomplishments, we have stabilized the company's balance sheet.
But the legacy non strategic portfolio behind us.
New loan originations and begun to build earnings and reinstated our dividend.
However, as I said and our third quarter earnings call. We are not yet out of the woods. The effects of COVID-19 will continue for many months. We also recognize that in many aspects of our lives certain changes that have resulted from the pandemic may be permanent.
Therefore, I want to again, thank my colleagues and our counterparties for their teamwork and cooperation.
We will continue to protect the balance sheet by remaining vigilant and our asset and liability management, while prudently redeploying cash.
C&C team has built great momentum this past year, which has continued into 2021 with that I would like to turn the call over to our Chief operating officer, Eddie way Andy.
Thank you, Mike and good afternoon, everyone.
Focus continues to be on assets and liability management and liquidity as well as new originations and building earnings.
Across the total core portfolio, we collected 96% of expected payments throughout the quarter.
Uncollected portion is confined to one loan, which we are currently working to resolve and.
One net lease real estate portfolio, which was sold subsequent to quarter and more specifically for loan portfolio performance. During the fourth quarter remained strong and 97% of core loan portfolio expected cash interest payments were received.
And there were a limited number of loans, which required some form of partial modification of their existing reserves as well as some loans for borrowers have come out of pocket to support their equity.
Does the cash collection and figure and excludes pick lungs.
And lastly, during the fourth quarter for loans paid off totaling 101 billion gross proceeds within our core net lease real estate portfolio.
Collected 95% of expected payments throughout the quarter.
The delinquent portion is related to the net lease real estate portfolio, which we sold subsequent to quarter and the company remains current on all investment level borrowers.
For portfolio asset sales during the quarter were confined to 90, MBS positions, which sold for $24 million and net proceeds generating a $10 million gain subsequent to quarter and we closed on the sale of a net lease industrial portfolio within our core portfolio, resulting in a realized.
GAAP.
Book value gain of approximately $17 million and a corresponding unappreciated book value loss of $33 million.
At present as it relates to the core portfolio, we are and the process of resolving alone previously mentioned as well as certain C and gas holdings.
During the fourth quarter, we recorded at fair market value adjustment of $58 million for 44 per share related to our Dublin, Ireland project Aqua and mortgage loan the.
And the pandemic has resulted in a series of delays and various aspects of the project and our judgment use delays necessitated reexamining the business plan and associated timeline, which resulted in the carrying value write down.
<unk> disclosure on this investment and others are available and past quarterly filings as well as in the form 10-K, which will be filed tomorrow.
Lastly, as it relates to the core portfolio.
Our $1 billion managed CLO executed in October 2019 continues to perform and benefit from LIBOR floors at the underlying growth.
We continue to monitor and manage the performance of the trusts for both COVID-19 related developments for example scripts on hospitality assets and office lease up activities as well as ordinary course loan payoffs within the CLO.
Shifting to the legacy non strategic portfolio. The company has made considerable progress resolving the segment during.
During the fourth quarter of 2020 and through today. The company sold for resolve 'twenty for O&M investments for an aggregate gross sales price of $169 million and the net sales price of $83 million after transaction costs.
This resulted in a book value loss of $8 million at present and the <unk> portfolio is comprised of 14 remaining position.
This is down from 70 positions initially and the LMS portfolio now accounts for less than 1% of our at share GAAP net book value as of December 31, 2020.
Additionally, we will collapse.
Reporting segment, beginning with our first quarter 2021 reporting given its limited size relative to the total portfolio and our decision to review and manage the business on a combined basis.
In closing for the majority of 2020, the company focused its resources on managing the balance sheet and generating liquidity to address potential COVID-19 related demand.
While continuing to focus on managing assets and liabilities and the company has begun to make meaningful progress towards building earnings since mid September.
September we are committed to 22 loans 19 of which are multifamily totaling $690 million.
As we continue to deploy capital into first mortgages the composition of our portfolio is transforming.
Distant with our stated business plan.
Focus on first mortgages secured by high quality assets and sponsors generating current and predictable earnings.
That I will turn the call over to our Chief Financial Officer, Frank <unk> to elaborate on the fourth quarter results.
Thank you Andy and good afternoon, everyone.
Before discussing our fourth quarter results I would like to draw your attention to our supplemental financial report, which is available on our website.
I would also note that our form 10-K, which will be filed tomorrow includes further information about January and February interest and rent machine that Andy mentioned in his remarks.
Furthermore, we continue to provide asset by asset details for our core portfolio and our supplemental financial report as well as all holdings and form 10-K.
Additionally, I would like to briefly comment on our non-GAAP earnings measure of core earnings, which starting this quarter has been renamed distributable earnings here.
Historically, we have disclosed core earnings is an important financial metric that we use in addition to GAAP net income to assess the financial performance of our business. We wanted to be clear that this is a name change only and not a change and how we calculate this metric.
We are making this name change following discussions between the mortgage REIT industry and the FCC over the past several months.
The purpose of this changes to adapt terminology that is more descriptive of what this metric represents.
Measurement of our results anchored and GAAP and adjusted for certain noncash items that aligns with the company's ability to pay down debt.
While there may be differences from quarter to quarter between our distributable earnings and dividend payments, we anticipate that they will be highly correlated over the long term.
With that let's turn to our fourth quarter results.
<unk> reported a fourth quarter 2020 total company GAAP net loss attributable to common shareholders of $52 5 million or <unk> 41 per share and a distributable loss of $25 7 million or <unk> 20 per share <unk>.
Excluding gains and losses and fair value and other adjustments total company adjusted distributable earnings with $26 1 million or <unk> 20 per share.
During the fourth quarter total company GAAP net book value decreased from $13 from 25 to $12 and 96 per share and unappreciated book value decreased from $14 53 to <unk> 14 per share. This change is primarily due to the fair value adjustments to our project debt.
And one.
As mentioned at the top of the call we are re initiating our quarterly dividend.
To preserve liquidity in light of the volatility and unprecedented market conditions arising from the pandemic and May 2020, we suspended the company's monthly cash dividend.
Today, with our improved financial position and operational performance and business outlook, we declared a dividend and a 10 cents per share for the first quarter of 2021.
This is payable on April 15 to shareholders of record as of March 31.
I would also like to note that based on seal and <unk> taxable income for 2020, and the monthly dividends that were paid prior to the pandemic. The company met the minimum distribution requirements to maintain its status as a REIT for year end 2020.
Turning to our core loan book is.
Continues to be the largest segment with a carrying value of approximately $2 3 billion at year end.
The blended unlevered yield on our loan book is approximately five 8% with an average loan size of $49 million.
Furthermore, the loan portfolio remains diversified in terms of size collateral type and geography with a focus on multifamily and office properties.
During the fourth quarter, we originated five senior loans for initial growth funding of $158 million and subsequent to year end, we originated for loans for approximately $147 million of initial gross funding.
Also within our core portfolio net leased real estate had a carrying value of $775 million and you're right.
This portfolio consists of industrial and office properties with a weighted average lease term of seven six years and.
And net lease assets are core to our investment strategy due to the long term stable cash flows. They provide and addition to the potential for capital appreciation.
With respect to the legacy nonstrategic portfolio, we have made substantial progress over the last year and resolving a subset of our portfolio.
And total GAAP net book value is now and immaterial part of our overall portfolio.
As Andy mentioned this will be our last quarter reporting the LNR segment and this will simplify our reporting going forward.
Moving to our balance sheet, our total at share assets stood at approximately $4 $1 billion as of December 31, 2020.
Our debt to assets ratio was 55% and net debt to equity ratio was one point other times at the end of the fourth quarter. This is down from 56% and one one times at the end of the third quarter.
Since the first quarter of 2020, and we have substantially reduced our recourse debt exposure from $718 million $234 million.
Current liquidity stands at approximately $689 billion between cash on hand of $588 million and availability under our revolving credit facility.
Turning to risk ranking our overall risk ranking at the end of the fourth quarter remained relatively consistent with that of the third quarter.
Our fourth quarter risk ranking is $3 seven compared to three eight at the end of the third quarter.
Finally at the end of the fourth quarter, our seasonal provision was $38 5 million and represents approximately one 6% reserve against all loans.
This is a slight decrease of $1 6 million as compared to the third quarter.
And is primarily driven by and improves the long term macroeconomic outlook, which was partially offset by increased reserves on our hospitality loans.
This concludes our prepared remarks and with that let's open the call for questions operator.
And at this time and we'll be conducting a question and answer session.
We would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question for you.
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One moment, please while we poll for questions.
Our first question is from Stephen laws with Raymond James. Please proceed with your question.
Hi, good afternoon.
Mike you touched on this.
I guess, you and Frank both touched on on prepared comments, but wondering if you can maybe quantify the you know.
Outlook for portfolio growth.
Target senior loans.
You mentioned aggravated more for CLO later this year, so I guess.
Two part question, how how big do you expect the loan portfolio to get it either a leverage target or just assets.
And then kind of how do you see cielo is the mix of total financing of the senior loan portfolio.
Thanks, Hey, how are you okay. Thank you for joining us.
Alright. Thanks for your question I think can you hear me okay.
And Mike Yes.
Okay. Thank you okay.
I think debt.
We are repositioning the portfolio, we want to do more senior mortgage loans.
And we've done and you can see that we've done seven.
$700 million 22 loans and commitments since September so we're at a pretty good run rate. So it's not it's totally doable to do over $1 billion and loans.
Originations this year, and maybe 1 billion and a half.
The question is are we able to get there.
We do want to use the CLO to answer your question directly as a financing model. So we'd like to do a second CLO.
We do think that right now we're getting.
Roughly 11% Roe.
And we can probably increase those ROE if we can get a CLO done.
But how big we grow it depends on a couple of things Stephen one it depends on loan repayments that we havent CLO one.
We want to maximize that vehicle.
As I said on the prepared remarks, there is a.
And October re investment horizon. This year. So we've had some loans pay off and the CLO and we've placed them already some of that was with collateral that we had and the <unk>.
Portfolio, but we may use some new loans.
Replenish loans that pay off and the CLO, we have any more loans.
Pay offs between now and October so that could affect the timing of our second CLO.
The other thing that can affect the CLO is is the need for cash we raised cash for reason to defend the balance sheet as I said, we're not get out of the woods and we're trying to make sure that we understand.
What assets, mainly and potentially delevering on the future and we want to make sure that we have adequate funds on hand can move assets around on the balance sheet.
Should we have to delever those assets. So those are two things that could affect our speech the market in terms of growing the balance sheet.
And doing.
And a second C allows for those are slightly difficult I appreciate.
From your side to tomorrow.
Second the other thing I'd add is we do have some non earning assets.
Our debt, we would like to repatriate those dollars for and it sounds like the L. A and mixed use.
Project and the project and Ireland.
We took the write down on and we would like to repatriate those if possible and monetize those possible at <unk>.
From point, and then reinvest that cash because that's just basically get money right now.
So there are a number of moving parts here I hope that answers your question.
It does and those two assets were kind of next up you know any any color around the timing and when you might be able to reallocate that capital.
Yeah.
So the timing on reallocating cash we have the cash and that's what it's going to be over the next six months us trying to understand what assets if any might need moving around and then just how much cash and will be like on balance sheet versus the portfolio and maybe at the end of the day, so that number could be $100 million and cash on hand, but we might want to look.
And more than that.
Over the near term to make sure we can manage through things with regard to the non earning assets. Some of that is out of our control.
And I don't mean true.
The passive in that regard I want our shareholders to sell we're actively managing those positions, but for instance, the L. A mixed use.
The update on that is that the.
The hotel at the law and mixed use project has been completed.
It has received with T C L.
The developer has basically delivered into the hands of the hotel operator and manager.
I don't know exactly for hotel I don't think the hotels actually open for business today, but I do know that there have been some closings and.
And this is all public information by the way.
[noise] closings on the hotels, some hotel condos and we'll mention that in our 10-K filing for not a substantial number but it's the plumbing is beginning to work I think the biggest thing with regard to the liquidity of that position will be whether.
And whether or not the developer owner operator ourselves for hotel and I do believe that that will be on <unk>.
Marketing process on the hotel that commences shortly I can't tell you what the what the outcome of that will be but if the hotel water cell and the proceeds were used to pay down on the senior debt. It would very much put on our position and I'm on.
For more favorable position.
Monetize but those are things that are out of our control at this point with the project and Ireland.
We had substantial delays on that.
And because of Covid.
As you can imagine.
C E OS and real estate facilities people and not rushing.
New deals and sign big leases. So there has been delay Val regarding.
Winding up and anchor tenant for the project and so time, just hurt deals and we looked at that and we are we ran some various types of outcomes on that to sensitize. It and we came up with a markdown because of the delays, which I think on <unk>.
Essentially driven by.
By Covid. So is it possible that there could be a monetization of that in 2000, and that's a co lending position with our affiliate at colony capital and Thats something that we can discuss with them, but we're very much it's a non earning assets.
Good money on the balance sheet from that regard and we're we're very focused on it but not totally in our control.
Gotcha.
Lastly, can you talk a little bit about the dividend policy and looking forward you know how did you guys arrive at the the 10 set level was above what I was looking for but can you talk about is that going to be revisited annually is that it's it's something you'll grow quarterly as the portfolio ramps up how do you think about the dividend policy now moving forward.
Hi, This is Frank I'll I'll answer you.
So look the dividend was established at a sustainable level with a view towards growing it as we deploy cash and to repatriate and deploy our capital from our performing and non accrual loans and as Mike said, So yes. It will be visited on a on a quarter by quarter basis.
Great I appreciate the color this evening.
Okay. Thank you.
And our next question is from Randy Binner with B Riley. Please proceed with your question.
Hey, good evening thanks.
And.
I yeah.
A lot of good information. Thank you I'm, just trying to kind of summarize it a little bit on the some of the credit adjustments. So the the the gains the realized gains which were relatively small were mostly from.
Exiting <unk> and then.
The the Mark on on the fair value adjustment was primarily due to.
The Dublin project and that's still sitting on 20, some odd million does that is that fair.
Yes, yes.
Okay, and so and then I guess, Mike you had mentioned that the <unk>.
And in the CLO depends on.
On the cash allocation and kind of what else and the portfolio.
Might need to be de Levered. So this I guess.
The category number five that you all lay out and in the slide deck.
Seems to be the kind of leading indicator of where that need would be is that is that what we should look at in conjunction with the 10-K and I'm just I'm just.
And this format trying to kind of think about what might be next before.
Things turned more kind of clearly positive on.
Originated loans and CLO to point out.
Alright so.
If there are loans that are.
And and and the underperforming bucket.
Let's say, we have about $250 million of that if for Docklands piece.
And century and a couple of other couple of other assets I think total of about five we have C. M b assets, not earning of which we can sell some there is the risk retention bonds that we will hold.
So if we can repatriate that cash.
And we could add you can do the math and put a 10 or 11 on that.
<unk>.
A couple of hundred million Bucks and and that that we can put that to work.
The rest of it really is it's just it's loans that are performing today, where.
And where we have to just have a watchful eye I mean, we have as Andy said in his prepared remarks, we have borrowers that are coming out of pocket on some loans I think generally and the industry.
Generally and the industry across every one for portfolio, if you're a hotel loans, where you have heavily transitional assets that require substantial lease up those business plans are behind and those borrowers are scraping together too to make debt service. Some of the loans that have been we've had reserves.
So we we haven't we have an idea of what that universe might be.
And those loans are performing today, but we have to be mindful that we have of the cash that we have you might have that you might have to have a couple of hundred million dollars of that cash ready to move assets around and that's why the money was raised so that we don't have to worry about moving assets off of warehouse facilities or out of the cielo should alone down there.
Road.
Default and we don't know that but we have to we have to have a watchful eye for that so that.
Those are the headwinds as we deploy cash we.
We need to we need to have a head check to make sure we have enough cash on the balance sheet to protect against those so right now that could be that could be a couple of hundred million dollars out of what we have.
And right now we are deploying the cash as you can.
And do the math and we've got and 700 million lungs since starting from a cold start.
In September.
Unemployment all that with the cash we have on hand that we can we can do double that again right.
Depending on how much the CLO, one needs if loans pay off and depending on our need to utilize the cash elsewhere.
But where we're going to do what you would agree with and all times.
We're going to protect the balance sheet.
We as I said and the third quarter earnings call raising this capital came at a price and so we're going to make sure as we deploy it.
Don't have to go back to raise more capital and we want to make sure we have enough to defend the balance sheet.
And that's really helpful and the 200 and a nice way to think of it so.
So the CLO 2.0, there's obviously a lot of variables, but did.
Do you think of it as being bigger and the first one I.
I would say you know I would say we'd want to hit the market sooner.
And by the way when I say that loans pay off and get reinvested.
By October and the first CLO that doesn't mean that we would necessarily wait.
Long to do the second CLO I think the second CLO could be smaller than the first.
We're doing it.
As Andy said 19 out of the 22 loans and multifamily.
Correct, yes on about 80% of the deployment has been and multifamily.
Alright, and Andy I mean, it might be worth giving a few statistics on the loans. We've originated because I do think that it's a much different portfolio, you've got no hotel no retail and configuration might lend itself. The average loan sizes are smaller and you should give us a little synopsis of what we've been originating and and.
The coupons and spreads we've been getting to give you a better feel of what that second CLO can look like.
Eddie.
Great. So since we originated or for.
Recommenced originating in September.
Put to work about $690 million over 22 loans nine is close.
Of that 80% of the loans have been in multifamily and the other three and office. The average loan size has been approximately $31 million. So one other things that we're focused on now is the the dispersion of the loan size, so not getting too much exposure to any one position. So the dispersion is really be.
<unk> and $11 billion and $72 million in terms of the all in rates, we're kind of seeing around 4%.
And that's.
With our <unk>.
Line advance rate and cost of funds generating approximately 11% Roe.
So our view is to move those loans potentially into a CLO and.
Increased debt our ROE so.
So and given the given that's super helpful.
The office suburban or somewhere.
And working I present, yes.
Yes, its non gateway, it's office is very well.
Very targeted deals, where we would like to tenancy, we like the area.
It might be a suburban market.
Office office and a major MSA that we like so it's been very flat, but I think when you when Andy gives you the run down and there you kind of seeing what the average loan size is smaller and so you could do a deal that $750 million and avoid the concentration risks and get the right scoring from the agencies to give you a good a good advance rates and good execution.
On the deal so I don't think we would wait to hit the.
Ground running now.
And if you get to a billion and you get better economies of scale from your issuance cost, but I think we would want to probably try and hit the window earlier, if we cut.
And I think for us.
And I as value I think I think theres some franchise value for the firm to printed and second CLO.
Rather than wait for that incremental couple of hundred million dollars of assets.
Yeah I would agree.
Thank you.
And our next question is from Tim Hayes with BTG. Please proceed with your question.
Hey, good afternoon, guys. Thanks for taking my questions.
My first one just to expand on the pipeline here a little bit.
You mentioned that the ROE you're achieving there is pretty in line with the portfolio average right now, but and you're rotating more senior.
Focusing on more defensive assets and.
Where I had expected and be more competition. So just curious inc.
Yeah, and you mentioned some comments earlier about increased competition.
And just curious if you see a negative impact on asset yields and the back half of the year as you know.
More capital comes back into the market and and things get a little bit more competitive and if you think that should be offset by just what.
And what Youre seeing on the liability side of things.
Sure.
So I'll try and take that and pieces I think what we're seeing generally and our pipeline is about 80% of what were evaluating is really in the multifamily and office sectors. So all the activity is being concentrated in those two sectors for the obvious reasons, we are seeing pricing.
And come in a bit but.
What we're also seeing is our line lenders, bringing their pricing and so we're able to achieve are kind of all in Roe.
And in terms of the back half of the year I think that's going to be largely dependent on.
And then the amount of competitors that enter the market and where that activity is concentrated and so you may see sectors like hospitality retail open back up which may provide for.
A larger playing field and and less concentration within those two asset classes.
Okay.
Yeah, that's helpful and hope.
And I've also been focused on we've also been focused on path of growth I mean, we really have been looking at areas like Arizona, Texas some areas of Georgia.
On the Carolinas, where we were.
At States, where we feel as we you know we're doing loans would probably call it 75% loan to value.
A little less and some cases, they're mostly acquisition loans, so there's hard equity behind us.
But we're looking at.
And as et cetera, and there also in terms of the actual commitment versus future funding.
Much more narrow probably more like a.
Seven 8% GAAP, where it's really more value add as opposed to transitional.
Now at some point and we got it for the market early which is great and we got a great a great a great start and we will get more competitive there may be opportunities down the road quite frankly, where we won't do a hotel loan that is and acquisition loan and we can we can we can find the right. The right one and there may be some retail assets and a grocery anchor that we like.
Right now we haven't had the need to do that but.
But as the markets reopen and theres more certainty about pricing.
Economy Reopens, we will have more confidence and how we can evaluate those assets, but right now we've been finding the low hanging fruit and we've been going for it.
Yeah that makes sense and you mentioned in your state. Your average loan size has come down I mean has that been a function of the pricing youre seeing at that and of the market versus the higher end and the market or again, just trying to look for some color as to you know.
And how your your pipeline is holding up from a yield perspective.
And I think as Andy said earlier, we're really we're trying to you know here's what we're not doing.
Well, we're not doing is we're not doing nine figure loans.
We're not doing Mezz right now.
We're not doing.
Ground up construction and we're not doing pre development.
And we are trying to do average loan sizes, where when we talk about.
Earlier about how we need to have cash to defend the balance sheet. We have some larger loans and you can see that and are and all filings and so right now, but we're also trying to do is as I mentioned, we're trying to.
This is the market. These other conditions, mostly multifamily is getting done.
And that's what's out there that's what's being sold right now.
And we also want to rebalance the portfolio and so we're.
If you roll. This forward six months from now Youre going to see heavily skewed towards more senior first mortgages, a lot more multifamily and you're going to see the average loan size coming down dramatically and the reason for that is we want loans that we can defend we want loans that if something goes awry and credit things go awry and when you're a holder of credit.
Things will happen and we want to make sure that we're doing loan sizes that no one loan will really affect us and that we can manage our asset liabilities better by having smaller average balances and so that's now there are some maybe some better price points, there and so be it but no matter what that's the area of the market we prefer.
To begin.
Mhm yeah.
Helpful. Thanks, Mike appreciate it.
And then can you just confirm or maybe.
I know you mentioned, the Dublin loan, but were there any other loan impairment for meaningful increases and specific provisions outside on any loans outside of that asset.
The strength and otherwise.
Okay. Thanks, Frank.
And my last question here to the extent you can disclose this information can you just.
Maybe give the net equity that you have and those five rated loans.
And learn and then I'm and if you can.
And confirm I, just don't remember off the top of my head if that on.
And that's L. A loan if on.
And if theres any leverage on them and I know, it's and Mezz loan, but if you could just confirm the net equity.
There's no leverage on the on.
On the.
And it's all leveraged on the L. A fixed loan and there is no direct leverage on.
On these.
These loans however.
However.
And if you go through that the filing that we make that the 10-K I said, we're breaking out some additional information we.
We didn't do a preferred financing.
And I think and our second quarter and some of these these assets for part of that vehicle.
And you will see them you'll.
And you'll see that outlined in.
And the filing so we not only can we provide some more information on some loans and on some on some real estate owned and we also provided some more information on that vehicle and so that while it's not like a warehouse facility or CLO type of pledge and if there is and equity like pledge.
And <unk>.
And of those assets that we'd have that debt.
And you can see and and and the 10-K filing that would be a direct answer to your question.
Okay Yeah.
And I'll have to look for that and the filing and thanks for pointing to that and then would you be able to disclose the specific reserve you have against those loans.
And in terms of seasonal.
Yes.
And though we don't well, we don't disclose particulars on the sheet remember the seasonal reserve is kind of a portfolio look.
Well and so we don't necessarily have particular reserves against them.
But but you know kind.
And you have to get back to the point I mean, you know we.
On the two largest loans.
And that and that non earning bucket.
We mark century back substantially on L. A mixed use I should say back substantially.
And last quarter or two and then and then and then we have the project off when we did this quarter. So you're seeing those already have their their asset asset level write downs have occurred.
And on those.
Right right, Okay, well again, thanks for taking my questions.
Thank you for joining us.
And as a reminder, if anyone has any questions you May press star one on your telephone keypad doing so and I'm sure that you joined the question in queue and on.
Next question is from Steve Delaney with JMP Securities. Please proceed with your question.
Thanks, Hey, Mike Congrats to you and Andy and Frank on all the progress over the last six months, it's nice to listen to the.
The update this evening thank you.
And you touched on this.
Had not thought about the preferred financing and the second quarter.
But I wanted to talk to you about your balance sheeting and corporate debt unsecured debt.
The preferred financing does that work a little bit like a term loan b, where you've just got it.
And you've just kind of got a wrapper around everything that doesn't have a first lien.
Or is that preferred claim is that just the sign to certain assets that you have.
It's the latter it's it's good good it is not a term loan b and specifically assigned to five assets and that will be and when we get Stephen and by the way. Thank you for joining us for sure and great to hear you.
And that that I would say and and this 10-K filing.
I would not to avoid the question here on you you'll be able to go to the filing and have a precise answer.
To your question and the filing this quarter.
Great Great and bad debt.
But it's not a it is not a term lumpy type of its five five discrete assets pledged and like.
Vehicle perfect. So this this gets me to.
Congratulated you on the six months past it sounds like you and.
You've got good half a year to still kind of get where you really want to be it's great that you're lending, but you look at the second half for this year and.
For further normalization and so.
Assuming the progress and the economy and it just seems to me and I look at your balance sheet.
Now that youre going to have one segment.
It's easy for debt analyst.
Equity kind of looks like for everybody to monitor the company and get a comfortable with financial ratios trends etcetera and it just seems to me you know.
You don't have any preferred equity.
And most commercial mortgage Reits don't because the coupons coupons are just too high for its retail, but the thing I'm really thinking about is corporate debt unsecured senior notes 357 years and at the longer and is moving higher but shoot for three to four year range hasn't moved much.
And who knows where rates are but just thinking ahead in terms of how you grow your balance sheet do you consider the use of <unk>.
A little bit.
A modest amount of corporate debt on top of your your you know almost 2 billion equity base.
And how that might work in and and allow you to just kind of give you another little boost to put on the new good assets you want to put on thank you. That's my only question.
Great question and the answer to the question is yes.
That.
Doing a term loan b like some of our peers have.
And then some of our peers are substantially unsecured.
And then and our liability structure, there's a lot of flexibility and that and so that when you go through periods of time like this.
I think I think you need to look at well what was your true cost of capital, while we raised capital and a crisis right and that was not cheap. So when you look backward and look if you look at the cost of capital and saying Oh Gee, how do you add more unsecured debt or term long day.
That might have been less expensive and and looking forward when I talked to you about having cash on the balance sheet well that cash on the balance sheet comes out and opportunity cost. So we have to factor that cash and and say could we have less cash if we have more unencumbered assets, where we can move things around and have more flexibility with our balance sheet.
So I do think that having only secured debt is is assets costs and operation versus a term loan which might be more expensive and coupon on face and might look dilutive to discrete assets youre, putting on but I think overall and your corporate structure I think that.
It is something that has to be looked at and so I do think that.
As we progress later in the year and towards the back end of the year that may be something that as we get everything else settled that may be something that we take a much closer look at I agree with you.
Great well listen all the all the best for 'twenty and 'twenty, one and thank you for those comments.
For the question.
And we have reached the end of our question and answer session and I'll now turn the call over to management for closing remarks.
Hello, everyone and thank everyone for joining the call I would encourage everyone to look at our 10-K filing for the additional information that we've provided there we think it is very.
Very worthwhile and we look forward for you joining us again in early April for our first quarter 2021 earnings call. Thank you very much bye.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
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Yes.