Q1 2021 Colony Credit Real Estate Inc Earnings Call
[music].
Greetings and welcome to the colony credit real estate incorporated first quarter 2021 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded and it is now my pleasure to introduce your host David Palo My General Counsel. Thank you David you may begin.
Good afternoon, and welcome to colony credit Real estate, Inc. First quarter and full year 2021 earnings conference call. We will refer to colony credit Real estate, Inc. As see LNG colony credit real estate colony credit for the company throughout this call.
On the call today are the company's President and Chief Executive Officer, Mike Mazzie.
<unk> operating officer, Andy Witt, and Chief Financial Officer, Frank <unk>.
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 potential risks and uncertainties could cause the company's business and financial results to differ materially including.
And the potential adverse effect of 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 may five 2021, unless otherwise indicated and the company does not intend and undertakes no duty to update for future events or circumstances.
In addition, certain financial information presented on this call represents non-GAAP financial measures 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 and such.
Non-GAAP financial measures are useful to investors.
And now I'd like to turn the call over to Mike <unk>, President and Chief Executive Officer of colony credit real estate Mike.
Thank you David.
Welcome to our first quarter earnings call on.
And behalf of the CRC team I would like to start by wishing everyone well and I. Thank you for joining us today.
And we're off to a very productive start in 2021, and we are incredibly excited about embarking on a new chapter for colony credit real estate.
On April five we announced that <unk> had entered into an agreement with our external manager colony capital to terminate the management agreement and internalize the company's management and operating functions.
This transaction was successfully completed on April 30th.
<unk> team is appreciative of the support and recognition. It has received from colony capital who continues as our largest shareholder.
And taking this step colony capital has unlocked value for <unk> shareholders by allowing this management team to chart is on course and this next stage.
We also think our CLC board members, who have invested tremendous time and focus as we worked through this process.
Additionally, we are also very proud to announce today independent director Katy Rice has assumed the position as the chairperson of our board of directors, we look forward to MS. Rice's continued guidance and leadership.
The internalization provides plc shareholders tremendous value enhancement.
Self managed structure will considerably reduce the <unk> expenses will be significantly accretive to earnings in 2021.
This use of capital will provide a permanent return on equity and the mid teens to succeed the equity returns we target on loan investments by at least several hundred basis points.
Furthermore, this transaction provides <unk> with important governance benefits as well as increased certainty and control over the company as future strategic direction.
Phil and C is now positioned as one of the few internally managed public commercial mortgage Reits.
We feel strongly that being internally managed is simply a better structure for public shareholders.
And we internalized structure results in a more transparent organizational model.
Provides a dedicated employee base that will focus exclusively on steel on sea and be fully aligned with the company and its shareholders on.
Our CFO, Frank servicing and I will provide additional details regarding the internalization and his remarks.
During this last quarter, we have continued to steadily redeploy capital into floating rate first mortgage loans since commencing with new transactions and the fourth quarter of 2020, we have closed or committed on 31 loans for approximately $1 billion.
As we emerge from the pandemic the commercial real estate lending and markets have begun to stabilize and while lending has become a bit more competitive we are concurrently seeing pricing improvements on the liability on the financing side of the balance sheet, resulting in lower cost of funds.
Also given the improvements we're seeing from the reopening of the U S economy, we are expanding our lending focus beyond multifamily and suburban office.
Turning now to some key financial headlines for the first quarter, we had adjusted distributable earnings of 14 cents a share.
Our current liquidity as of May 3rd is $443 million.
As we continue to work very closely with our borrowers who have been most impacted by COVID-19, we maintain what we believe to be sufficient liquidity to navigate through the lingering effects of the pandemic.
With respect to our dividend our board of directors has approved an increase and our second quarter dividend from 10 to 14 cents a share.
This is the product of the cost savings achieved from the internalization as well as the continued successful execution of our business plan and will result in growth and earnings.
We will continue to closely review our dividend policy as earnings increase.
The <unk> team continues to make progress executing on our stated business plan.
Now I would like to provide a recap of where we are and where we're planning to go and 2021.
And the management internalization is complete and we will now begin to transition operational functions to seal on site.
Since returning to active lending and the fourth quarter, we have sourced approximately $1 billion of new loans and as such we have recently initiated the process for the issuance of our second CLO.
Most importantly, as we've continued to deploy existing cash and grow earnings we have thus reinstated and have now increased our dividend.
For the remainder of 2021, we will look to put the pandemic further behind us and work to resolve any remaining underperforming on non earning assets.
This last step will also allow us to repatriate capital into the deployment for new loans. Our success around these 2021 initiatives will lead to further earnings growth and the expansion of our dividend.
We believe these steps will lead to closing the gap between our current market share price and book value.
And closing.
I would again like to thank my CLC partners for their many achievements over this past year I also again, thank colony capital and our seal on three board members for their commitment and support as evidenced by this transformative event.
I would like to now turn the call over to our Chief operating officer, Andy with.
Andi think.
And Mike and good afternoon, everyone. The company remains focused on managing your balance sheet and continuing to build earnings and simplifying the business over the course of 2020 and through today.
See as meaningfully simplified the business.
The first quarter results are consolidated as we are no longer reported in the legacy and non strategic assets as a separate segment.
This portion of our portfolio is now insignificant relative to the overall portfolio.
As such we have eliminated the segment from a reporting and realigned the reporting segments to reflect how we view and manage the business. The business is now presented as one portfolio comprised of the following segments, one senior and mezzanine loans and preferred equity two net lease real estate and <unk>.
Other real estate.
Three.
Sorry debt securities and for corporate.
As of March 31, 2021, excluding cash and net assets on the balance sheet senior and mezzanine loans and preferred equity is comprised of 60 for investments and in aggregate add share net book value of approximately 1 billion for 81 per cent of the portfolio.
This is the segment of the portfolio, we anticipate allocating the majority of our capital towards as we continue to build company earnings.
Net leased real estate and other real estate is comprised of 12 and investments and in aggregate and share net book value of approximately $162 million for 13% of the portfolio.
The net lease assets remain core to our investment strategy due to the long term stable cash flows. They provide in addition to the potential for capital appreciation.
Cash flows generated from this segment of our portfolio are often associated with mission critical infrastructure leased to credit tenants.
CRE debt Securities segment, which includes one remaining private equity interest is comprised of 10 positions and in aggregate at share net book value of 79 million for 6% of the portfolio subsequent to quarter and the company sold force the MBS positions related to <unk>.
Bp's transaction for a total of $29 million, resulting and a gain of approximately $9 million further reducing the company's exposure to this segment.
Anticipate little activity and this part of our portfolio as the majority of the remaining value in this reporting segment is associated with bonds.
To risk retention provisions.
Although the company holds real estate credit investments across a number of investment strategies. Our primary strategy remains originating first mortgages and us.
Evidenced by recent investment activity.
During the first quarter and through today. The team has originated 18, new senior loans with an aggregate commitment of $554 million.
All of these investments are first mortgages the majority of which are acquisition financing consistent with our stated strategy of Reorienting the portfolio toward current and predictable cash flows.
The blended unlevered yield on our loan book is approximately five 3% with an average loan size of 43 million and importantly, the loan portfolio remains diversified in terms of size and collateral type.
And geography, with a focus on multifamily and office properties.
It is important to note the portfolio contains certain non accrual assets, which are not contributing to earnings.
We anticipate restructuring of repatriating capital associated with fiber investments comprised of seven loans on non accrual status, which accounts for and at share carrying value of approximately $296 million.
This amount of $165 million is associated with the San Jose, California hotels, senior loans and preferred equity investments that was placed on non accrual during the first quarter.
During the first quarter borrower close the hotel and.
And filed chapter 11 bankruptcy, we have entered into a restructuring support agreement with the borrower.
Additional details will be included in the assets specific summary section of the company's form 10-Q filing resolving these positions will allow the company to redeploy this capital into investments contributing to earnings.
On the liability side of the balance sheet, we amended our bank credit facility to permit the internalization and as part of the amendment.
Reduce the tangible net worth covenant and increased our ability to make restricted payments such as dividends and stock buybacks.
Remove material restrictions on new investments increased the maximum amount available for borrowing for 100% of the borrowing base value and reduced.
And we get amount of lender commitments from 450 million to $300 million.
In addition, the company amended six master repurchase facilities to permit the internalization and reduce the tangible net worth covenants.
Along with extending the maturity date on for.
For master repurchase facilities.
Lastly, our $1 billion managed CLO executed in October 2019 continues to perform and benefit from LIBOR floors at the underlying low level. We continue to monitor the performance of the CLO, which includes managing ordinary course loan pay offs, while some of our newly originated loans.
And we'll replace prepayments and our existing CLO, we are planning to issue, our second CLO and the relatively near term assuming suitable market conditions.
In summary, the company continues to focus on the existing portfolio, while building and executing on our pipeline of new origination opportunities for the remainder of the year, we anticipate deploying cash on the balance sheet, and repatriating and redeploying capital associated with non accrual assets and.
<unk> to drive earnings growth to support increasing dividend payments to shareholders with that I will turn the call over to our Chief Financial Officer, Frank Sparacino to elaborate on the first quarter results.
Thank you Andy and good afternoon, everyone.
Before discussing our first quarter results I wanted to mention that we expect to file our 10-Q tomorrow.
In addition, I would like to draw your attention to our supplemental financial report, which is available on our website.
The supplement continues to provide asset by asset details as does our form 10-Q.
With that let's turn to our first quarter results.
<unk> reported a first quarter 2021 total company GAAP net loss attributable to common shareholders of $92 3 million or <unk> 71 per share and distributable earnings of $13 8 million or <unk> 10 per share.
Excluding realized gains and losses and fair value and other adjustments total company adjusted distributable earnings were $18 million or <unk> 14 per share.
The GAAP net loss attributable to common shareholders of $92 3 million reflects our recording.
$109 2 million and restructuring charges and.
And the restructuring charges include a onetime cash payment of $102 3 million to terminate the management contract as well as transaction expenses.
During the first quarter total GAAP net book value decreased from $12 96 to $11 98 per share and unappreciated book value decreased from $14 and 14.
$212 80 per cent per share.
This change is primarily due to the upfront cash investment made to terminate the contract with our external manager.
As expected first quarter 2021 adjustable distributable earnings came in lower than our for Q2 thousand 20 results of $26 1 million or <unk> 20 per share.
The difference is primarily a result of our first quarter sales of our net lease industrial portfolio fourth quarter resolution of legacy non strategic assets, the timing or ramp of new loan originations and the placing on non accrual at the San Jose, California Hotel investment that Andy mentioned earlier.
Looking ahead, we expect earnings growth from these levels as we recognize a full quarter of income from first quarter loan originations of $475 million deploy idle cash and realize the cost benefits of the internalization.
It brings me to my next point.
As Mike mentioned at the top of the call, perhaps our most significant achievement for <unk>. So far this year is the completion of the transaction with our external manager to internalize the company's management and key operating functions.
We believe this internalization will provide meaningful benefits and significantly enhance shareholder value and number of ways for us.
And the transition to a self managed structure is expected to be considerably accretive to earnings and reduce the company's general and administrative expenses.
Excluding a one time termination charges payable to the manager totaling $102 $3 million, we anticipate generating operating cost savings of approximately $14 million to $16 million per year or approximately <unk> 12 per share.
In addition to providing management continuity from <unk> existing leadership team and internalized structure also offers a more transparent organizational model as well as a dedicated employee base, which will focus exclusively on <unk>.
All that said, we believe that the economics of this transaction along with the certainty and focus it creates for our newly dedicated team will lead to greater shareholder value.
Another important highlight is on the dividend from <unk>.
And to be initiating the dividend last quarter I am pleased that our board of directors has authorized a substantial increase for the second quarter.
And given our improved financial position operating performance business outlook and cost savings from the internalization, we declared a dividend of <unk> 14 per share for the second quarter of 2021.
This represents an increase of 40% from last quarter's 10 per share.
And second quarter dividend is payable on July 15th to shareholders of record as of June 30.
The expanding dividend provides further evidence of the board's confidence and our ability to generate distributable earnings growth as we emerge from the pandemic and economic conditions continue to improve as Mike mentioned, we will continue to evaluate our dividend quarterly.
Moving to our balance sheet, our total at share assets stood at approximately $4 1 billion as of March 31, 2021 hour.
Our debt to assets ratio was 55% and net debt to equity ratio was one one times and at the end of the first quarter. This is relatively unchanged compared to the fourth quarter.
In addition, our liquidity stands at approximately $443 million between cash on hand, and availability under our bank credit facility.
Turning to risk rankings, our overall risk ranking at the end of the first quarter improved slightly compared to the fourth quarter or first quarter risk ranking and at three six as compared to three seven at the end of the prior quarter.
Finally at the end of the first quarter, our seasonal provision was $41 7 million and represents approximately one 5% and reserved against our loans.
And this is a slight increase of approximately $3 2 million as compared to the prior quarter. The difference is primarily driven by new originations.
This concludes our prepared remarks and with that let's open the call up for questions operator.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate that your line is and the question queue. You May Press Star two if you would like to remove your question on from the queue for.
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One moment, please while we poll for questions.
Thank you. Our first question comes from Matthew Howlett with B Riley. Please proceed with your questions.
Okay and thanks, everyone. Thanks for taking my question and congratulations Mike could you spend on just a few more minutes now that you're sort of taking this company back youre going to run the company and you take the <unk>.
Taken it back you've talked about unlocking value.
Ours is the employees and talk a little bit about the vision your vision for the company going forward a little bit more on how you're going to create shareholder value just a little bit more to take just a few minutes is talk about what the long term plan is.
Thank you, Matt and welcome welcome to our coverage universe look forward to working with you.
So.
So the vision the vision could be a long winded answer let me let me let me start.
And by kind of giving you a summary of where we are right now.
So where we are is in terms of earnings.
And unlike the trough.
Part of it.
Yes.
Of the earnings point, and our and our growth.
While we are trough, where trough because we are peak liquidity, we've had more cash than we've ever had and we're working it down.
We're starting to originate loans, we've originated $1 billion and so that is going to pull us out of the trough as well. The internalization is John Frank mentioned, the economics of that.
In terms of adding to.
<unk> earnings and then we mentioned that we are starting our process.
For what will be our second CLO, probably some time and the early.
Early.
Third quarter.
And we've now identified assets and I spoke about this on my remarks is underperforming assets or non earning assets that we are going to be focusing on largely due to COVID-19 COVID-19 impacted assets. So that's where we are in terms of right now and why we feel like we're on the trough of earnings and coming out.
In terms of the vision I hate to disappoint, you and kind of simple.
On.
We just we want to transition this balance sheet and.
And this company to becoming a peer.
And what we consider the best in class commercial mortgage rates and offset.
Now I'm not going to tell you I think the best in class. So I don't want to insult anybody by leaving them out, but we wanted to evolve this balance sheet and to more of a pure play commercial mortgage balance sheet with predictable earnings.
And predictable credit going forward.
This management team has signed on for trying to accomplish in 2021 fully and this is an eight month goal.
How are we doing as we're going on.
Things involved we have to obviously grow earnings we have to improve on our way and this is really also largely intel's rotation of the asset base and continuing to rotate.
Asset basis, we've been doing mostly and.
First mortgage bridge loans.
So now how that's kind of what.
We want to be best and among the best in class pure play commercial mortgage Reits.
And the how we get there and we alluded to some of this and the prepared remarks, we continue to deploy cash and to first mortgages and now selective balance and expand the property types that we're looking at we've done a $1 billion so far.
And we continue to evolve the company's balance sheet and to a pure play commercial mortgage I think 90% of what we've done out of the 30 plus loans has been multifamily acquisition loans average loan size around thirtyish million.
We match and again, we want to execute on our second and CLO.
We knew and French and non recourse financing that will probably also boost earnings a few cents, we look to tee that up now for the.
And as I said mid summer and hopefully get another one and done.
Maybe late Q4 for a very very early and.
And Q1.
And then the balance of that is really what I would call really the game changer for <unk> and 2021 and the game changer is turning the current non earning assets.
Around and we can do that and a couple of ways, one we could simply get.
Assets off the bench and on the fuel and producing revenue again and.
And financed again and Fairmont San Jose is a great example of that and asset with the borrowers and bankruptcy the loans on non accrual were pulling it off of its financings and.
So if we could turn on that asset actually earning asset again and get it financed that means a lot.
And we're looking to do that and we're working closely with that borrower.
And another way is just simply repatriating capital on on a non earning assets by monetizing them in some way and then we investing those the monetization of those assets into new loans for example that would be.
For instance century structured plaza.
Sure.
We're on the process of trying to sell the hotel and century Plaza right now and.
Condo towers are being completed and if Thats hotel and successfully solved it will pay down the debt substantially.
Substantially and then we've made a lot.
Value for us and the ability to monetize.
So this this last step of.
Dealing with the non earning assets it really counts as a full game, one youre turning assets into earning assets quarter, returning cash and carry and through new assets.
And also what it does is on the on the cash balance side is it gives you more visibility into the cash that you need or I should say that you don't need to defend these assets and a longer and then once you are able to one just to understand what cash you no longer need to sit on you've done on locked out cash and you're investing and.
And so we're no longer sitting on on too much idle cash and it gives us the confidence to get down to more of an operating level of cash and so I'll close with what what's the map the basic math around that.
Want to operate the company and say with two <unk> CLO is outstanding.
A couple of several billion dollars.
<unk>.
Call It a buck and a quarter of cash of $125 million of cash plus our undrawn revolver.
Right now, we're sitting on about $330 million and cash and.
And so if you get that down and where you've got $200 million cash to spend as soon as you know that we're spending part of it now and we'll spend the rest of it when we know that we've got these assets protected and then you've got something like century Plaza, which is 97 million and market value and let's say you could entitle that because scripting cap and that the asset.
And over the course of the summer.
And then you've got Fairmont, San Jose, which in and of itself is a $180 million thats going on encumbered.
And if you can get that earning again and then maybe financing at 50, 50% advance rate and produce another 90 million Bucks and liquidity and Youre looking at 200, plus 100, plus 90, and Youre looking at close to 400 million Bucks and liquidity.
And you put it put a turn and a half on that.
And it's on a 11, it's like $35 40.
And so to summarize and I.
I'm, sorry for being long winded, we want a transition and the balance sheet, we're doing that.
And to a pure play we want to be best in class among what we think.
And our peer our peer set.
This is the roadmap how to get there we're doing most of it now we just need to we we turn these non earning assets.
And monetize them, we'll get them, earning again.
And and unlock for the last portion.
And <unk>.
And of our earnings.
I really appreciate it and you're making great progress and I don't want to get and get you to head of yourself for that.
But the way the company structure today is going to be highly.
Our highly efficient shareholders on the management company they own the origination platform.
You mentioned some mid teens returns, but is there any reason not to think that this company when it is fully ramped and and <unk>.
And you've turned the portfolio and will not have one of the top highest ROE in the sector.
Well, we're shooting we're shooting to be and our peer group with <unk> with <unk> way, we're sitting on a lot of assets right now, including cash which are earning nothing.
And you look at the rest of our assets, our ROE falls for them.
Within the peer group, we think the internalization and.
Is important for shareholders.
Not only does it add to earnings but it improves the governance and streamlines. The governance makes the company more transparent we're getting mid mid teens return on that and yes. Our goal is to absolutely close the gap between market value and book value.
And we think this.
These next quarters from 2021, we've got for a lot with COVID-19 and.
In terms of raising capital to defend the balance sheet and working on some of the difficult assets that we had.
But now we're seeing a path toward higher earnings getting the dividend up and closing that gap.
Between market value and book value.
I really appreciate you all and Deb I really appreciate it look forward to cover and the story. Thank you. Thank you for asking the question.
Thank you. Our next question comes from Tim Hayes with BTG. Please proceed with your question.
Hey, good evening, guys hope you're doing well.
My first question focuses around the dividend and I know, it's a board decision and Mike.
Just wanted to get a better feel for the decision to increase it to <unk> 10 for this quarter and how to think about it and the next couple of quarters here. So I know that you guys reported adjusted distributable earnings of <unk> 14 per share.
Is the move.
Is that the best first of all as interest benchmark for for the dividend going forward is that adjusted distributable number and then second of all is it.
And then move to the dividend I know you said you expect this quarter to be kind of trough earnings but.
And as the board expecting adjusted distributable earnings to be covering this 14th and dividend on a quarterly basis going forward or is there some growing into that.
And that you expect to kind of.
It happened over the coming quarters.
Thank you.
Hello Channel.
Theres no growing into it that when you look at on a cash basis.
We were able to pay that out of cash.
And then again as I.
As the earmark before with the originations that are closing and coming online.
And as we continue to deploy cash.
And with this this.
And that will also increase earnings.
And then over the next coming quarters, not only deploying cash balances that we have already.
<unk> two out of that 330, but really as I laid out earlier the math is.
We cover the 14th.
And we're looking to we're looking to get these earnings up with this extra call it $340 million of capital.
Which could provide.
$35 40 and cash.
The math is pretty basic we feel like we're in a trough quarter.
But we think things are pointing up we've got the CLO.
That we'd like to do hopefully that enhances the Roe.
On on the assets that we have in place.
In place now and <unk>.
Cannibalization will get fully vetted and absorbed over the coming quarters.
Have some upfront.
Accruals that we haven't taken this quarter as well.
For for compensation for that.
And to make that adjustment and so I think this is as I said I think this is a trough quarter discovered out of cash and on kind of gave you. The roadmap for how we think we get it up it's just a matter of executing on on on the cash and.
And namely on those non earning assets.
Right, Okay that makes sense.
So, yes, I guess.
And just based on the trend we saw in the past couple of quarters is it fair to expect that you will gradually increase the dividend as you know some of that capital is deployed over time versus you know like.
Waiting and seeing kind of where stabilized earnings shakes out as you make more progress with that initiative and then kind of resetting the dividend it's kind of dumb questions. We just saw you do this but I just wanted to hear from you guys and make sure I'm thinking about it correctly.
To be clear nobody wants to go backwards and so thats out on tension. So I think the steps that we took we feel confident that we're not going to go backwards and I do think as I've said on our job is to grow earnings. This is the path should grow earnings and as we grow earnings we're going to increase that dividend.
And we will be cautious in terms of.
And making sure that we don't overstep, we don't want to do that.
But I do think debt.
Plan will be.
I can't say it'll be dollar for dollar a penny for Penny.
But it will be on that same path. So I do think this is a trough in earnings and I do think my expectation is we will see.
Dividend growth and the future, but again when we assess that with the board we want to make certain that we're not going backwards.
And.
Yes, certainly can appreciate that thanks, Mike and then.
Just based on.
Question on and comment you made earlier about the and the pipeline and.
The past couple of quarters <unk> been focusing on.
And first mortgage loans and largely the multifamily space and you mentioned kind of suburban office as well, but.
It sounds like you're expanding outside of that expanding at scope a little bit. So can you talk about and.
And what sense, you're expanding the scope and the asset type is it structure are you willing to do a little bit more mezz and you were a quarter or two ago is it level of transition are you willing to do some construction lending that kind of stuff. So any color on on kind of this enhanced pipeline would be helpful.
Well I think that.
We wanted to do substantially first mortgages construction loans can be first but we also want to execute as I said and another CLO even after the what we do on the summer. So I think the assets will substantially looked like that for.
And secondly, we will expand in terms of other property types.
Spanning from even hotel other office markets, we've been sticking to suburban office markets and what we thought our high growth areas of the country.
And we will continue to do that and yes, there will be there will be a portion of the balance sheet.
And where we use coal and 100 150 million bucks of of capital.
And to do Mezz transactions and those can be met as transactions, what we do the senior and we lay off the senior but it will be a senior debt we can definitely defend.
In terms of price and so we might we may do mezz loans between 10, and 25 billion box, we've done some as behind multifamily construction and before that is working out very well.
There are some other matters that we have done for instance century Plaza, which was just too big.
In terms of scope and size and we are where we are with that so yes. We are going to focus on some mezz and we are going to expand on property tax is it possible. We do construction I would say very very very selectively there are some developers that we've worked with in the past that are very good and and.
And if one of them came to US again today that would be something we definitely would consider given the track record we've had with a handful of those.
<unk>, we've worked with in the past.
Okay.
Got it.
And then just one more for me and you mentioned kind of your funding costs coming down a bit and I.
And you, obviously mentioned and CRE CLO like I don't know if that was.
And the basis for the comment was or if it was more around kind of what youre seeing from your repo providers. If you could just provide a little bit more color around that comment and if you are seeing repo costs come down and.
And if there's been any movement on advance rates as well.
Yes, so the banks have been coming lock step with the market and haven't been getting very aggressive.
Do you have to look beyond that if you're executing on a CLO youre on.
And on that Bank line for 30 days 90 days and.
On your on the CLO for a few years. So we are looking through to the CLO debt market has been stable and it really is a market that is focus on collateral and issuer and and certain issuers with certain collateral pools, we'll definitely do better.
And so we are targeting.
That probably.
And some time and.
And July and so hopefully there will be.
<unk> <unk> of upside per share and <unk>.
And that execution, but market conditions.
And between now and that can change, but the banks have been absolutely tightening.
Both have advantage and.
We have been increasing advance rates slightly and they are becoming thanks, so much preferred I'll drop the rate and increase the advance rate and increasingly advance rate modestly, but they've been dropping.
Interest rates on warehouse facilities much further.
That's helpful color, Thanks, Mike and I'll hop back into queue.
As a reminder.
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Thank you. Our next question comes from Steve Delaney with JMP Securities. Please proceed with your question.
Yes, Hello, Mike and congrats to you and the team on the internalization and that's that's a huge step.
Glad to have you and that position so.
A lot of subsequent covered I just had a question about the CLO.
And quite clear, whether you had one or two existing CLO is it too.
Yes, that's my fault.
And because by and my remarks, and referring to our second we have one outstanding debt was done in 2019 for $1 billion and AGA.
We are second one we are keen on.
And that offset with team that up right now with the process with the rating agencies and the banks and that could be call. It a July deal and of July deal and then hopefully we'll look at another one at the end of the year given the trend rate that we're on.
And one that's teed up for July is pretty is pretty substantially locked and loaded great great and then one.
Oh, let's call it the old CLO is there any replenishment and that or is that done is that static now.
That's not static, yes, and if you wanted to and maybe Andy can cover some of that for us.
Yeah.
Yes.
We have the ability to replace collateral and CLO one through October of 2019, So we are replacing collateral.
As loans pay off.
And we're a good show and tell them.
Okay, Thanks, and on the new one I've seen a couple of years deals recently aggregation as the deal right I mean, you've got to work with the banks you've got to get to the size.
Execution, you want whether Thats 801 billion whatever I've seen a couple of ramp up periods. I know you probably have to pay for that because the collateral and specified.
But is that something that might work for you. Since you are sort of in this period of free.
Starting your lending activities.
I think that we would.
We're looking to go on more of a specified pool and I think that that.
And there might be some ramp up but I think we will keep that.
And we'll keep that limited because we really want to get the best execution, we can.
So we are taking us a little bit of market risk and youre aggregating more but I would rather have a smaller ramp up and and better execution.
Super Alright, I appreciate the color and.
Look forward to talking soon and thank you packaging.
Thank you. Our next question comes from Tim Hayes with BTG. Please proceed with your question.
And just another quick follow up here.
Just on the <unk> Securities that were sold in the second quarter was there a material gain or losses associated with that transaction.
Okay.
Frank do you want to pick up.
Yes, I can take that yeah. There was a gain and there was a gain on one and a slight loss on the other but I would not qualify either one is material.
Okay.
Got it and.
I know that you mentioned might just.
<unk> highlighted some specific assets, where it kind of makes sense.
Prune the core portfolio further, but just from from a high level you do have a few kind of troubled assets that you've highlighted and we've talked about over the past few quarters and I'm curious, if maybe and you mentioned and century city.
Are there any others that you'd point to add.
These are liquidation candidates vs.
Do you want to try and work this out and we're and this one for the long haul and agent broadly how much more pruning of the core portfolio do you think there is left.
Well I.
And im not going to say that we're looking to liquidate and assets.
Let me just identify what what we have and what Youll see and on reporting as the assets set on that.
Mainly the non earning assets and Thats the top line.
Dublin.
Relative deal.
Mentoring Plaza.
The Fairmont San Jose Fairmont, San Jose is just an asset for needs to come out of bankruptcy and maybe not be anything we do that and we may actually just continue to hold that assets, but we need to get back to earnings. So that's an example of something that.
And we're focused on it but we're just trying and converted into earnings and we're not trying to necessarily and liquidate that assets. Those are those are the three biggest.
Two two.
And to keep an eye on.
Right.
And then maybe the low long Island City office asset and the Berkeley Hotel might've been the other ones that we've talked on the past or any of those.
Yes, I guess Fairmont, San Jose and the only one where there's maybe some more.
And then the court and the court right now so there might be some more on kind of.
Deadlines or some timelines rather around clarity for that asset or do you expect any near term resolution to any of the and since I just kind of mentioned.
Well.
On the on the century city century Plaza deal as I said on my remarks.
Borrower.
Right now as that hotel on the market I can't speak for where they are and that I don't want to speculate but I do know the hotels on the market.
And there have been some condos that are closed.
And the hotel condo portion of it and a pay down the loan modestly 20 million Bucks and.
And <unk>.
There are outstanding commitments on the tower condos, but that the towers are going to get completed until later in 2021. So there is something going on for property level century Plaza, which we're just watching and observing and as that works. Its way through then we'll have an opportunity to potentially.
Monetize and that's all being done at the property at the property level and the Fairmont San Jose situation, That's a convention center hotel and unlike the other hotel you mentioned.
And which has an enormous tenants facility and could be considered a destination hotel where people want to go to it just to get out.
And like a resort and a different hotel assets and and.
And so thats why Fairmont.
San Jose is where it is because it is mostly a group type of convention type of asset.
But that too will work its way through we think relatively quickly because we hope that the.
The bankruptcy judge understands that getting that asset turned on as quickly as possible is best for for.
And the equity after the offset and.
Involved and then in terms of the Dublin assets. That's one that is a little bit more.
Squishy, if you will.
And we're waiting for entitlements to come through to enhance.
The development prospects at the property and both on the residential and on the office side and they are the borrowers still working with <unk>.
And it's just kind of lightened up and in Ireland and workers are back at the site.
And the developers are still working on securing and anchor tenant.
For the office development, so that one and it's got a little bit more uncertainty there. The others. We think are have more of a short term.
Timing wise.
Got it and that's helpful color. Thanks again for taking my questions. Thank.
Thank you.
There are no further questions at this time I would like to turn the floor back over to management for any closing comments.
Yeah.
Well. Thank you for your support and for joining US on today's call. We look forward to updating you on our second quarter earnings call and early August. Thank you.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.
Okay.