Q2 2021 Ladder Capital Corp Earnings Call
Good afternoon, and welcome to ladder Capital Corp, 's earnings call for the second quarter of 'twenty 'twenty..1 after the presentation, there will be an opportunity to ask questions to join the question.
You May press Star then 1 on your telephone keypad should you need assistance during the conference call you may still going on on operator by pressing star and zero.
As a reminder, today's call is being recorded this afternoon lighter released its financial results for the quarter ended June 30th 2000.
'twenty 1 before the call begins I'd like to call your attention to the customary safe Harbor disclosure in our earnings release regarding forward looking statements.
Today's call May include forward looking statements and projections and we refer you to our most recent form 10-K for important factors that could cause actual results to differ.
Jim Keeley from these statements and projections, we do not undertake any obligation to update our forward looking statements or projections unless required by law.
In addition, ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance.
The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with the GAAP.
These measures are reconciled the GAAP figures in our supplemental presentation, which is available in the Investor Relations section of our website.
Immaterial at this time I'd like to turn the call over the letters President Pamela Mccormack.
Thank you and good evening, everyone I'm.
I'm pleased to report that after successfully raising over $1.1 billion of unsecured and non recourse debt by issuing unsecured corporate bonds and the managed CLO.
We are flushed with cash.
Modestly levered and aggressively deploying our substantial liquidity.
For the second quarter.
Distributable earnings of $13.4 million or <unk> 10 per share.
As of June 30, we had total liquidity of $1.4 billion and our adjusted net leverage stood at 2.5 times and 1.7 times.
Times net of cash.
Year to date through June 30th we've originated over $1 billion of new loans, driving both portfolio and earnings growth.
In the second quarter, we originated 22 balance sheet loans totaling $800 million, and we funded $689 million, including in the future advances on previously.
Yeah.
New balance sheet originations during the quarter had a weighted average loan to value of 67% and the weighted average coupon of $4.91 per cent.
Since the end of the quarter, we originated an additional $190 million of new loans.
The majority of loans closed are collateralized by multi.
Multifamily manufactured housing mixed use and office properties.
In addition, we have a strong and growing pipeline with more than $1 billion of additional loans under application. While we are now growing our balance sheet loan portfolio on the net basis as projected we're continuing to experience the healthy level of payoffs demonstrating the underlying strength of.
Credit in our assets.
With our diverse business model gains from the sale of conduit loans, the flexibility are contributing to earnings again.
And our condo of business during the second quarter, we sold $48 million of loans, which produced $2.6 million of distributable earnings.
Paul will discuss in July the securitized 70.
Of loans for which the gain will be realized in Q3.
In our real estate equity segment.
The sale of a net lease property contributed $7 million to distributable earnings.
As we've said before we believe there are significant embedded value in our equity portfolio and the gain on sale is illustrative of that.
We expect.
The additional sales from this portfolio of contribute to earnings to.
The complement the net rental income regularly generate.
Separately and as I previously mentioned, we've also been really active on the capital markets front, raising $1.1 billion of unsecured bonds and non recourse CLO debt.
In June we issued $650 million of 8 year.
The 300 bonds at $4.75 per cent, extending our debt maturities into 2029.
Following the issuance of Moody's Fitch and S&P upgraded our outlook to stable and S&P also upgraded ladder of senior unsecured bond rating.
Subsequently in July we raised $500 million.
Of nonrecourse non mark to market match funded debt in a matter of CLO and an attractive cost of capital of less than 2%.
Going forward, we expect to continue to complement our strong base of unsecured debt with additional CLO financings.
Paul will provide more details on these financing and our enhanced capital structure, but suffice it to say the right side of our balance sheet.
Obsequent shape, which allows us to remain squarely focused on deploying our excess liquidity on growing earnings.
While doing so we've also been actively adding additional personnel to meet the demand for our capital.
We're excited about the quality and depth of opportunities, we're seeing in our established investment products and we look forward to sharing the results of our ongoing efforts in the quarter.
It is an ex.
With that I'll turn the call over to Paul.
Yeah.
Thank you Pamela.
As discussed in the second quarter of ladder produced distributable earnings of $13.4 million or 10 cents per share.
Tom will provide an overview of an overview of our originations loan payoffs and pipeline, which were all true.
I will spend the moment, providing some detail around our unsecured bond on CLO offerings, then discuss some balance sheet activity and review the performance of our 3 investment segments.
As Paolo mentioned in June we closed the $650 million 8 year non call 3 unsecured bond offering.
Priced at a range of $4.75 per cent.
The offering was heavily.
Of the oversubscribed and benefited from rating agency upgrades as well as the outlook.
As a result of of the strong demand.
The offering was upsized from $400 million with the final interest rate well below the low end of the price talk.
We now stand as 1 notch below investment grade from 2 of our rating agencies have taken note of ladders focus of long.
Term well staggered unsecured borrowings complemented by nonrecourse non mark to market financings.
This offering provides liquidity to repay our 466 million $5, 2.5% 2022 bonds when they become pre payable at par of the September.
1 such bonds of repaid our nearest bond.
It will be in October of 2025.
Furthermore, in July we closed the $600 million managed CLO at an 82% advance rate and a weighted average coupon of LIBOR plus 155 basis points.
The CLO is expected weighted average duration is over 4 years.
And provides for a 2 year.
The reinvestment period.
This offering was also heavily oversubscribed and attracted leading institutional investors and provides a ladder of highly attractive cost of capital on.
Unsecured bonds and nonrecourse funding sources continue to be foundational pieces of our capital base and with these offerings, we have further solidified and lengthen our liability structure.
Non matured actions continue ladders progression towards our goal of being an investment grade rated company.
Pro forma for these offerings and the repayment of our 2022 unsecured bonds approximately 87% of our capital structure is comprised of equity unsecured bonds and nonrecourse non mark to market debt.
Complementing the strength of our capital structure of our 3 segments, which continue to perform well.
Our $2.5 billion balance sheet loan portfolio is primarily first mortgage loans diverse in terms of collateral.
<unk> with an average loan size of $21 million and of short 2 year weighted average remaining duration.
During the second quarter loan origination activity.
[laughter] outpaced payoffs as we added a net $524 million on balance sheet loans.
Our balance sheet loan portfolio continues to perform well as we received 100% interest collections during the second quarter.
The general portion of our seasonal reserve decreased to 65 basis points as a result of new loan originations and an improved macro macroeconomic.
Yeah.
Furthermore, no new loans were added to non accrual status in the second quarter and in July non accrual loans were reduced by $12 million due to the successful resolution of of hotel on at par, including the collection of all default interest and late fees due to the.
Paolo mentioned, our conduit business generated $2.6 million of distributable gains in the second quarter.
Sequence of quarter end of <unk>.
Outlook weighted in the securitization.
Contributing $73 million of loans for an estimated profit of $2.4 million.
Our $1.2 billion real estate portfolio is diverse and granular and includes 165 net lease properties, representing 2 thirds of the segment.
And continue.
We purchased form well during the quarter with 100% collections.
And as Paolo mentioned, the sale of 1 of our net lease properties contributed $7 million to distributable earnings demonstrating the embedded value on our real estate portfolio.
Finally as of June 30th ladder of $719 million Securities portfolio remains 89 percentage.
Moving to portfolio rated almost entirely investment grade with a weighted average duration of approximately 2 years.
This portfolio continues to benefit from strong natural amortization of sales, resulting in a continued reduction in the portfolio size as expected during the quarter.
Also during the second quarter, our unencumbered asset pool increased to $3.3 billion.
And is comprised of 83% cash in the first mortgage loans the.
Size of the quality of our unencumbered asset pool continues to provide ladder excellent financial flexibility.
Further we declared of <unk> 20 per share of dividends in the second quarter, which was paid on July 15th and during the second quarter, we repurchased 100000 shares of stock at an average purchase price of $10.98.
We expect our dividends remain unchanged in the third quarter.
On depreciated book value per share was $13.79 at quarter end of our GAAP book value per share was $12.
This is based on $126.2 million shares outstanding as of June 30.
For further details.
The second quarter of 2021 operating result of results. Please refer to our quarterly earnings supplement, which the available on our website as well as our 10-Q, which we expect to file Tomorrow I will now turn the call over to Brian.
Thanks, Paul and thanks to all who took the time to join our call today.
It was only 4 months.
Understood and then I was happily describing the brisk pace at which we were signing up new mortgage loan applications and set out of goal of closing of $1 billion of new loans before year end now with 5 full months remaining of the year, we have already eclipsed the goals set forth for the full year.
The second quarter was pivotal for us in that we saw substantial net loan.
Once again, our loan portfolio, mostly comprised of balance sheet loans with attractive floors added to our portfolio of existing loans and assets that continue to perform very well.
It was also nice to see our other products contributing to profitability. Once again as we sold conduit loans and a net lease property both at attractive gains. We expect all of these trends to continue in the.
Next several quarters.
The capital markets provided us with an opportunity to issue unsecured corporate debt as previously mentioned that allowed us to essentially refinance upsize extend and expand in upcoming unsecured bond maturity, while lowering the interest rate that we will enjoy for the next 8 years.
Subsequent to quarter end, we were also able to issue. Our first managed CLO at a very attractive cost of funds just 2 weeks. After we accessed the unsecured corporate bond market the.
These 2 executions paved the way for us the safely finance, our growing investment portfolio for years to come.
Should support our earnings momentum that is just getting started.
I said before that market disruptions as usually provide excellent investment opportunities in their wake and we saw plenty of evidence of this in the second quarter, we expect our earnings momentum to continue in the quarters ahead.
And our lending platform, even though market interest rates are relatively low we are seeing a large amount of new purchase is taking place in.
We are putting up large cash positions for these acquisitions, providing lenders with a fairly high degree of comfort when making loans secured by these assets.
The ratio of acquisitions to refinancings, it's pretty high. These days most asset classes are changing hands at what seem to be rational levels of dollars per square foot appropriately.
Sponsoring the realities of lower cap rates, along with lower rents in buildings. If we do experience any sustained periods of inflation as many investors would expect.
That should appreciate in value in that environment, but we will likely have to refinance those years down the road at higher interest rates.
1 notable exception to the observation I just mentioned.
Mentioned is what we're seeing in the apartment market, except for some of the densely populated urban centers the value of the standing inventory of multifamily properties and most smaller cities has appreciated dramatically from values seen just a few years ago.
Well price spikes in any asset class are always of concern. This property type has plenty of funding.
Reflect support under it primarily driven by new groups of renters, not usually found in this type of housing.
While many baby boomers have decided to retire early many of them also on homes.
And with the price appreciation they've seen in their largest investment many have decided to sell at lofty prices than they ever expected.
On the method as the near retirement.
<unk> strong performance of both stock and bond investments and earlier than expected retirement became a distinct possibility. Many of these Americans are moving out of houses then into apartments.
Our successful efforts in the capital markets in the second quarter will provide us with a long runway for making new investments.
As we continue to deploy our ample liquidity safely with 1 of the strongest balance sheets in the commercial mortgage space.
As of the remainder of 2021 plays out you can expect ladder to amplify our activities seen in the second quarter. We expect the continued to deploy our capital mostly into bridge loans, but also into conduit loans.
Expect margin as profit margins in that sector remain attractive.
We will probably continue to sell more real estate assets than we have in the past, but not at a rapid pace the value of our owned real estate has appreciated quite a bit so some selective profit taking maybe on order.
I expect future earnings calls will be focused.
On new investment activity and growing our asset base carefully to provide durable long term streams of income to our investors.
Operating with that we can open the call for Q&A.
Okay.
Thank you.
We will now begin the question and answer session. The joined the question queue. You May Press Star then 1 on your telephone.
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Our net.
We will pause for a moment at the college on the queue.
The first question comes from Tim Hayes of BT.
Okay.
Please go ahead.
Hey, good evening guys. Thanks for taking my questions.
The first 1 Brian can you just touch on the returns youre seeing on on new loans today, especially as you focus on multifamily.
And some other.
As the types that you know a lot of other capital has been chasing.
I guess my broader question here I, obviously, asking about the returns on new loans, but you're you're originating a lot of new loans. We saw the number of asset yield come down quite a bit it sounds like youre continuing to sell real estate I don't know, how youre viewing C and B S.
As of today, but I'm just wondering if it makes sense also to pair of investment.
Loans with with some buybacks given you're trading at quite a good discount to book value and you know, it's just 7 per cent of ROE based on where your stock is trading how that compares maybe to the the returns you're seeing on new loans.
Oh sure.
Sure I'll try to keep.
All of those in mind as we go here, but.
I would say that multifamily loans are aggressively across.
Across the board however, there's a lot of them and there's a lot of the multifamily changing of hands right now I think.
Because of the price appreciate appreciation of that I indicated.
In the call.
Those tend to be getting down to the around LIBOR plus 315.
Several of Cielo has done recently in the last couple of weeks, where the large multifamily components and that's about where they are some of them are a little bit older. So you might see other sexy, but you know there is some discussion about spreads coming down some.
On the multifamily down to 275 to 300, they may 1 day, they're not there yet.
We're pretty happy with what we're finding out there we are gravitating more towards the newer.
The properties as opposed to the.
The repositioning of the older properties.
The 350.
Point of colleagues.
All of it so you know call it of 4 and a half.
Unlevered yield on.
The office quite a bit higher call. It 100 back from that and I think that we have pretty much been originating in the $800 million that we closed.
On the mid 5.
Kind of Unlevered yield.
And the 1 billion.
We have under wrapped in various different types of.
Assets, it's about the same.
The call it a 5.
Per se on Levered, you put a little bit of leverage on it. If you go into the CLO market. The LIBOR of plus 155, you quickly get to a double digit return.
Because we had a mix of.
Some of older properties of pre Covid loans.
We're doing quite well by the way I know that there's still a lot of people try to make a big distinction between pre COVID-19 and after COVID-19.
Indeed, we already have the COVID-19, but the the the leverage yield on the CLO of just over 20% on the.
The remaining piece of that we're holding.
On our position now that will probably come down on some of those other loans pay off a little sooner than the newer loans, but on where we're very happy to have you know.
The 2 year period, there on what we're gonna be frequent issuers in that area. That's really what we're looking at to replace our former activities on the federal home loan Bank.
So the last part of your question on.
Hotels are not terribly available or.
I would finance the hotel.
Out of the rates, we would have the charge our frankly, our equity like them and so we're just not getting a lot of those type of.
That's pretty well been also but when things aren't terribly well occupied there is there's a fair amount of yield.
So it's not an uncomfortable.
Market for writing loans, there's a lot of acquisitions, there's a lot of equity and the other thing and we can lever the modestly to get ourselves to a low double digit returns.
Once we get fully deployed should not the problem.
Having said that.
Of note.
We are having to face the reality that we are investing in a much lower interest rate environment and Wow.
Instead of the downturn caused by Covid, we had very high floors that really protected the income stream and still do I'm aware of a couple of million dollars of those films and.
The notes to pay off.
But our payoffs are slowing down now because where we tend to have 2 and a half years out of 2.2 and a half year cycling on loans and we're now almost a year of half.
At the beginning of the Covid situation. So we expect our pay downs the slow here.
I think we were pretty well ahead of the.
The pack for the most of our during the downturn.
So does that all add up to attractive enough returns of that I would ignore the stock price at the.
80% of book value, not just not attractive enough.
On the frustrating part I think kind of on my side and again I don't know.
Repurchase stock for a living.
Oftentimes when you.
You see dips in the stock caused by various things, but it's not all of its it's oftentimes kind of just market conditions.
It's at the end of these quarters, where we're in the hot and we're not able to access the markets.
I have noticed that we actually moved up this call of weak.
Our normal cycling of of when we normally the earnings calls and the.
The 4 that is so that we have an extra week in the open window period, where we can repurchase of assets. So I would anticipate us paying off the speed the repurchases while we're also.
Picking up on our investment in the bridge loan portfolio.
The good part of it where we are now after all of the capital raising we just did.
We've heard of us nothing else to do except make investments. So for the next couple of years I think of all we're going to talk about is the growing asset portfolio.
No that's absolutely right that was pointing to ask the question about the the cap.
GAAP structure, but there's like to your point there there's not a lot of to go on there except for.
Did the CRE CLO that you mentioned.
Given the pace that you're really getting loans that doesn't seem like you won't take very long before it maybe be back in that market. So do you have an idea of.
Just what type of.
I guess, the Max capacity, you want to hit before.
Kathy.
The market again, and given the conditions are pretty attractive.
You don't want to go pretty quickly, but just trying to get worse or did you Wanna staggered that out of the maturity of that a little bit I'm, just trying to get a feel for when we could see never day on the market.
Yeah, I think the the financing situation at the company level going forward is going to be of staggered corporate.
Tapping the bond maturity schedule, so we've got 25% to 27% and 29.
I'm not adverse to put them on and Theyre in the middle of the.
We tend to try to extend the blend and extend debt they say with lower rates. That's always helpful. Obviously, it is a fixed rate component of our financing. So it is really.
Corporate index for the.
The market, where we believe interest rates will rise and that is in fact, the the that that's what we're putting on the that's how we're expressing that the.
On the CLO side, that's really replacing of like I said, the federal home loan bank as well as most of our repo.
I would expect us to.
Does the lack in the CLO market, probably I would think every no more than 6 months apart when we did our first.
Although we had $900 million of additional loans that were not in that sales.
We could've done a much bigger 1 or we could have done another 1 right behind it.
The the CLO coming.
B Baxter's of corporate bond issuance had the effect of adding $500 million sort of balance sheet. So that's why we have despite having made $800 million worth of loans, we still have of climbing cash balance on our balance sheet. So we're going to let that play out of a little bit and let some of our new erase the originations come through before we access the CLO market.
And I think we will target the CLO market more in up in on a pool specific way. So if we can put together a.
$700 million pool of multis that will probably be more attractive.
Certain investor basis than the right.
Brian multiple asset class. So we have the ability to create different types of.
Again combination and I think we'll be very judicious in how we would go about accessing the market, but we're going to try to create things that the market wants to buy as oppose things of that we want us out.
Mhm.
Okay. That's that's interesting it makes sense.
And then my last question here just on the conduit market.
He has.
The active but not quite nearly as active this year.
The kids.
I'm just curious what your outlook is for <unk> kind of way you know what it takes to really kick start that market. The way the we've seen it with those other 2 that I mentioned and what velocity. We should expect from you guys going forward to sell loans.
Well sure.
Our preference is to do quite a bit in that space. However, there is just not as he set a lot of activity there at least from the from our side I think 1 of the reasons for that is because of the pandemic has really gotten rid of of the trailing 12.
The number and until you have I I personally think you could.
By some conduit loans that don't have a perfect trailing 12, because you kind of know what happened and what happened in and out of the loans were performing before the pandemic, but there was so much surgery done in them.
In the Treehouse in the downtown there that I think that first of all of a lot of the.
A lot of owners are truly.
About selling them as opposed to a repositioning them again, even though rates are quite low.
You own office buildings with 10 year maturities.
Let's say, you've got a 455% loan and it's coming out of the next couple of years. If you've lost some of your tenants are due to the pandemic and you're going to have a big Capex Bill and.
Really some of the smaller.
Office owners are not built that way, they're they're just not ready to jump on that as to what's required. There. So I do think that the the slowdown isn't reflective of no..1 wants to do the business of our borrowers don't want to borrow money I think that's very little qualifies right now because so much of it was impaired.
During 2020 of that you have the kind of get a year away from 2020 before the rating agency numbers.
Come out the way you expect them to.
Yeah, Yeah, yeah, okay.
The interesting alright, well.
I guess I'll leave it there in the second but it does sound like you guys are originally.
Originating some kind of on loans and expect I guess from time to time to be sellers there.
Is there anything in there every quarter at this point.
We would love to.
I'd love to have the loans.
First on bridge loans and 50% of conduit.
Such a high Roe product.
However, we are just not seeing the demand on that.
Relative to the bridge loans space out of the British 1 of I think we're closer to about 95 per cent for bridge loans and wearing.
That's coming in.
Alright, Thanks, Brian I appreciate the comments there sure.
The next question comes from Stephen Laws from Raymond James. Please go ahead.
Hi, good afternoon.
You know Pam could you maybe dig in a little bit on the.
The originations during Q2 kind of looking at the sequential change on some of the Pie chart looks like maybe it was primarily southeast.
After some west coast, the multi and it also looks like you did a.
Now I'll have alone over 100 million. So you know you guys looking at maybe of some larger loans now given the amount of liquidity you have.
And so maybe kind of.
Touch on whether the the 2 key origination.
As representative of the pipeline we.
We see coming in the in the next few quarters.
Sure, Yeah, and by the way I'm testing. It this time because it didn't work last time buy of Adam sniper without saying who's our head of origination, but I you know I think our originations look very similar to what we've done in the past and will continue to average loan size is.
The off of a little bit of just because I think we are doing more volume and seeing more across the street, but we our average loans I think is just the close.
Close to $30 million this quarter, we had 1 large loan which I can let Adam touch on that was in office property, just the great opportunity with the sponsor we knew that was that.
Of that incident, but.
Trying to by and large it looks very similar to us in fact, our loans under application of the pool of phones out of their application look very similar as well, it's a very high concentration of multifamily and office with some mixed use that also has high multi component to it.
So Adam I don't know, what's Texas again because of last night.
The event is Adam cyber I would just add we are I would expect over time.
For the pipeline to be very consistent with what the portfolio looks like today with again, where we're coming out of Covid, we're seeing.
A handful of very unique opportunities 1 of which was was the large loan Pamela reference.
Okay.
Which we were able to capitalize on an office office acquisition in.
Southern Florida, So we see a handful of those continuing.
A number of which we have.
Under application.
But over time, we do see very.
Fran just in granular portfolio.
With what we've done originated in the past.
Got it.
I'll just jump in there too and say I think we've always had a view of it.
On average loan size of that that's very bite size of it it's more liquid and easier and Diversifies us.
There are however.
For the most part of the space.
$100 million and over business was very competitive.
And it still is in some respects, but it seems to be a lot less competitive in the $50 million to $80 million range. So I know that we are seeing some of those in fact I know yesterday, we closed on a loan for 100.
$10 million.
So we're not at all adverse to getting about $100 million on an asset on the reason we haven't been too frequent in that space is because for the most part they just don't offer the right risk return ratio, but we are seeing some of them now and I think we will continue to do that.
And I think that's the 1 thing I just want to ask.
As a matter of our pipeline I'm, sorry of our platform. We have the ability you know and I don't think everyone is built to go down into the $20 million average loans, but the depth of our platform and the seniority of our originators. We have the ability to tend to go up when we wanted when we see the right opportunity, but our bread and butter is the average smaller average loan size, which you know I know a lot of people.
Rents about you know the vision they get into the market due to their kind of on their parents in the activity in their space on the equity side, we get a lot of that just by our middle market focus and in the volume of the sheer volume of loans that we look at and do.
That's helpful and you know on you mentioned the platform.
Talk about leads to my next question the.
And for you and Brian, but you know as you think about the origination opportunity.
You know you're you've got a lot of cash you mentioned it kind of gradually sell some real estate take some gains there.
Kris the size of the MBS portfolio you'd love to do work on 2 of volume, but it's just not there right now.
1 of the outside of the low market are there other opportunities you're seeing in CRE, either equity or debt opportunities that you think makes sense in the in the ladder portfolio.
Oh, Yeah, Yeah, we are seeing some things although.
There's a lot of stops and starts working on.
They were with the eviction.
Now moving on in multifamily in major cities, Yeah of banks that say they want itself on loans and then they put them out forbid they say, we're going to sell of it looks like a good price and want to move forward and then they turn around a week later and say we have too much cash will cancel all of them. So there is quite of bit of a.
And in that area.
But I think there is the space that we.
We really like right now of the bridge loan area.
That is just it's the space that looks reasonably attractive from a risk perspective, there's a lot of equity in deals and its really the space. That's built for higher rates, which we do subscribe to it we don't think that's going to happen right away, but we do think so over the next few years.
So.
I know that.
Asian go on we say, we're gonna right granular loans I know I'm I'm looking for bigger loans, because we have about 1 billion of half dollars to get invested.
I'd like to get that done before I retire so I am going to have to get through some larger loans just for the purposes of of size and given the same amount of people that we've got the it isn't that we're sacrificing.
Sacrificing profit a bit of profitability spreads of great. It's just that the LIBOR is that 10 basis points. The end, but if it did let's remember January 2020, I think LIBOR was at 2 and a half. So if LIBOR goes back the 2 and a half of the Florence don't matter anymore because of LIBOR, it's not going to go below zero.
It could I shouldn't.
I wouldn't wake up look silly 1 day, but you know the higher probability is that LIBOR is going to get meaningfully higher in the next couple of years and when it does we've got of fixed rate component of our liabilities sat on the corporate bond sector, we've got $1.3 billion that isn't due for 5.6 years.
And obviously, we'll be the beneficiary of that but however.
The CLO market also diversify the glass and keeps us balanced in the into the floating rate market, where you asset liability match floater for Florida.
So we think were were built the right way right now and where we've got a.
Bent towards owning floating rate assets.
For each of those ninth day, and this will help get the.
The capital out quickly last question is around the the secured non recourse facility I think that's the Koch facility looks like maybe.
Hey down to $150 million per 195, I mean should we continue to see that decrease or are there. Any you know can you refinance that what are your options around that the financing facility.
Yeah sure I'll take this is Paul on the facility was paid down $45 million. This quarter ultimately, it's secured by loans and as the loans pay off as you know we have generally on a short dated loan portfolio. So as the loans pay off we expect it to amortize down over the next basically 6 to maybe 12 months. So Max So we expected.
We are fully behind us by the first or second quarter of next year.
And what's the balance on that remaining at this point Paul Yeah that was the correct number is about 160 million principal remaining.
And the and Stephen just to go to your question is the pre payable yes, we could pay it off now, but we would still have to pay the.
The required minimum interest and if for some reason, they're not prepaid by the time, we get to the end of the the.
The period, we will prepay them.
Okay, that's great well I appreciate it that's the question. So thanks for your comments.
Yeah.
The next question comes from Jade Rahmani.
The money from K B W.
Go ahead.
Thank you very much with the multifamily focus and the the GSE is seeming to have.
The London catch something reduced for a 2021 by 12, 5% you of any interest.
The up with the Arbor Walker Dunlop, maybe some other non banks.
They do of multifamily focused standard.
Love getting a question I've never thought about.
On these calls.
We know some of those people very well I, certainly know out of an overnight Barbara as a friend.
However, when you just sort of sell some loans to 1 of our partners and the MBS and.
We have good relationships with them, but I think if there was a beneficial interest in that was mutual to do that that would make sense.
The the focused multifamily originators, they do very well right now I mean, they can get very low low rates and there's a fair amount of volume and they've got that modeled down I think that we tend to focus our multifamily origination in the brand new coming off construction loan and not quite leased yet.
The portfolios, which don't qualify.
I for Fannie Mae or Freddie Mac of financing at that point, that's why we're there and we think that will probably be refinanced by those entities that you mentioned in there. So it's slightly different products, but nothing against the cooperation at all of them.
Happy to have a.
Lots of partners. So I think it's the.
I've always been a.
A fan of working with other partners because it moves the inventory more quickly.
Yeah, I noticed that the last quarter Arbor day.
The MBS of.
Maybe it was actually.
The second quarter, but they did the CMS of multifamily and I also think that Walker <unk> Dunlop.
Hello.
Quality of product.
There is periods.
The JV with Blackstone mortgage trust the might be something.
That could be interesting on the real estate sale, you said 7 million of distributable EPS I assume that's about 6.
2 our distributable earnings per share contribution.
I'm not assuming any tax leakage there.
It was in our REIT and it was 5.
Yes.
Okay, that's great.
Yeah.
So I guess looking at the income statement. It seems net interest income has still been below interest expense.
You expect the third.
Quarter to be sort of a crossover point.
You know with the loans of that had been originated as well as the pipeline you mentioned there'll be positive net interest income.
Yes, I think on the interest income is apologies on the interest income front, yes in the third quarter, we will have overlap.
Interest expense with 2 bond offerings outstanding So ideally we would of refinanced our 2020 twos when theyre fully callable at par in September. So we'll have 1 quarter of kind of drag on $466 million of bonds. We expect we will likely call those at par in September.
And in total we will have drag on the interest expense that could.
Could create kind of some of them.
From a net NIM perspective, some traffic, but interest income the top line, we do expect to trend up.
And that's the theme will continue over the next year, we're going to have lower interest costs.
Hello, with Goldman Sachs pays.
Off as well as the Koch facility and in addition to the higher cost.
The $466 million that Paul referenced there and that's going to create 5 cents a share in drag in the third quarter, but that's going to be at and then we're gonna have 7 of them the half years of of <unk>.
The 50 basis points of lower rate on that position on.
The way I like to think of it as either.
Turning to $66 million, we refinanced and extended.
50 basis points lower than the additional 200 that we borrowed.
Whatever we need to pay off coke or the CLO. However, I'm relatively certain we don't need that money to do that those loans will pay themselves off on those lines will go away and when we get rid of all.
All of those drags were going to have a real of tailwind to earnings here with lower interest costs.
Okay. Thank you for that and lastly.
1 of your larger peers has been quantifying the.
The embedded gains in the real estate portfolio, primarily on multifamily.
I had noticed that you've been saying that the net lease portfolios.
Performed really well.
Through the Covid period.
Can you put any.
The quantification around what you believe embedding gains are in the real estate portfolio, maybe in the dollar of aggregate.
Per share basis and are there any forms of capital that you would consider to free up of equity.
That would allow that value to be unlocked you could consider selling ground leases on the real estate portfolio, where there might be other.
The opportunities.
Oh yeah.
I think we have a pretty good idea of what it's worth on the reason why is because of where interest rates are.
The amount of capital in the World.
No we don't.
On to sell things, we simply answering the phone and oftentimes we get from somebody who wants knows what they want to buy and they know we own it.
It's oftentimes not bid will accept.
Net level, we always say everything is for sale of life at the right price and typically when we respond to an inquiry like that the person says well, it's a little too expensive for us.
Lately the B.
On the response has been okay. When do you want to close.
We've got a pretty good idea across that's all of that Triple net the paper that Paul mentioned.
It's probably up 25% to 35 per cent from our basis. However, before we get too excited about that we do have the N. B is debt on most of it so there.
There could be some friction costs, if we wanted to just prepay it or sell it or spin it off.
Yes it.
I'm a full day, so but a lot of the people who buy vs. The triple net where you don't actually want the debt. So the 1 we had in this quarter for instance that we had the gain on.
We actually paid over $1 million on prepayment penalty, but it was coming due pretty soon and we also have several more we've been to assets long enough now that they've got a bit of a conveyor belt coming towards us on loans.
This assumes for E on assets that we've owned for over 10 years of that are now coming off of the MBS maturity and the fortunate decision that we have to make is do we want of simply refinance the loan and do of cash out refi and enjoy probably on 18% to 20% cash on cash return on our basis for years to come.
Or do we want to sell it because we tend to think of the.
The interest rates are low on the conditions are right and we should we go out and buy something else 1 day that it might be more beneficial so the decisions we make every day.
So I think you know.
Across the board I would say, 25% to 35% higher in value don't know that we can naturally get out.
Is that just because of all of the existing financing on it but that's also another version of the tailwind behind us as interest rates fall, we're going to have lower interest cost even in that portfolio as we refinance it. So however, the not totally guessing at those portfolios I think you will see some of those sold even.
In the next quarter, so I suspect.
We're selling of cross section, we're not selling all of the 1 tenant or anything like that so they all seem to be up about the same amount. So I think we're gonna have a steady phil each quarter of of.
Triple net sales that are making profit and significantly contributing.
2 of them. However, we're going to lose the income on those things to kind of given that our current cash situation is quite high I think we'd rather judicious and where well sell things right now, but it seems like the market doesn't want to buy them.
Yeah.
Thanks for taking the questions.
Okay.
The next question comes from Steve Delaney from JMP Securities. Please go ahead.
Hi, everyone, it's really nice to hear the enthusiasm in your in your voices Tonight.
Compared to where we were the last couple of couple of quarters, So great to hear everything.
Everything has kind of been covered I just had a couple of cleanup.
Things are on the conduit sales.
The $73 million for third quarter.
For the day loans sold into this wells 60 deal that we saw being priced I guess week or so ago. A couple of weeks ago. That's correct. That's correct. Okay.
Now I didn't see a.
Print with your name on it in the second quarter, Brian said, sometimes sell loans to friends the $48 million sold there was.
Was that just you selling conduit loans to someone else, who then participated in and of deal. Okay. That's what I figured so that was kind of just a secondary sales. Okay. Just wanted to understand.
That's the distinction between those 2 because.
Because we had seen the the $73 million, but not the 48 and.
And that goes with our relationships around town do that frequently.
Originator wants to round off the pool quickly and have an originated them fast enough. They can fall off.
Stan we're rather indifferent as to whether or not we securitize things are just tell them on.
All of that and that's such a lot of and we did it.
Yeah, I mean, you've got you've got 5 points, there and you've got the 3 points of 3.5 points on the other I mean these of gross not net.
I don't know your hedging issues, but that that trade worked right for sure.
It was a nice sales.
The final well you've talked a lot about lending and we know your middle market I would I would actually puts you on a it's your average size of I would call that small middle market or the low end of the middle market, but obviously you can go you can go up of 100, if you if you want to.
It's the Big Gap you know we've been on calls the early this week people are talking spreads 300, and 325, maybe 350.
Kind of where it was when it when it was tight before COVID-19 financings better is the offset but I mean, you're talking you know 5 or 500 basis point spreads.
The 50 anyway, and its just a its a big gap and I'm, just trying to kind of understand it the things that I mean, the obvious things or loan size.
And maybe property location and you know.
It's not in the major Gateway city, probably the type of sponsors.
Or am I missing anything Brian it or anything.
Thing else to it other than the fact that the borrowers that you're engaging with they are not being you know the bill.
Big National guys and the asset managers are just not operating at the level that granular and and and regional level.
I think.
Pricing is a big component, but I would point out that when you when a person of party is buying a property and they are expecting to reposition it and they they don't plan to own it and 3 more years after that the rate.
Doesn't matter of nearly as much to them as you might think on the 10 year loan its much more of a battle, that's a bit of a knife.
When you're trying to charge 20 basis points more on the tenure, but.
In the in the bridge loan market, especially in the wake of the pandemic you've got a lot of now money instead of how much does it cost money and we're well known around the country as being highly structured in our thinking.
And so we're able to think through things of that.
And put them on our balance sheet without worrying about having the salad. If we don't want to so we will oftentimes see something that might have had and we always like event driven situations.
If we see of very good assets at very low dollars per foot.
It needs a lot of Capex, it's just well located but it hasnt been handled well because of the prior ownership and.
And then we'll step into something like that and oftentimes the building across the street will will have a much lower rate on it and it isn't necessarily because there's anything wrong with either building. It. It's just that 1 of the amount.
Little bit more of a structured component to it that doesn't always lend itself to of CLO financing I think of lot of the originators in the country are targeting assets for the CLO market. We're not we're happy to talk of things for the CLO market, but we're also happy to put them in the ladder waiting room, and so when a brand new apartment building comes out.
None of the London, Texas, and it isn't lease, but it's brand new and we know where it is and we know where everything else is leasing well put it on our balance sheet per year and let it grow into the CLO market later on so we'll incubate a little bit more whereas I think our patients and the ability to warehouse assets and loans without concern about margin calls or or.
On the ground and the management coming down the hall, saying, let's call. It sell of as it's been here for a long time.
We understand that real estate is a slow moving animal it doesn't usually happen overnight and ER.
Because the head and.
And in the like for instance, we said as I said, we had $900 million of unencumbered.
The loans right now we could've done on another CLO of right away.
Some of those loans would work just fine, but theyre going to work better in 6 months, because we already know what the cash flows are in half the building and get the the other 2030 per cent of it leased up and then it will sell right through so we're happy to be patient with the sponsor where.
We're happy to let sponsors out of loans without.
Undue prepayment penalties, if they want to sell the asset because there's a whole lot of chase going on so oftentimes people buy something and they have a 3 year game plan of 3 months later or somebody asked them if they'd like to sell it and if they are all jammed up in a in a structured financing they really can't get out.
Also on without undue expenses, which is we'll let them out of it and we will take some fee for it but we're happy to keep of the inventory moving.
Well, thanks for the color, Brian and congrats you guys true forgetting the loan machine up and running so fast these days.
For 2 of the report on the.
The rest of the year.
I know you are thank you for the time.
Sounds good.
This concludes the question and answer session I would like to turn the conference back over to Mr. Brian Harris for any closing remarks.
Just thank you everybody for a kind of thing.
With us full circle here and we look forward to the quarters.
And of growing asset base. So we will see you in 90 days. Thank you.
This concludes today's conference call you may disconnect your lines. Thank you.
You for participating and have a pleasant day.
Yeah.
Okay.
Okay.
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Yeah.
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