Q2 2021 Broadmark Realty Capital Inc Earnings Call
You for standing by this is the conference operator, welcome to the broad Mark Realty Capital second quarter 2021, net earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions to join the question queue you May press.
Star then 1 on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Devon, The party Chief legal officer of broad Mark Realty Capital. Please go ahead.
Good afternoon.
Thank you for joining us today for broad Mark Realty Capital's second quarter 2021 earnings conference call.
In addition to the press release issued this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the investors section on our website at www Dot broad Mark Dot com.
As a reminder remarks made on today's conference call May include forward looking statements.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.
We do not undertake any obligation to update on forward looking statements in light of new information or future events.
For a more detailed discussion of the factors that may affect the company's results.
Please refer to our earnings release for this quarter and to our most recent SEC filings.
During this call we will also be discussing certain non-GAAP financial measures.
More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filings.
This afternoon's conference call is hosted by <unk>, Chief Executive Officer, Jeff pilot, and Chief Financial Officer, David Schneider Manny.
Management will make some prepared comments after which we will open up the call to your questions.
Now I'll turn the call over to Jeff.
Thank you Kevin.
And welcome to our second quarter earnings call.
This afternoon, I'll begin with a discussion of our quarterly performance and market overview.
And then I will turn the call over to David to provide additional detail on our financial results and loan portfolio.
We will then open up the call for your questions.
In the second quarter, we generated $212 million of new originations and amendments.
This is our largest quarterly origination volume since going public in 2019 and.
And demonstrates the power of our platform and the strength of housing and construction fundamentals and our lending markets.
We have expanded our geographic footprint.
And now operate in 16 States plus Washington D C.
As of June 30th our portfolio consisted of $1.3 billion of loans secured by high quality real estate.
With a weighted average loan to value at origination 59, 7%.
We are diversified across property types and geographies with a bias towards single family and multifamily housing construction in states with high population.
Our typical borrower is a small to midsized local market experts.
Benefits from broad marched reliability and speed of execution.
We in turn benefit from our borrowers expertise as well as our requirement that they retain a significant equity stake in their projects, which incense them to perform.
At quarter end, the average loan size on our portfolio was $6.7 million with an average term outstanding of 18 months.
The short term and fixed rate nature of our loans means that we have limited exposure to interest rate fluctuations.
It also means that our loan portfolio turns over relatively frequently.
Providing us with a steady stream of payoffs to fund new projects as well as allowing us to be nimble and pivot quickly as we allocate capital across our markets.
As our portfolio has grown we've been able to make larger loans, while keeping our percentage exposure to individual loans is very low.
Underwriting larger loans has the benefit of being more efficient from an expense perspective.
As well as opening up an additional potential pool of borrowers and projects, while maintaining our underwriting discipline.
Having observed the pricing environment and competitive pressures in the market. We have recently made adjustments that should enable us to continue winning a high volume of business without compromising our risk profile.
Leveraging our team's expertise we have implemented the dynamic pricing model that allows us to respond to the level of risk on a potential projects more effectively.
Under our new pricing model and amid a competitive environment, we do expect that the weighted average all in yield on our portfolio will be reduced over time from its current level of 16%.
Which decreased from 16, 6% as of March 31, 2020.
However, by increasing our loan origination volume, but still utilizing our disciplined underwriting approach, we'd expect to grow the business accretively, but at a wider range of risk adjusted yields.
We demonstrated this in the second quarter as this new approach leveraging our dynamic pricing model allowed us to further enhance our pool of borrowers with better credit better collateral.
Amid the uncertainty in today's world and new entrants into the construction lending space.
I would like to remind borrow.
Debt there is no more stable source of capital than broad Mark.
With regard to the macro environment.
Demand for new housing continues to far outstrip supply.
This is both an immediate opportunity and a long term loans.
Single family housing starts have increased nearly every year since 2010.
And yet still remain below levels seen in the 19 nineties.
With our current housing deficit of $3.8 million units. According to a recent Freddie Mac report.
It seems clear that we're still on the very early innings of the current housing cycle with an enormous amount of gross still to come.
With low mortgage rates strong household balance sheets and the fundamental shift in working arrangements Americans are free to move to upsize or to relocate to the high gross states, where we operate.
All of these demographic trends continue to drive new construction, which flows through as demand for our loans and.
In addition, we operate within this large and highly fragmented lending market, where the big banks are not able to compete and we're small.
Lee on sophisticated lenders.
On the scale and expertise that broad Mark has built over the past 11 years.
And because of our size, we only need to capture a small fraction of that market in order to achieve significant growth.
And our conversations with borrowers we are encouraged by signs of improvement in the cost of building materials.
Lumber prices have started to moderate and builders have generally been able to mitigate some of the major supply chain issues to date.
That said the nature of the projects, we fund high cost supply disruptions and rising costs of labor can translate into delays requiring us to modify our loans or place them into maturity default.
We continue to monitor these conditions and take all the inputs into accounts during our underwriting process.
Looking ahead, we remain excited about our opportunity set and our prospects for growth with broad Mark.
With our deep borrower relationships.
Local market knowledge.
Decades of combined experience and the differentiated underwriting process that go into broad marks platform, we have created a formidable competitive advantage.
Furthermore, we believe we provide the best exposure to the attractive housing and construction markets and high growth States.
With our short duration loans and low Ltvs debt provides superior risk protection versus traditional homebuilders and landlords.
As always we remind you that we are internally managed and fully aligned with our fellow shareholders interest.
With that I'll turn it over to David to review the financials.
Thanks, Jeff and good afternoon, everyone.
Our operating results are detailed on slide 9 of our earnings presentation.
For the second quarter of 2021, we reported total revenue of $29.2 million and net income of $18.3 million.
On a per share basis. This reflects the GAAP net income of approximately <unk> 14 per diluted common share.
Adjusting for the impact of nonrecurring costs and other noncash items from dish.
Sure Mutable earnings for the second quarter were $23.5 million or <unk> 18 per diluted common share.
Interest income on our loans in the second quarter was $21.6 million and fee income was $7.6 million.
On the expense side, we continue to execute on our G&A reduction efforts by bringing additional corporate functions in house.
For the second quarter, we had cash compensation expense of $2.8 million and G&A expense of $3.5 million together totaling $6.3 million.
This continues to be below the $6.7 million dollar run rate in 2020, and we are expecting a year over year reduction in cash expenses of $1.5 million to $2 million as a result of further internalization efforts.
With regard to origination volumes, which are presented on page 10 of the earnings presentation.
In the second quarter, our originations and amendments totaled $212 million, our highest volume quarter since going public in 2019.
We reiterate that origination volumes may vary from quarter to quarter based on the timing of loan closings.
Now turning to our balance sheet as detailed on slide 15 of our earnings presentation, we had $164 million of cash and no debt outstanding as of June 30th.
Main fully undrawn on our $135 million revolving credit facility and given the added capacity from our credit facility. We've continued to reduce our existing cash balances, which we view as the cheapest form of capital available to us.
In the second quarter, we reduced our cash balance by approximately $40 million and we expect to be near our targeted $100 million cash run rate by the end of the third quarter.
We did not issue any shares under our ATM in the second quarter as we continue to focus on deploying existing cash.
In the event that we raise additional capital in the future. We are fully aligned with the interest of our shareholders and with excess capital only when we believe that it is in the long term interest for broad Mark shareholders.
As we said last year when we added our credit facility. We plan to continue assessing multiple sources of capital, including potentially a modest amount of long term debt, which is very attractively priced in today's low interest rate environment.
Maintaining a fortress balance sheet has always been a part of our DNA and this will not change, but we believe this approach will support future growth as it will help to lower our overall cost of capital and make us even more competitive in the marketplace.
Subsequent to quarter end.
We announced the retirement of a private REIT.
During the third quarter broad Merck will repurchase for loan participations held by the private REIT for approximately $42 million.
The repurchase price is equal to the loans carrying value and therefore is not expected to have a significant impact on our earnings.
We're currently evaluating the opportunity to offer a new private investment vehicle that would look to finance the loan type that is complementary and adjacent to broad market existing business.
Turning to portfolio management.
As of June 30th we had 27 loans and contractual default representing $152 million in total commitments for 11, 5% of the total portfolio by value.
Additionally, we have 5 foreclosed properties with $37 million in total commitment.
During the second quarter, we foreclosed on 1 loan and tier 2 loans in default for a total of $44 million and had no new default.
As a reminder, loans on non accrual status continued to have a drag on earnings for the second quarter. The earnings drag was approximately 4 cents per share.
As we have had certain loans in default status for over a year now we wanted to provide additional insight into our default management process.
Let me start by highlighting that preserving shareholder capital as our primary goal with defaults, although the process often takes time.
Believe that it is helpful to categorize our defaults into 2 buckets, which we call standard and high touch defaults.
As the management and resolution timeline can differ between those 2 categories.
For standard defaults, which account for about 2 thirds of our current non accrual pool.
Our focus is working with the borrower to complete any remaining construction and to position the project for sale or refinancing.
In some cases borrowers do not work as quickly as we would like to see and we have seen delays in construction completion, resulting from the recent raw material and labor shortages.
However, we continue to expect that the most common result of these standard defaults will be a positive economic Alex on for ballpark as we capture our interest and fees over a slightly longer timeline.
For high touch default comprising about 1 third based on value for.
For equity has often been reduced due to cost overruns or project delays.
While the interest abroad, Mark and its borrowers are aligned at origination upon entering default such interest sometimes stay for <unk> as our goal of quick resolution typically runs counter to our borrowers focus on maximizing proceeds to themselves.
For these chip types of default it is often necessary to work through legal channels, which prolongs a resolution timeline.
Timelines have not been optimal including as a result of COVID-19 related delays within the court system and for closure Moratoria in certain states.
And although we have resolved some defaults, while continuing to avoid principal losses.
We expect it will take additional quarters for us to bring our default level back down to historical rates.
While meaningful progress will not come all at once it is the right approach for us to continue to take.
Ultimately there is a lot of work left to be done in clearing defaults.
But we have a history of maximizing value through strategic management and will continue to put in the time and effort to achieve outcomes that are in the best interest of our shareholders.
Finally, I would like to provide an update on the 4 principles for growth that we outlined in the past 2 quarters.
Number 1.
Maximize earnings on our currently deployed capital through the continued resolution of defaults.
During the second quarter, we reduced defaults by $44 million with no new default and made significant progress towards resolution of multiple large commercial loan defaults.
For 2 maximum deployment of existing capital with the credit facility now in place.
We had Q2 total loan production of $212 million and reduced cash on balance sheet by $40 million.
We plan to deploy approximately $42 million associated with retirement of the private REIT and expect to be at the $100 million run rate of cash on balance sheet by the end of Q3.
Number 3.
And sure sufficient operating capital available for deployment through our various sources.
We are currently evaluating available sources of capital with a focus on the lowest available weighted average cost of capital for the company and the most accretive to our shareholders.
Number 4.
Identify opportunities for new earnings power and growth.
On the process of expanding into new states and evaluating products that are complementary to our existing construction loans that will enable significant long term earnings growth.
Now I will turn the call back to Jeff for a few closing comments.
Thank you David.
We are pleased with our performance in the first half of 2021 and.
And look to build on those efforts as we move through the balance of the year.
Clearly we have work to do on cleaning up defaults and as David has discussed we expect that process to take several more quarters.
However, we believe we have all the tools in place and an advantageous capital structure to continue growing our loan portfolio.
With powerful secular growth drivers in housing and construction.
And our expansion into new states and markets.
We believe we are positioned well to capitalize on the near term and long term need to finance new construction.
On top of that we think we offer an unparalleled way to access this niche market.
With superior risk protections and attractive returns on our loans.
This completes our prepared remarks, we will now open up the line for questions operator.
Operator.
Thank you.
Now begin the question and answer session to join the question queue. You May Press Star then 1 on your telephone keypad, you'll hear atone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then 2 we will pause for a moment as callers join the queue.
You.
Our first question comes from Tim Hayes of BT I G. Please go ahead.
Hey, good evening guys. Thanks for taking my questions.
My first 1 there Jeff just on the or maybe for David just the new Oreo property.
You know it seems like it's a big 1 on about a $25 million asset so I assume it's commercial.
Some type of commercial asset can you just give us an idea of the collateral there.
How close it is to being complete with construction and the timeline for resolution that you guys are expecting there.
Hi, Tim.
They call them.
I'll take that question.
Sure Yes, thanks for the question, Tim and thanks for joining.
So the Oreo that we had during the quarter was a hotel.
On hotel in Moab.
We feel pretty good about it its construction near complete.
We probably have I don't know you know I don't want to commit to timelines, but I think a 3 to 6 months probably closer to the 3 months, where we can probably finish any uncomplete incomplete construction and then look to <unk>.
Positioning for sale or refinancing green.
Great property something that we've we have a history of avoiding defaults.
And really reserve it for the most appropriate times, whether that's based off of the borrower or just taking over really good piece of collateral that could have benefits for us. So in this case on this 1 just made sense for foreclosure.
We feel really good about it.
A new.
We'll call it posh hotel.
Net neighborhood that did really well throughout COVID-19 and we expect to continue to see increases once the construction is complete so we feel pretty good about that.
Okay, and so David can you just remind me where.
Are you receiving a full quarter of interest from this asset last quarter ended.
I guess entered into maturity default and you went to the foreclosure process this quarter or I just noticed that Andrew.
Download.
Okay. Good.
Oh, yes, no. So this this loans it's been in default for some time it wasn't accruing interest.
There won't be an impact on interest income from it going to Oreo, obviously as long as it fits scenario.
We will continue to non accrual on it so the quicker we can get out of it I think that's really you know as we think about ariose.
This is the biggest 1 we have right now a quick resolution for.
For something like this is definitely possibility on something that we're going to focus on so we can get get paid redeploy that capital and start earning interest again.
Okay got it that's helpful.
And then just on the chip.
Paul can you share this quarter.
He knows where to that where construction complete at this point. They also looked like they were a little bigger assets. There. So were those also commercial in nature and.
Just how are you able to go about securing those 2 because you still have about 15% of your default and completed property. So I guess I'm just trying to understand.
For for that subset of default.
What the hurdle is for getting your borrowers to pay you back.
Sure Yes.
Resolutions 1 was a pay off the smaller enrollment to pay off and then we had a little bit larger loans that we actually brought current.
Through an amendment and additional collateral added to it. So we feel good about that they were both residential in nature that 1 was that I believe townhomes is the 1 that we were able to to convert to performing.
<unk> resume accruing interest on debt.
Okay.
Got it and then just on 1 more from me and I'll hop back in the queue just about the decision to to bring in the private REIT here. If you could maybe just talk to us a little bit more about the nature of that decision. If it reflected kind of the capital raising environment to work or anything else and if if we can.
Can see something like that from you guys in the future, but maybe just under a kind of a different mandate or we're just maybe it looks a little bit different than how it was structured previously just trying to understand.
Again, the nature for the decision and then also what we can expect.
At a later time from that type of strategy.
Yeah.
Sure and Jeff Let me I'll give it a quick and then jump in if there's other things you want to add to it. So I would say you know Tim that's the reason I think we alluded to this from the press release, but really it was it was viewed as a capital source under the construction under the structure that it was in it actually was incredibly helpful. We happened to go public.
And then immediately hit Covid.
Very difficult time for us to raise capital as we work to get not only from Covid, but also weighted to get our shelf registration done once we get towards the tail end of the year. So.
It served its purpose in terms of a capital provider.
Now that we are a public company with it.
It almost seems like unlimited different sources of capital.
It really put a strain on <unk>.
The ability to raise capital there was a pipeline of various investors we had to hold up the pipeline of time. So it wasn't an inability to raise the capital. It was really focused on competing sources of capital and for US primarily be we're focused on deploying as much cash off the balance sheet and we're in a position where you did any capital.
So that really forced us to take a step back and think about whether theres a better structure for the private REIT. We still think there is a great amount of interest from private investors and I think it's just a matter of us taking a step back and restructuring it in a manner, where hopefully you know for.
First step is to answer the question of what is a complementary product that our borrowers are interested complementary to our construction loans. That's not currently offered by broad Mark and how can we and should we be offering that product. It can be find the right position to place that and I think the private REIT can be very attractive for 1 of those complementary products as we think about expanding beyond our chest.
Our construction loan offering so thats really the focus is answering that question of what similar adjacent products to construction.
Love to see that historically haven't offered and take a hard look at that and see how we can essentially structured in a non participation format. So it's never a competing capital source and rather it's just purely additive.
Yeah.
Okay, well that makes sense.
I hate to hog all the time in the Q&A. So I want to leave some things we asked for the other analysts, but just since you bring it up though you talk about these complementary asset types. I mean can you give us a little bit more color on what that what shape that can take and what you guys are evaluating at this point.
I mean, I think that's not something we've talked about public we think theres. Some some nice products that are similar to construction, whether that's a different piece of collateral that we typically don't look at.
We're different opportunistic opportunistic.
Loans that are out there. So I think we probably need to spend a little bit more time finalizing net but we feel good that there's a product there is multiple products that our borrowers current like that we think could offer.
Very attractive returns for private vehicle and kind of make everybody happy.
Okay.
Got you well guys I appreciate the time this evening.
Nice talking to Tim Tim.
Our next question comes from Stephen Laws of Raymond James. Please go ahead.
Hi, good afternoon, Jeff and David.
Thanks Ian.
Jeff I want to start with maybe a bigger picture question that kind of funnel is down on the portfolio, but you mentioned the new stayed low.
Our gross in the Atlantic and South East for something we've talked about for a little while now kind of continuing the expansion.
And coupled with shutting down for private REIT in the manner. It was you know you really positioned the balance sheet to start benefiting from all of the growth from the origination channel.
Where would you like to see that get kind of what is the.
What's the goal a few years down the road as far as portfolio size and footprint. So where you have kind of a matching number of origination pipeline with repayments are they kind of reach natural steady stake can you maybe talk about the growth outlook for reached that point and maybe where that point is as far as what you see today.
Oh, Stephen you always ask me the good question.
I I.
The short answer is we want to keep growing this company as as quick.
Quickly and carefully as we can David mentioned, the fact that we have access to various forms of capital that we never have in the past.
We have expanded into some new states, we are looking at some others.
As we always have been very cautious.
So we don't just go into a state because it's got a loan that we want to do and we don't know what we're doing there.
We.
We've been able to have a great quarter I think I think we will continue to this year just based on what the.
For the markets look like the demand for housing the demand for our product.
And <unk>.
And we'll just.
We'll just keep pushing as hard as I said as hard and as safely as we can.
Which doesn't really answer your question, but I can't tell you that we want to grow by <unk>.
X percent or X dollars or X loans, we just have always tried to grow as quickly and as well as we can.
Right, Yeah I know.
The focus is on the credit underwriting side certainly.
As opposed to volumes.
Okay.
David I want to follow up on a question on the private REIT you know I know with some of the assets that transferred over around the IPO. We had to think about the accounting around the fee income line can you give us an idea of any accounting considerations, we need to think about with the 42 million.
That comes over.
For from the fee income side as well as any maybe 1 time expenses or anything we need to think about there that might go on to the third quarter results.
Sure Yeah, great Great question Steven.
I think as we mentioned in the press release, no no material real impact from it.
You'll see most of these loans have been outstanding for 15 months or 16 months for 17 months by now so not a lot of unamortized fee income, there's obviously going to be a pickup of interest income for the remaining until they go to maturity I would highlight that all the loans are performing status and on non accrual on.
I'm on on accrual status.
Well, we'll see a little bit of pick up maybe a sent over the last 2 quarters just based purely on interest income.
Margin will expenses nothing nothing significant that you would see flow through the Pepco financial statements.
Great I appreciate the time this afternoon. Thanks guys.
Thanks, Jamie.
Thank you.
Our next question comes from Steve Delaney of JMP Securities. Please go ahead.
Hi, Jeff Hi, David Nice to be on with you. This evening.
Hi, Steve Congrats on those.
Hey, congrats on the stable to improving credit profile I know that's been your focus over the past year for sure since Covid hit.
Let's just looking at your deck on Slide 10, you you had a what you referred to as an amendment of $15 million increase I guess.
Total commitments I don't know whether that was 1 loan or multiple but what when you amend alone in that regard and increase your commitment what conditions are normally in place is it.
Are you getting additional collateral or is the scope of the project expanding just like to understand if that is a normal.
Type of thing or are more of a 1 off type of thing.
Yeah.
Well I I, David you can free for this with more detail.
Steve.
Underlying.
Takeaways that debt, we don't just extend alone to.
Keep it.
Performing if a if a loan needs to go into non accrual that goes into non accrual for that needs to go into default understood it into debt.
And so but if a borrower can bring some nice collateral and we can get a first date of trust on it and we can look at that total asset pool, then and be back within our our lending parameters and where we're happy to do that that helps them succeed candidly it gives us.
Some better diversified collateral underlying alone.
And then helps them get out from under it more quickly.
Got it so just kind of on you've got a relationship it's healthy and it sounds like it's it's it's something about the core financing that you had in place is performing and it's a way that you can kind of create a win win for our borrowers that is at.
The sense of what you're working towards.
Yeah.
Remember Greg.
I think.
60% this quarter of our of our borrowers were repeat borrowers.
We like we like to keep them happy, but only if they're.
Only if theyre holding up their end of the bargain.
Sure understood.
And David you had to foreclose I know that's your last 1 on offense, but you had to foreclose on a low but it would appear.
For a provision for incremental loan loss was de Minimis for only 58000. So it would appear that when you made that decision to go into Oreo, which of course has to be at fair value that your loan had already been impaired written down to a level, where you could go straight in without them material.
Additional hit them I am I interpreting that correctly.
Yeah. So that's the area we had this quarter, we didn't have any principal.
Any law any major principal loss on it. So it was already taken care of them and I think that's 1 of the benefits of Cecil is.
We think about our default portfolio, we still like we still have some wood to chop, but any any potential losses have already been captured in our GAAP net income I think our allowance was $10.9 million as of 630, if anything we hope to potentially come in just under that but so you wouldn't see any material impact of future foreclosures.
Got it Okay. That's helpful. And then I noticed in your income statement is a small thing, but just kind of caught my eye. This isn't your reconciliation to distributable and you have the adjustment for new public company expenses, and certainly I understand you know post IPO or spec merger, you're going to have something but.
289000, now it is down pretty significantly from what you had in the first quarter and is that something that you you've about run the course on that and should we expect that to become a de minimis item going forward.
Yeah. That's a great question I think this will be the last quarter you see that this 1.
It was just from cleanup of Cecil implementation.
Some of the work that we had to do to really come.
Come up with our cdna for our annual report. So they were kind of 1 time things I know, we try to keep out onetime and nonrecurring from the explanations, but I think you'll see that zero in future periods and I think we feel pretty good about our expenses, we talked a little bit about in the prepared remarks, I'm continuing to bring down our G&A and comp.
Expecting hopefully about 1 and a half to 2 million drop year over year and cash and I think that just reflects you know their internalization some of the key hires we've made so so we feel pretty good about.
Continuing to be consistent where our expenses.
Right well I appreciate the comments from both of you and we'll look forward to what you get done in the third quarter. Thanks, So much.
Thanks, Steve.
Our next question comes from Matthew Howlett of B Riley. Please go ahead.
Hey, guys. Thanks for taking the question.
I jumped on late I apologize if you discussed this already but on.
For potential new capital.
Debt preferred at towards the end of the year can you give us you know.
I know what Youre limited what you can say, but can you in terms give us.
What you would look at would it be for the preferred would it be debt would it be.
Term debt type of term it would have been.
If you could give us in terms of rate it.
It would be helpful. Given.
Seen companies in Europe, as you know the labor 1 to 1 at some point can you just go over how you're thinking about.
Putting debt on the company.
Sure Yeah, that's a great question and thanks for joining Matt.
So I think then the number 1 priority or the top 2 priorities or 181 in 1 day or really coupon. So we want to where we're making a conscious effort.
Over the next several quarters and over the long term to bring down our weighted average cost of capital. So we feel like there's very competitive rates out there from a coupon perspective.
Not at Liberty to say you know for specific range, but I'd say, it's it's it's much lower than.
We would get.
For our for our dividend rate and our cost of equity. So I think we feel good about that in terms of the focus you know the other focus is getting amounts that we can.
Source and then deploy quickly you know where where we've reached a nice level, we dropped our cash balance by 40 million. So we had no net deployment net of payoffs of $40 million, we think that number can probably come up in future quarters, given the increase in production that we started to seen in June and expect to kind of continue in future quarters.
So I think the real focus is sizing make sure it's something that's not too big and we're gonna have to sit on it and have you know.
Cash drag and interest expense on and 2 is is most competitive couponing path, we think that there's things that would work.
Within those 2 kind of top items that we're looking for I think we have multiple options whether that's the preferred route is in there.
Senior unsecured bonds are in there you know, there's all kinds of our products that fit that that would fit both within our credit facility and not impact from a covenant perspective are our undrawn credit facility as well as give us that flexibility around sizing as well as the cheap coupons.
And I appreciate that and I guess debt.
I mean the million dollar question I guess is.
I realize that.
The sizing is important but I mean with over 1 billion 1 of equity what do you think ultimately how much debt or preferred equity you can put against that I'm assuming just.
Todays snapshot today, mostly could you get up to 1 billion.
And then just in terms of ultimately how much leverage there was perfect.
Yes, I mean, theres a theres you know I would say the immediate term we do have covenants in our credit facility. That's a 30% debt to equity ratio. So I think that's kind of the initial hurdle, but you know even getting to that level.
That's 3 or $400 million of debt and debt from our capital needs perspective that would take a while for us to even get through that and then we'd start to take a look back but I think the focus is really as we you know we think about.
Potentially having leverage you know, it's it's always going to be modest relative to our peers and I think that's a key distinction that we're never going to waver from you know what I think I mentioned in our prepared comments that's in our DNA.
To this point, where we would even consider that as a big step and I think it will be very conscious.
And modestly approaching.
As to our capital structure.
Gotcha.
Does seems ROE profile on the last question is I mean do you think in terms of G&A expense reductions is there a level on your portfolio growth, where you would have to add in terms of what can you tell us in terms of just G&A going forward. If you do end up growing that portfolio significantly how much operating leverage yeah. Thanks a lot.
Yeah, I think pretty marginal I think we've we've obviously increased our head count really significantly since we went public and I think we're in a pretty good.
Space now, we did a little bit of hiring in the first 2 quarters of this year to make sure that we have you know enough underwriters and sales folks to the different regions and as we think about expanding into states, but I don't think its going to move the needle much.
From a from a cash expense perspective I.
I think we can grow.
Multiple times are our current portfolio and you wouldn't recognize a significant uptick in expenses and I think that's the beauty of our platform is it's incredibly scalable.
Great. Thanks, everyone.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you.
If you'd indulge me for a couple of minutes I would appreciate it.
Yes.
If I have interacted with you personally over the last decade, you have encountered Peggy Armstrong most likely who has served as my assistant.
And as listening to today's call.
Peggy did her job with competence commitment in.
Rai and sometimes sharp humor.
She was a very early employee of broad Mark and has played an important role on our company.
Peggy spend on a medical leave for several months now so she could focus on the year's long struggled with metastatic breast cancer.
Today, Peggy is being released from Seattle Cancer Care Alliance hospital to begin hospice care.
I wanted to be sure to acknowledge <unk> contribution to the company and to my family.
And publicly say Peggy that debt, we wish you well.
On this next leg of your journey.
Thank you all for joining today and for your ongoing support of broad market Realty capsule.
Look forward to seeing you all next quarter.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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