Q4 2021 Broadmark Realty Capital Inc Earnings Call
[music].
Greetings and welcome to the broad Mark Realty Capitals fourth quarter and full year 2021 earnings call.
At this time all participants are in a listen only mode. A 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 I would now like to turn the conference over to your host Nevin Bopara Chief legal officer of broad Mark Real T capital. Please go ahead Sir.
Good afternoon.
Thank you for joining us today for broad Brooke Realty capitals fourth quarter and full year 2021 earnings conference call.
In addition to the press release issued this afternoon, we have filed a supplemental package with additional details on a result, which is available in the investors section on our website www Dot Brown dark dot com.
As a reminder remarks made on today's conference call May include forward looking statement.
But we're looking statements are subject to risks and uncertainties.
It may cause actual results to differ materially from those discussed today.
We do not undertake any obligation to update a 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 into 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 reconciliation 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 Bob Marks Chief Executive Officer, Jeff pilot, and Chief Financial Officer, David Schneider.
Management will make some prepared comments after which we will open up the call to answer your question.
Now I'll turn the call over to jazz.
Thank you, Kevin and welcome to our fourth quarter and full year of 2021 earnings call.
This afternoon I'll begin with some remarks about our announced management transition.
I'll, then briefly discuss our 20th 21 performance and market overview.
Well, then turn the call over to David to provide additional detail on our financial results investment activity and portfolio.
We will then open up the call for your questions.
As we announced earlier this month effective March 1st of this year, we will have completed our leadership transformation with the hiring of Brian Ward is there a new chief Executive Officer.
Brian is an accomplished real estate veteran and has deep leadership experience.
Including most recently a C E O of try not real estate advisers Ah.
Global commercial real estate asset management firm with aggregate invested capital under management $168 billion.
When we began the search last year for a president we envision a succession plan that would take place over time.
However, in finding an industry veteran an experienced leader and Brian and we were able to accelerate this transition.
I welcome, Brian and I look forward to his vision for our continued growth and the vibrancy I know he will bring to broaden work.
I will continue to serve as chairman of our board of directors and I'm excited to help Brian lead our company in the future.
Moving onto our business performance in the fourth quarter, we generated $249 million of new originations and amendments.
We accomplish this volume on the heels of a record third quarter in the face of increasing competition.
Historically, the fourth quarter has been a seasonally slower quarter for originations. This.
This year's fourth quarter activity represented an increase of more than 27% from the fourth quarter last year.
For the full year 2021, we executed $947 million in new originations and amendments representing.
Representing a 51.2% increase over the prior year.
This level of activity demonstrates the depth of our platform and team our ability to reach a growing number of high quality borrowers and the strength of the commercial and residential real estate markets as the economy continues to grow in the wake of the pandemic.
I would be remiss in not discussing the competition in short term construction lending has continued to build.
Specifically in a single and multifamily residential sectors, we're seen our competitors underwrite loans or price levels and transaction structures that we view is not commensurate with the level of risk for those projects.
Abroad, Mark we continue to remain disciplined and thoughtful and our origination approach to ensure we maintain a high quality loan book, which we believe can withstand ever changing economic and market conditions. We.
We are unwilling to deviate from her proven underwriting guidelines simply to grow our loan portfolio.
In the short term this discipline may reduce the percentage of our pipeline of which we execute but compared to our competitors. We believe that we stand to benefit in the long run and will be better prepared to face economic headwinds.
Importantly, we delivered on one of our initiatives to prudently expand our geographic footprint.
Specifically in 2021, we originated loans and seven new states and we are now active in 19 States plus the district of Columbia 50.
58% year over year increase.
This expansion is providing access to more loan opportunities and will result in a more diversified portfolio.
As of December 31st our portfolio consisted of $1.5 billion of loans secured by high quality real estate with a weighted average loan to value at origination or 59%.
We are well diversified across my property types with residential representing 59% of our portfolio.
We favor the residential sector because of the power demand drivers, resulting from population growth in our target markets.
As well as a pervasive shortage of housing, which we believe will continue to drive new construction well into the future.
We also retain the flexibility to pivot to the high quality loans that are executable within her underwriting in pricing guidelines, regardless of collateral type as seen in Q4 or 56% of our new originations were collateralized by commercial properties.
Approximately 30% of our portfolio at the end of the fourth quarter consisted of commercial projects, including storage hotels retail and office.
The remainder of the portfolio is secured by land for development.
We are also diversified by geography, with 27% of our loan portfolio in the Western U S C.
61% in the central region and 12% in the east.
Over the past two years, we have methodically grown our portfolio in the central and eastern regions, primarily in Colorado, Texas and the southeast.
Our southeast region has grown by four fold during that time, while maintaining a zero percent default rate.
Which is a testament to both our underwriting and the ability to differentiate ourselves in local markets over time.
As a reminder, while expansion has been and remains a strategic focus for broad Brooke, we're not looking to be active everywhere, we are targeting markets with strong demographics active.
Active real estate markets and for housing and finance laws are more favorable for lenders.
The market fundamentals remain highly supportive of our lending activities. The economy continues to expand and household balance sheets are very strong.
Furthermore, there remains an acute shortage of housing in many markets and demand continues to grow as a new generation of buyers enters the housing market remote working dynamics allow Americans to relocate to the high growth and lower cost states in which we currently land.
And the nonresidential sector after two consecutive years of depressed construction spending related to the pandemic.
December 2021 data showed notable increases in storage lodging retail and office construction.
This change aligns with the industry expectations of an increase in commercial construction spending in 2022.
The expected growth and construction should lead to additional opportunities for broad Mark as we move ahead the competitive landscape notwithstanding.
We continue to monitor inflation supply chain disruptions and labor shortages, which could potentially impact the cost and timeline of our projects.
Fortunately the short duration of our loans allows us to respond quickly to changing conditions.
Inflation has forced the federal reserve to become more hawkish and expectations have shifted the future rate hikes.
However, overall mortgage rates remain low relative to historic levels. So we believe the housing market should remain robust even if rates rise modestly.
I'd like to take this opportunity to discuss our commitment to E. S. G, which are foundational principles for broad mark.
We are committed to making a positive difference in our community and the broader world and.
Can we incorporate responsibility into our organizational structure and business decision, making.
We constantly strive to improve on R. E S. G performance and I'm proud of our record on all fronts.
Importantly board senior leadership and our entire team are committed to continuing to improve in 2022 and beyond.
Finally, I asked the gym Bulge me for a few minutes. Since this is my last call. The C E O.
I must begin by thanking our shareholders many of whom are investors in our private funds and continue with us today.
Whether you became a shareholder recently or have been around since our inception in 2010. Thank you.
I also have a debt of gratitude to all of my co workers abroad. Mark. Many of you have heard me quip that it's easy to loan money, it's much harder to get paid back.
From underwriting an origination through construction drawers, and finishing with repayment everyone involved with the lending process. It broad Mark is hyper focused on preservation of capital.
Add to this or accounting and finance and compliance teams and you have a crew of which I'm proud to be part.
Finally, I must give one last big Thank you to my cofounder, Joe shocking without whom broaden mark wouldn't have gotten to where it is.
As I hand, the range of leadership to Brian I couldn't be more excited about the future brought mark.
I look forward to serving as chairman of the board and supporting Brian and his team in any way I can.
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 eight of our earnings presentation.
For the fourth quarter of 2021, we reported total revenue of $31.3 million and net income of $22.2 million.
On a per share basis, just reflects the gap net income of approximately 17 cents per diluted common chair.
Adjusting for the impact of non-recurring costs and other non-cash items are distributable earnings prior to realize moss on investments for the fourth quarter, where $23.9 million or 18 cents per diluted common chair.
Interesting come on our loans in the fourth quarter was $23.5 million in fee income with $7.8 million.
For the full year 2021, we produce total revenue of $125 million and net income of $82.5 million.
On a per share basis. This reflects the gap net income of 62 cents per diluted common chair.
Our distributable earnings prior to realize last one investments for the full year, where $96.6 million.73 per diluted common chair.
On the expense side, we continue to balance our gene a reduction efforts with modest head count expansion to support anticipated growth.
For the fourth quarter, we had cash compensation, an employee benefit expense, a $4.2 million and G&A expense of $1.3 million.
With $22.3 million of cash compensation and G&A expense for the full year 2021, we finished the year with about a $4.3 million reduction from 2020.
This improvement was partially offset by debt issuance costs and interest expense of $3.3 million associated with a revolving credit facility and bond issuance in 2021.
With regard to origination volumes, which are presented on page nine of the earnings presentation <unk>.
<unk> $249 million of originations an amendment.
This is a strong result, given the typical seasonal slowdown in the fourth quarter, which we have experienced in the past.
As a reminder, origination volumes naturally vary from quarter to quarter based on the timing of loan closings.
We continue to benefit from our increasing size and scale, which has enabled us to grow our average one size, while keeping our percentage exposure to any individuals on very low.
In the fourth quarter, we executed on forty-three origination and risk reducing amendments with an average loan size of $5.9 million.
Can we increase our ability to underwrite larger loans, we achieve greater efficiency from an expense perspective.
While reaching a Barbara cohort they typically has better credit metrics.
Further as we previously discussed we are expanding our opportunity set through our dynamic pricing system, which allows us to offer risk based pricing in today's competitive lending market and reach a pool of borrowers that are typically more experienced with superior credit and collateral.
As of December 31st our portfolio yield was 14.2 per cent.
Sounds from 16.5% a year ago and over the coming quarters, we expect the portfolio yield to stabilize in the range of 10% to 12%.
I've seen on slide 10, these reduced acid yields remain higher than our peers and with a conservative amount of leverage in tandem with the increased origination volume that we're capturing we believe we can offset the impact of lower yields overtime and maintain margins.
Still are underwriting standards remain Paramount particular, a maximum 65% loan to value, which provides a significant equity incentive to our borrowers to perform.
Additionally, our loans remained short term with a weighted average term of 13 months at origination for the fourth quarter.
The short term nature of our loans reduces our exposure to interest rate fluctuations. It also allows us to be nimble and ticket quickly at the environment evolves to shift our capital crossed property types and markets.
Now turning to our balance sheet at detailed on slide 18 of our earnings presentation.
We had $133 million of cash as of December 31st week.
We quickly deployed the proceeds from our inaugural bond issuance in November and the higher than usual cash balance reflects a few large prepayments during the last two weeks of December .
This is not something that we typically see and is another indicator of the aggressive lending from competitors.
More specifically, we are currently observing bridge and permanent lenders refinancing borrowers prior to the completion of construction and taking on a level of construction risks without commensurate pricing.
For cash management and financial flexibility purposes, we continue to target a cash balance of approximately $50 million to $100 million.
As of December 31st.
We had $100 million a five year five per cent coupon senior unsecured notes outstanding and we remain fully undrawn on our 135 million dollar credit facility.
We do not issue any shares under our a T M in the fourth quarter and that's a policy. It is our intent to only access capital. When we believe that is in the long term interests abroad Mark shareholders.
As interest rates are expected to rise.
Our leverage remains very low by industry standards.
Unlike our competitors are leverages, 100% fixed rate corporate debt and we expect to be able to execute additional dead issuances at competitive coupons and grow our portfolio and a rising interest rate environment, providing borrowers with certainty of execution.
Maintaining a fortress balance sheet has always been a part of our D. N. A and this will not change even as we remain prudent as we optimize our capital structure that balances risks with achieving a competitive cost of capital.
Turning to your portfolio management.
As of December 31st we had 31 loans and contractual default representing $191.4 million in total commitment or 12.9% of the total portfolio by value.
As a per cent this was down slightly from the third quarter and primarily reflects our commitment to finding positive outcomes for defaults with minimal losses, albeit at a slower pace than we originally anticipated.
Overall during 2021 resolved $94 million of loans and contraction will default and at year end, our default rate was down by 3.6% from the prior year.
At year end, we own eight foreclosed properties with $68 million in carrying value.
During the fourth quarter, we foreclosed on two loans and receive payoffs or cures on six moons default, representing a total commitment of $41.7 million.
As a reminder.
Jones and nonaccrual status continue to have a drag on earnings for the fourth quarter hearings drag was approximately four cents per share.
We continue to work diligently to resolve these issues overtime to achieve the best result for broad Merck shareholders. Although this is likely to take time in the current environment.
From a dividend perspective, our board of directors continues to consider various factors when setting our monthly dividend and maintains a focus on achievable dividend coverage over time, while limiting instability.
As we look ahead, while we have longterm positive you want earnings.
You understand it will be difficult to grow in 2022, given that we're going to remain disciplined and our approach to underwriting and then we continued to navigate the nonaccrual loans.
While our new C E O and a strong experience have invigorated us all and we are invested in building on last year, we realize it will take time to restart EPS groups under the current market conditions and with some of the challenges discussed.
As we look ahead.
We believe brought mark is well positioned to distinguish itself from peers and to outperform.
To that point I would like to highlight factors that differentiate brought mark and that we believe will drive growth, while providing a stable dividend to our stockholders.
First conservative capital structure.
We currently have over $1.1 billion in equity value and just $100 million of that.
This equates to a debt to equity ratio of $8 seven per cent.
It's very rare to find a mortgage REIT below 200%.
We believe we are well positioned to take advantage of lending opportunities as our competitors most of whom carry large amounts of variable rate debt on their balance sheets experienced the impacts of servicing and refinancing their debt and a rising great environment.
Second.
Internally management scalability.
Our interests are lined with our shareholders and we believe we have the ability to grow our portfolio size significantly wondering minimal increases to head count and expenses.
Third.
Marketing strategy refunded, nearly 4 billion in loans since inception in 2010 with limited marketing enhancing our digital marketing strategy should significantly increase our lending leads overtime.
Force.
Geographic expansion, we're beginning to ramp up originations in the southeast region, but still just scratching the surface, while the northeast remains relatively untouched.
In addition, we've recently begun lending in Arizona, and Nevada and are currently seeking our lending license for the state of California.
Increasing our presence in these geographic areas overtime provide significant opportunities for growth.
And finally.
Complementary product expansion.
The date, we limited our product offering to construction loans.
However, there are various other business purpose loans of interest to our Barbara type.
These factors individually and as a whole give.
Give us confidence and broaden works long term prospects as we look to the future.
This completes our prepared remarks, we will now open up the line for questions operator.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line isn't the question queue. You May press start to if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.
Mr. Sarkies one moment, please while we pull for questions.
Our first question comes from Tim Hayes with B T. I G. Please proceed with your question.
[noise] Hey, good evening, guys, well first of all Jeff.
Congratulations on the transition and best of luck for for kind of the next stage of your involvement with the company and whatever else are you going to do thank you chatting Stephan.
Yeah.
Yeah, well first question you guys outlined a lot of this on the call right I mean, there's a lot of strong tailwind supporting read the housing and best friend, but at the same time there are some challenges aside from the <unk> the competitive landscape right like supply chain issues cost inflation labor shortages, and then higher mortgage rates.
Can you just talk about the impact any of that is having on Barbara demand right now and any other impacts you you foresee in the near term from from those factors.
Sure I.
You touched on a lot of the the subjects that that I think impact the borrower.
The their overall opinions and I think right now.
Tim there's still just a lot of confidence among our borrowers and so we are seen plenty of demand. There's still like I think the numbers about 3.8 million housing units that that.
That demand exceeds supply.
So so there's plenty of opportunity there you talk about supply chain issues, there's everything from cabinets to appliances to garage doors are a garage door openers are there issues, there, but but those have been going on long enough that the borrowers really I think have learned how to to deal with that they're planning a little.
Further ahead getting their orders out a little quicker.
So they're being less impacted by those kinds of things.
And then and then the inflation.
Because of the short term nature of these loans.
Inflation isn't going to have as big an impact as it would on five or seven year sort of a project.
So overall I think I think they they remain optimistic and are looking for.
For projects.
Yeah. So.
Oh go ahead, yeah, Okay, sorry, sorry, it's David I, just wanted to add real quick just when you think about inflation right. It's we think about expected fed rate hikes and all that we have brought mark may actually view that is probably a beneficial to us.
100% fixed rate corporate debt fixed rate acid yields on our loans.
You know I I think a lot of our peers will probably be impacted much more significant for us and I think given our balance sheet and where are we at you know with certainty of execution of our loans I think we stand to benefit both from an asset yield perspective, as well as limited to no impact from a financing perspective to the extent of <unk>.
Right, but I mean do you.
You expect that home price appreciation wall and economic growth in consumer balance sheets can I'll handle the impact from higher mortgage rates and continue to support.
With a healthy construction lending environment and demand <unk> from home buyers in the market you're in.
Yeah, well I think we do I mean, we haven't seen so I would say multifamily competitive you can see it I don't I think that would be much less direct impact on the multifamily perspective single family remains a relatively small portion of our portfolio. We we still do phones here when we can.
You know, we we mentioned in the prepared remarks, you know, we we shifted and did some more commercial this this quarter. We think there's gonna be a lot of rooms in the commercial construction in 2022 and beyond so we give them. The short term nature of our loans like Jeff mentioned, we can pivot as needed we can close loans, where where they <unk>.
Sent themselves and where we feel like the pricing is commensurate with the risk.
Mhm mm okay. Thanks for that David It's helpful and then.
You just made comments about expected compression of yields my portfolio over the coming year and I'm curious does that all reflect just the construction lending strategy and what were the direction of where yields and you're kind of core loan.
Yeah, a loan product is heading or does that also reflect.
The <unk> the the entrance into some bridge lending or some other type of lower coupon products that might require a little bit more leverage.
Yeah. Great question. It's it's primarily we definitely are exploring bridge, we have some small amount of bridge loans are portfolio now will continue to look at those but we're really focused on our core construction loans, we talked about it in the spirit marks the competition, we're seeing the S. You'll did that we're seeing are you know lower than.
I personally think not always competitors are not always getting pricing that we would do is competitive or you know again commensurate with the level of risk that they're taking on so.
The compression is really coming in the construction industry, but just a lot of cheap capital out there, we're seeing structures and terms put out that you know we haven't seen in many many years if not over a decade. So it's really the competition is the timing of when refis are coming in in it.
Turns ever seeing offered you know, we're not going to stand by our underwriting guidelines are 65% L. T V. We're out and we're seeing you know, 75% L. T V and 85% or 90% L. P. C and then getting eight or 9% of all and yield that's just what the range of yields is looking like right now so we're still winning a deal where <unk>.
Defying her the risk, we're taking <unk> with the pricing that's coming out of our pricing model, but we're not gonna surely just cheap pricing and compete on deals where we don't think it makes sense and is in accordance with our our underwriting.
Gotcha, what looked at as a good bridge and this is my last question here and it's around your comments about earnings growth and certainly a lot of challenges and.
And roadblocks Ted towards achieving some.
Some significant earnings wrote that sounds like a near term. So I guess you know it.
If there's four cent you did 18 cents this quarter, there's four cents from defaults Wang on your earnings that that would be assuming you could instantaneously resolve those you know you're at 22 cents. There, but then you talk about the yield compression and potential headwinds to growth given no you have to be disciplined tonight in a hot market here. So.
How do you feel about where the dividend is set in your ability to.
To stand in the near to intermediate term and what does it really gonna take for you guys to to get to see some really nice earnings growth and then get the dividend higher.
Sure Yeah. That's a that's a great question him uhm from a different perspective, you know every month a board of directors.
Considers various factors I would say their focus is maintaining you know an achievable achievable dividend coverage over time, not being short sighted while limiting instability in the dividend right. So we can can we cover our dividend. Yes. We we think we will eventually covers dividend.
Yeah, we.
How are we gonna get there I think we laid it out a little bit and towards the end of the prepared remarks.
<unk> you'd expansion into markets that makes sense find predict deals can can find for good deals and almost any state. So will continue to expand into markets extend our flip. It from there continue to increase volume I think what you saw on 2021 was you know very very heavily weighted towards the second half from a production perspective, but.
We think we're starting to see where we can come at 249 $249 million production in queue for that you know that should be a normal quarter for us, but I think you can also as you saw in Q3, we did about 333 million. So you know we're gonna be able to increase production I think that offset some of the compression that we're seeing in the <unk>.
Continue to focus on on the Nonaccruals like you said I think Q4, we have about $102 million of non accrual, which has come down primarily from the beginning of 2021. So we will continue fighting that it's not gonna happen all at one quarter of one shop, but I think there's there's low hanging fruit and there's definitely a path two earnings growth.
And as we grow earnings well management will recommend growing to dividend as well over time.
Understood well, thanks for taking my questions. This evening.
Okay.
Our next question.
Question comes from Steve Delaney with J M. P. Securities. Please proceed with your question.
Excuse me Mister Steve Delaney. Your line is now alive. Please proceed Oh my apologies I was I was still on mute Hello day, Jeff and David how are Ya.
I see you're all set.
Great I'd like to just add my congratulations to attempts comments to you you know, we'll miss working with you directly but I just [noise] you should be very proud of what you and Joe with built together with with broad Mark and I hope you'll take that with you as you as you moved fulltime into the chairman role.
Thank you Steve that means a lot. Yeah. So you guys were very very clear I think and and commenting about the competitive marketplace and I had made note of the page six it was pretty remarkable for five straight years, you've had annual net portfolio growth of two.
100 million or more and it pretty much hearing you say that that's probably not realistic this year and that you're gonna have you worked very hard to you know.
Maintain your portfolio and get some more of your liquidity dispersed, but you're going to hopefully expand the platform geographically and expand your opportunities while maintaining your level of yield without you know just caving on yield to to get volume is that is.
That is my interpretation an accurate.
Understanding of what you were trying to convey in your remarks.
[noise] yeah. Thank thank Steve Yeah, I would say you know the the focus on the growth comments was really on on earnings growth, where we're looking at ways got real earnings to grow the dividend from production perspective, you know I think I just mentioned it to him you know 250 feels like that is it is a normal run right that we can hit so sure you know we certainly do you expect to.
Be able to grow the portfolio in 2022, I think it's it's it's a balance between you know some of the compression on the guilt that we're seeing increasing our originations will will take away some of the <unk>. The sting of of a decrease in all yields couple that with some of the the continued folk.
On default resolution, but those those remarks were specific to.
What looks like two quarters, you know Q3, and Q4 it looks pretty similar and we've been training in <unk> in a similar direction. So we're gonna continue focusing on growing.
Growing origination volume continue focusing nonaccruals.
We do think we can grow the portfolio put out 250 or more quarter.
But I think it will be challenging with the competitive nature landscape from a pricing perspective to grow significant earnings.
Yep. Thank you for clarifying that cause I I had taken it just I heard your comment about earnings, but I thought that maybe you were you were saying the same thing about the portfolio on the competition in the lower rates that are coming into the market is this coming primarily from community banks.
I would say, it's a mix we are seeing feed perceived banks offer construction loans that we haven't seen in years. We're also seeing nonbanks just really really.
Really competing whether it's from the stretch structuring perspective, you know, we're offering no recourse higher than typical much higher than typical loan to cost uhm higher L. T DS and we offer through our underwriting and then getting an asset you'll but it doesn't look that attractive. So I think it's a mix. It's some of the same non-bank competitor.
That we always be out there as well as we're seeing banks take on a little bit more risk and we hadn't prior quarters interesting. That's that's helpful and just one final thing for me I'm based in Virginia, most of the time and so I know West, Virginia pretty well I'm, just curious what sub market.
And property type that you opportunity did you find in West Virginia.
See the West Virginia was one of several storage facilities that'd be execute I'd I'd have to go Crazy off me and I'll follow up online on that but we talked a little bit in the prepared remarks about commercial doing a little bit more commercial this quarter mhm and most of that was concentrated in storage facility. We did over there.
$90 million of the collateral and storage facilities West Virginia was one of the new state that was our first loan that we did there was a collateral uhm with storage facility as well as Georgia, Tennessee, and then we did some storage in Texas as well. So those are attracted got it.
All those ones have no construction risks for the most part where limited construction risk and we're acquisition loans were redeployed capital immediately so there wasn't any construction hold backs or you know money, that's not being put to use.
Got it. So your funding you were funding the lease up period is that correct. So you didn't have construction, but you're stepping in and but whether it takes 18 months two years, whatever but that you're there.
That you're.
I'm in in the in the life of the property.
Correct correct, okay, great well, thanks, so much for the comments.
Thanks.
Our next question comes from Stephen Laws with Raymond James. Please proceed with your question.
Hi, Good afternoon, Jeff as others have said congratulations on.
On your transition in a job well done as as your time is C O M.
Uhm. Thank you.
Yep.
David I think in the prepared remarks, you you touched on the leverage you know certainly given all your price the the unsecured notes accretive given new investments.
Does she look down the line kind of <unk>, what do you think the acceptable amount of leverage is for the portfolio you know and given you know.
A windy and also when do you think that might happen sounds like there's some Kevin competitive forces here you know focus on portfolio performance as well so how how do you think about adding more leverage and you know what that level might be at 11.
Sure Yeah, that's a great question, Steven Uhm, So I wouldn't say, we have an exact targeted number I think if we look out three five years I think we're we're planning to strategically introduce more leverage to the balance sheet, but we we want to keep our distinction we view our balance sheet as it used.
Differentiator from all of our peers, we think we can you know.
Go out and raise capital debt financing over the next three years slowly increase that that the equity nishioka Something's still you know potentially below 100 per cent equity ratio, which is still.
Very rare to find in a mortgage week. So you know I think we're only gonna go out and read capital when when we really need it when we're gonna do it in increments then we can put out quickly.
You know the the hundred million dollar deal that we didn't November was was really good for us not just from a structured perspective from a covenant perspective pricing was obviously competitive 5% we like the the type of investors that that came into that deal and we were able to put up 100 million basically you know we ended the year a little bit higher cash balances.
We expected I mentioned, there was some pay off prepayments in the last two weeks, but we basically put the hundred million dollars out almost in six weeks and then we had some payoffs come in that it brought elevated the cash balance that you're in but that's a nice size for us that we can put out quickly into new loans in conjunction with Nora Nora.
Will pay off coming in.
So I you know as I think about a target leverage ratio you know 334 years out from now Uhm, we could fund.
Fund, our balance sheet fun growth in the portfolio of 20% each year.
And still probably below 100 per cent that tech the ratio just you know and obviously, that's the subject to change we'll see.
You look to diversify products and if they can take that that could alter how <unk> capital in the types of structures, but that's just kind of where we're at today, how I would kind of June .
Great that's helpful, David and and then I was <unk>.
Think about expenses looking out for the year, you know come on run rate Cop, and then run right G. N. A you know what are your expectations for sure.
Sure Yeah. So we came in under so I think we came in at like 22, and a half million of <unk> I referred with cash expense and the prepared remarks. So that's comping benefit in general administrative cash expense it excludes amortization of orange juice, and the amortization of intangible assets as well as excluding <unk>.
<unk> spent so obviously, we will have to factor in we'll have a full year of interest expense in 2022 and beyond but I think that target ratio. We were targeting 24 million of cash expenses uhm with those exclusions for this year and became in one and a half million under that I think somewhere around that 24 million is still a good target for.
Those cash comps and benefits G&A expensive Herman interest expense perspective, and you know the small the in our 10-K, but yeah. We've got the six per cent coupon on the hundred million dollars bonds that we issued in November so you'll have you'll have a full year of that you know to the extent we go raise capital you might see some additional into.
Just expensive second half of the year and then you've got your typical kind of amortization of debt issuance costs. So I don't know I wanted to throw an exact interest expense number because that person can be driven by you know how much additional capital we need in 2022, but you can probably figure it out as of today, we're at about $100 billion in cash so.
We're good for the for the near term from cash and liquidity perspective, and <unk> you know looking for financing at this moment.
Great appreciate the comments on that.
Okay.
Our next question comes from Matthew how <unk> with be Riley. Please proceed with your question.
<unk>. Thanks for taking my question Congrats again, Jeff certainly look forward to hearing from Brian So shortly.
Thank you.
[noise]. The question. The first question was just to get it out of the way.
It would be the question of buybacks me with the the excess cash in that you want to grow originations, but you had that availability under the revolver you have to stock price does you know.
Continue to weaken does it make sense to have.
Authorization in place potentially buy back stock <unk>.
To have a weakness.
[noise], Hey man. Thanks. Thanks for the question Yeah, We we don't have a stock buyback program in place we've talked about you know in the past with our board whether it's proven something that we have yeah I, it's not something that we're we're focused on from the use of funds, but I agree with you it could be something that.
You could exist again, it's not something that we have right now, but you know for a case, which I hope doesn't occur where it would absolutely makes sense. You know, we we have explored setting one up but again, it's something that we would have to talk further with our board and let's see if you're pregnant. We've got places to put our <unk>.
Cash I expect we'll we'll see a nice the appointment of capital Q1 into two really good loans that we feel good about uhm. So nothing at this time, but I understand and appreciate the question and it's something that's that comes up most quarters and it's something we'd at least considered.
Setting up to two of these have the bill does he do if we want it.
No. Thanks for I said that just as it was you really wonder if this a few internally managed.
Players in the space of Republican.
Need to look at our or we used to come to move it to the other players never know how the market is sort of that you know the market could be volatile just started maybe to have it at your hip pocket at some point in time, given the volatility of the market that is it could be it could be well received from shareholders.
With that the second question is.
On the subject of loss mitigation, but what.
What can you tell us in terms of improving uhm, the last litigation Department and do their plans to beef it up to kind of get the Nonaccruals, which are just ordinary course of business in N out quicker and not have the drag on earnings Uhm every quarter.
[noise] Yeah, that's that's a great question and and a huge focus uhm from my perspective, as well as the company and I think you'll continue to see that from from Brian as well once he starts in tomorrow actually I would say that we have gotten I'd see we've adapted and the last two quarters I would say we've got more aggressive.
You know we've always identified through our watch list you know what loans have potential going into default and again. This is technical contractual default not a monetary default.
You know we know we have a good idea before they go into default when they have and I think starting in second half of this year I think we started being more proactive in looking to modify those loans and make amendments square, which made sense full thrust and the borrower to avoid them ever entering into the pot. So I think that's one thing we've been doing to try and try and limit the extent of new default uhm.
I think the other thing you started seeing in 2021, B b the history of of of winning foreclosure, where possible and only using where it makes the most economic sense. We did we foreclosed on eat properties in 2021 and that was just because those knowing that it was <unk>.
Economically me the most sense it was prudent uhm, we expect to have positive economic outcomes no losses on on most if not all of <unk> that we have on the balance sheet as of 12, 31, so being more aggressive with foreclosures not not giving the borrower the benefit of the doubt moving forward with foreclosure, where it makes sense take.
Can control the property and and it really having that control will allow us to exit quickly it better outcomes for us. So I think you can see your you you'll continue to see that more proactive probably more aggressive default management I think to continue to evolve in the coming quarters because it is it.
The sticking points for us that.
Trust me I hate telling you that there's three or four cents of earnings lost on non accrual each quarter. I think we have bought the nautical balance down when it's gonna continue can probably that one of the top priorities for us looking for creative ways to avoid default as well as get through this last slug of kind of legacy default.
Do you still believe the six 7%. It's a total balance is sort of like Normalised run right level.
So so we're at like 12.7% as of your and historically with a much smaller portfolio pre COVID-19 , we were somewhere at 5% or less you know I I'd like to see us get somewhere in between those two number <unk> realistically. So I think you know summer seven or 8% I think there's time, it's gonna take time to.
Get there I think we've got a lot of work ahead of us in 2022 to get through existing Oreo.
Get through to hopefully cut that non accrual population lower but definitely you know we've made progress.
<unk>, but there's still a lot of work to be done. There. So you know what do I think 12.7% is not a normalised rate do I think 5% with the size of our portfolios and realized right probably not I'd like to see if get somewhere in between those two numbers you know as soon as we look out into the coming here.
Great. Thanks, a lot.
Thank you ma'am.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mister Jeff Piet for closing remarks.
Thank you again, everyone and allow me again to say, it's been an honor leading broad Mark Realty capital I wish you all the very best and look forward to participating in these calls.
On the other side.
Take care.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.
[noise] [music].