Ladder Capital Corp Q1 2023 Earnings Call
Good afternoon, and welcome to ladder capital Corp's earnings call for the first quarter of 2023 as a reminder, today's call is being recorded.
This afternoon letter released its financial results for the quarter ended March 31st 2023.
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 materially from these statements and projections we.
We do not undertake any obligation to update our forward looking statements or projections unless required by law.
In addition, later 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 GAAP.
These measures are reconciled to GAAP figures in our supplemental presentation, which is available in Investor Relations section of our website.
I'll refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may site on today's call at this time I'd like to turn the call over to ladders, President Pamela Mccormack.
Thank you and good afternoon, everyone. We.
We are pleased to report.
For the first quarter of 2023 ladder generated distributable earnings of $47 $2 million or <unk> 38 cents per share, reflecting an after tax return on equity of 12, 3%.
Our dividend remains well covered from net interest margin and net rental income.
As of March 31st ladder had over $600 million, where more than 10% of our assets in cash and cash equivalents with $950 million the same day liquidity, including our unsecured revolver.
Latter remains modestly levered with an adjusted leverage ratio of one eight times and one one times net of cash and securities at quarter end.
Subsequent to quarter end, we further deleveraged the company by paying down loans and securities repo by $87 million, both bringing our adjusted leverage ratio down to one seven times and reducing our interest expense by approximately $1.2 million per quarter.
In the first quarter, we originated a 15 million dollar multi family balance sheet loan and funded $19 million on existing commitments.
In addition, we've continued to see liquidity for our existing loans repayments in the first quarter and through April totaled over $147 million with $72 million of repayments on office loans, including the full pay off a five office loans.
As of March 31st.
Ladders balance sheet loan portfolio totaled $3 $8 billion with a weighted average coupon of $8 72 per cent.
In addition to strong liquidity.
We have modest future funding commitments of $290 million.
And more than half of this commitment is contingent upon accretive good news lately.
We are well positioned to transact when activity resumes in the market.
In the meantime, we've been keenly focused on asset management.
And our significant insider ownership and ladder helps ensure our full alignment with shareholders and proactively managing any potential risk on our balance sheet.
We're currently seeing stable performance in our loan portfolio, including for our office loans, which currently comprise 24% of the portfolio.
Notably 76% of our office loans were originated post COVID-19 and 56% are located in the sunbelt.
Well, we will continue to monitor the pressures on real estate valuations, we did not have a need to take any specific impairments in the quarter and as Paul will discuss the increase in the general portion of our seasonal reserve reflects our view of macro market conditions.
Our focus on dollars per foot or basis lending in the middle market continues to allow us to both demonstrate a meaningful distinction between a default and a loss on a given loan and further distinguish ladder with sustained credit performance.
Turning to our other business segments, our real estate.
Portfolio continues to contribute to distributable earnings by generating $13 million of net rental income in the quarter and our securities portfolio ended the quarter with a balance of $520 million.
In furtherance of our goal of becoming an investment grade company. We have maintained a modest use of leverage coupled with a thoughtful composition of unsecured and nonrecourse non mark to market debt.
Anchored by $1 6 billion of long term unsecured bonds.
This bond maturity is not until October of 2025.
During the quarter, we repurchased $59 million of our outstanding bonds at a discount.
Resulting in a $9 $2 million gain and highlighting the dynamic nature of our business model.
In conclusion, we like our positioning our dividend is well covered from a primarily senior secured asset base.
Demonstrating stable credit performance and.
And we delivered an ROE in excess of 12% with modest leverage and robust liquidity.
With that I'll turn the call over to Paul.
Thank you Pamela in the first quarter ladders diverse business model performed well generating distributable earnings of $47 2 million or 38 per share.
Our net interest margin continued to increase and benefited from rising rates.
Liability structure of which approximately 50% is fixed rate.
Our $3 $8 billion balance sheet loan portfolio is primarily floating rate and diverse in terms of collateral and geography.
The portfolio decreased $97 million in the first quarter due to $131 million of proceeds received from loan Paydowns.
Set by $34 million from the origination of one loan.
Funding on existing commitments.
In the first quarter, we increased our seasonal reserve by 25% to $25 5 million driven by the current market outlook.
Overall, we continue to believe the credit of our loan portfolio benefits from granularity with an average loan size of $25 million and vintage with over 84% of the portfolio originated post COVID-19 with limited exposure to any single sponsor of market.
Our $900 million real estate segment also continues to provide stable net operating income through our earnings.
The portfolio includes 156 net lease properties with strong investment grade tenants that have long term leases.
Presenting 73% of the segments.
As of March 31, the carrying value of our securities portfolio was $520 million and was comprised of 84% AAA rated securities.
And 99, 5% investment grade rated securities.
In the first quarter, we received $60 million of Paydowns on these positions as their seniority and short dated maturity continues to demonstrate steady amortization.
As of March 31, we had $950 million of same day liquidity.
The leverage ratio was one eight times.
This liquidity represents cash and cash equivalents, plus our undrawn corporate revolver capacity of $324 million with a maturity in 2027.
Yeah.
Unsecured corporate bonds anchor our capital structure with $1 6 billion outstanding or 38% of our debt.
The weighted average maturity of these unsecured bonds is for five years and they maintain an attractive fixed rate cost of capital.
Four 7% average coupon.
As Tom will discuss in the first quarter, we repurchased $58 7 million in principal of unsecured bonds at 83, 6% of par.
The retirement of such debt at a discount generated $9 $2 million of games.
As of March 31st our unencumbered asset pool stood at $2 9 billion or over 50% of our balance sheet.
74% of this unencumbered asset pool was comprised of first mortgage loans and cash and cash equivalents.
We believe our liquidity position and large pool of high quality unencumbered assets continues to provide ladder with strong financial flexibility.
And as reflected in our corporate credit rating, one notch from investment grade from two or three rating agencies.
Yeah.
During the first quarter, we repurchased $2 $3 million of our common stock at a weighted average price of $9.14.
Our share buyback program authorization of $50 million has $44 million of remaining capacity as of March 31 2023.
Our underappreciated book value per share was $13.64 at quarter end based on $126 9 million shares outstanding as of March 31.
Finally, our dividend remains well covered and in the first quarter ladder declared a <unk> 23 per share dividend, which was paid on April 17, 2023 for more details on our first quarter operating results. Please refer to our earnings supplement which is available on our website as well as our 10-Q.
With that I will turn the call over to Brian .
Thanks, Paul.
We're particularly pleased with our strong performance in the first quarter, especially considering the stress in the banking system that we witnessed towards the end of the quarter.
As a few bank failures roiled the financial markets in March we took comfort in the strength of our balance sheet when volatility in the corporate bond markets caused indiscriminate selling of bonds and for sellers trying to raise liquidity, we stepped in and purchased about $59 million of our outstanding corporate bonds.
Generation of $9 million gain in the quarter, while decreasing our overall leverage and interest costs.
This action was opened to us because we had over $1 billion of liquidity at the time strong credit performance from our asset base and very modest adjusted leverage of one eight times.
Our strong balance sheet allowed us to take advantage of the market dislocation in March and we will continue to seize upon opportunities like this as the year unfolds.
We expect that our careful attention to credit liquidity and leverage will continue to lead to strong performance at ladder.
Because our earnings are positively correlated to increases in short term interest rates. We again saw a meaningful increase in our net interest income that rose to $43 million in the first quarter versus $37 3 million in the fourth quarter and versus $9 $2 million.
In the first quarter of 2022.
We easily covered our quarterly cash dividend of <unk> 23 per share with our 38 cents per share of distributable earnings per share.
Our 12, 3% R. O. A E. Also compares favorably to last quarter of 10, 2% and versus eight 4% in the first quarter of 2022.
We stand ready to lend on quality assets that carry a modest leverage what transaction activity has been somewhat slow we are seeing loan requests and are not having any arguments what was the level of interest rates that we charge, but there is still a sticking point in the size of the loan requested borrowers are consistently requesting.
Higher loan amounts than we are comfortable making regardless of the rates offered to us we expect to see lower loan amounts to be acceptable as time goes by and a likely mild recession takes hold.
With not much further to add in a quarter that speaks for itself I'll leave you with two data points to consider when comparing our stock to other investments.
The first is our dividend coverage of 165% and the second is our modest adjusted leverage of just 1.7 times today.
With unencumbered assets of $2 9 billion, including cash of $626 million at the end of the first quarter. We are very well positioned to take advantage of market dislocations or the return to more tranquil market conditions as.
As the regional and community banks contract a bit now fully aware of how mobile their deposit bases, we expect demand for our type of mortgage lending program to increase in the years ahead, we're very well capitalized and the competitive forces in the current market a rather muted this should bode well for ladder going forward.
And we're looking forward to meeting that demand with our lending capabilities.
Let's now turn to Q&A.
Ladies and gentlemen at this time, we'll begin the question and answer session.
You joined the question Kim You May Press Star and then one using a touchtone telephone if you are using a speaker phone. We do ask that you kindly pick up the handset prior depressing the numbers to ensure the best sound quality.
To withdraw your question you May press Star two.
Once again that is star and then wanted to join the question queue, we will pause momentarily to assemble the roster.
And our first question today comes from Jade.
Jade Rahmani from K VW. Please go ahead with your question.
Thank you very much I'm not sure. If the 10-Q is filed I didn't see it so I apologize if it was but any.
Credit changes of loan risk ratings watchlist.
Those types of things and the ethics that we should be aware of.
Yeah.
No James this is Brian .
Well go ahead, yes, I was going to say no no no non accrual loans no specific impairments.
Yeah.
Okay.
How would you say that the credit cycle is playing out versus your expectations.
There's a lot of headlines, but there are sizable increases in nonperformance, we've seen earnings from the banks.
Taking up reserves quite meaningfully.
The mortgage rates have book, either losses, or a meaningful uptick in the couple of others have not.
But just curious as to how the credit trends are bearing versus your expectations for the market.
Sure.
I would say that.
So you move interest rates up at the pace that they've been moved up over the last year and Youre going to feel obviously a lot of dollars going into the lender column as opposed to the equity column, so theres a little bit of stress in the system for sure.
I find though that theres, a lot of equity and a lot of capital in the system also.
And if sponsors are having trouble extending or or refinancing. It does seem to me that if they have capital available. They are willing to protect the assets at this point and when I say the assets, where I'm really talking about multifamily and office here the industrial sector, we're not seeing a lot of stress.
And in that area at all retail is holding up very well also and hotels I don't think I've seen hotels doing much better than this in a long time, but.
But everybody worries about the office side I think the office side is a little overcooked on the on the media side, where they're telling you the world is ending.
I do think there are some big cities and there are some big loans, where.
This is a bit more of a it's more of a.
Social story more than it is a real estate story at this point.
You've got depleted amounts of of the population returning to work in some of these cities, but I don't think it's necessarily a return to work problem necessarily I think it has more to do with the specific cities for instance, San Francisco I don't think could be doing worse.
Whereas new York's doing okay, Miami is doing very well.
So it all depends really on where you are and what the population trends are as far as their attitudes towards returning to work.
But so far at least as far as the performance in our portfolio specifically.
We do see leases being signed anybody who doesn't know when assigning leases is wrong.
We are seeing it being slower and the office side in particular, however, oddly.
The rental rates that are being charged by landlords are actually higher than we were anticipating in most cases.
So it's a little bit of a mixed bag, certainly, but I would say that so far at least at the portfolio of ladder. If sponsors have capital and most do they are protecting and so far most of them what I would call. The damage is being incurred on the equity side of the.
Question as opposed to on the debt side.
Thank you very much for taking the questions I'll get back in the queue.
And our next question comes from Sara Barcomb from BTG. Please go ahead with your question.
Hi, everyone and thanks for taking the question. So you mentioned earlier in the script you know you have a little over 40 million.
Capacity on the stock repurchase authorization.
That's something that you guys have been doing pretty consistently I'm just curious how you're viewing.
The stock price now and you know if we if we could expect the pace of stock repurchases two to ramp up in the near term and how youre thinking about that.
We have usually plenty of room for that the board of directors gives us a lot of leeway there.
We look at the stock as another investment and at various times and depending on what our capital situation is around cash and what our expectations are for disbursements of investments.
We become more or less aggressive in the area of given the current pricing conditions, where I see things at this point at least over the last couple of weeks I'd imagine we'd be we'd be back involved in the next quarter also but I wouldn't try to indicate to you is that in already undersized company is looking to get a whole lot smaller.
You did see us buy a sizable portion of our debt back.
And at that time, the debt was yielding pretty close to what the equity was yielding so we had a preference for the debt side.
Okay.
And just to kind of move over to the the multifamily book.
We've received some questions on some of the perhaps more aggressive sunbelt multifamily lending that might have happened during.
During the rapid rent growth in an ultra low interest rate period can you speak to any exposure there.
You might have to perhaps negative leverage deals that might've been done during that period and any risk there might be in the portfolio.
Oh well.
We did see a big run up in prices and we saw a lot of loan requests for 80% leverage on a purchase price of a property that sold three years prior at half the price it was being sold out in 2021.
We tend to avoid those transactions unless there was a reason that we could point to concrete wise as to why we would expect the population of that area and the demand side of rental apartments, and the income side that might be able to too.
<unk>.
Absorbed getting to those apartments at those rents we didn't do a lot of that.
In fact, we pretty much toward the end of 'twenty. One I believe we noticed that spreads were widening in the CLO market and I think a lot of.
Wenders interpreted that to mean it was just the end of the year and that's what happens when LIBOR and so forget through the end of the year, we did not interpret it that way and so we pretty much began bowing out of stay.
Stabilized debt yields of six.
That time.
And yes.
Yes, we we began using an eight ounce stabilized debt.
The debt yield first on the on the exit so we don't have a lot of it. We also introduced the program because caps works, so expensive, where we were funding construction.
Construction loan Takeouts, where we're funding brand new apartment buildings with C of OS and the only thing that had to do was leasing them up and we were writing two year fixed rate loans. So a lot of our exposure is in that area and there'll be coming due.
24 in all likelihood and I've seen the business plan that Theyre doing fine.
We've had a couple of management, Mrs where you saw some delinquencies pop up inexplicably, but then they solved it. The following month there was a computer problem. So we don't have a lot of exposure that I'm worried about.
If I if I told you.
I don't have a number for you here, but if I I had a concern it would be on the class C Garden style apartment in a high crime neighborhood from 2019, where 80% Levered 30000, a unit going into the property because there was a belief that the crime problem is going to be solved and theyre going to be able to charge higher rents.
So I would look to the vintages of 2018 in 2019 that have not refinanced yet as potentially you know where where trouble could be lurking, but as far as where we are we're a quick.
Very attuned to the.
The debt yield on the exit and began addressing that in late 2021. So I don't really feel like we have a lot of exposure there.
Great Thanks for that color.
Yeah.
And our next question comes from Matthew Howlett from B Riley. Please go ahead with your question.
Thanks for taking my question.
First one on repayments I mean, there were 131 for the quarter I mean, it's pretty steady.
What's your what's the outlook on the repayment rate and no Brian .
How much are you willing to Delever. The company I mean, you talked about the origination could they come back and just little would you look to buy securities. What would you how low would you look to take leverage up these repayments keep coming out in.
And the market originations isn't back yet.
I feel like were.
As de Levered as we need to be at this point.
I never like to say the word you feel over capitalized, but two because it can bite you in the button one day, but.
To me it feels like given the opportunity set that's out there the return to borrowing at levels that we're comfortable with has been a little slow I think it's inevitable that it's coming so I want to hang onto a lot of dry powder at ladder and we are ready to make loans, but I do think that there is a bit of a plateau here.
Where buyers and sellers, they're not quite in sync, although the lenders are beginning to push the issue a little bit. So I think we'll start seeing a pickup in activity there.
And interestingly enough, we actually did start seeing some loan quotes go out the door in the last month or so and.
We were fine on rate, we were not getting to the proceeds requested we did see other lenders getting to the loan proceeds that were requested at least in the application phase and they havent closed yet and interestingly enough for several of the lenders that we're getting for those proceeds number I had never heard of so are there. There is also a group.
Of investors I think that's getting into the business now thinking its a great time to make alone and I tend to agree with that but it's still it's still requires caution as far as leverage goes.
I feel on an adjusted basis below two O times.
We have an unusually high amount of cash laying around right now.
Don't need as much cash when you're not terribly leveraged and when.
When we saw the opportunity to repurchase some of our debt in prices in the low eighties.
That seemed a little bit too attractive to to avoid.
Hey, your buyback that you're buying back stock, but you've always been opportunistically would you.
Look at buying securities.
Real estate I mean, obviously first Republic Theres talk of.
Hundred billion coming out of that then T. M. B S me anything opportunistic wise that you could do with the excess capital.
I'd love to have them and we're on the FDIC list for taking a look at some of the portfolios, especially here in New York out of the.
The signature bank portfolio, we haven't seen anything and $100 billion coming out of first Republic, I mean, obviously, we're not gonna tangle with that.
We do think it's almost everything is opportunistic.
Opportunistic right now there there is no regular way lending going on at all nobody is borrowing 65% that sulfur plus 300 on an acquisition. It's it's very much a special situations market and sometimes those special situations involve our own debt when the high yield market is selling off indiscriminately in those those prices have bounced back.
A bit here, although still.
Quite attractive in my opinion.
We are mortgage lenders at heart, we understand the securities business to the securities business is attractive.
It it does require quite a bit of leverage.
And I'm, a little bit concerned about some of the attitudes towards leverage and some of the banks.
It's not that they're not lending they started charging a lot you might've heard Pamela mentioned that we paid off a lot of our securities repo.
Subsequent to the end of the quarter. The reason why as you know banks are charging six 1% for financing AAA bonds that were earning seven 3% on a.
And they have 85% subordination because their CLO from 2019, so we just think that rather than pay the six 1%. We will just pay that off and we will collect the seven 3% unlevered. So they are very attractive you can lever yourself into the Twenty's. If you want obviously, that's a situation open to us.
But to me I am a little bit concerned when I hear that first we probably might be selling $100 billion of loans and securities that is not a constructive environment for us to be stepping in thinking that spreads can't widen because they certainly could.
Makes sense and then last question lot of your competitors or peers. They talk about it is the only doing multifamily because you have the GSE take out there.
It sounds like you are.
You're open to everything but I mean are you quoting hotels you'd look at office.
And then long term is there any major impact on your model at the banks will end up.
It's higher regulation or they curtail lending.
Well there aren't big regional banks are certainly going to wind up with curtailed lending and higher regulation.
So I think and then in the initial phase of whatever theyre going to go through.
I don't believe they're going to stop lending I mean, there are still banks and I think that they have now notice that their deposit base can be pretty tricky. So I think they'll all be running there'll be paying higher deposit rates to hang onto deposits.
It will be lending more conservatively that will cause maybe some difficulty in refinancing our loans, although frankly, we haven't seen that yet.
We might there's also plenty of other lenders to and Theres tons of small banks that don't have any problems along the lines of what you read about in the newspapers and long term I think it's a positive for us because I think it's another example of regulation leverage and past mistakes, forcing a lot of the mortgage lending apparatus in the United State.
It's outside of the banking system and since we service that mid market, our borrower base I think it'll come right to us and that's very helpful. So short term not helpful. On Refis long term extraordinarily helpful.
Great and then just on the call are you looking are you still lending to all sectors or something that you want to do now.
Well, we havent made a loan other than multifamily in the last quarter.
I think it's going to sound wacky I like office.
And I don't like office, because I believe office is going to do fine and rents are not coming down and everyone's going back to work Tomorrow I. Just believe the story is a little overdone and I've got a portfolio of office loans that are doing okay and.
Pick more office these days rather than supply and demand as opposed to.
We really look at where they're located and I don't mean, what corner I mean, what city, so I can't imagine making alone in San Francisco I might buy a building there I think latter could do that because I don't think it's kind of a binary outcome. The good part about all the problems that are taking place in some of these larger cities that are having difficulty with all.
As the problems are quite fixable, and and I think that they will ultimately get fixed over time, but Chicago just took a step backwards.
So they won't be fixing.
Fixing their problems anytime too soon here, so I don't expect us to be a lender in Chicago, San Francisco, Portland, Seattle, Los Angeles D C and parts of New York.
Makes it makes a lot of sense I really appreciate the and the hotel sector by the way I'm, sorry, I didn't get to that one theyre doing fine.
But I do believe we're going to go into a mild recession here and rates are quite high.
And I think the American consumer wants to get out once they go on vacation, so I sort of like the Ive always.
We've always favored the drive to market and the resort market as opposed to the <unk>.
Inner city I.
I saw a property changed hands the other day like 700 rooms, and in New York City that's difficult.
So those I think we would avoid but we like the garden inns, we liked the courtyards.
The destination yet it makes their lives with the help of it very well I really appreciate it.
Sure.
And once again, if you would like to ask a question. Please press star and then one.
For all of your questions you May press star and two.
Our next question is a follow up from Jade Rahmani from <unk>. Please go ahead with your follow up.
Yeah.
Sure I wanted to ask just two strategic questions. One do you see an opportunity to raise a fund raise third party capital and maybe invest in office repositioning or some kind of contrarian or distressed oriented fund.
De novo pools of capital tend to do pretty.
Pretty well at this point in the cycle.
Oh, Yes, certainly there is an opportunity to do that I will tell you we haven't been overly active in that area because.
It comes with systems and controls that we have had outside funds in the past before we went public but.
But we just think it's a good opportunity for that but right now we think given the the asset base that we work off of keep in mind, we were.
Lending operations in two big Swiss banks in the prior 15 years and so.
So we do see a lot of large loans and a lot of good opportunities, but I think we kind of work backwards state I think if we wanted to do a $400 million recap on our office properties that we thought it was really cheap we would probably just buy it and then then distribute it.
To some high net worth individuals or funds or insurance companies and syndicated that way as opposed to just raising money for a fun because in my experience anyway to a start up I mean, you take an organization that's a real asset manager they raise money very quickly and they have a whole system people, who go out and do it where a small operation was about 60 people and.
We don't have.
All of the slides.
All of the accounting systems that a lot of people that do and divestments institutionally like to see but I do think we can do a lot of that right inside the REIT, where we are right now.
I think we'll participate in it and I think we'll do them larger than bite sized transactions and we'll syndicate. It after the fact as opposed to having the money.
In hand, it takes a long time to raise money that way and oftentimes by the time I mean, when we first opened ladder in 2008 securities were so cheap it was ridiculous and we went about raising an outside funding ultimately the funds we did raise for rich people as opposed to institutions the institution.
It is all new.
We knew what we were doing but we had to go through their adviser and then we had to go through their due diligence periods and by the time they got around to saying, yes. The opportunity had passed so these markets move pretty quickly I think we specialize in things that move quickly and.
Yes, we have enough capital at this point to at least get started on things if things look, particularly attractive and we feel like we need more capital I don't think we'll have any trouble getting that but.
We're not anticipating a fun just yet.
Okay and then on the.
The M&A side is merging with another company and something that is interesting to you.
You know there are plenty of mortgage Reits trading at below your valuation.
And there seems to be better although it could jeopardize the investment grade goal, but just wanted to get your thoughts on that.
Yeah, I mean, there's a couple of names that I have written on the back of my hand, but I think about once in a while and it's really isn't so much that I think I understand the company. So well, it's just I understand the people who run the company pretty well and some of them are pretty talented people and I doubt that the problems there seemingly having are nearly as bad as what.
Spot prices would indicate so yeah I think about it it is certainly not outside of our wheelhouse.
And I always thought by this point in the first thing we might look at would be a residential platform, but the residential platform seem to have a lot of leverage in them and you've seen us get away from that over the last few years, so unless something just walks through the door that looks pretty cheap, where we're not going to do it as a capital raise where we buy our residential platform and just sell off their balance and then.
Then use the cash for commercials I didn't think we could run a very attractive residential platform, especially now with some of the changes taking place in residential lending, but it is a long duration asset and I think we've said before why we haven't been in that business and here. It is again it's that.
Long duration.
Risk interest rate management, it is very difficult to do and you'll see a couple of banks now in some trouble when you see a couple of banks not in trouble that have huge losses that have not been realized yet and so it is this is a good time to get into the residential space, though.
Thanks for taking the questions.
Sure.
Our next question comes from Chris Muller from JMP Securities. Please go ahead with your question.
Hey, guys. Thanks for taking my question.
Had a quick one on what would make you guys more comfortable on getting aggressive on the lending side.
Last year, you guys were able to put out some pretty big origination volume. So is it more the fed pausing or I guess, what type of things that make you more comfortable.
And back on the gas there. Thanks.
I think if we you know Pamela mentioned transaction volume has been muted.
That sentence can represent a lot of things theres a lot of people looking to refinance loans.
The loans were written in a zero interest rate environment and Theres difficulty.
Unless they've executed perfectly and possibly even done better it's very difficult.
For them to handle today's rates based on the size of the loan they want I think where we get much more comfortable as seeing acquisitions of assets today.
With today's underwritings with new equity going in and a very sober loan request, but whereas the so when Pamela mentioned the transaction volumes have been muted not only has the loan side been slow, but the acquisition side has been very slow to and even see it on the residential side.
New mortgages are falling.
Because rates have gone up so.
It isn't that we're uncomfortable we're very comfortable lending in this kind of a market and even going into a recession.
I tend to believe it's hard to write a very bad loan in a market like this because every assumption you used is probably a little bit worse than what will actually happen, but we're.
We're just not seeing a lot of properties change hands. So what we're primarily focused on right now it is acquisitions and there just aren't many of them.
Got it that's helpful. And then just quickly on the dividend can you just remind me when you guys were a drag.
Yes, you bet.
A special dividend or a dividend increase is that an annual thing you look at or is it quarterly board will work at that.
The peso distributable earnings above that dividend.
It looks like there could be something that needs to be done there. Thanks.
We look at it quarterly.
Usually right before the dividend declaration date, so I'd imagine the first couple of weeks of June we'll take a look at it again.
Last year, we raised our dividend twice for a total of 15% versus where we started the year at.
And so what we're going to revisit that began in June here.
We took a look at it in March.
And earnings look pretty good and then I guess with Silicon Valley Bank got in trouble around March 10, I think all of the bonds and all of the stock we bought back took place after March 10th so.
When we were figuring out our next dividend calculation the market was a little bit up in the air and so are we.
We wound up supplementing the earnings of this quarter greatly in the last two weeks largely as a result of the.
The turmoil in the banking sector. So I think we will be revisiting it again in June and the first two weeks of June .
Got it thanks for taking my questions guys and congrats on a nice quarter.
Yeah.
And our next question comes from Derek Hewett from Bank of America. Please go ahead with your question.
Good afternoon, everyone. You had mentioned earlier bank behavior with securities repo tightening caused you to repay.
That source of funding on the Securities book, but what about the bank.
Bank behavior on the loan repo facilities are you seeing any changes in the bank's behavior too.
In regards to maybe advance rates.
Maturity extensions requiring higher spreads.
And in terms of.
Their thoughts on the loan.
Repo facilities are Pamela I think you deal more with that than I do if I can answer it but I think you'd do better job with it so I'm going to ask Pamela gotcha.
They are free to jump in but the short story is we're not really seeing that we don't first of all let's start here, we have very limited repo outstanding.
So and we haven't really in the first quarter I think Paul confirm we did not have any margin calls.
Thank God there is at least one lender who is looking at their multifamily exposure and looking at that yield then it may make some adjustments there across the industry as we understand but to date, we have not funded a margin call.
Okay. Thank you.
Yes, I can answer a little more there I think it would be hard to replicate.
The lending criteria that we've got right now in place on some of those.
I think the scenario if they are tighter now than standard the rates are higher on the security side. The only thing that really happened was.
Rate went up went up the spread went up they didn't they didn't they didn't pull back on the advance rate. So it is not necessary, it's not a credit conversation, it's the liquidity conversation and so as a result of that we just pulled back.
And to be clear. We also we found that some additional repo I think it was important for us to demonstrate that the capabilities, we have there and the capacity that we funded some repo.
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Recently and have a ton of capacity there and if anything I think it's probably true for us and our peers, we're seeing people.
Looking to open up new lines with us at this time.
They're anxious or lend is the way I would describe it.
Thank you and then with it within the office portfolio is there any way to kind of.
Uh huh.
Segment, what the the kind of the higher risk like risk rated four or five office loans or since the 10-Q is not out yet.
I don't we don't use that kind of criteria.
Paul I think you have some information about how many of our loans were written after the pandemic and if you hear my dog I'm, sorry, that's life, calling.
But Paul I didn't we have like 76% of our loans were the office sector was written after March of 'twenty one so.
Yeah. So we don't have them right in the way other people do.
But last call. If you remember we went through our five largest exposures.
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In fact today I think a flare yesterday I saw an article in the Wall Street Journal, saying some of the Sun Belt office markets look like they're losing some of their momentum and the place where we have our most exposure was on the bottom of that chart in Miami not losing its momentum so I'm we're not.
We're not having a lot of trouble with office. Despite what's in the news and we're reviewing business plans, we're sending people out to see properties. There are leases being signed even in New York City, even in mid block buildings in the garment district.
It is just not as bad as what's being portrayed in the press.
Okay. Thank you.
And ladies and gentlemen, with that we'll end today's question and answer session I would like to hand, the floor back over to Brian Harris for any closing comments.
I'll just wish you all well and thank you for getting on the call and missing the Amazon action today.
I know that they are releasing too, but thanks for hanging with us and this is a good market for US we we don't mind rough weather and as long as we keep our focus on credit quality and liquidity and leverage should we expect to be very very profitable in the year and the quarters ahead here.
So thank you.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for joining you may now disconnect your lines.
Okay.