Q1 2025 Ladder Capital Corp Earnings Call
Good morning, and welcome to ladder capital Corp's earnings call for its first quarter of 2025 as a reminder, today's call is being recorded.
This morning, a lot of released its financial results for the quarter ended March 31, 2025 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 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.
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.
Speaker Change: These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the Investor Relations section of our website. We also 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.
Pamela McCormack: Good morning.
Pamela McCormack: During the first quarter ladder generated distributable earnings of $25 $5 million or 20 cents per share for a turn on equity of six 6% with modest adjusted leverage of just one four times.
Pamela McCormack: We remain pleased with ladders positioning in 2020 five following our strong performance in 'twenty 'twenty four.
Pamela McCormack: Over $1 $7 billion or 51% of our balance sheet loans paid off in 'twenty 'twenty four marking the highest annual pay off volume and a lot of history with nearly $600 million of proceeds from loan payoffs in the fourth quarter alone.
Pamela McCormack: Well the timing of these payoffs temporarily muted earnings reinvestment momentum is now building.
Pamela McCormack: Getting paid back as the most important part of the mortgage business and we're excited to redeploy the liquidity generated from loan payoffs into new loans at lower reset basis is that better reflects current market conditions.
Pamela McCormack: During the first quarter, we originated $329 million of new loans and acquired $521 million in AAA securities, bringing our total first quarter investment activity to over $800 million.
Pamela McCormack: Our disciplined model has firmly established our position as a leading middle market focused commercial real estate finance REIT over.
Pamela McCormack: Over the past several years, we have consistently delivered strong earnings.
Pamela McCormack: Preserve book value.
Pamela McCormack: Achieved record loan pay offs avoid.
Pamela McCormack: Avoided material losses in.
Pamela McCormack: Enhanced and extended our liability structure.
Pamela McCormack: And maintain the highest credit ratings in the sector, all amid a challenging macroeconomic backdrop.
Pamela McCormack: The strength of our platform was most recently evidenced through the return on equity ladder generated in 'twenty 'twenty four one of the strongest in the sector.
Pamela McCormack: As we look ahead for the remainder of 2025, we recognize the continued possibility of market volatility and uncertainty.
Pamela McCormack: However, with substantial liquidity modest leverage and a robust balance sheet.
Pamela McCormack: Including one of the lowest cost of capital in our space, we're well prepared to navigate these challenges and capitalize on the opportunities they may create enhanced liquidity and credit ratings.
Pamela McCormack: As of March 31, 2025, but I had $1.3 billion in liquidity, including $480 million or over 10% of total assets comprised of cash and cash equivalents.
Pamela McCormack: 83% of our asset base was unencumbered as of quarter end and 72% of lot of that was comprised of unsecured corporate bonds.
Pamela McCormack: But it remains on positive outlook from both Moody's and Fitch with ratings, just one large below investment grade well S&P upgraded our credit rating by one notch in 'twenty 'twenty four.
The recent expansion and upsizing of our $850 million unsecured corporate revolving credit facility, coupled with our 500 million dollar unsecured bond issuance in 2024 reps.
Pamela McCormack: Represent meaningful progress in our shift towards unsecured debt as our primary funding source and.
An important milestone on our path towards potential investment grade ratings.
Pamela McCormack: Loan portfolio overview.
Pamela McCormack: As of March 31st 2025, our loan portfolio stood at $1.7 billion, representing 38% of total assets with a weighted average yield of eight 7%.
Pamela McCormack: Our future funding commitments remain minimal totaling just $40 million.
Pamela McCormack: During the first quarter, new loan originations outpaced payoffs, we received $181 million in loan pay offs, including the full repayment of nine loans.
Pamela McCormack: In contrast, we originated $329 million of new loans.
Pamela McCormack: Think of a $64 million fixed rate conduit loan with a coupon of six 8% and $265 million in balance sheet loans at a weighted average spread of 394 basis points.
Pamela McCormack: Notably 74% of these originations were backed by multi family or industrial assets.
Pamela McCormack: Additionally, our pipeline continues to grow with approximately $250 million of new loans currently under application.
Pamela McCormack: Given the robust payoffs achieved in 'twenty 'twenty four we expect me to pay off for the remainder of the year.
Pamela McCormack: Asset repositioning and risk management.
Pamela McCormack: During the first quarter, we placed two more loans totaling $38 $7 million on non accrual status.
Pamela McCormack: A $13 $7 million of hotel loan and a $24 9 million dollar office loan.
Pamela McCormack: Overall, our non accrual loan balance represents only two 6% of our assets.
Pamela McCormack: We did not take any impairments this quarter and our seasonal reserve remained at $52 million as of March 31 2025.
Pamela McCormack: We continue to believe this reserve is sufficient to cover any potential losses, we may incur highlighting the strength of our underwriting and asset management, which remain a core driver of our success.
Pamela McCormack: Consistent carry income from our real estate portfolio.
Pamela McCormack: $892 million real estate portfolio generated $12 $2 million of net operating income during the first quarter.
Pamela McCormack: The portfolio, primarily consist of net lease properties with long term leases to investment grade rated tenants.
Pamela McCormack: In addition, we sold one that lease property generating a $900000 gain in distributable earnings during the quarter.
Pamela McCormack: Growing securities portfolio.
Pamela McCormack: During the first quarter, we acquired an additional $521 million in AAA rated securities at a weighted average unlevered yield of 579%.
Pamela McCormack: As of March 31st our portfolio totaled $1 $5 billion with a weighted average unlevered yield of 567%.
Pamela McCormack: Primarily comprised of AAA rated securities.
Pamela McCormack: As Brian will cover in more detail, we continue to invest in securities during the second quarter as spreads widened ensuring stable earnings and enhance liquidity for ladder with the entire portfolio remaining unlevered.
Pamela McCormack: 2025 outlook.
Pamela McCormack: A lot of its business plan continues to prove effective amid a highly dynamic environment shaped by persistent interest rate volatility and geopolitical uncertainty, including the reemergence of tariffs.
Pamela McCormack: Trade tensions have contributed to uncertainty impacted commercial real estate demand, especially in sectors tied to global supply chain.
Pamela McCormack: Well. This is Paul volatility may dampen price discovery and deal execution. It should also prep present attractive opportunities for well capitalized platforms like ladder.
Pamela McCormack: Our discipline balance sheet strength and real time market intelligence gathered from our Multicylinder business model are crucial and enabling us to proactively navigate market fluctuations and capitalize on opportunities with the best risk adjusted returns when others may be constrained in conclusion, we remain highly liquid and very well situated to act with certainty.
Pamela McCormack: And speed to deploy capital into new investments that can drive earnings growth and deliver long term value to our shareholders with that I'll turn the call over to Paul.
Pamela McCormack: Pavel.
Paul Pavel: The first quarter of 2025 ladder generated $25 $5 million of true earnings or <unk> 20 per share attributable EPS.
Pamela McCormack: Achieving our return on average equity of six 6%.
Pamela McCormack: She remain flush with liquidity and low leverage after ending 2024th record payoffs.
Pamela McCormack: As of March 31st 2025 letters balance sheet remained strong with primarily comprised of cash and our liquid AAA securities portfolio with room to grow leverage as we deploy our capital.
Pamela McCormack: As of March 31st 2025 that is liquidity was $1 $3 billion comprised of cash and cash equivalents and our newly upsized and extended $850 million unsecured revolver, which remains undrawn.
Pamela McCormack: Kidney gross leverage is 183 times as of quarter end.
Pamela McCormack: As we continue to Delever.
Pamela McCormack: Far from our target range of between two and three times leverage.
Pamela McCormack: As of March 31st 2025, 72% of our debt was comprised of unsecured corporate bonds with a weighted average remaining maturity of three five years at an attractive weighted average fixed rate coupon of five 2%.
Pamela McCormack: Yeah.
Pamela McCormack: In the first quarter, we repurchased $20 million in principal value of our unsecured bonds, including $8 million for 2025 bonds maturing This October which now have $288 million in principle.
Pamela McCormack: Outstanding.
Pamela McCormack: In the first quarter, we called our F. L to cielo is a continued to advertise.
Pamela McCormack: Total in the first quarter, we repaid $323 million of secure CLO debt.
Pamela McCormack: It's Pamela noted that remains on positive outlook, one not from an investment grade credit rating with two rating agencies.
Pamela McCormack: Bladder is currently running a balance sheet within many of the investment grade metrics are the rating agencies.
Pamela McCormack: Given our long track record of disciplined and prudent manager of capital. We are hopeful we will become an investment grade rated company in the near term.
Pamela McCormack: As of March 31st 2025.
Pamela McCormack: Encumbered asset pool stood at $3 $7 billion or 83% of total assets, 85% of this unencumbered asset pool is comprised of first mortgage loans securities and unrestricted cash and cash equivalents.
Pamela McCormack: As of March 31, 2025 letters on depreciated book value per share was $13.66.
Pamela McCormack: Which is net of 41 cents per share of Stifel General Reserve established.
Pamela McCormack: In the first quarter of 2025, we repurchased 71000 shares of our common stock.
Pamela McCormack: The weighted average price of $11 42 per share.
Pamela McCormack: As of March 31st 2025, $66 $8 million remains outstanding a ladder stock repurchase program.
Pamela McCormack: Subsequent to quarter end in April Waters' Board of directors approved an increase a lot of share buyback authorization to $100 million.
Pamela McCormack: In the first quarter latter declared a <unk> 23 per share dividend, which was paid on April 15 2025.
Pamela McCormack: As we continue to deploy the liquidity with the master successful payoffs in 'twenty 'twenty four and.
Pamela McCormack: And it begins to prudently add leverage toward de Levered balance sheet.
Pamela McCormack: Hopefully, we returned to consistent dividend coverage in the coming quarters.
Pamela McCormack: As Tom will discuss our performance in detail I will highlight a few additional points regarding the performance of each of our segments for the first quarter.
Pamela McCormack: As of March 31st 2025, our non accrual loan balance was $116 million across four loans.
Pamela McCormack: The reserve was $52 million or <unk> 41 per share as I previously mentioned.
Pamela McCormack: We believe this reserve levels adequate to cover any potential loss in our loan portfolio <unk>.
Pamela McCormack: Including consideration of the continued macroeconomic shifts ongoing in the global economy.
Pamela McCormack: As of March 31st 2025, the carrying value of our securities portfolio was $1 5 billion up 37% from year end with a weighted average yield of 567% as we continued to rotate capital out of T bills.
Pamela McCormack: And into AAA securities, while we allow for our loan pipelines are built.
Pamela McCormack: As of March 31st 2025, 99% of the Securities portfolio was investment grade rated with 96% being AAA rated.
Pamela McCormack: As mentioned the entire portfolio of predominantly AAA securities unencumbered and readily financeable, providing an additional source of potential liquidity complementing the $1 $3 billion of same day liquidity, we maintain.
Pamela McCormack: Yeah.
Pamela McCormack: Our $892 million real estate segment continued to generate stable net operating income in the first quarter of 'twenty 'twenty five.
Pamela McCormack: The portfolio includes 149 net leased properties, primarily investment grade credits committed to long term leases with a weighted average remaining lease term of seven five years.
Pamela McCormack: In the first quarter, we sold one net lease property for $13 million of proceeds generating a zero point $9 million gain.
Pamela McCormack: Distributable earnings and a $3 $8 million gain for GAAP, which includes the recapture of previously recorded depreciation and amortization expense.
Pamela McCormack: In conclusion looking back over the five years since the onset of COVID-19 in March of 2020 ladder has maintained a remarkably steady book equity of approximately $1 $5 billion.
Pamela McCormack: We believe this is a testament to our long held focus on principal preservation first.
Pamela McCormack: Return on equity second with a consistent strategy of financing our three core businesses, primarily unsecured debt and modest leverage.
Pamela McCormack: For further details on our first quarter 2025 operating results. Please refer to our earnings supplement which is.
Pamela McCormack: Available on our website, our latest quarterly report on Form 10-Q, which we expect to file the coming days.
Pamela McCormack: I'll turn it over to Brian.
Brian: Thanks, Paul at the end of 2024, we held about $1.3 billion in cash and T bills. Following a high volume of loan payoffs in the second half of the year in.
Brian: In the first quarter of 2025, we began to deploy that capital into new investments in a post pandemic post election higher interest rate environment as the year began we felt like loan requests coming out of the refi channel were unattractive and largely relating to older properties with broken business plans with too.
Brian: Existing leverage in place.
Brian: We tried to focus on originating mortgage loans on new acquisitions and on newer properties, where we could find them.
Brian: By the end of the first quarter, we were seeing much more attractive lending opportunities with acquisitions, becoming more common along with newly built multifamily units coming off construction loans and in their initial lease up phase we.
Brian: We were pleased to have originated $265 million of first lien balance sheet loans at credit spreads ranging from 270 to 700 basis points and averaging 394 basis points over one month so far.
Brian: We also originated a $64 million fixed rate mortgages that we plan to securitize at some point this year when we accumulate enough of these kind of fixed rate loans to participate in the conduit securitization.
Brian: This loan was a refinance or a $76 million loan we made to the same sponsor 10 years ago.
Brian: Further investments in the first quarter included the addition of $521 million of AAA Securities and as volatility gripped capital market says April began we added over 160 million more of AAA securities. So far this month.
Brian: For the remainder of the year, we expect to favor more investments in loans, but when volatility causes spikes in credit spreads as it did in early April we benefit from the ability to pivot and add more highly rated liquid securities to our inventory.
Brian: In short, we expect to add similar assets in the quarters ahead with a preference for higher yielding loans versus securities.
Brian: On the right side of the balance sheet, we called one of our two CLO was issued in 2021 after payoffs and the pool of mortgage loans eliminated the a class.
Overall secured debt was paid down by $346 million in the first quarter.
Brian: If market volatility decreases we hope to issue another corporate unsecured bond as summer approaches, but I would note that with an undrawn revolver of $850 million and one and a half a billion of Unlevered securities. We are under no pressure to issue any new debt and we will only do so if we believe conditions are track.
Brian: Yes.
Brian: Yeah.
Brian: To wrap things up today looking forward, we expect the treasury curve to steepen with short term rates falling well longer term rates will be rising.
Brian: This is not a great scenario for the overall economy favors earn less interest and cost to service. Most forms of debt increase we believe this scenario should be supportive of a larger opportunity to participate more meaningfully and conduit securitizations. While it has been a while since we had meaningful earn.
Brian: <unk> contribution from our conduit business, owing in part to an inverted yield curve that persisted for years. This product is the highest ROE product in our product mix and we would welcome the return of the conduit business at ladder.
Brian: We expect the fed will start to cut short term rates in the near term, primarily because of where we see the two year treasury yields versus the fed funds rate that the fed controls. We believe the long end of the treasury curve will rise as inflation picks up and the deficit increases while such rise would generally not be.
Brian: Great sign for the economy, we believe it would be an environment that an operation like ours can thriving given the strength of our balance sheet and overall liquidity position.
Brian: Thanks for listening today, I think we can take some questions now.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.
Speaker Change: Let's start he is one moment, while we poll for questions.
Speaker Change: Our first question is from Randy Binner with B Riley. Please proceed.
Randy Binner: Hey, Thanks, I guess I'll start on the origination activity, which was which was positive.
Randy Binner: In the quarter and the blended 394 basis point spread you noted.
Randy Binner: But it was pretty wide to 70 by 700, I think and so.
Randy Binner: And as you know we.
Randy Binner: What are you kind of thought of.
Randy Binner: Over.
Randy Binner: 300 is a good level of where you've been able to put money to work.
Randy Binner: It was their exceptionally good activity in the first quarter that had that elevated or can we think like three high three hundreds as ware.
Randy Binner: Loan originations money can be put to work this year.
Randy Binner: Ah Okay. Randy. Thank you this is Brian.
Randy Binner: The quarter produced as you can imagine with all the volatility of the commercial real estate has been going through in the last few years now since the inauguration.
Randy Binner: There are difficult situations out there there are lenders that want to be paid off and might be willing to take a discount they weren't willing to take a while ago. There are also a lot of acquisitions going on at different reset prices and I think what happens sometimes in markets like that it's about I'll call. It special situations. They they they always pause.
Randy Binner: But once in a while but I would expect to see more coming out of a downturn and sometimes what's very important is that you move quickly.
Randy Binner: And some when someone is buying something that they feel is very cheap and they want to move fast on it sometimes they're not overly worried about what the rate is as long as you get them to the closing very quickly. So there were some situations like that and where because we hold things on our balance sheet and we're not beholden to bp's buyers or rating agency subordination levels. Yeah, we can pretty much just make a credit.
Randy Binner: Decision and because we're all in one house and we don't there's no third parties outside of the building, making that determination you know I think we can drive a premium costs once in a while to on yield to us.
Randy Binner: And are they also are the one thing I've been noticing as I said was we seem to be looking at a whole lot of brand new multifamily properties that are coming off construction loans and in lease up that market is 225 to 275 and depending on what state you're in and what the leverage point is so we do see that that is the most <unk>.
Randy Binner: Evelyn product, we're seeing financing opportunities for so, but I I don't think I would try to indicate to you we're going to start being at $2 50 to 270 most of the time because I do think that we will continue to see bar belling situations pop up ad.
Randy Binner: And then I guess also.
Randy Binner: Also hesitate to draw too many conclusions around a sample size of 200 and change million dollars $260 million, because one long can really swing things around a little there, but this is the kind of market, where you will see opportunities to to to receive premium pricing for your for your liquidity and speed.
Speaker Change: So hope that answers yeah. That's helpful. Just one quick clarification or follow up is I think oh.
Speaker Change: That origination in the quarter there was a percentage that was multifamily and industrial I just I missed that how much of it was in those two classes.
Speaker Change: I think they said, 74%, but I'm not sure.
Craig: Craig do you have Adam if we know the answer yes, 74% yeah. Okay.
Speaker Change: The old man got it right.
Craig: Okay. Thanks I appreciate it.
Craig: Okay.
Speaker Change: Our next question is from Jade Rahmani with K B W. Please proceed.
Jade Rahmani: Thanks very much.
Jade Rahmani: Wondering if you expect originations to maintain or exceed the pace that.
Jade Rahmani: You generated in the first quarter.
Jade Rahmani: I would expect them to exceed it.
Speaker Change: Okay has there been any slowdown.
Jade Rahmani: You may have alluded to this post quarter end.
Jade Rahmani: Slowdown in which part of the Python as apart, where they're assigning applications and posting deposits or closings or securitization because there's definitely been a slowdown in securitizations with all the volatility. However, we were not looking to participate in and anything anyway, but I'm on the.
Jade Rahmani: As a nation side I think that there like many businesses a lot of our borrowers are kind of freezing until they get a sense as to what's going on here and now 10 o'clock in the morning, It looks one way and a three o'clock it looks different so there that will dampen activity, but coming off of what we've gone through in the last two years.
Jade Rahmani: We're effectively where you were in asset management operation and trying to get capital back in the building wildly successful in getting paid off then.
Jade Rahmani: Then we turned on the jets, the other way and started making investments of over $800 million in the quarter. So while spreads have been widening out I haven't seen a falloff in activity.
Jade Rahmani: But it's not hard to see an acceleration of activity when you're originating $300 million in a quarter I would expect us to originate in excess of that so.
Jade Rahmani: So it was really a start as opposed to average in the quarter I think so I think you can expect us regardless of the volatility in the space.
Jade Rahmani: Things can go too far, but I think in general Youll see these numbers going up as we and we're planning to migrate out of those securities that we purchased are in into the loan platforms.
Speaker Change: Thank you how are you thinking about the net lease portfolio longer term do you plan to grow it but do you plan to sell continue to sell down properties before leases come due.
Speaker Change: Is there of course out of the portfolio, where you will hold the properties even as lease maturity approaches. Its overall what are your views regarding that portfolio.
Speaker Change: We we actually have a very.
Speaker Change: Non proprietary view of holding onto those assets there for sale every day, one at all and often times people will call us and sometimes if it's a small asset it'll be somebody who knows the neighborhood I think we sold one supermarket in Oklahoma and it isn't because we put it up for sale and marketed it we answered the phone and.
Speaker Change: With somebody who had purchased another supermarket from US previously so nice easy process and it added a little bit to earnings and got some it proves out that gap in book value from from from what the UN Depreciated book value number we are usually in active discussions on people who want to buy those things.
Speaker Change: Those conversations take place more when the stock market is higher for strange reasons, but with them with stocks falling people are less apt to be doing things, but I want you to know that you know we're not actively managing trying to sell it we're prepared to hold all of them and.
Speaker Change: And when we make that purchase and Theres always a price where we target a sale in fact the day, we close we have a target itself. We have a date and a price that we think we're going to sell it at but after we write that down we don't on that day and put the property up for sale at that price, we just kind of use it as a guideline as to if we get a bid here why don't we try.
Speaker Change: Because we're not in any need of capital. There is no active attempts to sell things happy to add to that portfolio happy to grow it but I think I've said on numerous calls like this that will take place more frequently in a steep yield curve.
Speaker Change: Where you can borrow money at lower although short end of the curve and purchase long term cash flows on the long end of the curve that creates a wonderful arbitrage. So we're not there yet so we were not eyeing anything we've there've been a couple of and triple net portfolios that have come across our desks recently, but we're not active there but.
Speaker Change: I suspect that portfolio will probably go down just a bit in the next two quarters and I think it'll probably go up after that but precedent being the yield curve is a little steeper.
Speaker Change: Thank you very much.
Speaker Change: Our next question is from Steve Delaney with citizens JMP Securities. Please proceed.
Steve DeLaney: Hey, good morning, everyone. So Brian interesting.
Speaker Change: The tenure of your comments about the steeper curve and making that more attractive net leased so well we're down six basis points a day to 432, when the 10 year.
Speaker Change: In your Crystal ball like over the next six months.
Speaker Change: Or do you think where do you think it could rise to and.
Speaker Change: What are you looking for to get to take advantage of it do you need up 50 basis points or is it something more modest than that thank you.
Steve DeLaney: It actually Steve it rather than trying to figure out.
Steve DeLaney: I think the 10 year is going to go higher first of all because the U S has a massive deficit and they're gonna have to fund it and so much adopt dollars are going into interest now that.
Steve DeLaney: You're old enough at this point to remember crowding out so.
Steve DeLaney: When the government is borrowing an enormous amount of money, there's less credit available for people, who want to do other things that are little more productive than paying interest.
So I think it was the 10 year will go higher I also thank the short end will go lower.
Steve DeLaney: We're seeing an indication that right now if you look at where the two year as versus one months sofa might remember a couple of years back where we got out in front of a scenario, where we thought rates were going to rise rapidly.
Steve DeLaney: And on the short end and we I I remember the day were on a phone call. I think we had just borrowed money for seven years at four in a quarter and we were being chastised for paying too much interest because LIBOR was at 25 basis points and we indicated we would play the long game there.
Steve DeLaney: As opposed to where things were right now and we felt LIBOR was going to go up dramatically because the two year was rocketing higher.
Steve DeLaney: And so as much as the T V's like to talk about Trump and Powell and arguments and who does what the end of the day. The two years driving with short and it's going to go and so I am now of the opinion that Paolo will cut rates and not because I think he wants to satisfy Trump I think that power will cut rates because the two years.
Steve DeLaney: For some minute wait so the.
Steve DeLaney: I think you can expect a short lower short end and a higher long end, which will create the differential is what we worry about there. So I don't care how much the two year goes down if the 10 year goes up a lot.
Steve DeLaney: The two year stays right, where it is it's okay, but I don't think thats whats going to happen I do think that we're in for a little bit of a slowdown here and that should precipitate, though the fed to make a move lower and I think that's what all the forward curves are saying anyway is the real question is how much of a of a stomach does the administration have for her tenure at 5% or four.
Steve DeLaney: 75, throwing darts not what I do for a living I would probably tell you the the 10 year or probably get up around 475.
Steve DeLaney: Okay.
Steve DeLaney: Optically, that's a little more attractive, but I think for especially for the real estate markets and their five handle.
Steve DeLaney: You, obviously see them be F N B S.
Steve DeLaney: Non agency of course, you know things have blown out right.
Steve DeLaney: Yeah, much wider you put some money to work.
Steve DeLaney: It's been going on that and I mean, I guess youre looking when they step in there what are you looking at five to seven year kind of durations and how do you protect.
Steve DeLaney: Yourself.
Steve DeLaney: Add a lot of fixed.
Steve DeLaney: Fixed rate MBS against the strengthening do you do you put some swaps on how do you how do you take advantage of the MBS.
Steve DeLaney: Says why being without taking interest rate risk.
Steve DeLaney: I would say that what we call the C. MBS as the mortgage backed securities business covers a lot of different products and C. M. B S has widen really with the rest of the world and if you take a look at some of the residential mortgage Reits.
Steve DeLaney: <unk> been suffering some book value declines spreads are blowing out and they keep issuing shares to buy more so they these are at very historically wide credit spreads and so the way.
Steve DeLaney: I was taught a long time ago that the best hedge is that the price you buy it at and so the way we protect ourselves in an environment, where we have said for a while we suspect rates will go up if the government doesn't get the the.
Steve DeLaney: 10 year on at the asset I'm, sorry, I can't remember the word now.
Steve DeLaney: The deficit at least under some kind of a game plan and so we don't really own a lot of 10 year instruments, except fixed rate that we plan on securitizing. So right now we own very little of that and what we do have on we do hedge with swaps, we don't ever had one too.
Steve DeLaney: <unk>.
Steve DeLaney: The so we own that one loan that we did at six 8%. So we have that are hedged about 50% right now and but that's that's a daily occurrence, we moved that around often the way, we really avoid credit blow out in a lot of volatility as you buy floating rate instruments that are two year triple A's and that leads you to another part of the mortgage backs.
Steve DeLaney: Acuity World, which is CLO and the Clo's that are out there right now there's been a slowdown in production of these also where people are just saying you know if they're going to wait till volatility comes down all of that translates to is I don't like where I have to sell bonds, so and that and you hear us expressing a view that we liked.
Steve DeLaney: Buying bonds here, which.
Steve DeLaney: Which is what you would expect so the way you know we don't leverage ourselves aggressively at all in fact, I think we have a one $5 billion of AAA securities with no leverage at all so we finance ourselves as we're now in a mature phase of this company, where we finance ourselves through long term corporate debt that's not have mark.
Steve DeLaney: <unk> market in its process. So those are all vehicles that hedge you against volatility.
Steve DeLaney: Appreciate the comments, Brian it sounds like you've got some attractive opportunities here over the next quarter or two alright.
Thank you.
Speaker Change: As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from Jon Nicodemus with D. T. I G. Please proceed.
Speaker Change: Good morning, everyone was looking at your slide six and the way the supplemental just sort of the percentages between the different assets within your portfolio.
Speaker Change: We've seen cash come down a bunch securities go up a bunch and then also loans start to creep back up with our loan portfolio growth returning.
But just curious kind of how you're envisioning.
Speaker Change: This slide or just this allocation proceeding as the year goes on given you know the $160 million of AAA is being added in April alone also sounds like originations are going to keep ramping and then based on what you're seeing right. Now do you have a sort of steady state and mix are you looking at for the different percentages allocated to each asset class.
Speaker Change: Sure. We don't have any game plan as to what concentrations we want in anything we run the company from a overarching perspective of we want to have a lot of liquidity around during.
Speaker Change: Anything that's coming but particularly in the volatility we've been seeing here. So in that scenario, we generally like having AAA securities, especially when they're yielding if we were to lever them and as I said, we have not but we're competing with people who do leverage them. So we have to be mindful of that but if we were to take our 1 billion.
Speaker Change: A AAA securities and borrow $900 million.
Speaker Change: The $100 million left would probably be yielding in the 12 13 14 area depending on what the price was that we bought the securities at but that to me is if that's a that's an episodic relationship if things tightened we will sell all of the securities and if things really widen a lot then.
Speaker Change: We'll buy a lot more of them, but for the most part we worry and we know what our financing cost is it doesn't move around a lot because it's fixed rate primarily 72% of our assets of our liabilities are fixed rate.
Speaker Change: Corporate debt. So I think our cost of funds there was five 3% and right now we're not having any trouble at all.
Speaker Change: Accomplishing an arb there so but I would expect because we are now coming out either if the country goes into a recession and I think it might I don't think it'll be a horrific one but I think it Michael winner won.
Speaker Change: Commercial real estate is still coming out of a recession.
Speaker Change: And it was in three years ago, and it's coming out first so we are seeing improvement in fundamentals and I think that following people who are concerned about possibly losing their jobs.
Speaker Change: There, there's a lot less moving around and so and when people start opening their 401 case at the end of the quarter they might decide to sell their house with a 3% mortgage and moved to Florida. So we're trying to get a front of those things, but I for the company having done this through many cycles, you will see more loans on our <unk>.
Speaker Change: Balance sheet going forward, you'll see more participation in the conduit if the yield curve steepens.
Speaker Change: And you'll see less securities and less cash on our balance sheet.
Speaker Change: The reason for the less cash don't think we're becoming Cowboys, we have an $850 million revolver.
Speaker Change: Great that's really helpful. Brian I appreciate that.
Speaker Change: And then other one for me is just the.
Speaker Change: Nation pipeline I know Pamela said, 74% of what came in in the first quarter was either multifamily or industrial is it a similar sort of balance you're seeing.
Speaker Change: King at for the rest of the year or is that shifting at all especially given the recent tariff news. Thanks.
Speaker Change: I think Pamela a few I don't want to take that one or not although.
Speaker Change: Although I'm happy Okay again, because of the fall out right now it's you know.
Speaker Change: It's all subject to change, but right now it looks like a very similar 70% multifamily contribution on what's under App, but if we find these one off opportunities the barbell ing that could change a little bit, but I think generally speaking I would expect it to be.
Speaker Change: Majority of our originations.
Speaker Change: Okay.
Speaker Change: Great. Thanks, a lot Pamela that's all for me.
Speaker Change: There are no further questions at this time I would like to turn the floor back over to Brian Harris for closing remarks.
Speaker Change: Okay. Thank you for all listening live or later and I look forward to our next call, but our business plan is unfolding. The way we've indicated it would we migrated a cash out of cash and T bills and into securities where they are waiting to be called upon to head for the runway as we write loans that.
Speaker Change: That will be higher yielding so we look forward to their having share that with you over the following three quarters, but it looks like we've got ourselves in a very good position with a lot of liquidity.
Speaker Change: And it's at a time, where there's a widespread and high rates and lack of competitiveness in the market. So I look forward to this and we'll catch you next quarter.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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