Ladder Capital Corp (LADR) 2020 Q4 法說會逐字稿

Greetings. Welcome to Ladder Capital Corp. Fourth Quarter 2020 Earnings Call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Ladder's Chief Compliance Officer, Senior -- sorry, Regulatory Counsel, Ms. Michelle Wallach. Please go ahead, Ms. Wallach.

Thank you, and good afternoon, everyone. I'd like to welcome you to Ladder Capital Corp.'s earnings call for the fourth quarter and year ended December 31, 2020. With me this afternoon are Brian Harris, the company's Chief Executive Officer; Pamela McCormack, the company's President; Marc Fox, the company's Chief Financial Officer; and Paul Miceli, the company's Director of Finance, and Chief Financial Officer, commencing on March 1, 2021.

This afternoon, we released our financial results for the quarter and year ended December 31, 2020. The earnings release is available in the Investors section of company's website and our annual report on Form 10-K will be filed this week with the SEC.

Before the call begins, I'd like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. I refer you to Ladder Capital Corp.'s 2020 Form 10-K for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no duty to update any forward-looking statements that may be made during the course of this call.

Additionally, certain non-GAAP financial measures will be discussed on this conference call. The company's presentation of this information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP are contained in our earnings release.

With that, I'll turn the call over to our President, Pamela McCormack.

Thank you, Michelle, and good afternoon, everyone.

2020 was an unforgettable year. All of us, including those in the financial markets, faced unprecedented challenges. Ladder met those challenges with quick and decisive actions. And the company is now well positioned for the opportunities we expect 2021 to bring.

In my remarks today, we will focus on the key actions we have taken since the onset of COVID.

First, we quickly raised liquidity and reduced leverage. Next, we turned our attention to proactively managing our balance sheet in order to protect book value. And finally, we went back to originating new business, and are pleased to share that we currently have over $200 million of new loans, both conduit and balance sheet, under application and in due diligence. Our deep in-house origination team is fully engaged in actively pursuing compelling opportunities. And our multicylinder business model allows us to pivot quickly to take advantage of the best available risk-adjusted returns.

Before I begin, I'm excited to confirm our appointment of Paul J. Miceli as Chief Financial Officer, effective March 1, 2021. Paul will succeed Marc Fox, who after 12.5 years, will be moving on, but will remain with us through the beginning of May to help ensure an orderly transition. As many of you know, Paul joined Ladder nearly 2 years ago and is currently Ladder's Director of Finance. Since then, Paul has been working closely with Marc and the senior management team as part of Ladder's long-term succession plan. On a personal note, I want to thank Marc for being a great partner and a great friend to both Ladder and me personally, and let him know how much we all value the contributions he has made to Ladder's success.

Looking back to 2020, I'll start with a look at liquidity, leverage and liability management.

We increased our unrestricted cash balance to $1.25 billion as of December 31, 2020. Our ability to increase liquidity by monetizing assets was driven by strong asset performance, healthy repayments and vigorous asset management efforts. Since the onset of COVID, we achieved a 99% collection rate of interest and rents across our entire portfolio of loan and real estate assets, including 100% collections from our net lease portfolio.

Our focus on a highly diversified and granular mid-market origination strategy enhanced the pace of our balance sheet loan repayments with a much larger base of capital available to refinance our smaller average loan sizes. Since the onset of COVID, we reduced our balance sheet loan portfolio by $1.4 billion to just 37% of our assets as of February 19, 2021. More importantly, we are now in a strong position to reset our basis in this portfolio as we rebuild it with the origination of new loans reflecting current market conditions.

In conjunction with these repayments, our hotel exposure decreased approximately 30% in 2020. As of February 19, 2021, hotel collateral represents only 14.5% of our significantly smaller balance sheet loan portfolio.

Our approach to security investments was also validated during the pandemic. Our focus has always been on highly rated, short duration liquid investments. The market for these super senior securities were covered quickly, and they are now regularly trading at or above par value as we expected. Since March, we reduced our securities portfolio by approximately $1.1 billion to a total of approximately $800 million outstanding as of February 19, 2021. In total, we reduced our securities repo by over $800 million or 68% since March. As a result, securities repo now only represents about 10% of our total debt outstanding as of February 19, 2021.

We entered the new year with exceptional liquidity and a strong portfolio of loans, securities and investments. We had over $2.8 billion of unencumbered assets, which is nearly half of our asset base. These assets are also a very high-quality with over 80% comprised of cash and first mortgages. Our substantial unencumbered asset pool contributed greatly to our financial flexibility during this pandemic. These assets played a key role in our ability to raise liquidity quickly in disruptive market conditions and enabled us to reduce mark-to-market debt by raising $0.5 billion of nonrecourse, non mark-to-market debt. As of today and after paying off an additional $390 million of debt since the end of the fourth quarter, we still have over $1.3 billion in unrestricted cash on hand. And over 80% of our capital base is now comprised of unsecured bonds, nonrecourse and non mark-to-market debt and book equity.

As of February 19, 2021, our adjusted leverage ratio net of cash is 1.4x. After further excluding a predominantly AAA-rated short duration securities holdings, our leverage ratio was only 0.8x and our total mark-to-market debt is now less than 1/4 of our total debt.

We recently redeemed all the remaining 5.875% unsecured corporate bonds in advance of their due date this August. We see the unsecured market as a safe and prudent way to finance our business, and we expect to continue to be an active issue in that market.

While we are pleased that our stock price has recovered significantly from the lower levels we saw earlier last year, we remain committed to reclaiming the pricing on both our outstanding bonds and stock that better reflect the intrinsic value of Ladder's platform. In the meantime, we are very happy to be back to the business of writing new loans at attractive risk-adjusted returns.

With that, I'll turn the call over to Marc.

Thank you, Pamela.

Before turning this presentation over to Paul, I want to thank Brian, Pamela, the Board of Directors, the investment community, and most of all, my colleagues at ladder, for their support over the past 12.5 years. I feel very fortunate to be offering the opportunity to serve as Ladder's CFO in 2008. Accepting the role was a major step in my career, taken in the most uncertain of times with no guarantees from anyone. Together, we encountered a lot of challenges, and the results indicate a record of success along the way. I'd like to believe that those who decided I deserve this chance more than a decade ago now look back on that decision with satisfaction and pride, as that was always my goal.

Based on my personal observations, going forward, I am confident the investment community will see at least the same level of commitment, skill and professionalism from Paul Miceli as they have seen from the rest of the Ladder team from day 1. I too will miss working with the most talented team of professionals in this industry and leave confident that, despite all of our achievements to date, Ladder's best days lie ahead.

With that, I will turn the discussion over to Ladder's new Chief Financial Officer, Paul Miceli.

Thanks, Marc.

As noted in today's earnings release, Ladder has replaced its 2 primary non-GAAP measures of earnings. Based on informal guidance from the SEC staff, core earnings has been replaced by distributable earnings and core EPS has been replaced by distributable EPS. The definitions of distributable earnings and distributable EPS at Ladder are very similar to those of core earnings and core EPS. The one exception is related to the timing of asset impairment recognition.

Going forward and computing distributable earnings, Ladder will recognize asset-specific loan and real estate impairment charges upon realization, which will occur at the time an impairment is determined to be nonrecoverable.

With the change in distributable earnings, our non-GAAP performance measure will more closely align with the computation of non-GAAP performance measures used by our public company commercial mortgage REIT peers.

For the fourth quarter, Ladder produced distributable earnings of $4.9 million or $0.05 per share. For the full year 2020, Ladder produced distributable earnings of $68.3 million or $0.60 per share.

Continuing with a measured approach to risk management, in the fourth quarter, Ladder did not newly originate or securitized any loans and only acquired one small net lease property. Loan repayments continued at a strong pace during the quarter with $286 million of loan payoffs at par. In addition, Ladder reduced its balance of nonaccrual loans by 35%, mainly by selling 4 defaulted loans at near par value. We sold 2 defaulted loans in bankruptcy in Austin, Texas with an outstanding principal balance of $101 million. We also contemporaneously foreclosed on and sold a residence Inn in South Bandana and a hotel in Miami, Florida with an outstanding principle -- with outstanding principal balances of $4.1 million and $45 million, respectively. These sales resulted in the disposition of $150 million of defaulted loans and generated a net impairment charge in the aggregate of $4.0 million recorded in the fourth quarter.

Our CECL reserve decreased overall by $5.6 million to $42 million in the fourth quarter as a result of loan payoffs and sales executed during the quarter, and to a lesser extent, a moderately improved macroeconomic outlook. The net decrease included a $1.2 million specific loan provision related to the $45 million hotel loan we foreclosed on and sold in Q1, as previously referenced.

Also during the fourth quarter, Ladder redeemed $100 million of its 5.875% corporate bonds scheduled to mature in August 2021. The remaining $147 million of that issuance was redeemed in January of 2021. Market pricing of Ladder's outstanding corporate bonds has improved substantially, reflecting more favorable market conditions in recognition of the progress made in strengthening Ladder's liquidity and capital base.

Also, in December 2020, Koch Real Estate Investments exercised its option to acquire 4 million shares of Ladder's Class A common stock, thereby increasing equity by $32 million, and demonstrating their long-term commitment to Ladder. Additionally, in an effort to reduce cash costs and further align interest of Ladder's employees with shareholders, Ladder elected to distribute 97% of annual incentive compensation awards for the 2020 calendar year in the form of stock instead of cash to all employees, including senior management. A portion of those shares were awarded in December, the remainder in January.

With regards to shareholders' equity, in addition to the $32 million contributed by Koch, the value of our securities portfolio increased by $18 million. We declared a $0.20 per share dividend in Q4, which was paid in January, and repurchased 50,000 shares of stock at an average price of $9.05. We expect our dividend to remain unchanged in the first quarter of 2021.

Undepreciated book value per share was $13.94 at year-end, while GAAP book value per share was $12.21 based on 126.4 million shares outstanding as of December 31, 2020. As 2021 begins, we do so with over $1.3 billion of unrestricted cash, representing over 24% of our total balance sheet, with corporate leverage by any measure at historically low levels.

Our 3 segments reflect the same strong credit metrics to which Ladder shareholders have grown accustomed to over the years. Our $2.3 billion balance sheet loan portfolio is primarily first mortgage loans, diverse in terms of collateral type, with a 67% LTV, an average loan size of $19 million and a short 1.2 year weighted average duration, with only $149 million of future funding commitments.

Our $1.2 billion real estate portfolio was diverse and granular, and includes 164 net lease properties with strong tenants, that include major drug store chains, warehouse clubs, dollar stores and supermarket chains. The portfolio as a result of Ladder's long-standing strategy of focusing on net lease real estate investments on necessity-based retail properties occupied by solid credit tenants.

Finally, Ladder's $1.1 billion securities portfolio remains 89% AAA rated, almost entirely investment grade, with a weighted average duration of 2 years as of December 31. As noted, values of these senior first mortgage-backed securities with significant credit subordination have recovered and are again trading at or above par, with financing costs improving to pre pandemic levels.

Overall, our loan and securities portfolios have decreased in size due to strong levels of natural amortization, healthy levels of payoffs. Our strength in capital base and solid liquidity position provide a strong foundation for Ladder as we ramp up our investing activity in the new year.

And for more details on our fourth quarter and year-end 2020 operating results, please refer to our quarterly earnings supplement, which is available on our website, as well as our 10-K, which we expect to file this week.

I'll now turn over the call to our Chief Executive Officer, Brian Harris.

Thanks, Paul. 2020 dealt us a very different type of market disruption at the end of the first quarter. While we've never seen such a rapid and severe downturn in the economy, our decades of experience managing through harsh recessions and strong recoveries provided us with the template we've learned to follow in times of extreme volatility.

Job #1 in the spring of 2020 was to ensure we had enough liquidity to weather what looked to be some very rough times ahead, as 33 million jobs were lost in the United States in just 30 days as the government essentially turned off the economy to stem the spread of the virus.

I won't repeat the details of the steps we took. But as with most negative surprises, it helps to be prepared, and we were, having just issued $750 million of corporate bonds only 6 weeks prior to the pandemic beginning.

Fast forwarding to today, we presently have over $1.3 billion of unrestricted cash, and keep in mind, that, after we reduced debt by $1.9 billion over the last 11 months.

Building up a liquidity cushion of that size was made possible by our ownership of high-quality investments going into the downturn. We were very pleased to see that many of our loans coming due over the last year were able to pay us off at maturity in full. When we sold some of our investments at what was probably not the best time to do so in order to raise additional liquidity, we were still able to achieve sale prices near our basis during the worst of market times, while deleveraging the company overall.

We took appropriate steps to conserve cash during the remainder of 2020, always anticipating that, in 2021, the health emergency the country was dealing with would begin to subside.

We said on a prior call that we were anticipating a deep recession that would probably last about one year. And while we're not out of the woods yet, that position has not changed.

The second step we took to defend book value of our stock would take time, patience and a hell of a lot of hours in asset management. By staying on top of our inventory and working with our borrowers, we were able to monetize many of our investments during the year.

When underwriting loans, we obsessively concern ourselves with asset values first and foremost. Since the start of the pandemic in March and into 2021, we were able to monetize over $2.8 billion of assets at nearly 100% of our investment amount. In the last 4.5 months alone, we have sold over $680 million of securities at an average price above par.

I'll now move to the go-forward plan at Ladder, and start by saying that I'm very pleased to report that we began issuing new loan applications in January and business has been brisk, with over $200 million in new loans under application at this time. I've waited a long time to say those words. We were repeatedly asked about when we plan to deploy our large cash position and achieve the operating leverage we see returning us to increased earnings, and that answer is now.

We are not restarting our lending operations solely because we see adequate demand, but mostly because we are seeing the attractive investment opportunities that invariably come about after a deep downturn in the economy. We still think the economy has some serious challenges ahead, but the relationship between risk and reward seems to be producing the kinds of situations we've been waiting for.

We turned the corner at Ladder, and I'm very happy with the way our team reacted to some pretty horrible market conditions in 2020. We made the necessary sacrifices to have the liquidity needed to navigate the shutdown of the economy, which has had some devastating effects on parts of the commercial real estate sector. We then made sure our management of our existing investments preserve book value. And now we finally get to the third step we've been waiting for. We now move ahead in an offensive manner to create durable and growing earnings in the quarters ahead.

We still have some housekeeping to do with the liability side of our balance sheet. But in starting from a very low leverage position today, we feel this can all be accomplished rather easily over the next year or so. Since we paid down over $450 million of our corporate bonds in advance of their due dates, we hope to return to the capital markets with another bond offering if acceptable conditions prevail.

There's no immediate need to access additional capital at this time. And we can continue to sell down our securities portfolio to provide additional capital, if needed, to avail ourselves of the high-yielding opportunities we're now seeing in the equity and debt markets.

It's nice to sign off today by saying we look forward to building our earnings in the quarters ahead. With the future looking much brighter these days, we're looking forward to it and refer them to the next chapter of our growth as the post pandemic period at Ladder. In the meantime, we are very happy to be back in business and writing new loans at attractive risk adjusted returns.

With that, I'll open up the call to questions.

(Operator Instructions) Our first question is from Tim Hayes with BTIG.

My first question, happy to see that you guys take that inflection point where you're starting to play some offense now.

If we could just touch on the pipeline here, what are the levered returns that you're seeing across your asset classes? What's -- where do you expect most of your capital deployment to go? And if you could just touch on the asset types and any other color from the pipeline that you can, that would be helpful.

Sure. Happy to help with that. We opened up really applications just a few weeks ago. And already, I think Pamela mentioned, we're a little over $200 million. I actually think we're approaching $300 million, as I checked this right before we got on the phone. I'd imagine most of our allocation for new investments is going to come in the form of bridge loans and conduit loans. The conduit, I probably would have answered that with a little bit more of a 50-50 attached to it 5 hours ago. But with the 10-year moving up rather briskly today, then I think that there will be a very attractive conduit business, but I have to suspect we're going to see a little pause here in all likelihood because a lot of people who were refinancing have done the pull forward. So sometimes, that takes a few 60, 90 days to really set in, although I certainly wouldn't call a 1.6% tenure a high rate either. So we'll see. But I think we'll -- we're always on the lookout for equity investments. We've seen a few that we like. We haven't gone under contract with any of them yet. But I think the lion's share of what we're going to do is going to be involved with the bridge loan portfolio, the balance sheet. And securities will continue to come down.

Okay. So securities will be a provider of capital then to you guys going forward. So on the bridge portfolio, can you just again talk about the types of assets that are in the pipeline? How that has -- I guess compares to how the pipeline has fared in the past? And maybe how levered returns? Because, Brian, you mentioned that the shift to offense somewhat or largely is because of the returns you're now seeing there, and your liquidity position has been pretty strong for a couple of quarters now. So I'm just wondering if you've seen returns and I guess spreads widen on certain loans that even from 6 months ago? Or what has caused the shift?

Sure. Well, I think it's really come about because -- I think you've had a situation here where the fed has been on TV. I think the banks are cleaning up their balance sheets. I think that everybody was -- all lenders, I think, were pretty much tolerant of the need for forbearance agreements when the initial pandemic hit. And some of the borrowers are now in their second forbearance agreement. And I think it's hitting the point where it's either going to get straightened out or they'll sell the note. And that we have seen that, too. So we've definitely seen some bank sales of notes where people are acquiring things or where the sponsor finally woke up and said, "wow, my bank sold my note, the guy who bought it probably wants take it over. So I need to refinance this quickly and pay all the penalty interest."

when a sponsor is in that mode, that's usually a great place to step in, because you're no longer competing with your competitors, you're competing with his default interest. And you have to try to close as quickly as possible. So there's definitely been a shift, I would say, it's in the last 30 days. And it's a little bifurcated, I would say. I think that the market -- because the CLO market has kind of rebounded and there have been a few new CLOs issued. And just a few weeks ago, there was no alternative for any yield at all. So CLO, new CLO, AAAs were trading well inside of 100 over. So I think the weighted average financing cost of, call it, a 90 over AAA deal was probably about 120, 125 over LIBOR. So you can get a lot of things done there. You can get a lot of business done. But I think that the market, because of that, is overbidding multifamily. And I think it's kind of a bifurcated opportunity set. And the multifamily sector is LIBOR plus 350 to 400. And it doesn't matter if it's a Class C, rehab just coming back online in 2 years after they put in new kitchens, or else, if it's a brand-new apartment building and coming off a construction loan and just going into lease-up. When you see the same price on every single thing, that usually means it's a bit of a dislocated market or else a one-way market.

The -- once you get past apartments at LIBOR plus 350 to say 400, it's kind of a gap. There's very little in the LIBOR plus 500 or LIBOR plus 600. I would say that the people that are in a hurry, LIBOR plus 600 is not at all out of the question. And if you have a hotel, I don't even think it's LIBOR plus anything. I think it's 9 or a 10. And those are just rates that they're looking at that point.

So we are seeing -- it's one of these markets where there's a lot coming due in the next couple of years. And a lot of it is in the CMBS business, but also there's a lot of it in the insurance companies and the banks, too. So I think we're going to be going through an enormous amount of opportunities, and we'll be selecting a few. But if the last 30 days are any indicator, I think that it will probably be about a 6% yield unlevered. And then -- given that we have almost $1.4 billion in cash at this point, I think we'll probably either -- just go through the first $500 million to $1 billion unlevered and then just possibly do a CLO or else take it to the banks at that point because we have a country club problem of too much liquidity right now.

Yes. That's a good way of putting it. But yes, no, that was going to be -- part B of that question was going to be on the financing side. So it sounds like you're interested in maybe testing the waters with a CRE CLO. Is there any timing around that? I mean do you need to kind of build the portfolio back a little bit before you look to do that? Or any color on that would be helpful.

We could do one rather quickly. We have over $2 billion worth of loans. But I think if I had to fast forward and think what's the best way to do this, I suspect probably out around June or July, we'll probably do a -- I think a CLO so far looks a little bit easier than bank repo lines. So let's assume nothing changes there. We'll probably stick to the CLO. And my suspicion is it will work better if we go with all loans that are originated after the pandemic.

Okay. Got it. That's helpful. And just one follow-up to that, and then I'll hop back in the queue. But just in terms of your funding costs, have you seen costs come down on your warehouse lines with your repo counterparties? Are banks -- are they -- and we've heard this anecdotally though. But are they feeling kind of pressure to compete with the CLO market now that it's so hot and you're seeing issuance pick up there? And just curious if that -- in the form of cost or leverage, has benefited you guys.

Well, the securities repo market has fully recovered, say, where it was pre pandemic. In fact, it might even be through where it was. So there's plenty of leverage, if you want to be in the securities business. However, the yield is quite low. So even levered returns are 3%. So that's one of the reasons we've drastically cut down in our holdings of securities at this point. I suspect we'll continue to do that. Even though very attractive financing terms. At the end of the day, we'd rather have the capital to delever the company through the repo line and then get unlevered 6% returns and then use the CLO market to amp that number up a little bit. The banks are not. I wouldn't say they're very comfortable yet because we are still in a difficult time in the economy and there's plenty of headwinds.

They certainly don't want to look at too many hotels. Apartments, you can do. And I think the healthier banks, and we won't get into who they are, but the healthier banks are more apt to be reasonable about financing. The rates haven't gone up necessarily from before. But the -- what they will accept has gotten narrower. And the advance rate has maybe dropped about 10%, which is fine. Yes, I think that's an appropriate situation. I think that real estate in general has been pushed a little here. And the CLO market keeps the risk in the hand of the originators, and that's probably the way it should be handled. So again, you can do a managed CLO deal or you could do a static CLO deal. We have the luxury of probably doing either. But I suspect we'll wait until we get about $600 million or $800 million of new loan originations.

And our next question is from Randy Binner with B. Riley.

Yes. That was really interesting. I guess I'd like to go back though -- you mentioned $200 million to $300 million of new loans under application this year post pandemic. And I heard in there, multifamily is a little tight for your preference on spread, which makes sense. But then it was all the way back out to hotels again, and I know that you've gotten smaller in hospitality. So I just -- I guess I'd like to maybe ask the question, of the $200 million to $300 million, can you give us rough buckets of where you're actually writing? And if it is hotels again, maybe a little bit more color on how those make sense, occupancy, location, that sort of thing.

Of the -- I'm going to say closer to $300 million at this point because I've got a pretty good sense of what came in even in the last day. Very little that is hotel. I think there is one on there for about $18 million. And the one that is on there, the sponsor of the hotel has -- it's a very -- it's a brand-new hotel. And he's putting in more capital to refinance this construction loan. So we're going to pay down that principal. And while we know we're operating on a dollars per unit basis because there really is no underwriting for the new hotel, I suspect that we're going to be able to generate -- we're comfortable enough given the rest of the hotels we know in the area there, densely populated area. And so I don't know if we'll get there either, by the way. These are just under wrap at this point. And -- but I wouldn't want you to think that because I said we're going to get about a 6% unlevered return, that we're loading up hotels. That would be the furthest thing from the truth.

That's why I wanted to clarify it.

Yes. If it was all hotels, it would be 9% or 10%.

That's fair enough. But yes, I just wanted to clarify that. So what are the categories that you're mostly looking to go into if it's not apartments and it's not as much hotels?

Well, we have some apartments. And most of ours are north of 400 over, but we're losing plenty of them at 350. We have some office. And we have some conversion, where industrial is changing into something else. Some of it is land. Land deals are traveling at a fraction of the basis they were traveling at 2 years ago. And most land loans, you're right alone with a double-digit rate with a 50% of acquisition cost, and oftentimes, with recourse. So again, we don't want to make a career out of writing land loans, but if you're pretty comfortable with the basis, that's another place you can get good yield. And what I like in particular about it is, if we're concerned about our ability to finance a bridge loan say, an office building, with one of our line lenders, try to imagine how a land loan is getting financed with those same banks. It's very difficult.

So while I would say there is a little bit of a bifurcation going on, there's some cash flowing assets that are simply coming off construction loans, and they're going to be out for a year. And then there's others that they're just being acquired. But the one thing we're spending more time on is acquisitions of new assets now. And oftentimes, there's a seller selling because he has to, not because he wants to. And that's always helpful. And typically, people who are acquiring assets at this point with no real history, they're usually very deep with capital and have been waiting for these opportunities. So we're pretty comfortable with that. If there is a situation where there's a bridge loan coming due in a CLO and somebody asks us to refinance that, that's what we look at as a bridge-to-bridge financing. That's kind of a dangerous animal because you have to think that the previous lender probably could keep it if he wants to, and he's decided not to. So we understand that they know more about that loan than we do. So we're trying to avoid that in many ways.

That's -- the only follow-up I have is just on the size of loans. And this new batch of nearly $300 million, does it compare to your normal distribution of loan sizes that average around $20 million? Or is there a change?

I'm going to let -- I think Pamela has the list in front of her.

Yes. I can jump in. Just by way of -- just to go back, the answer is, it's the same business plan and the same strategy with an average loan size of about $20 million or so. And we're focused on all the asset groups. Most of what signed up is a combination of multi -- and a lot of multi with some office necessity-based products. So it does not look very different from what we've done historically, both in terms of product type and asset size.

And our next question is from Charlie Arestia with JPMorgan.

Marc, by the way, I just want to say it's been a pleasure working with you. Best of luck in your new chapter. And Paul, I look forward to continuing our discussion.

You guys have built up obviously a sizable pool of capital here. Tremendous amount of cash on the balance sheet, $1.3 billion or more. How do you think about the cadence of deploying that throughout the year? And how should we really think about the economics of those new investments flowing through to generating distributable earnings growth above the dividend?

It's really a several part question there because we also have to gauge -- if you noticed, we actually take quite a few payoffs every quarter also. So the good part of that is it's a pretty good statement as to what our portfolio of underwriting -- underwritten loans look like. I think we mentioned that we sold some nonperforming loans this quarter and got almost par for all of them. So we're pretty comfortable that our underwriting has withheld -- held its mud throughout the pandemic. The question is, what is the pace at which we're going to originate loans versus what is the pace at which we're going to get payoffs in the portfolio, which tend to be pretty high rate anyway. I think we had -- I don't know what our floor is now, but I'm sure it's in one of our documents, but it probably begins with a 6 anyway. And what is the pace at which we decide to delever our securities portfolio? So -- and dispose of that.

As I mentioned in the call, I think we sold $680 million of securities in the last couple of months. And we didn't do that because they weren't making money. We do that because we saw this pipeline building. And rather than go to repo lenders and hang on to assets that were only yielding 3%, we decided, let's get rid of the 3% yield. Let's get the leverage down. And I think Pamela mentioned, I think we're at 0.8x leverage if you get rid of our securities and cash. So we do use corporate bonds unsecured. We probably use them more the most in the business that we're going to try to do another corporate bond deal. Hopefully, we'll be welcomed in that area. We paid off $450 million of those before schedule due date this year. So the real question is, how quickly does it translate through? And Charlie, I can't really tell you. I can -- based on what I saw in the last 30 days, I think we could put $1 billion out in 90 days if we wanted to. We will not do that though. I assure you. We could go to larger loans, but it is a bit of a flee market right now.

We are seeing a lot of transactions come in that -- rarely do you see us internally having discussions that don't agree with each other. But we do have some disagreement here occasionally where we think, well, we shouldn't do that even though that's a pretty high rate and it looks like a pretty good loan. And it's -- somebody gave me the reference, if it's like when you go fishing and you're allowed to catch 2 fish, if you catch them both in the first half hour, do you get in your car and go home? Or do you throw a couple of them back and hope for bigger ones? And I think, right now, we believe the opportunity set is expanding because the patience of the financial institutions that are holding these loans is waning. And if -- in a rising interest rate environment, I think that, that patience will get shorter and shorter as time goes on. So we are -- this is as good as it can look going forward. This reminds us so much of how it looked in 2008 when we opened the doors of the company and love not having to rely on repo, love not having to rely on being able to borrow money in a world where the only problem here is rates are pretty low. And I think I said in one of our previous calls, just didn't like the idea of lending 10-year money at 2.80% to 3%, which is where a lot of it was.

Well, in 90 days, that one straightened itself out. And of course, there'll be some demand disruption as a result of higher rates. But I still think the lending apparatus in the United States is dramatically smaller than it was last year. The banks are open. There's a lot of competition for apartment buildings, but there's not a lot of competition for other things. And that is so symptomatic of a recovery after a deep recession that this is what we've been waiting for. This is why we've been holding our capital.

And our next question is from Jade Rahmani with KBW.

Good to speak with everyone. I wanted to start off by asking if there's any credit items of note that took place during the quarter, noting the remarks you made about the forward defaulted loans that were sold. So hopefully, you could give the dollar amount and percentage of loans that are either in default or on nonaccrual at this point.

I think Pamela probably has a better handle on that than anybody. Do you have that, Pamela, available for you?

Sure. I can do that. Our nonaccrual, I think Paul mentioned in the script, was at $201 million, is now down to $130 million as of today on the end of -- Paul, that's through Q4, but I think it's accurate as of today.

Correct. Yes. With the resolution of the hotel loan that we exited in 2021, our nonaccrual loan book is down to $131 million.

And when you ask about the credit quality, Jade, I think we feel really good. I think that's one of the things that just distinguishes us. We have short duration loans that turn very quickly. We have not kicked the can on anything at all. I don't know how others are treating their books. But I can tell you, we've been really proactive. And we've moved literally almost every large problematic loan off our balance sheet to free up liquidity. As Brian said, we're excited about the opportunity ahead of us, and we wanted to free up more capital to do that. And we feel like we have a really strong balance sheet right now, and that's reflected both in our CECL reserve and in our nonaccrual status.

That's good to hear. And $131 million is a pretty low statistic relative to total assets of close to $6 billion and even the loan portfolio at around $2.3 billion at 12/31. I think there is a miss about Ladder that the reason you're sitting on such a high liquidity position is that there's some outsized risks, some things you're worrying about in the loan portfolio that could cause issues from a credit perspective. So I guess when you think of Ladder versus peers, why is it that the company has such an outsized current cash position of $1.3 billion? I mean Starwood's got a market cap of close to $7 billion and they have about liquidity of $700 million at this point. So how would you answer that?

Well, I try not to figure out what other people are doing. But I know internally, at our end of things, it's not a surprise. I think we're probably getting more payoffs than anybody else. And one of the -- there's 2 reasons for that. One is we have very high floors and we deal with smaller loans. And so our loans are readily financeable by lots of people as opposed to people who can write $100 million loans. Secondly, we have short maturity dates. We don't usually use the CLO market, which tends to default to a 3 plus 1 plus 1 with a LIBOR floor. We write 2-year loans with a 1-year extension. And if you're not doing well after 2 years, then the 1-year extension isn't there. So as a result, we get right on top of problems very quickly. And I learned a long time ago, it's better to get on top of things when there's a lot of liquidity around and banks are not taking losses.

And of course, you always want to pressure test your portfolio, and by being able to move $100 million loan in bankruptcy in Texas for $100 million and moving a hotel in Miami, I think it was a $45 million loan, we sold it for just under $44 million. A slight loss there. And probably we could have done something with that asset. But given the damage, I think we can do right now with a lot of capital, I think it's much easier. It's -- we're trying to run a low friction business. We're not trying to run a big real estate operation. But we are seeing some pretty good opportunities here. And I would say that some of these assets that we're selling, in many ways, it's similar to when we sold securities back in April.

We -- that probably wasn't the best idea to sell those at 96. But first of all, we were able to prove to ourselves, we can sell them at 96 when the world was thinking maybe we were down 20 points, which was crazy. So that all came back. But I think the opportunity set that we see here and just holding capital, we held capital for liquidity purposes because, one, I had a high rate bond outstanding, 5.875%. We have raised our interest costs temporarily, and we're aware of that. We do have some maturity dates coming up. So I know, for instance, we have about a $450 million coming due in a year from now. Now most people don't even think about that a year from now. We think about that 2 years from -- before its due date. So we're going to try to get that refinanced.

And so I think we have a lot of cash around so that we can't really get pushed around by lenders and also have the ability to pick and choose our spots. We don't have to worry about if it's securitizable or whether a BPs guy will buy it or whether a rating agency likes it. We handle our own credit. And we always talk to the rating agencies, and they said, "well, we're going to see how you guys do in a recession." all right. Well, they're going to see how we did in this recession. And we're not out of it yet, so we're not doing any premature victory laps. But it sure looks pretty good to me.

I think if you've got rate floors at low 6% yields and rates on the 10-year were below 1% and your loans are not paying off, you ought to be getting ready for a couple of problems. And I don't know how it gets handled elsewhere in the world. But I would expect to see a lot of payoffs if the credit underwriting is tight. And lots of payoff creates lots of liquidity, and especially when you're not writing loans. So I think the postmortem on this whole pandemic, hopefully at Ladder, will be, we shut off the earnings column and just wrote earnings for 10 or 11 months. And then we turn it back on. And hopefully, it will be just like the health emergency that we all experienced here.

Pamela is bucking here to say something. So I'm going to let her get in. But I think the difference is we -- there isn't -- there is only 4 assets in the company, right? We have real estate, we have securities, we have loans and we have cash. We were trading at 50% of book value 6 months ago. This is the first time we've been on a call where our cash holdings are lower than our market value. And so despite the fact that the stock went up about 60% in the last quarter, our cash rose faster than the stock. And so this company hasn't begun to stretch yet. And the fact that we're holding a lot of cash, I don't know why it scares people. It shouldn't. It should -- I would think that's pretty prudent. But if we're going to go out and face bondholders for unsecured debt, we better look them in the eye and say, when the pandemic hit, here's what we did. A, B and C. We bought back bonds. We paid you off early. We're looking to come back to an unsecured market again. And here we are walking through the door at 0.8x leverage.

And the REIT market, one thing we see on the residential mortgage REIT side is they don't give it -- sorry, they don't care if the companies are levered 10 to 1. And I personally think it's a very dangerous situation if you're levered like that. And we've preached lack of leverage for years now on these calls. And in April, people thought we were over-leveraged. Okay. I can't explain to the stock market why they think what they think. It is baffling to me. And I missed the days of being a private company badly because you walk in and you talk to people who understand what you're talking about. But we have been issued sell recommendations because people think we're going to cut our dividends. We said we weren't going to. I don't know why that didn't count. We have $1 billion in cash. And we have a clear path to growing into our dividend. We raised our dividend 5x when LIBOR went up. We cut it once when we said we're doing this onetime. So I must tell you, I'm a little baffled by what people are looking at when they think we're going to cut our dividend.

I was just going to -- I'm not bucking, I'm laughing, because -- Brian, you covered a lot of it, but at the end there. But I think what I was going to say is just, at the end of the day, I watched this same movie back when we opened the doors in 2008. We exercised, led by Brian, enormous patience. Yes, we have a lot of capital. Yes, we could deploy it quickly. Yes, our originators were out there looking and anxious to redeploy months ago. And you heard what happened to returns in the last 90 days. We waited because we thought there would be a better opportunity, and there was. And when any -- I just -- I'm laughing because people speculating about cash. If you just listen, we have $2.7 billion of unencumbered assets. Half of Ladder's assets are unencumbered. We have a securities portfolio of $800 million with very little leverage against it. It could be sold. We're selling it at par as opportunities come in. We could sell it all tomorrow.

At the end of the day, our balance sheet loan, we have $2 billion of loans. We've turned the portfolio with almost no losses. When we have loan maturities coming up, I think we've probably taken more payoffs than anyone, especially if you look at our size. And when you look at -- we have like $240 million of loan repo on our balance sheet. So if we needed to raise liquidity, notwithstanding everything Brian just said, I just gave you buckets of liquidity across the board. And our triple net lease portfolio is outperforming the market. It's 100% collections. It's necessity based. Then it's one of the strongest assets on the Street that I just think is overlooked. So I just -- we -- as Brian said, we can't help what people think. But we've been as transparent as we can be through this process. And I think the thing that gets overlooked a little bit is we turned our balance sheet and took off. And I hope, over time, this will be seen, really all of the problem assets. And we are moving into this new origination opportunity with a very strong, clean balance sheet and tons of capital to deploy.

2 follow-ups. Firstly, share repurchases. Does that fit into your capital deployment plan? How much of the $1.3 billion in cash would you allocate to share repurchases? It just stands to reason that, as an internally managed commercial mortgage REIT, with the value of control of these entities is worth about 15%. So just apples-to-apples, Ladder should trade 15% higher than a plain vanilla mortgage REIT. That would suggest, relative to 80% of book value, more than 30% upside versus unlevered yield at 6%. So how does share repurchase factor into your calculation?

We -- I said last time I thought our stock was very, very cheap. And I thought we'd go out and buy. And as soon as we get off the phone, I let the period go buy that has to go by before you can buy stock, and we went right into the market and began buying it. And I think the stock was down around $6.95 or $7. And then very quickly, went to $8. And I can give -- for all the credit I get as a trader, let me tell you, I was pretty off on this one. I thought the stock would come back to me. It never did. It just kept going up. So it went from $8. Then it went to $9. Then it went to $10, then it went to $11. So I was slow. And so I wouldn't hire me to be a stock repurchaser, if I were you, but -- because I've been a little bit slow on that. I do a little better on the bonds when they're really low. But I think if that is the next -- the best alternative investment we've got, then that's what we'll do. But to separate us from capital in this kind of a market is going to be difficult, although I certainly can understand the benefits of buying our stock at 80% of book value.

Okay. And then last question, and I get this from a lot of investors. In my view, there's probably a decent cohort of very high-quality institutional investors evaluating Ladder. But they look at the dividend, and that keeps them on the sidelines because you could buy Starwood or even something like ARI at a much higher dividend yield. And those companies seem to have convinced the market for now that their dividends are not going to be cut. They're sustainable. When I look at Ladder's $0.8 dividend relative to its undepreciated book value of $13.94, acknowledging book value did take a hit -- a little bit of a hit due to the Koch's exercise of their option. Nevertheless, the current dividend is a 5.75% yield on that book value.

Historically, Ladder generated an 11% to 12% ROE. And I remember, Brian, you're saying, you don't go to work every day to generate a 10% to 12% ROE. You'd shoot for something much higher. So that would suggest, if you can just get back to the 11% ROE and do an 80% payout ratio, there should be about 50% potential upside to the dividend. It's just about the timing of deploying this capital. So can you validate the idea that the dividend is going to be, once capital gets deployed on a growth path, Ladder will be back to raising the dividend at a measured pace, but that's basically what investors should be expecting?

That's a whole lot of forecasting. But a lot of what you said there is kind of the business plan. And it gets a lot easier in a rising rate environment. And I'm hoping. I know most mortgage guys don't say that, but I kind of like great smart rising. And I -- we'll be as patient as we need to be. And we're kind of at that part of the juncture, I think, where we're -- the recession isn't over. I mean there's still high unemployment. Yes, 33 million jobs got lost, and maybe now it's only 10 million, but that's how many jobs were lost in the Great Recession of '08 or so. So we're not done here. And I wouldn't tell you we're done having discussions with borrowers that are having a tough time. But I think what we've proven out now by getting to some of our larger, most illiquid and like most elastic nonperformers like hotels and land loans and loans in bankruptcy is it's kind of proven to us all that we do know how to underwrite.

And this pandemic has been a shock to the system. And in the teeth of the worst recession I've ever seen in my life, we've been able to sell securities, whole loans, hotels, land, defaulted loans, bankrupt loans and all of them with a 98-ish type number across the board. So I don't think that's going to change with the next roster of loans that are coming due at Ladder. So I'm going to speculate a little bit there that we have some legacy that's coming due that we think is fine. We're getting paid off on a lot of loans, but we still have some wood to chop.

And some of that transition that took place, not a lot of transition went well in 2020 unless you were -- own Zoom or one of the delivery companies. But -- so we are now -- what we're looking at is this new class, and we're going to reset the inventory here. And we're going to set -- reset the inventory with very little in the way of competition, with an extremely supportive Federal Reserve Bank. And I think if you're going to shoot for what gets done in the bank market, you're going to struggle at LIBOR plus 350. But if you just expand that target just a little bit and maybe you go to 75% instead of 65%, I oftentimes find when you come out of these recessions, it's the year -- it's almost like you should have done every loan you looked at, and -- because it's 5 years later, you realize with all the stimulus every (expletive) thing you looked at worked out just fine. But we're still pretty particular about it. We're still dealing with the possibility of who knows what could happen.

This has been a lot to deal with as far as the election goes. The election that we thought would end in November ended in January. By the way, if you hear those dogs, those are mine. And I have no control over them, so I'm just going to party through this. So -- and so the way I look at it, it's like it's a great opportunity set. You can't get overly cocky here. Like I said, we could probably push $1 billion out the door in 90 days, but that would be insane, because you could have another leg down here. And we're going to be cautious about it. But will we grow into that dividend? Yes, easily. Do we have any plans to cut it? No. Let me say it again. No. One more time. No. So for the people who keep writing that we're expecting to cut it, I wish they'd call my phone number. But we don't think that's going to be difficult at all. We don't think we're going to be there next quarter. But we do think in a year we're going to be there, and hopefully, even getting to the good news that you talked about there is a possibility.

And we have reached the end of the question-and-answer session. And I'll now turn the call over to CEO, Brian Harris, for closing remarks.

All right. Well, thank you, everybody, for listening. And sorry about my dogs. They have a few questions, too. But I guess as we end here, I want to welcome Paul as our new CFO. And Marc, I can't grab you on a Zoom call, but he knows I'll kiss him right in front of anyone. So if I were around, I'd give you a hug right now. So -- but thank you for all your help. And I appreciate all your time with our investors and our patience. I know it's been a difficult year, but we look forward to better times ahead. So thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.