Ladder Capital Corp (LADR) Q1 2019 Earnings Report, Transcript and Summary

Greetings, welcome to Ladder Capital Corp First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference call is being recorded. I will now turn the conference over to Ladder's Chief Compliance Officer and Senior 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 first quarter of 2019. With me this afternoon are Brian Harris, the company's Chief Executive Officer; and Marc Fox, the company's Chief Financial Officer. This afternoon, we released our financial results for the quarter ended March 31, 2019. The earnings release is available in the Investors Relations section of the company's website and our quarterly report on Form 10-Q, we filed with the SEC this week. 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 2018 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 the 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 Chief Executive Officer, Brian Harris.

Thank you, Michelle. After quite a bit of market turbulence at the end of 2018, I'm pleased to report that Ladder had core earnings, a non-GAAP measure of $46.9 million in the first quarter or $0.40 per share. Our annualized after-tax core return on average equity was 11.6%. During the quarter, we made new investments totaling $910 million and our assets grew by $252.5 million in the quarter to $6.5 billion. Our conduit business featured higher profit margins on loans we securitized. However, securitization volumes at Ladder and the overall market were muted. During the quarter, we contributed $169.7 million in mortgage loans into a transaction that produced a core gain of $6.2 million. We also participated in a second transaction, contributing $86.7 million in loans, resulting in a core gain of $3.8 million, but this gain will be reported in our second quarter results because the transaction settled in April. In the first quarter, we originated $175.3 million of loans held for securitization. Our balance sheet lending efforts produced newly-originated loan totals for the quarter of $281.1 million and we received payoffs of $245.4 million. On our last earnings call, we highlighted our increased holdings of highly rated liquid securities acquired during the volatility that markets experienced towards the end of 2018. While we acquired $468.3 million of these securities in the fourth quarter of 2018, we continued our acquisition spree by adding an additional $432.9 million in the first quarter and $193 million in the first five weeks of the second quarter. While demand for new mortgage loans has been relatively soft, the resulting lack of new supply of securities coupled with a newly dovish Federal Reserve Bank have caused credit spreads to tighten, driving prices higher. So, we are pleased with the timing of our shift in preference for investing in securities. In our real estate portfolio, we actively manage three assets that I'll highlight here and Mark can focus on the accounting details for these assets later on. During the quarter, and after some cost overruns and construction delays, we decided to de-risk our equity investment in a New York City residential and retail condominium development. We negotiated with the construction lender and our equity partner to take over the construction loan, fund a mezzanine loan, and convert our equity investment into a preferred position, reducing our last dollar exposure by $13 million. We took these steps because we felt that the risk-reward relationship favored this structure where all of our exposure is senior and timing and priority of payment in all respects. After modifying the capital stack in February, with construction substantially completed, unit sales commenced and we've already been paid down by $10.8 million. The second asset I'd like to mention is a hotel in Omaha, Nebraska. In May of 2018, we made a $17.75 million loan on a 180-room full-service Holiday Inn. Shortly after we executed this cash in refinance, we noticed some friction among the partners in the ownership structure. Following the sudden death of one of the partners in an automobile accident, a default followed and we moved quickly to replace management and foreclose on the asset. We took title to the property very quickly and are currently developing our business plan for managing and owning this hotel. We are also pursuing a $4.5 million payment guarantee that runs joint and several to the partners in the previous ownership. We do not expect to report a loss on this asset and we believe that the troubles we witnessed had more to do with poor management than low valuation. We'll update you on our longer-term plans for this asset on our next call. The last asset I'll report on from the quarter involves our sale of a New Jersey, suburban office buildings that we purchased four years ago for $9.7 million. The sale resulted in a core gain of $540,000, which will be reported in our second quarter results, because the sale closed in May. We were able to negotiate a lease termination payment with the loan tenant in the building, and with these funds in hand, we paid off our mortgage loan along with a $1.1 million prepayment penalty. We then sold the vacant building to an end-user resulting in the gain of $540,000. Our annual IRR over the four years we owned this property was 19% per year. Before I turn you over to Mark, I'll briefly touch upon our view of general market conditions and how we plan to navigate them going forward. While recent headlines include the lowest unemployment rate in the U.S. in 50 years, low inflation, a patient Fed in no hurry to raise interest rates, record stock market levels, low interest rates and a 3%-plus GDP in the first quarter, we still remain somewhat cautious in late cycle management of our investments in commercial real estate. We see a world of have and have nots in retail stores with a large amount of store closures to start the New Year. We think that industrial properties and apartments are doing well, while student housing and self-storage seems somewhat overbuilt. We believe hotel cash flows are stable, but have peaked for this cycle. We are somewhat wary of rising gasoline prices since the beginning of the year as we enter the summer driving season. While stock markets are up quite a bit, much of the year-to-date gains are the result of multiple expansion rather than higher earnings. While we see large percentage moves in market value from some very large companies after they report earnings, the so-called earnings beats are oftentimes as a result of estimates being lowered too much after the market turmoil, last December. We have witnessed a V-shape recovery in many markets, yet interest rates in the U.S. and elsewhere remained much lower than they were in the fall of 2018. Many market participants believe rates remain low because the Fed has reversed its Hawkish tone, now preaching patience. We think this is only partially true. What gives us pause is that interest rates are low while energy prices are rising, and yet there is seemingly no inflation to speak of after 10 years of low interest rates, despite a massive government deficit. And then there's the flat and sometimes inverted yield curve and a very high reported GDP for the first quarter, largely as a result of rising inventories. In short, we think that growth in the United States is a bit overstated. We think things are fine, but we don't think the economy is as strong as some of the headlines would indicate. In lending markets, competition is pretty strong and bridge loans on transitional properties are currently being refinanced at rates that are 100 basis points lower than they were just a year ago. As stated earlier, our preference lately has been to invest in a combination of conduit loans, bridge loans, and a great preference for acquiring safe and liquid securities that produce levered returns of almost 8%, while we wait patiently for better investment opportunities to present themselves. To sum things up, we like the way our gain on sale business is performing and we like securities also. We are more cautious lately around bridge loans and real estate, but overall, the economy seems to be doing well. Credit is stable and our businesses are generating enough returns to easily support our cash dividend with room to spare. I'll now turn you over to Mark Fox.

Thank you, Brian. I will now review Ladder Capital's financial results for the quarter ended March 31, 2019. In the first quarter of 2019, Ladder generated core earnings of $46.9 million, resulting in core EPS of $0.40 per share and an after-tax return on average equity of 11.6%. This compares to core earnings of $63.8 million, core EPS of $0.55 per share, and after-tax ROAE of 16.3% for the quarter ended March 31, 2018, a quarter during which sales of real estate contributed $18.4 million to core earnings. During the first quarter of 2019, core earnings were primarily derived from net interest income generated by Ladder's balance sheet loan and securities portfolios, net rental income from our real estate portfolio, and gains on the sale of securitized loans and securities investments. Overall, in Q1, net interest income and net rental income totaling $58.7 million was supplemented by $6.2 million of gains on the sale of loans and $2 million of core gains on sales of securities. On a GAAP basis, Ladder generated net income before taxes of $21.7 million in the quarter ended March 31, 2019, compared to $71.7 million in Q1 2018. The year-over-year change was primarily the result of real estate sales gains last year and the unfavorable impact of declining interest rates during Q1 2019 on the value of interest rate hedges. The largest GAAP to core earnings adjustments in the first quarter related to non-cash stock-based compensation, as well as the timing of the recognition of hedge results that coincide with the realization of gains and losses on the disposition of hedged assets. At the end of the first quarter, balance sheet loans totaled $3.3 billion and the conduit loan balance stood at $189.5 million, reflecting the origination pay off and securitization activity detailed earlier. Finally, during the first quarter, Ladder acquired $432.9 million in securities investments. Ladder's securities portfolio grew to $1.6 billion at the end of the quarter, up 14.8% since the end of 2018 and up over 60% from only six months ago. As previously mentioned, during the first quarter, there were three events that affected a number of income statement and balance sheet line items with only modest economic impacts. With regards to the New York City condo development mentioned earlier, we executed transactions in February to convert our equity interest into a more senior secured investment position and that result is reflected in an increase in investments in unconsolidated joint ventures line item on the balance sheet. As a result of the transactions, we converted a $35 million common equity interest into a $35 million priority preferred equity position. In addition, we refinanced the joint venture's mortgage debt with a $50.5 million first mortgage loan and funded a $6.5 million mezzanine loan. Going forward, Ladder will receive all distributions of available cash until all of its debt and preferred equity investments have been repaid. After the operating partner receives a return of and on its investment, Ladder will receive 20% of any remaining cash distributions. The net result places Ladder in a first priority position for return of its invested capital with our JV partner responsible for all additional costs and equity risk. No gain or loss was recorded on the recent hotel loan foreclosure. We now own the hotel at a basis of $18 million or about a $100,000 per key. We have contracted with an experienced hotel manager to operate the property. On the balance sheet, the hotel is now a real estate asset replacing the mortgage loan asset. On the income statement, in future quarters, if and when the amounts are material, you should expect to see an income from operating properties line item that reflects the results of this hotel. As Brian also noted in January, we received the $10 million lease termination payment from the sole tenant of an office building that we owned in New Jersey. On May 1, we sold the building at a price of $1.75 million. The property was originally acquired for $9.7 million. After writing off $400,000 in straight line rent receivable and paying a $1.1 million debt defeasance fee, the transactions will contribute $540,000 to core earnings in the second quarter. For GAAP purposes only, we will recognize the $10 million fee as rental income over only four months. We have recorded a $1.35 million impairment charge in Q1 and another in Q2, while recognizing the defeasance charge in Q1 also. Turning to the balance sheet and investment activity metrics, as of March 31, 2019, 96.7% of our debt investments were senior secured, including first mortgage loans and commercial mortgage backed securities secured by gross mortgage loans, which is consistent with the senior secured focus of the company. Senior secured assets, plus cash, comprise 77.5% of our total asset base. Total assets stood at $6.53 billion, which is 4% higher than at the end of 2018. Total unencumbered assets, including cash were $2 billion at year-end and unsecured debt outstanding stood at $1.2 billion, reflecting an unencumbered assets-to-unsecured debt ratio of 1.71 times. At the end of the quarter, 83.1% of the securities portfolio was comprised of securities rated AAA or backed by a U.S. government agency and the weighted average duration was 30 months, which compares to 36 months a year prior. The weighted average loan-to-value ratio of the commercial real estate loans on our balance sheet at March 31, 2019 was approximately 68.4%. There were no core impairment charges in the quarter. The average mortgage loan interest rate on balance sheet loans originated during the first quarter reflected a weighted average spread of approximately 4.36%, which is lower than the balance sheet loan origination spreads in prior quarters, reflecting general market conditions. The average interest rate on conduit loans originated in the first quarter was 5.42%. On the financing side, as of March 31, 2019 Ladder had $4.2 billion of adjusted debt outstanding and committed financing availability of $2.4 billion for additional investments. Adjusted leverage at 3/31 was 2.57 times, up from 2.34 times at 12/31/18, reflecting the addition of investment assets during the quarter. Excluding securities, the adjusted leverage ratio is less than 1.6 times at March 31. At March 31, 2019 debt was comprised of $1.17 billion of unsecured bond debt outstanding maturing in 2021, 2022 and 2025; $739.5 million of long-term non-recourse mortgage debt financing on our real estate holdings and $497.3 million of non-recourse CLO debt. When combined with the $1.64 billion of permanent equity and $148.9 million of other liabilities, $4.2 billion or 64% of Ladder's capital base is comprised of equity unsecured debt and non-recourse non-mark-to-market debt. At quarter end, we had $1.3 billion of FHLB borrowings with a 2.39 year weighted-average maturity and an average cost of 2.61%. During the quarter, Ladder amended one of its committed loan repurchase facilities to extend the initial term of the facility from October 2020 to February 2022 and also amended its committed securities repurchase facility to extend the maturity date through March 2021. So, summing up, in the first quarter of 2019, Ladder generated $46.9 million of core earnings; $0.40 per share of core EPS, resulting in a core after-tax return on average equity of 11.6%; originated $456.4 million and securitized $169.7 million of loans, resulting in $6.2 million of net securitization gains; and paid a $0.34 per share dividend, reflecting a cash dividend payout ratio of 85%. On a rolling four-quarter basis, Ladder's payout ratio was 70.4%, reflecting cash dividends of $1.33 per share and $1.89 of core EPS. At this point, it's time to open the line for questions-and-answers.

Thank you. [Operator Instructions] Our first question is from Tim Hayes with B Riley, FBR. Please proceed with your question.

Hi, good evening, everyone, and thanks for taking my questions. Brian, this one, just to start, bridge loan originations were a bit lower than your usual run rate this quarter and how much would you say was due to market volatility and just lower or lighter transaction activity versus your broader caution there and your increased appetite to invest in CMBS and the conduit loan side?

Sure. I hope I can answer that, understandably, and I would just tell you that the lower loan volumes. I think really reflect a couple of vectors that are leaning on our process. We do see many loans that we like. Market conditions are seeing our competitors bid these loans at levels that we think are relatively unattractive. And when I say relatively unattractive, that's not to say we think they're going to lose money there. On a relative value basis, we've been able to acquire AAA CLO paper at yields that, in our opinion, would make those liquid safe investments with 50% subordination much more attractive rather than owning the whole loan at LIBOR plus 300. So, I think that we're originating less; one, because of our preference for a very similar surrogate to it. While the yields are lower, we think that the risks inherent in writing the whole loans don't justify moving off of the AAA category into the whole loan category in some of those asset classes. You do see some of our rates, on average, lower. So that would also be supportive of what I just said to you in there. And in general, I think now, I don't know if lower loan demand to start the year is really a hangover from 2018's turbulence at the end of the year or whether or not it's just burnout with all the pull forward demand that took place over the last 10 years because interest rates have been so low for so long. But whatever it is, it's pretty clear to me that loan demand is not what it was a couple of years ago.

Okay. So, just kind of putting that all together, do you see this kind of being a trend throughout the year where you're may be originating less whole – bridge whole loans and acquiring more of that, either the CLO paper or the AAA's or just investment rated CMBS so are sticking with the condo business. Is that – when we think about capital allocation is, should we expect kind of this pace of the bridge originations to persist through the year?

I don't know the answer to that, and the reason I don't is because – if you tell me that I could continue buying AAA CLO paper on acceptable collateral with 50% subordination at spreads of LIBOR over 100. There was a deal today that printed at that level, well over a 100. And people were going to continue writing loans at LIBOR plus 275 to 300 over on the competitive landscape, then I would say yes. I would be surprised, a year from today if AAA two-year CLOs are transacting at spreads with a 100 plus handle on LIBOR.

Got it. Okay, that's helpful. Appreciate the comments there. And then did the December and January volatility have any impact on loan spreads? I know you mentioned your spreads are down there. I don't know if that's, you know, I would have thought maybe less competition might – as a result of that might actually help spreads. But we did see some of your competitors talked about spreads coming in, but would you say the volatility have impact on either spreads or collateral type or loan structure on – in terms of what you're looking to originate today. And then I know you highlighted the strong gain on sales on the conduit transactions, it seems like volatility actually helped you there maybe this quarter? Would you expect that gain on sale to rationalize as spreads have tightened a bit?

Yes, I would suspect it will get a little bit more back to the mean. But I also think that part of the reason that some of the profit margins in the gain on sale business were so high is because of how quickly rates fell while the Ladder loans were under application. And typically falling rates would increase a lot of demand and that would create a lot of supply that would drive spreads wider. That kind of falling rate environment that took place in December didn't do that. So, what happened was, I think in December, as you saw, the stock market really take a heavy correction largely as a result of, I would say, a misstep by the Fed. And when that happened, I think there were a lot of market participants on the investment side that kind of unloaded their fixed income investments or at least paired them back because they felt interest rates were going higher based on comments from the Fed Chairman. And then, when he reversed course and suddenly became patient, I think that created an unusual amount of demand and the exact opposite of what happened in December. So, I think that's one reason spreads are tightening, at least on the securities side. What's interesting on the bridge loan portfolio though is while CLO spreads were widening in the secondary market where we're requiring hundreds of millions of dollars of AAA securities that were pricing wider and wider, the loan participants, the lenders in this space were tightening as a result of competition, which is a phenomenon that obviously cannot continue. But I think there's, frankly, too much capital in this space and too little demand. So, I think that we'll just stick to our discipline and if that means we're going to continue to curtail our activity in the bridge loan space that's fine with us. We won't force the issue. We take what the market will give us and we allocate capital accordingly. And if we can allocate capital into extraordinarily safe investments that are really being created by our competitors and generate a yield of 8%, that might be a very good place to hide out until the market decides which way it's going to go. And we're a little concerned about volatility, no better proof than today in the markets and we don't think it's over, and as we get into this election cycle, we think that situations could continue to be, because we've got such massively polarized political parties that when one looks like they're going to win it may swing markets one way and if the momentum goes the other way, the markets will swing the other way. So, we don't think it's the time to get overly aggressive. We're very late in the cycle and the economy is doing well and interest rates have been low for a very long time. But I don't think it's time to start making calls that it's time to be aggressive. Keep in mind, making loans today at a given spread is fine, because we know where market spreads are. What we worry about is getting paid back in two years or three years. And we're a little afraid what that might look like, so we probably are a little more cautious than some of our competitors on that.

Appreciate those comments. Just one more from me, the assets you highlighted this quarter are pretty different from each other in terms of asset type, geographies and there seems to be some idiosyncratic issues, but do you see any cautionary trends developing or just any areas of stress in your portfolio worth noting?

Well, I think we've been mentioning that with LIBOR having increased rather quickly over a couple-year period of time when people were coming up on extensions, the one category of loan if I can give a description – the one category that we felt was a little problematic was anything that didn't have cash flow that needed an extension at a much higher rate, because LIBOR moved, and this was going to require a large interest reserve and a new LIBOR cap. And actually, of the assets we're talking about, two of those, in many ways occurred in that regard. The condominium transaction that we were invested in on the equity side, when it came time to ask the construction lender to extend his loan, there was plenty of equity in the deal so he was happy to extend it, but the rate was quite high and – as a result of having been a construction loan from ground-up and we felt that as a lender, if we could take over the construction loan, which was now mostly complete, there really wasn't very much risk in finishing it at that point, we felt the economics were better. So, the versatility of our platform allowing us to move from the equity chair to the debt chair we think will pay benefits, not so much benefits and we're going to make a lot of money, but I think that the returns due to the delay in the cost overruns were really diluting our returns on the equity side. And so, as disciplined investors, we wanted to move out of that and get into a safer place. The hotel, you're right, very idiosyncratic situation. Certainly not what we expected, but we made a loan in June and we owned the hotel in February. And when we made that loan in June, the borrower came to the table with an equity check of $2.5 million and – to refinance the prior loan and wrote a recourse obligation joining [ph] several to three parties for $4.5 million. So, that wouldn't indicate to us that there was any intent certainly to lose the property, but sometimes when you've got partnerships, they get a little weird and in this case one of the principles was killed. And the last one was just a pay-off of a AAA net lease property, which is sort of interesting because I think we take a little different take than a lot of REITs because that was a net lease property. It was an office building it was leased to a very healthy company. There was a lot of time left on the lease and – but they clearly made it – their intentions were to leave. So, they asked if, because they were healthy and they wanted to close their books for the year, they asked us if they could pay off a negotiated lease termination. I think a lot of REITs would have sat there and clipped the coupon for the remaining term and that was years and there was no problem at all. And so – but I think, from our perspective, looking down the road long-term, when that tenant left, that was going to turn into a lease up story and – or else we would have been in a situation where that tenant would have had to sublease the property. I think from our perspective we had a pretty good gain. It wasn't a lot of dollars, but it was a rather small investment and the transaction began to veer off course in that the tenant wasn't going to stay. So, we had an opportunity to print a gain and we took it.

Got it, that's helpful. Thanks for your comments.

Sure.

Our next question is from Jade Rahmani with KBW. Please proceed.

Thanks. Can you give your net exposure in the lower east side condo deal before and after the $10.8 million pay down you noted that took place after February?

Jade, if you don't mind, I'm going to have Pamela go through those numbers because she actually handled that transaction.

Okay.

So Jade, we restructured the investment to reduce our last dollar exposure by $13 million from $105 million to $91.8 million. And subsequent to that, we've been paid down and now our – on the loan first, our outstanding current exposure is $76.9 million as of today.

Okay, and what kind of all-in inclusive of, I guess, the construction loan, the mezzanine loan and your preferred equity position, what kind of all-in return are you expecting?

Do you have the rates on the variance piece?

Yes. So, on the first mortgage loan…

Be precise.

The first mortgage loan, which is $50.5 million were getting LIBOR plus 475. On the mezzanine loan, which is $6.5 million, we're getting a 12% fixed rate.

And the preferred equity is, it's really more like a kicker at this point. We get a return at the principal. And then we will get a split if there is a return over 13%, our partner will get back their capital and a 13% return before there'll be any profit split on that above our return on principles.

And we get a certain percent of that.

So, I would use LIBOR plus 475 for the $51 million, $50.5 million; 12% for the $6.5 million and I would use a zero for the equity, which will be a return on principal as opposed to return on asset [ph].

Okay, anything on the watch list? I mean, we are starting to see kind of these, we call them one-offs, but there are one-offs every – with every mortgage REIT that reports. But we are seeing them pick up gradually, nothing too alarming and it's pretty normal this late in the cycle, but anything on the watch list that we should be on the lookout for?

The answer is no, Jade. I think we're actively getting in front of issues and restructuring. I think we're just looking – we balance the return with risk mitigation. And we don't feel like there’s and anything coming. We're actively looking at stuff and always thinking about how to maximize return at Ladder, but we don't have anything on our watch list that we're currently concerned about.

And I indicated to you, Jade, that we feel like credit is stable here. It is that that one column, where things need extension where there is no cash flow, that's a very expensive proposition. So, we're particularly monitoring things like that and I know we've had a few of those recently that are not being reported here today, but because what we've done in advance of them and said, we're happy to extend the loan, but you're going to have to pay down the loan for the extension. Fortunately, most of our borrowers are well-heeled enough that they can do that and they have been responding to those payments. So, we don't have any, any heavy negotiations going on or any – anything in the on-deck circle presently.

I think the safest thing to say is, we're very comfortable at our basis on all the assets, so that's what gives us a lot of comfort.

I think that the mortgage REITs have said publicly that around 25% to maybe 35% of their originations are bridge to bridge kinds of scenarios. Are you seeing a similar trend, are you inclined to deny those, turn down those term sheets when you see them? How are you looking at that?

We look at assets for what assets are, but I think we would generally have the impression that if we're going bridge to bridge the other lender could have extended and has decided not to. So, we're naturally cynical in those scenarios. So, I would say, we're certainly [not 25% to] 35% of our production, we do see a lot of those loans. In fact, we're a little surprised that we see borrowers seeking cash out refinances on bridge to bridge fundings and we are doubly cautious on those. So, we are seeing that, but we're not apt to be chasing those in too many aggressive ways.

In terms of the decline in book value, was that related to the stock compensation of $12.4 million, which was outsized. So, I'd appreciate if you could give some color on that? Or did that relate to interest rate movements with respect to the CMBS portfolio?

Yes. No, it's really – it's really about the shares between the – we have the stock dividend where we issued 1.2 million shares in the first quarter and we had another 1.5 million shares net on the equity compensation grants. So, it's 2.7 million shares, about a 2.3% increase and that's what really just drove it.

And the comp grant related to what year? I mean, on an annual basis, you know what's reasonable to expect. Is this a – this is a multiyear level of issuance, isn't it?

Yeah, I think the equity compensation grants; I think that was in line with what you'd expect in a year when we made $230 million. And so, $230 million was more than what we had expected. So, I think that that's about – that you should look at it in proportion.

Okay.

We do have stock compensation for our higher-earners in the company and so in periods where – in years where we have high income that would naturally correspond to high compensation, and that would require higher stock grants. However, you should note that those stock grants are handed over at higher stock prices and they don't vest for three years, except if you've got a retirement eligibility situation. So, it's in-line with the way it's always worked around here. I think that you're seeing this outsized item because of the outsized income of 2018.

Thanks. Regarding the 2Q originations and repayments so far, just want to make sure I heard you correctly, I think you said $193.5 million. Was that inclusive of bridge loans and conduit loans? Can you just clarify that? And secondly, what have you received in terms of repayments so far in the second quarter?

I don't have my second quarter notes handy here, I don't know if Pamela has it.

We've done about a $100 million in the second quarter and I think we received, to-date in repayments, slightly in excess of that at the moment, but we're projecting – we think, right now I think, we're projecting running the book at close to even.

Okay.

The loan book?

The loan book, the balance sheet loan book.

Right.

We anticipate the securities book will go higher. I indicated to you 190-some-odd-million-dollars in the first five weeks and I assure you that number is higher today. So, we did see a slowdown in paydowns. If you remember in the last quarter, we had about $800 million in pay-downs, which was an absolute anomaly and – but it has largely reverted back to what we would expect, which is about $240 million a quarter.

Great, thanks for taking the questions.

You're welcome.

[Operator Instructions] Our next question is from Steve DeLaney with JMP Securities. Please proceed.

Good evening, everyone. Thanks for taking the question. Brian, last Friday, CMA [ph] showed about $21 million of new CMBS issuance year-to-date. You already knew that number, but down 19% year-over-year. Rates are lower now than they were in the last year or early this year. Just curious what's your outlook is for the rest of this year and do you think we have a chance to get back to match 2018 at this point?

Yes, there's a lot of factors that go into the mortgage origination business, primarily you get loans from two places refinance and acquisition.

Right.

Acquisition, I think will move around up and down depending on many factors, including how comfortable foreigners feel investing in the United States. The refinance pipeline, I suspect, is going to be muted. And the reason why is because interest rates have been so low for so long, and I just, just do not see rents going higher in anything, but apartments and some industrial areas. So, typically a refinance will be driven by the opportunity to save money through a lower rate, which I don't think can be done today. And secondly, as a result of trying to get more cash out of the asset because it's been leased and stabilized. So, I think that that's really where you could see some growth, but I just don't – our lease-ups are taking longer than they're supposed to. As I said, I think hotels – we believe hotels are peaked already. So, I don't think we're getting back to where 2018 was. However, there is a couple of private equity firms that could easily change that with a few assets. But if you take out the largest borrower on the CMBS business, I guess its Blackstone, yes, the businesses is downsized, bit slower, and down 20% sounds pretty reasonable to me. I don't anticipate if rate – if rates do go lower, I don't think they'll spark a refinance boom because I think if rates go lower, it's going to be because of a reason that is not going to be very comfortable for a lot of us.

For activity, yes, understand. And your comments about kind of hitting it right with your first quarter and second quarter [indiscernible] margins kind of bouncing below and above 4%, very strong. Sounds like …

Sorry to interrupt you. I think the lower volume is offset a little bit by higher margins across the board.

Okay, great. That's kind of where I was going. Some of that may have been circumstantial with going from volatility to tightening et cetera, but sounds like you feel, you feel like the – while the volume is lower the profitability of that business for you all is, sounds like it's on a unit basis, is as good as it's been in quite some time.

Yes, and do I think that'll continue, we're not writing loans to make four-point margins, but if you make four points on $200 million, last year you would have had to write $800 million worth of loans to make that amount of dollars. So, yes, it is sort of a little bit circular. I understand Pamela's point there. But we always look for relative value and I don't anticipate the conduit business will continue throwing off those kinds of returns even if volume does come back or get lower. I think a combination of falling rates, reasonably depleted fixed income coffers because they thought rates were going higher, at the direction of the Fed Chairman, and then coupled with rates falling and little supply coming, if you take a look at the leveraged loan market and the high yield corporate market, you'll see the same phenomenon and I mean these credit spreads have simply tightened I think largely through a lack of supply.

Interesting. Well, thank you, both for your comments.

You're welcome.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

We just like to thank everybody for joining us tonight and hearing us and all the supporters that invest in our company. Things are pretty comfortable here at Ladder, despite a little bit of a slowing business. We have the tools to oscillate around various products and take the right steps to ensure the best returns. So, very comfortable with where we sit today and even into a downturn from here. So, thanks very much for joining us and we'll catch on the next one.

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