Ladder Capital Corp (LADR) Q2 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Ladder Capital Corporation Second Quarter 2019 Earnings Call. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to Ladder's Chief Compliance Officer, 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 second quarter of 2019. With me this afternoon are; Brian Harris, our company's Chief Executive Officer; Pamela McCormack, our President and Marc Fox, our Chief Financial Officer. Brian, Pamela and Marc will share their comments about the second quarter and then we will open up the call to questions. This afternoon we released our financial results for the quarter ended June 30, 2019. The earnings release is available in the Investor Relations section of the company's website and our quarterly report on Form 10-Q will be filed with the SEC later this week. Before the call begins, I'd like to remind everyone that this call may include forward-looking statements. Actual results may differ materially from those expressed or implied on this call and we do not undertake any duty to update these statements. I refer you to our most recent Form 10-K for a description of some of the risks that may affect our results. We'll also refer to certain non-GAAP measures on this call. Additional information including a reconciliation of these non-GAAP measures to most comparable GAAP measures is available on our website ir.laddercapital.com and in our earnings release. With that I'll turn the call over to our President, Pamela McCormack.

Thank you, Michelle. I'm pleased to report that Ladder delivered attractive results for our shareholders this quarter generating core earnings of $51 million in the second quarter and $0.43 per share in an annualized after tax or return on average equity of 12.5%. Our dividend remains well covered with a quarterly payout ratio of 79% allowing us to retain 21% of our core earnings. This quarter was characterized by strong earnings, steady ongoing loan origination and investment activity with a continued focus on conservative credit metrics. Our multi-cylinder approach has produced double-digit returns for nine consecutive quarters. Our ability to deploy capital into highly rated and highly liquid securities allows us to selectively originate loans with strong sponsorship and credit fundamentals as opposed to trying to force volume. While we focus on strong sponsorship, we continue to be mindful of the fact that the majority of the bridgeable market is comprised of non-recourse loans, so our primary emphasis has been and continues to be on our loan basis, relative to the value of the underlying real estate that collateralizes our loans. We believe that this approach allows us to generate the best risk-adjusted returns and positions us well to take advantage of attractive loan opportunities as they present themselves. Our assets continued to perform well from both an earnings and credit perspective. We made new investments of $840 million and our assets totaled $6.4 billion as of June 30. Credit in the quarter was stable. Our undepreciated book value per share was $15.16, up by 1.3% since a year ago. Turning now to the conduit business, our securitization operations continue to enjoy healthy profit margins. It contributed $238 million in mortgage loans to two conduit transactions that produced core gains of $10.9 million. We also originated $158 million of loans held for securitization during the quarter. We continue to view the conduit business as a strategic one for us. While the timing of securitization varies it has proven to be a very durable and highly profitable business often offering the best risk-adjusted returns. Since inception, we've securitized $15.8 billion of mortgage loans in 62 transactions and realized almost $682 million of core gains. Moving to balance sheet lending. We originated $260 million of loans during the quarter and received payoffs of $448 million. All of our floating-rate loans are subject to LIBOR floors with a weighted average LIBOR floor of 1.54%, reflecting a weighted average interest rate floor of 6.89%. The presence of these LIBOR floors in our floating-rate book which has been a consistent feature of our underwriting makes our exposure to interest rate movements asymmetric in a positive way for our shareholders. Reflecting the offsetting impact of the floors, a 1% increase in U.S. LIBOR would increase net interest income by approximately $0.04 per share per quarter. The impact of a 1% decrease would be approximately $0.02 per share per quarter. Our total $3.1 billion portfolio of balance sheet loans has a weighted average maturity of 15 months and an average loan size of approximately $20 million. It also includes $650 million of fixed-rate loans with a weighted average interest rate of 6.01%. In addition, we are continuing to see attractive loan opportunities. We are maintaining a robust forward locked pipeline and have already closed over $219 million of loans in the third quarter split roughly 60-40 between bridge and conduit loans. We believe that our midmarket by choice approach creates valuable asset and portfolio diversification while providing more frequent opportunities to redeploy capital in ways that allow us to maximize our returns, while at the same time reducing our exposure to changes in interest rates and macroeconomic conditions. We've invested heavily in assembling the expenses expertise and infrastructure required to cover our target market which we believe continues to remain underserved. Our investment in over 20 in-house mortgage loan originations to produce this granular asset mix differentiates us from our competitors. On our last earnings call, we highlighted our securities businesses and our increased holdings of highly rated and highly liquid securities acquired during the volatile market conditions experienced at the end of 2018 and into the first half of 2019. 84% of our securities portfolio is comprised of AAA-rated securities or are backed by a U.S. government agency with a weighted average duration of 27 months. Our consistent practice of investing in these highly rated short-duration securities provides reliable returns, minimizes price volatility and maximizes our flexibility to reallocate capital to other businesses as and when market conditions change. We acquired $419 million of securities in the second quarter and an additional $96.5 million in the first four weeks of the third quarter. As Marc will elaborate on shortly, we are also endeavoring to further distinguish our platform by strengthening and lengthening our liability structure as we continue to demonstrate an industry-leading ROE with an increasingly more senior secured asset base all while consistently maintaining our targeted leverage of two times to three times debt to equity as we end this quarter near the middle of that range. On our last call, Brian also mentioned we would follow up regarding certain assets in our portfolio. I am pleased to report that as of today, we have reduced our exposure in the Second Avenue Condominiums from $91.2 million to $54.5 million from further unit sales and we have reached an agreement to upgrade the flag on our real estate-owned hotel in Omaha Nebraska. Beginning in the fourth quarter, the hotel will be operated as a Doubletree by Hilton under a new 15-year franchise agreement. The conversion is well underway and the hotel is now listed on the Hilton website. With that, I'll now turn you over to Marc Fox.

Thank you, Pamela. In the second quarter, recurring income in the forms of net interest income and net rental income totaled $54.7 million and was complemented by $10.9 million of gains on the sale of loans, $1.9 million of core gains on sales of securities and modest gains from real estate sales. From this income, we paid $40.8 million of cash dividends, equivalent to $0.34 per share on 119.7 million shares. Turning to the balance sheet. At the end of the second quarter, balance sheet loans totaled approximately $3.1 billion and the conduit loan portfolio stood at $112 million, reflecting our ongoing commitment to a disciplined approach to underwriting commercial real estate risk. The weighted average LTV of the loans on our balance sheet at June 30, 2019, was approximately 69.9% and our average loan size was approximately $20 million, both in line with prior quarters. The average mortgage loan interest rate on balance sheet loans originated during the quarter reflected a weighted average spread of approximately 4.36%. The average interest rate on conduit loans originated in the first quarter was 4.96%. During the second quarter, Ladder's securities portfolio grew by $169 million to $1.8 billion, up 10.5% since the prior quarter and 26.8% since year end. As of June 30, 2019, 96% of our debt investments were senior secured. Senior secured assets, plus cash, comprised 78% of our total asset base, reflecting Ladder's continued investments at the top of the capital stack. We closed the quarter with an adjusted debt to equity ratio of 2.6 times, close to the middle of our historically targeted range of 2 to 3 times. Excluding our portfolio of highly liquid and highly rated securities, our adjusted debt to total equity ratio would be reduced to 1.6 times. During the quarter we also repurchased just over 40,000 shares, at a weighted average price of $15.90. Finally, we had available liquidity of over $660 million for new investments at the end of the quarter. During the quarter we also hired Paul Miceli, as our Director of Finance, to manage and oversee the daily operations of our finance and accounting team. Paul reports directly to me and brings a wealth of experience and relevant industry expertise to Ladder. Before turning you over to Brian, it is worth noting that we recently met with representatives of each of the major rating agencies, Moody's, S&P and Fitch, to discuss the significant progress we have made towards meeting their collective criteria for positive ratings action. We highlighted the fact that all existing members of the executive team joined Ladder in its first year of inception and possess an average of over 25 years of management experience and thought leadership through multiple market cycles. We further highlighted our significant growth in recurring income, the senior secured status of our investments and a track record reflecting cumulative core earnings of over $1.6 billion and an average ROE of 13.5% since inception. We have consistently done everything we said we would do since inception, including maintaining 2 to 3 times leverage and sticking to our core strengths of underwriting and investing throughout the capital stack in commercial real estate for the best risk-adjusted returns. As an internally managed company that has invested heavily in building our team and franchise, we also took the opportunity to introduce our larger group of 16 senior managers and department heads to the agencies. This capable group of managers, averages nine years' tenure at Ladder and 20 years of industry experience. We stressed the significant investment we have made in recruiting and retaining talent a long-term planning that has resulted in impressive employee tenure and retention rates among that team and our larger personnel base. Finally, as we look over the next several months, we remain focused on improving our funding profile and achieving positive rating action. In fact, we are proud to report that last week, Fitch revised Ladder's rating outlook to positive from stable. We expect to continue our progress on reducing secured debt, which has resulted in secured debt measured as a percentage of total assets of 54% as of quarter end. With supportive market conditions, we look forward to continuing our meaningful progress on this front, and ultimately reaching our stated target of less than 45% secured debt to total assets in the third or early fourth quarter of 2019. We feel confident achieving this goal will not only strengthen our balance sheet, but should also position us well to continue to deliver strong and sustainable core earnings for our shareholders and prudently take advantage of growth opportunities over time. I'll now turn you over to Brian Harris.

Thanks, Marc. The second quarter was a very solid quarter at Ladder, and I'm very pleased with our overall earnings, but more importantly with the quality of those earnings. Over the last three quarters, we've been signaling to you that we were actively increasing our time and investment in securities and the conduit. These two businesses are performing very well lately and we expect this to continue. We have acquired approximately $1.4 billion of short-duration highly rated liquid securities over the last 10 months. We expect these securities will provide us with 8% to 10% levered returns for the next couple of years, adding further support to our already well covered dividend and liquidity profile. On a mark-to-market basis, we have embedded gains in this position as overall interest rates, credit spreads and funding costs have all been improving. Our rotation into this product type appears to be well timed. Our gain on sale conduit business is also performing better than it has in years. And despite lower volumes, our profit margins are very strong. With this product contributing about 13% to our core earnings in the quarter, we are happy to see a more balanced contribution to profitability across all four of our product lines. In short, our multi-cylinder model is performing very nicely at this time as evidenced by our 12.5% return on average equity with a conservative adjusted debt-to-equity ratio of 2.6 times or as Marc mentioned just 1.6 times when excluding our highly rated liquid securities. As we look out into the second half of the year, we also see some potential opportunities in our capital structure that we hope to take advantage of given the low interest rate environment we are in. While we certainly don't need to access the corporate debt market, given that we have a pre-payable five and seven, eight corporate bond outstanding, we may look to refinance that issue before year-end as long as we can replace that borrowing with lower rates and more term. If the debt market is welcoming we may also look to replace some of our repo borrowings with unsecured corporate debt with longer maturity dates. While we already have a diverse liability structure with a significant amount of unsecured debt at 25% of our total debt, we may have a near-term opportunity to increase this percentage consistent with our ongoing efforts to strengthen our capital structure. These are the kinds of activities that we believe bring long-term shareholder value to Ladder. In closing, I'd like to mention that we have added David Weiner and Pamela McCormack to our Board of Directors and I look forward to working with them in their new roles. We can now move over to questions you might have.

Thank you. [Operator Instructions] And with that our first question comes from the line of Steve Delaney with JMP Securities. Please proceed with your question.

Good evening everyone. Thank you for taking the question. I'd like to start with the conduit business. You had good activity in the quarter but as of June 30, anyway there was just a little over $100 million. Beyond that one loan or several loans on the books, could you talk a little bit about whether you have a pipeline building as you're going into third quarter and maybe some idea of what you would see a reasonable level of conduit production to be in the second half vis-à-vis the first half? Thanks.

Hey Steve, its Brian. Thanks for the question. Conduit, I would tell you that in the quarter just closed that we were discussing, our conduit activity should have been a lot higher than that. We actually had a couple of very large -- I wouldn't say very large, we had a couple of large loans fall out of due diligence not for any reason that there was anything wrong with the real estate. It was a lot of legal stuff that we couldn't structure around. So, we had a bit of an understated conduit quarter there as far as origination went. And we do expect as the third quarter rolls on, we've got a pretty good pipeline of assets bigger than what we had been looking at before. And that also includes -- we have more also on the bridge loan side also.

Do you sense from communicating with borrowers this rates rally that we've had in the last six months or so, is there -- people that are sitting on floating, do they become anxious in trying to move off of their bridge loan and into a 10-year fixed when they start seeing these historically low rates? Is there sort of a rush to lock up a borrowing cost?

There is. I wouldn't call it a groundswell because if they're not ready from the standpoint of the transitional business plan that usually accompanies bridge loans they tend to go no matter what rates are once they stabilize the property, at least lately, because rates have been low for quite a while regardless of what's happened in the last year. So, yes, and there is probably a little bit more of an impetus to go. But it still isn't -- I wouldn't tell you I would expect a lot of activity because rates are low. Because keep in mind over the last 36 months, we've seen rates in fact lower than this.

Lower than this, yes. 2016, I guess too. Sure okay. And then just a quick one to -- finally, I was -- the stock's done well this year, up 9% to 10%. So, when I heard Marc mention that you had bought back some shares, I was intrigued by that. And my question there is as opportunities for whether it's balance sheet loans or CMBS spreads get so tight, is it possible that you will look at buybacks? As you look at your dividend and you've been growing that, is it possible that you look at buybacks as a way to just manage your -- the capital that you need and your target ROE, if in fact, the market just doesn't provide enough really high ROE investment opportunities?

Our general impression of when we will step into a market and acquire shares, because we are a capital-intensive business, so it's not something we're looking to do just because we have capital laying around, because our capital can quickly be deployed in a moment's notice. But I would say that we always look at our bonds as well as our stock in the market as an investment as a possibility. When we stepped in there, I think it was around $15.90 a share. It kind of looked like there was a seller in the market and we actually bought those shares right before the ex-dividend date. So we were looking at that as a $15.50 kind of number, which even though it's at a premium to book value I think that we because of our ROE I think we trade at a premium to book value. But we've been doing a lot of work taking a look at the competitors as well as our own stock. And when you look at where the stock market at large is today, Ladder's trading at a 10 times PE ratio. I know that REITs don't usually give that as a PE ratio. But if you look at us relative to other REITs, we're also quite low in that count also. So it is absolutely a viable mechanism and we won't normally look to take stock off the market, because I still don't think we're trading enough daily volume. But if it gets cheap and we think it looks attractive, especially relative to others then we will step in there.

Great. Thank you for the comments, Brian.

We don't do it to manage our capital or our ROE though no.

Okay. Thank you.

Our next question comes from the line of Tim Hayes with B. Riley FBR. Please proceed with your question.

Hey, good evening guys. Thanks for taking my questions. My first one here Brian the cash balance, pretty high quarter end. Was that just a timing thing with loan repayments coming later in the quarter or should we read into that as you holding onto cash a little bit more not seeing the returns and just being more patient with capital deployment?

I think it's the payoff side because in addition, we can deploy pretty quickly into securities, which will generate an 8% to 10% ROE on a levered basis. So if we happen to have a lot of cash at quarter end, it probably came in towards the end of the quarter and not anything deliberate on our part.

Okay, got it. And then how do you think about harvesting gains in the securities portfolio that you mentioned you've built up some nice gains there as you look to allocate more capital to that strategy?

First of all we look at it as a very nice support beam underneath our dividend, because our dividend at 8% if we're able to buy two-year AAAs and lever them reasonably and cover the dividend there's no rush. And I think that's actually one of the benefits of being able to rotate around between loans and balance sheet and conduit and real estate, because you don't feel this tension or pressure to invest capital, if you don't want to into loans. And loans take 90 days to close whereas securities you buy them and they close on Wednesday. So I don't think we're looking to sell them immediately and we're happy to hold them to maturity. On your question, I mean, we did buy about $1.5 billion worth of securities just as the bond market went into a big rally. I would point out that it might not be up as much as you might think putting $1.5 billion into an investment strategy, because these are two-year instruments. And while they are tightening and they are up and I think that there are gains in each, I don't want you to think that we're up 6% or six points on these things. Because in order to make a point on a two-year, it has to tighten by 50 basis points. And those spreads are tightening, but realistically I think what it really is, is it's a fine investment. It will carry for two years producing a lot of durable cash flow and sustainable income support under the dividend. But if we see something that looks like it will yield higher than an 8% to a 10% we'll immediately deploy that. And this also prevents us from having to raise capital elsewhere.

Understood. And the bridge loan portfolio shrank this quarter. Was there any residual impact from the January volatility that impacted your origination pipeline or was it more of a reflection of the conscious effort just given your comments around allocating capital more towards the securities portfolio?

As Pamela mentioned to you that our -- we received more payoffs than originations. But I want to point out that while our pipeline is strong, we see plenty of opportunities to make loans that are good loans and very acceptable. But in order to pass the next test at Ladder, it has to be better than an 8% to 10% ROE because that's what we're generating off AAA securities. And we see -- when we see loans that are being bid in the marketplace at LIBOR plus 300, they don't really generate returns that are -- given -- considering what you're giving up in liquidity as well as principal risk, we think when you see a AAA two-year at a spread of LIBOR at 100 to 140, which is where they are, the superior risk-return ratio lands on the security side. We don't think they'll continue trading at those wide spreads, but as long as they do we're happy to stay in them. We're happy to make loans also and if for some reason they did tighten and we sold them, we would immediately go into -- you'd see that lending pipeline pick up on the bridge loan side. So I do want you to understand, it is a choice on our part to make a risk adjusted decision to invest in securities as long as the yields -- we always say we try to make a 9% to 10% rate of return in the conduit business and special events kick us up into the low teens. That's been our mantra for 10 years, and I think when I looked at our ROE over a 10-year period, I think it was 13.5%. So that's a pretty consistent performance so it's a tried-and-true model and I don't see us changing it.

Right. Now you've been pretty clear with that especially over the…

It's Pamela. I just wanted to add one thing. Notwithstanding everything Brian said, we do, we are seeing some very attractive bridge loan opportunities and we do have a fairly robust pipeline for this quarter coming up.

Okay, got it. Hear you loud and clear there. And then just one more for me and I'll hop back in the queue. But CLO issuance has been pretty robust and some of your peers have been active there. And I know you mentioned some of the actions you might take on the right side of the balance sheet. And forgive me if I missed this, but I don't believe that was one of the options. So just wondering if you see that as a potential source of financing in the back half of the year, and then I know you've been a buyer of AAA CLO paper. Just wondering if you expect competition to pick up there a little bit more maybe with this rate cut and that might weigh on returns.

Well, first of all the CLO market, it is important to realize it is a financing vehicle; it is not a sale vehicle. So in that regard it's very different from the conduit business. And as long as AAA CLOs are being sold at LIBOR plus 100 to 140, I can't imagine us issuing a CLO at those rates because we have numerous financing vehicles that are well inside of that. And when I happen to think of CLO AAA with its cross-collateralized nature and 50% subordination it has to be one of the safest instruments out there. And because they haven't changed the name from the financial crisis from CLO to something else, you don't really see the banks participating in that. And I think that's the reason why it stays on the wide side of things. But if you look at the collateral underneath these CLOs at LIBOR plus call it 120, and the way you can lever it, it's just a very attractive investment. And I don't see us entering the CLO market, but as you know we did do a couple of them I think at the end of 2017. And that was when CLO financing became on a par with our regular financing vehicles under repo as well as unsecured corporate. So we've also had the Federal Home Loan Bank and that's also been a very inexpensive source of financing. So, we'll have to see, but I can tell you that the financing rates inside of banks right now have really come down a lot and not even the Home Loan Bank is terribly different from where the banks are now repoing AAA securities. And you can probably get more leverage if you felt up to it at the banks now. So I don't see it dampening our earnings at all no.

Okay. Thanks for the comments.

Sure.

Thank you. And our next question comes from the line of Stephen Laws with Raymond James. Please proceed with your question.

Hi. Good afternoon. Pam I guess first off a couple of the portfolio questions have been hit on and I appreciate the update on the two assets you provided in your prepared remarks. Can you maybe touch on the legislation around rent controls up in New York City and is there any exposure to that in the portfolio? Another couple of other mortgage REITs have lowered risk ratings on a couple of assets because of that. But do you have any exposure in the Ladder portfolio?

We do. We have limited exposure. We have four loans on New York City multi-family assets. That totaled $182 million. Those loans have a weighted average LTV of 64% from origination, so they have a very significant equity cushion. All of the loans are performing and we do not expect any impairments.

Great. I appreciate that update as LTV is certainly….

I would also add Stephen that our largest loan in that portfolio is about $120 million and it has very little exposure to what is being affected.

Fantastic. Thanks for the color on that. And Brian you've kind of hit on this a few different ways through your comments so far, but I want to follow-up. You guys have a payout ratio a little below 80%. A lot of peers are in the mid-90s. The sector seems to trade on yield. Of course, if you guys adopted a similar payout ratio your yield would be about 100 basis points higher than the sector. How do you -- how does the Board think about the trade-off between a little bit of book value growth and having that capital to invest versus a lower cost of capital assuming your yield moved back to an eight handle at a higher payout ratio, especially when you consider the sizable increase in the CMBS portfolio, which could be used to recycle into other investments if opportunities? So, just curious how the Board thinks about the give-and-take of the payout ratio versus a lower cost of capital?

Well, I think the boardroom and the employees for that matter all think about it the same way. As long as we're generating ROEs in excess of 10%, we believe our investors would like us to keep investing the cash rather than returning it and returning it either through a dividend or share buybacks is what I mean by that. We -- our competitive set if you think about it is really a bunch of mortgage REITs that have a very big parent next to them and that's a very well-known name. So we still believe that those names are sometimes easier to own, because of the familiarity with the common household names that they emanate from. But the way we look at it is, the dividend is something sacred to us. As you know, we own over $200 million worth of stock individually in the people that work here. We are internally managed, so we're very concerned about over-promising and under-delivering things. So with an 8% dividend, we are a little surprised it's at 8%, to tell you the truth, considering our ROE relative to most of our competitors. And again, I look at us relative to the stock market and never mind competitors and say, should we be trading at a 10 P/E? And it feels like we're a little undervalued. I think there's a good value proposition here. We also, through our retained earnings, and a lot of this has to do with the fact that we're a REIT subsidiary, we manage our tax liabilities to make sure that -- we obviously have to pay taxes in a taxable REIT subsidiary. And we're happy to raise our dividend. I think, we've raised it more than anyone else over the last five years or so. But we want to make absolutely sure that we're comfortable. And I don't think if we raised our dividend today that we wouldn't get more than a few catcalls about possibly, Oh, they're raising the dividend just to move the stock price up. I think when we look out over the horizon, if we look at rates falling for the next couple of years, then I think we've been banging the drum telling you, we thought rates were going to come down and that's why we loaded up into some securities. But if we look out over the next couple of years into a falling rate environment, I think it will be steady as she goes. We clearly can raise it; we have enough capital. But we also retain earnings and that builds book value, so there's other ways to deliver shareholder value. So we're not antsy to start pushing a dividend in a falling rate environment.

Great. I appreciate the comments around that. Thanks a lot of for taking my question.

Thank you. [Operator Instructions] Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Thanks very much. And for the record I agree with the way you've approached the dividend in a conservative manner and maintaining a lower-than-peer payout ratio. Just wanted to ask about opportunistic investments as well as CLOs. One of your peers actually, I believe, Tier-TX [ph], your former colleague, they acquired some CLOs this quarter. And I was wondering if we should anticipate any of that activity and if, in fact, you've acquired CLOs as part of your security strategy. And secondly, if there were to be portfolios that came on the market from some mortgage REITs that are trying to reposition themselves or undertake a different strategy, would you in fact look at making bulk portfolio acquisitions?

Look, it's a lot to unpack there, Jade. But thank you for the compliment. We would always entertain a portfolio acquisition. We would entertain a corporate acquisition also, if it presented itself. But they haven't, so don't think that you just heard something there that we didn't mean to say. You should note too, that I don't know what other competitors are doing, or how they're buying CLOs. We're acquiring AAA and AA securities, really, as a governor to keep our lending practices in order. Because if we're able -- and sometimes I'll look at an originator and say, why would I make that loan at LIBOR plus 300, when I can buy that security at LIBOR plus 150, in some cases. And if you look at the levered basis, the CLO acquisitions oftentimes are viewed frankly as not very special. But when you think about the episodic and intensity of the way we've acquired these things, we do not acquire them on a daily basis. We acquire them oftentimes $1 billion at a time in a very short period of time. When we opened the front doors, we were one of the largest borrowers under TALF after the financial crisis. So, we don't view ourselves as a securities management or investment management company of securities solely. We do think we can generate better returns than most people because of our general expertise in the topic. But when you see us acquiring a lot of securities in the CLO market today, it's not because we just happen to like CLOs. It's because we think they're downright cheap relative to the risks being handed out to the originators in the lending business where they ultimately sell those securities to us. So, I would say it's all relative value to us almost everything we do. And so as long as loans are being written at LIBOR plus 300 or 325, if we can acquire AAAs at LIBOR plus 120 and we have acceptable financeability which we happen to have, I would imagine we'd continue acquiring securities. I don't think that they will stay in excess of 100 over LIBOR. If you think about the amount of security at 50% leverage on a cross-collateralized pool of loans from one of our major competitors, it's a little hard to imagine they could get through 50% of that principal value because they're in the debt. You also have the equity from the borrowers imputed in there also. So, to us many of these loans -- and we look at the loans; we don't look at the ratings. Many of these loans are pretty attractive and they're being financed at relatively low costs by a lot of our competitors. In that scenario, we'll alternate over to the securities buying model. So, I would imagine given current conditions, I would expect us to continue acquiring securities. I think what you'll see is some investors start acquiring the hotter end of these securities the BBBs maybe, but we don't own those. We own AAAs and AAs.

Thanks very much. Turning to loan repayments, can you give the number of -- the amount of loans that repaid in the quarter? I think it was north of $400 million if I'm estimating it correctly.

Yes, $447.9 million.

Was that driven -- was the uptick driven by specific situations that were perhaps outsized or was there something else some other factor driving the meaningful uptick?

Yes, we don't even think that's a meaningful uptick. It's bigger than usual. We always imagine $250 million to $300 million. I don't know the component makeup of those. But if you remember we had one quarter where we had $800 million. That was an outsized situation. As far as $400 million to $500 million in payoffs that doesn't really move -- that's not so far off average that we worry about it.

Okay. And just a follow-up on the New York rent control just so it's in the transcript have you spoken to the borrowers? And how are they thinking about it? It's an issue I've done a decent amount of work on it. Are they kind of in wait-and-see mode, especially the properties? I know you mentioned the outsized loan doesn't have much exposure, but the other properties, are they trying to reduce operating expenses and just wait to see some transactions in the market? How are they approaching their business case?

We haven't had -- we've spoken to them and obviously they're not happy. But I don't think that any of them have formulated a definitive business plan as to how to go about doing it. Most believe over a long period of time you'll see the housing stock in these that are affected here basically get a lot worse because there won't be a lot of money being poured into them. But that's their business not ours. And I still also think that there's a view that there's going to be a lot of litigation here and I have no idea. I don't have an opinion on that. We don't own apartment buildings and that are affected by it. But - so I'm really just speculating there. So I think there's more than enough of them you can talk to, but they're not happy.

Okay, thanks for that. Appreciate the color.

Thank you. And our next question comes from the line of Rick Shane with JPMorgan. Please proceed with your question.

Hey guys. Thanks for taking my questions this afternoon. Two things, just want to talk a little bit about LIBOR floors what is going on in terms of borrower negotiations there. Is it becoming a more contentious deal point? And then the second question is, given the level of competition and frankly your greater geographic disparity or dispersion versus many of your peers, are you seeing more competition in some of the markets that you haven't in the past?

Competition in the lending markets?

Yes. Are you seeing some of the -- with everything that we're seeing in terms of competition like you guys have historically lent -- if we look at your math it's a lot broader and a lot more dispersed than most of your peers. Are you seeing a pickup in those markets?

I think there has been a lot of competition. I think there was a fairly new wave of capital that got into the business out of some of the hedge funds and some of the people that weren't normally alternative lenders. And I think that mostly started around the third quarter of last year, if you really saw it. Because I think spreads came in about 100 on the lending side over a 12-month period of time which was pretty dramatic. The bigger cities -- so pick the top MSAs in the country, those are very hotly contested because you have banks as well as private lenders. And -- but when I think about across the country, I think that there are many markets that are not terribly competitive because sometimes they're smaller because a lot of the big lenders in the space don't like to make loans in secondary cities. We're not terribly concerned about that. It isn't that we don't understand that there's a risk in that because if you lose a tenant it will take a while to get another one. But that all goes into the underwriting mix. And so New York City apartments which are now, I think going to fall into the purview of the private lending world have been completely dominated by a few banks here in New York for decades. And their stock prices got hit because they were suddenly viewed as difficult. So I think there's going to be less competition for apartments that have rent control components and we view that as an opportunity to try to figure that out. But on a nationwide basis, I think the second quarter is always the most competitive in a seasonal kind of way and things generally loosen up in the third and fourth quarters and we are sensing that now. That doesn't mean things are getting non-competitive, but there's not nearly as much heat. We have brokers telling us, here's where we'll do this. Was that the answer?

Yes. And then just certainly back on the LIBOR floor question, how important a deal point is that becoming for borrowers?

It is something they talk about. They get concerned about it and depending on the degree of difficulty and the transitional plan that they're presenting that can be something that we're happy to negotiate. And we have our own view which I won't share here as to where LIBOR will go. And so to us -- a LIBOR floor is one component of a pricing decision. It's not even a major one. So typically there's a discussion about it and I would say it is becoming a little more important because there's a view that rates are going to be going down. I would point out though that oftentimes LIBOR moves around and this Fed is particularly tricky, if you think about what's gone on for the last 12 months or so. And we also offer a product that is very attractive to borrowers where we simply, if it's a short-term loan -- say a 1-year or 2-year bridge loan; we just give them a fixed-rate loan. And that way they don't have to buy a LIBOR capabilities; they don't have to worry about the floor they know what their monthly payment is. And I think we have about $600 million worth of those on our balance sheet today. And those mostly landed on our balance sheet when in the prior cycle last year when rates were going up where LIBOR caps were very expensive, we did not believe LIBOR was going to keep going up. We didn't think rates were going to keep going up. So we invited them to just take a fixed-rate loan which was at LIBOR plus whatever the spread was and maybe 25 basis points more. And the way they looked at it was, well that's something I understand and that's assuming LIBOR went up one time while I'm holding this loan. So it was a very attractive product and we held that on our balance sheet. We've never tried to securitize it or sell it. And I think you'll probably see us writing some more fixed-rate loans in a 1 and 2 year version of maturities now.

That’s helpful. Thank you, Brian.

Thank you. Seeing that there are no other questions in the queue at this time I'd like to turn the call back over to the floor for any closing remarks.

I just wanted to say thank you all for joining us today and very happy to share our earnings and look forward to speaking to you again in the future.

Thanks all. Bye-bye.

Thank you, everyone. This concludes today's teleconference. You may disconnect your lines at this time and we thank you all for your participation.