Earnings Call Transcript - LADR Q4 2020

Michelle Wallach, Senior Regulatory Counsel

Thank you. And good afternoon, everyone. I'd like to welcome you to Ladder Capital Corp. 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 the company's website. And our annual report on form 10-K will be filed this week with the FCC. 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. 2020 form 10 k for 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 to these non-GAAP financial measures to the most comparable measures preparing according to GAAP are contained in our earnings release.

Pamela McCormack, President

Thank you, Michelle. And good afternoon, everyone. 2020 was an unforgettable year. All of us, including those in the financial markets, faced unprecedented challenges. LADR met those challenges with quick and decisive actions, and the company is now well positioned for the opportunities we expect 2021 to bring. My remarks today 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 indeed with due diligence. Our deep enhanced origination team is fully engaged in actively pursuing compelling opportunities, and our multi-cylinder 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 whom 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 two 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 for Ladder's success. Looking back at 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've 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 recovered 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 of 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 disrupted market conditions and enabled us to reduce mark-to-market debt by raising $0.5 billion of non-recourse, 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, non-recourse 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 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 a quarter 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 issuer 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 stocks 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.

Marc Fox, Chief Financial Officer

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 felt very fortunate to be offered the opportunity to serve as Ladder’s CFO in 2008. Accepting the role was a major step in my career during 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 deserved 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 that 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 one. 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.

Paul Miceli, Chief Financial Officer

Thanks, Marc. As noted in today's earnings release, Ladder has replaced its two 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 in 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 non-recoverable. With the change to distributable earnings, our non-GAAP performance measures will be more closely aligned with the computation of non-GAAP performance measures used by public company commercial mortgage rate 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 securitize any loans and only acquired one small net leased 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 non-accrual loans by 35%, mainly by selling forward defaulted loans at near par value. We sold two defaulted loans in bankruptcy in Austin, Texas, with an outstanding principal balance of $101 million. We also contemporaneously foreclosed on and sold a residence in South Bend, Indiana, and a hotel in Miami, Florida, 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 macro-economic outlook. The net decrease included a $1.2 million specific loan provision related to the $45 million hotel loan we've 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 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 their 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 interests, 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. Our adjusted book value per share was $13.94 at year end, and our 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 at historically low levels. Our three 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 is diverse and granular, and includes 164 net lease properties with strong tenants that include major retail chains, warehouse clubs, dollar stores, and supermarket chains. The portfolio is the result of Ladder's long-standing strategy of focusing on net leased 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 two years as of December 31. As noted, values of the 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 and healthy levels of payoffs. Our strengthened capital base and solid liquidity position provide a strong foundation for Ladder as we ramp up our investing activity in the New Year. 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.

Brian Harris, Chief Executive Officer

Thanks, Paul. 2020 presented a very different type of market disruption. At the end of the first quarter, 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 number one 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 six 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 sales 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 in a prior call that we were anticipating a deep recession that would probably last about one year. While we're not out of the woods yet, that position has not changed. The second step we took to defend the book value of our stock would take time, patience, and a substantial amount of 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 four and a half 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 am 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 to increase 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 a 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 had some devastating effects on parts of the commercial real estate sector. We then made sure our management of our existing investments preserved 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 fairly 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. 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 referring to the next chapter of our growth as the post-pandemic period at Ladder. In the meantime, we're very happy to be back in business and writing new loans at attractive risk-adjusted returns.

Operator, Operator

Our first question is from Tim Hayes at BTIG. Please go ahead with your question.

Tim Hayes, Analyst

Hey, good evening, everyone. Hope you're doing well. My first question, you know, happy to see that you guys hit 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? You know, 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 can be helpful?

Brian Harris, Chief Executive Officer

Sure, happy to help with that. We opened up loan 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 we checked 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 attach to it, you know, five hours ago, but with the 10-year moving up rather briskly today, I think that there will be a very attractive conduit business. However, I have to suspect we're going to see a little pause here, likely because a lot of people who were refinancing have done the pull forward. So sometimes that takes a few, 60 to 90 days for it to really set in, although I certainly wouldn't call a 1.6% 10-year high rate. So, you know, we'll see, but I think 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 of the balance sheet, and securities will continue to come down.

Tim Hayes, Analyst

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, compared to how the pipeline has fared in the past? And maybe how the 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, you know, your liquidity position has been pretty strong for a couple quarters now. So, I'm just wondering if you've seen returns, and I guess spreads widen on certain loans that even from six months ago, or, you know, what, what does cause the shift?

Brian Harris, Chief Executive Officer

I believe the situation has evolved with the Fed consistently communicating with the public. Banks are working on improving their balance sheets, and initially, lenders were understanding about forbearance agreements due to the pandemic. However, some borrowers are now facing their second forbearance agreement, which is creating pressure for resolution. As a result, we've witnessed some banks selling off notes, compelling borrowers to refinance quickly, especially when they realize their note has changed hands. This scenario is a favorable environment for us, as we can act swiftly without competing against other buyers, but rather against the default interest rates. There has been a notable shift in the market within the past month. The CLO market has shown some recovery, with a few new CLOs being issued. Previously, investors had limited yield options, but now new CLO AAA tranches are trading at attractive rates. The average financing cost for a typical AAA deal hovers around 120 to 125 over LIBOR, facilitating a considerable volume of business. However, the market dynamics indicate that there's excessive competition in the multifamily sector, with offers calibrating around LIBOR plus 350 to 400, regardless of property condition or age. This consistency in pricing across various multifamily properties suggests a potentially misaligned market. Beyond the LIBOR plus 400 range, there's a noticeable lack of options available. Those needing quick actions might encounter offers as high as LIBOR plus 600, while the hotel sector is facing different challenges, often viewing offers in the nine or ten percent range. With many loans maturing soon, particularly in the CMBS sector, along with significant quantities in insurance and bank portfolios, we anticipate numerous opportunities ahead. If the trends from the past month continue, we may operate with an unlevered yield around 6%. Given our current cash of almost $1.4 billion, we could possibly undertake the first $500 million to $1 billion unlevered, and subsequently look to CLOs or engage with banks due to the excess liquidity we are currently experiencing.

Tim Hayes, Analyst

Yeah, that's a good way of putting it. But, yeah, that was going to be the part B that question was going to be on the financing side. So it sounds like you're interested in maybe testing the waters with 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, you know, any color on that would be helpful.

Brian Harris, Chief Executive Officer

We could do one rather quickly. We have over $2 billion worth of loans. But I think it, you know, 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 is so far; it looks a little bit easier than bank repo lines. So let's assume nothing changes there, we'll probably stick to the CLO. My suspicion is it'll work better if we go with all loans that are originated after the pandemic.

Tim Hayes, Analyst

Okay, got it. That's helpful. And just one follow up to that, I'll hop back in the queue, but just in terms of your funding costs, you know, have you seen costs come down on your warehouse lines with your repo counterparties? You know, our banks - are they and we've heard this anecdotally, 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 is benefited you guys?

Brian Harris, Chief Executive Officer

Well, the securities repo market has fully recovered to 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. Even levered returns are 3%. That's one of the reasons we've drastically cut down our holdings of securities at this point. I suspect we will continue to do that. Even though very attractive financing terms, at the end of the day, we'd rather have the capital deliver the company through the repo line and then get unlevered 6% returns and then, you know, 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. There are plenty of headwinds that you 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. Their rates haven't gone up necessarily from before. But what they will accept has gotten narrower. The advanced rate has maybe dropped about 10%, which is fine. I think that's an appropriate situation. I think that real estate in general has been pushed a little here. The CLO market keeps the risk in the hands of the originators, and that's probably the way it should be handled. You can do a managed CLO deal or you can do a static CLO deal. We have the luxury of probably doing either, but I suspect we'll wait until we get about $6 or $800 million of new loan originations.

Tim Hayes, Analyst

Got it. No, that's good color. Appreciate it, Brian. I'll hop in the queue. But again, thanks for taking my questions.

Brian Harris, Chief Executive Officer

Sure.

Operator, Operator

Our next question is from Randy Binner with B. Riley. Please proceed with your question.

Randy Binner, Analyst

Good evening. Thanks. Thanks. That was really interesting. I guess. I'd like to go back, though. You mentioned $2 to $300 million of new loans, you know, 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, you know, of the 2 to 300, can you give us rough buckets of where you're actually writing it? And if it is, hotels, again, you know, maybe a little bit more color on how those make sense, you know, occupancy, location, that sort of thing?

Brian Harris, Chief Executive Officer

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. The one that is on there, the sponsor of the hotel has a very brand new hotel, and he's putting in more capital to refinance his construction loan. So he's going to pay down that principal. 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 that we are comfortable enough, given the rest of the hotels we know in the area; it's a densely populated area. I don't know if we will get there either, by the way, these are just under wrap at this point. But I wouldn't want you to think that because we 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. For all hotels, it would be 9% or 10%.

Randy Binner, Analyst

That's why I wanted to clarify it....

Brian Harris, Chief Executive Officer

For all hotels, it would be 9% or 10%.

Randy Binner, Analyst

That's fair enough. But yeah, 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?

Brian Harris, Chief Executive Officer

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 offers, and we have some conversion, you know, industrial is changing into something else. Some of it is land, you know, land deals are traveling at a fraction of the basis they were traveling at, you know, two years ago, and most land loans, you're right along with a double-digit rate with a 50% of acquisition cost. 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 a good deal. What I like in particular is that 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 the same banks; it's very difficult. So well, you know, I would say there is a little bit of a bifurcation going on. There are some cash flowing assets that are simply coming off construction loans, and they're going to be out for a year. Then there are others that are 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. That's always helpful. Typically, people who are acquiring assets at this point with no real history are usually very deep with capital and have been waiting for these opportunities. We are pretty comfortable with that. If there is a situation where there's a bridge loan coming due, and it's CLO, and someone 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 do, and he's decided not to. So we're trying to avoid that in many ways.

Randy Binner, Analyst

The only follow-up I have is just on the size of the loans and this new batch of nearly 300. Does it conform to your normal distribution of loan sizes that average around $20 million? Or is there a change?

Brian Harris, Chief Executive Officer

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

Pamela McCormack, President

Yeah, 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. We're focused on all the asset groups. Most of what signed up is a combination of multi-asset 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.

Randy Binner, Analyst

All right. Great. I'll leave it there. Thanks a lot.

Operator, Operator

And our next question is from Charlie Arestia with JPMorgan. Please proceed with your question.

Charlie Arestia, Analyst

Hey, good evening, everyone. Thanks for taking the questions. 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, a tremendous amount of cash on the balance sheets, you know $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, you know, the economics of those new investments flowing through to, you know, generating distributable earnings growth above the dividend?

Marc Fox, Chief Financial Officer

It's really a several part question there. Because we also have to gauge if you notice that we actually take quite a few payoffs every quarter also. The good part is it's a pretty good statement as to what our portfolio of underwriting looks like. I think, you know, we mentioned that we sold some non-performing loans this quarter and got almost par for all of them. So we're pretty comfortable that our underwriting has held strong 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 six anyway. And what is the pace at which we decide to delever our securities portfolio so and this dispose of that. As I mentioned earlier in the call, I think we sold $680 million of securities in the last couple of months. We didn't do that because they weren't making money. We did that because we saw this pipeline building. Rather than go to repo lenders, 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 0.8 leverage if you get rid of our securities and cash. We do use corporate bonds on secured and would probably use them more than most in the business. We are going to try to do another corporate bond deal, hopefully will be welcomed in that area. We paid off $450 million of those before scheduled due date this year. The real question is, well, how quickly does it translate through? And, Charlie, I can't really tell you. Based on what I saw in the last 30 days, I think we could put a billion dollars out in 90 days if we wanted to. We will not do that though; we assure you. We could go to larger loans. But it is a bit of a flea market right now. We are seeing a lot of transactions come in that you rarely do see us internally having discussions that don't agree with each other. But we do have some disagreement here occasionally, where we think well, maybe we shouldn't do that, even though that's a pretty high rate. It looks like a pretty good loan. It was somebody who gave me the reference. If it's like when you go fishing, and you're allowed to catch two 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? 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. In a rising interest rate environment, I think that patience will get shorter and shorter as time goes on. 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. I love not having to rely on repo; I love not having to rely on being able to borrow money in a world where the only problem here is rates are pretty low. I think I said in one of our previous calls, I just didn't like the idea of lending 10-year money at 280 to 3%, which is where a lot of it was. Well, in 90 days, that one would straighten itself out. Of course, there will be some demand destruction as a result of higher rates. 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. That is so symptomatic of a recovery after a deep recession that, you know, this is what we've been waiting for.

Charlie Arestia, Analyst

Appreciate, Brian, thanks so much.

Operator, Operator

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

Jade Rahmani, Analyst

Thank you very much 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 he 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 defaults or on non-accrual at this point?

Brian Harris, Chief Executive Officer

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

Pamela McCormack, President

I can do that. Our non-accrual, I think Paul mentioned in the script was at $201 million and is now down to $130 million as of today, and the end of - Paul, that's 2Q 4. But I think it's accurate as of today.

Paul Miceli, Chief Financial Officer

Correct. Yeah, with the resolution of the hotel loan that we exited in 2021; our non-accrual loan book is down to $131 million.

Pamela McCormack, President

When you ask about the credit quality, Jade, I think we feel really good. I think that's one of the things that 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. 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. We wanted to free up more capital to do that. We feel like we have a really strong balance sheet right now, and that's reflected both in our CECL reserve and in our non-accrual status.

Jade Rahmani, Analyst

Thanks, 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 myth about Ladder that the reason you're sitting on such a high liquidity position is that there's some outside risks, some things you're worrying about in the loan portfolio that could cause issues from a credit perspective. I guess when you think of Ladder versus peers, why is it that the company has such an outsized cash position of $1.3 billion? I mean, Star Woods has 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?

Brian Harris, Chief Executive Officer

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. There are two reasons for that. One is we have very high floors, and we deal with smaller loans. 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 three plus one plus one, you know, with a LIBOR floor. We write two-year loans with a one-year extension. If you’re not doing well after two years, then one year extension isn’t there. So as a result, we get right on top of, you know, problems very quickly. I learned a long time ago, it’s better to get on top of things when there’s a lot of liquidity around. I also think banks are not taking losses. Of course, you always want to pressure test your portfolio, and by being able to move a $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; slight loss there. I think we can do right now with a lot of capital; it’s much easier. We’re trying to run a low friction business; we’re not trying to run a big real estate operation. We are seeing some pretty good opportunities here. 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 proved to ourselves we could sell them at 96 when the world was thinking maybe we were down 20 points, which was crazy. I think that all came back. But I think the opportunity set that we see here, and just holding capital, we held capital for liquidity purposes. I know I had a high rate bond outstanding at 5.875; we had raised our interest costs temporarily. We are aware of that. We do have some maturity dates coming up. So I know for instance we have about $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 two years before it's due date. We will try to get that refinanced. I think we have a lot of cash around so that we can really get pushed around by lenders and also pick and choose our spots. We don’t have to worry about if it’s a securitized bubble or whether a BP sky 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. We’re not doing any premature victory laps, but it looks pretty good to me. I think if you’ve got rate floors, that sick, 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. I don’t know how it gets handled elsewhere in the world. I would expect to see a lot of payoffs if the credit underwriting is tight, and lots of pay off creates lots of liquidity, especially when you’re not riding alone. We think the post mortem on this whole pandemic, hopefully at Ladder will be we shut off the earnings column, and just wrote earnings for 10 or 11 months. Then we turned it back on; hopefully, it’ll be just like the health emergency that we all experienced here.

Pamela McCormack, President

I just want to say that you just asked about our quality, which is good, and we're looking at the real impact of what's going on. And I think that is also an indicator to you of our overall strength. It is unfortunate that we don’t have liquidity in those quarters; we’re managing through it accordingly.

Jade Rahmani, Analyst

Thank you for that. Two 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 purchases, it just stands to reason that as an internally managed commercial mortgage REIT is the value of control of these entities is worth about 15%. So just apples to apples, Ladders retraced 15% higher than a mortgage REIT that would suggest relative to 80% of book value, you know, more than 30% upside versus unlevered yield at 6%. So how does the share repurchase factor into your calculation?

Marc Fox, Chief Financial Officer

You know, we - I said last time I thought our stock was very, very cheap. I thought we’d go out and buy, and as soon as we got off the phone, you know, I let the period go by that has to go by before you can buy stock. We went right into the market and began buying it. I think the stock was down around $6.95 or seven. It very quickly went to eight, 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. It went from eight, then I went to nine, then it went to ten, then it went to eleven. So I was slow. 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. I think if that is the best alternative investment we’ve got, then that’s what we will do. 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.

Jade Rahmani, Analyst

Okay, and then last question, and I get this from a lot 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 the S&P even, you know, something like ARI at a much higher dividend yield. Those companies seem to have convinced the market for now that their dividends are not going to be cut, they're sustainable. I look at Ladder's $0.80 cent 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 COCS exercise 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 saying you don't go to work every day to generate, you know, a 10% to 12% ROI, 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 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, you know, at a measured pace. But that's basically what investors should be expecting.

Brian Harris, Chief Executive Officer

A whole lot of forecasting, but a lot of what you said there is kind of the business plan. It gets a lot easier in a rising rate environment. I hope, I know that most mortgage guys don’t say that, but I kind of like bright, smart rising rates. They, you know, will be as patient as we need to be. We’re kind of at that part of the junction. The recession isn’t over. There’s still high unemployment. 33 million jobs got lost. Maybe now it’s only 10 million, but that’s how many jobs were lost in the great recession or so. We’re not done here. I wouldn’t tell you we’re done having discussions, you know, 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 non-performers, 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. This pandemic has been a shock to the system. In the teeth of the worst recession I’ve ever seen in my life, we’ve been able to sell securities, home loans, hotels, land, defaulted loans, bankrupt loans, and all of them with a 98-ish type number across the board. I don’t think that’s going to change with the next roster of loans that are coming due at Ladder. 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 and not a lot of transition went well in 2020 unless you own Zoom or one of the delivery companies. So we are now we’re looking at this new class, and we’re going to reset the inventory here. We’re going to reset the inventory with very little in the way of competition and with an extremely supportive Federal Reserve Bank. 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. Because five years later, you realize with all the stimulus, everything you look at, that 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. I’m just going to party through this. The way I look at it, it’s a great opportunity set. You can’t get overly cocky here. Like I said, we could probably push a $1 billion out the door in 90 days. But that would be insane because you could have another leg down here. 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? So for the people who keep writing that we’re expecting to cut it, I wish they’d call my phone number. 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 any year we’re going to be there and hopefully even getting to the good news that you talked about there as a possibility.

Jade Rahmani, Analyst

Great. Well hopefully that happens and maybe even faster than you anticipate considering Ladders high ROE track record. And thanks so much for taking the questions.

Operator, Operator

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.

Brian Harris, Chief Executive Officer

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

Operator, Operator

This concludes today's conference, and you may disconnect your line. Thank you for your participation.