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Operator
And welcome to ARIES Commercial Real Estate Corporation's conference call to discuss the company's fourth quarter and full year 2020 financial results. As a reminder, this conference is being recorded on February 18, 2021. I will now turn the call over to Veronica Mayer from Investor Relations.
Veronica Mayer
Good afternoon, and thank you for joining us on today's conference call. I am joined today by our CEO, Brian Donahoe, David Roth, our president, Hasek Yoon, our CFO, and Carl Drake, our head of public company investor relations. In addition to our press release and the 10-K that we filed with the SEC, we have posted an earnings presentation under the investor resources section of our website at www.arescre.com. Before we begin, I want to remind everyone that comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar expressions. These forward-looking statements are based on management's current expectations of market conditions and management's judgment. These statements are not guarantees of future performance, condition, or results and involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statements as a result of a number of factors, including those listed in its SEC filings. Aries Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements. During this conference call, we will refer to certain non-GAAP financial measures. We use these as measures of operating performance, and these measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to like-titled measures used by other companies. With that, I will now turn the call over to Brian Donahoe.
Brian Donahoe
Great. Thanks, Veronica, and thanks everybody for joining today. In 2020, the global pandemic had a severe impact on each of our lives and the economy as a whole. Despite these challenges, ACRE outperformed in 2020 and delivered strong distributable earnings that more than fully covered our dividends for the fourth consecutive year. While we are certainly proud of what we accomplished in 2020, I want to focus on what we did to put ourselves in a position for an even stronger year ahead in 2021. We outperformed during this volatile period because our business model is designed to be stable and resilient. Our playbook is to originate senior loans with strong covenant protections in defensive property sectors. We are highly selective with a credit-first approach, and we lend to experienced real estate sponsors seeking to add value to institutional quality properties. As a result, we built a highly diversified portfolio across sectors and markets. Throughout 2020, our business demonstrated that it was well-positioned to navigate volatile markets as we maintain consistently high interest collections and no losses related to credit performance. Our portfolio is well constructed with 94% in senior loans with the majority collateralized by multifamily, office, and industrial properties. As stated previously, we entered last year underweight hotels and had no loans collateralized by standalone retail centers. In addition, we never invested in real estate securities. Throughout the year, we also built strong excess liquidity and deleveraged the overall portfolio. Some of the underlying factors in our performance were our stable credit quality, the strong diversification of our funding, and structural benefit of the LIBOR floors in our loans. In fact, for the fourth quarter, we announced our strongest quarterly results of 2020 with distributable earnings of 41 cents per share. This was well in excess of our dividend levels and translates into an annualized return on equity of 11%. Our higher earnings have enabled us to grow book value per share by 11 cents and retain excess earnings for future investments. We are very proud of our performance during 2020 and believe that we are heading into the new year very well positioned to opportunistically grow our portfolio. Thus far in the first quarter of 2021, we closed a $667 million CLO that significantly increased our match term non-recourse financing that now represents about two-thirds of our overall debt funding. Concurrently with the closing of the securitization, we closed on seven new loans totaling $146 million in unpaid principal balance that were being held at the Aries warehouse. The loans were collateralized by one well-located office property with a strong sponsorship from a well-capitalized institution. and six institutionally managed self-storage assets managed by one of the largest players in the self-storage industry. Our ability to bring these loans on balance sheet from the ARIES warehouse speaks to the significant capital efficiency benefits we derive from this facility and the power of the ARIES platform. As Tasek will later discuss, this transaction is expected to be accretive to earnings and demonstrates the excellent capital markets execution capabilities of our team. As we look forward, we remain positive on the recovery of the real estate sector. Our team is active and seeing a substantial increase in both the quantity and quality of transactions in our pipeline. We are seeing loans with all-in spreads roughly in line or greater than pre-pandemic levels in our primary areas of focus. We continue to target loans to high-quality sponsors on multifamily, industrial, self-storage, and certain office properties and markets with attractive demographic trends. and healthy supply and demand dynamics. We are actively working on certain alternative asset classes like single-family home rentals and life sciences buildings for our portfolio. We also continue to leverage the extensive networks, deal flow, and infrastructure of ARRI's leading global investment platform to source investments and inform our investment decisions. As always, we will continue our rigorous emphasis on credit quality loan structure, and strong sponsorship. Before I turn the call over to Tasek for a more detailed financial review, I want to touch on our dividend announcement this morning. Based on our enhanced funding structure, along with our positive earnings outlook, we declared a first quarter regular dividend of 33 cents per share, and we are introducing an additional quarterly supplemental dividend of two cents per share beginning in the first quarter of 2021. This new supplemental dividend reflects a portion of the additional earnings that we would like to share with shareholders that is derived from the benefit of our LIBOR floors that we expect to remain in place throughout 2021. Let me turn the call over to Tasik to walk you through a detailed financial review and some of the dynamics behind our dividend decision.
Veronica
Great. Thanks, Brian. And good afternoon, everyone. Before going over our fourth quarter 2020 results, similar to a number of our publicly traded commercial mortgage rate peers, please note that we have renamed core earnings a non-GAAP financial measure to distributable earnings, or DE. This is a terminology change only, and we have made no material modifications to the calculation itself or the reconciliation to GAAP earnings. Turning now to our results. Earlier today, for the fourth quarter of 2020, we reported gap net income of $14.4 million, or $0.43 per share, and distributable earnings of $13.7 million, or $0.41 per share. For full year 2020, gap income was $21.8 million, or $0.66 per share, and distributable earnings were $45.1 million, or $1.36 per share. As a result, for the fourth consecutive year, acre fully earned or exceeded its cash dividends through distributable earnings. Now, let me discuss our liabilities and debt facilities. As you know, we have historically followed a number of core principles when managing our liability structure. First, we attempt to match fund our assets and liabilities with respect to both interest rate and term. So, for example, 98% of our assets are floating rate loans, and 100% of our liabilities are similarly floating rate, all of which are indexed to one month U.S. liabilities. Second, we diversify our funding needs across multiple providers and funding vehicles. This practice has served us well during 2020, for example, where no single warehouse lender had more than one collateralized loan by a hotel. Third, we have pushed hard not to take mark-to-market spread risk on our warehouse lines. So again, in 2020, ACRE did not have any margin calls based on the initial sharp increase in spreads at the onset of the pandemic. And finally, over time, we have pushed hard to limit the percentage of indebtedness that is recourse to ACRE. Here, we have completed additional one-off loan-on-loan financings as well as CLO securitizations that are not recourse to ACRE. It is in line with these core principles that in January 2021, a few weeks ago, that ACRE completed its fourth and largest CLO securitized financing transaction. Here, Acre contributed 23 senior loans with an unpaid principal balance of $667 million, and the CLO sold $540 million of senior certificates to third-party investors, representing an initial advance rate of 81% and an initial weighted average coupon of one month LIBOR plus 1.17%, excluding transaction costs. This securitization further enhances our financing core principles, in particular, match funding, no mark-to-market spread risk, and further reducing our share of recourse indebtedness from 64% down to 33%. In addition, this fourth securitization provided ACRE with additional investment capital, enabling ACRE to purchase seven new loans from the Aries warehouse, totaling $146 million. And finally, this fourth securitization is expected to materially reduce our funding costs, resulting in incremental initial distributable earnings of approximately two cents per share per quarter. Let me also note that ACRE just recently entered into a number of interest rate hedging transactions with respect to its liabilities. As you'll recall, ACRE has significantly benefited from LIBOR floors that are built into its loans as one month US LIBOR has dropped dramatically from the beginning of 2020 to today. In fact, as of year end 2020, 95% of Acres loans have LIBOR floors at an average rate of 1.73%. Therefore, while almost all of Acres loans are technically floating rate, they are generating interest income similar to that of fixed rate loans. In contrast, all of ACRE's liabilities are floating rate and have few LIBOR floors built in. So unlike our loan assets, our liabilities continue to incur interest expense on a floating rate basis. Therefore, in furtherance of one of our core principles to match fund our assets and liabilities, we entered into a number of hedging transactions to swap out or cap the impact of changes in one month U.S. LIBOR on a substantial portion of our floating rate liabilities. More specifically, we entered into an interest rate swap where Acre pays a fixed rate of approximately 21 basis points and receives floating rate based on one month US LIBOR on 870 million of notional balance, which declines over the next three years. And in addition, we purchased a 275 million notional balance interest rate cap, which again declines over the next three years, with a strike of 0.5% one month U.S. liability. In total, we put in place $1.145 billion in an initial notional amount of interest rate protection. By entering into these interest rate hedging transactions on our liabilities, we believe that our earnings will continue to largely benefit from the LIBOR flows on our loans should one month US LIBOR start to increase. We also expect to treat the interest rate hedging as effective on our GAAP financials. Before turning this call back over to Brian, let me provide some color on our dividend announcement. As you heard from Brian, in addition to declaring our regular 33 cent per share cash quarterly dividend, we also declare a supplemental 2 cent per share dividend starting this first quarter based on our positive outlook for our distributable earnings for 2021. As we have done for the past several years, we expect to fully cover or exceed our dividends inclusive of the 2 cent per share per quarter supplemental amount with distributable earnings for 2021. In particular, Our confidence in our 2021 distributable earnings comes in part from our LIBOR floors and from largely swapping out or capping our interest rate exposure on our liabilities. And as Brian indicated, we want to share a portion of this expected benefit with our shareholders in the form of a $0.02 per share per quarter supplemental dividend in 2021 and potentially beyond. We expect to retain the remaining earnings benefit to continue to build book value and to make additional loan originations to further grow our interest earning loan portfolio. This regular first quarter dividend of $0.33 per share, as well as the first quarter supplemental dividend of $0.02 per share, are both payable on April 15, 2021. This shareholders a record on March 31, 2021. And with that, I will turn the call back over to Brian.
Brian Donahoe
That's great. Thanks so much, Tasik. In conclusion, looking ahead, we believe we are well positioned to pursue new opportunities and continue to scale our business, supported by our liquidity and attractive balance sheet positioning. For all the reasons cited today, we have high confidence in our 2021 distributable earnings outlook, and we are pleased to share a portion of the expected excess earnings with our shareholders today. through supplemental dividends while retaining the rest to make attractive new investments throughout the year. I would like to conclude by thanking the team for all of their hard work to deliver for our stakeholders in these challenging times. We're proud of what we've been able to accomplish, delivering consistent returns to our shareholders. We also deeply appreciate all of our investors' continuing support for our company, and thank you for the time today. With that, I'll ask the operator to open the line for questions.
Operator
At this time, if you wish to ask a question, you may press star, then 1 on your touchtone phone. If you would like to withdraw your question, please press star, then 2. The first question will be from Stephen Laws of Raymond James.
Stephen Laws
Hi, good morning. You know, I guess to start with... Can we touch on the first half maturities this year? I noticed a couple in January and February were the scheduled maturity, or I guess the original maturity date. I think you've got two of your hotel loans scheduled for May. Can you talk about any of those that have repaid or extended, how those discussions are going with the hotel loans, and any details you can provide kind of on the first half scheduled maturities?
Brian Donahoe
Yeah, absolutely. Certainly, Asset management remains a big part of what we're doing, and we're in active dialogue with each of our borrowers. And I think in each case there are extension conditions or extensions available within those loans in normal course. Obviously cash flow covenants and the like are something that we're actively managing discussions with those borrowers with. And I think we've talked through a little bit of amendments that we've made in keeping with what's gone on with COVID with respect to certain asset classes. So active dialogue with respect to those extensions, but certainly the return of capital markets availability for refinancing, recapitalizations, and willing buyers and sellers coming back to the table in real estate as a whole, I think speaks to what we would expect to see with some of those assets as well.
Stephen Laws
Great. Thanks, Brian. And it looks like you pulled down $150 million almost of loans from the area's facility around the execution of the CLO. Can you talk about the remaining balance that's sitting on that facility? And certainly... you know, being able to do that, you know, and keep capital deployed certainly highlights, you know, why that facility is so attractive. So can you talk about the balance there and how much turnover you think you'll see from repayments and pulling additional investments down from that over the next couple of quarters?
Brian Donahoe
Yeah, of course. And obviously, that structural component is something we've talked about a lot with you and others over previous quarters, and it's a huge value add to what we do. As part of the CLO, that that warehouse facility is now fully available to us. And I think the execution of that CLO proved out exactly the value proposition that we think we have there. And so as we enter the remainder of the year, having full capacity on that line plus increased liquidity year over year, that's part of the theme that we touched on in our prepared remarks, right, is we're open to new businesses. We think to do so as efficiently as we did earlier in the first quarter is obviously the way we've designed our business, but there's other avenues available as well.
Stephen Laws
Great. Thanks for the comments today.
Operator
The next question will be from Tim Hayes of BTIG.
Tim Hayes
Hey, good afternoon, guys, and thank you for taking my questions. My first one here is, I just want to touch on the dividend policy and, you know, great to see, you know, a little bit of a bump there through the supplemental. But, you know, maybe why you didn't decide to raise the regular quarterly dividend, because as we look at distributable earnings versus where the pro forma payout is now, there's still a nice delta there and some cushion for earnings power to come down. But, you know, you already locked in a good amount of your spread there with the hedging transactions you recently completed. And so I guess the only other things that would, you know, result in lower earnings power or the delta between where distributable earnings and your new dividend is set is either growth, which it seems like the pipeline is pretty strong, asset yields, which, you know, it seems like spreads are relatively in line with pre-COVID levels. or credit. And so I'm just curious if there's an expectation that one of those drivers might narrow the gap over time, and that's why you decided to pay a supplemental dividend versus raise the regular dividend, or if there's any other color you can provide on that decision. Thanks.
Brian Donahoe
Sure. And thanks for the question, Tim. I'll start just to give a bit of background, and then I'll let Tasek add some additional detail. But as with prior quarters, we when we're discussing and deciding on the dividend, we want something that reflects the stability of our platform, which I think the regular way dividend and the supplemental does, and the consistency of being able to deliver it. And I think we have a very high confidence interval with respect to what we put forth, but we always balance that with growth. And as we think about the pipeline, as you referenced, we want to make sure that we're able to balance the confidence interval that we have of delivering the dividend that we stated with but also continue to invest in what we see as a very positive environment in our space right now. So those are the high-level things that we're balancing. I'll let Tasek add a little bit more detail.
Veronica
Sure. Thanks, Brian. And, Tim, it's an excellent question, and obviously it's certainly something that we have been very focused on. As you know, one of our core principles, of course, is to make sure that we set a dividend that management and the company has a high level of confidence that we will be able to fully cover through distributable earnings. Uh, you know, and we've certainly done that the last four years. Uh, and also if you look back at our historical earnings on an annual basis, you know, we've been at that call it dollar 36 dollar 40 range, right? Which is kind of that 33 to 35 cents in the sugar earnings per quarter. And so I think, you know, we've demonstrated through, you know, very different market conditions, the ability to consistently generate those type of returns. You know, 33 cents is also a number that represents, you know, right around almost exactly a 9% ROE on our book value. So we think that's a very attractive, consistent, reliable return to our shareholders. So that's certainly a number that we have aimed to reach and want to maintain. And then maybe the final point is, you know, the two cents that we talked about in our opening remarks is, of course, you know, a portion of, you know, the additional earnings that we expect to generate from these LIBOR floors. particularly now that we have hedged out the interest rate component of the liabilities, at least a substantial portion of that. So even the two cents, again, represents a portion of it, not all of it. And so I think this is a great first step for us in terms of determining what the right level of dividends. We could have come out, as you suggested, with something more permanent, but we felt you know, at this point that this was the best approach for the company and best reflective of, you know, us coming out of the pandemic conditions, still not knowing with any certainty exactly how things are going to play out. So we felt overall that this was the right call.
Tim Hayes
Got it. Yeah, that makes sense. I really appreciate you guys walking through your decision there in a little bit more detail. I certainly commend you for Expressing a little bit of caution there, but also allowing shareholders to participate in the upside. So that's great. Let's see. It looks like maybe one loan was downgraded to a four this quarter and maybe a couple were upgraded to a two. Just wondering if you can maybe touch on. those loans broadly and the drivers behind the changes, if I read that correctly. And then, obviously, there's a few loans on non-accrual, which, you know, haven't changed over the past few quarters. But just curious if maybe we can get an update on those as well.
Brian Donahoe
Yeah, absolutely. You know, first, with respect to the upgrades, I think, as we've all thought about this COVID pandemic delaying business plans, I think the uptick of those particular assets is reflected in further progress along the regular way business plan execution. So clearly um, a positive. And so think about that progression of business plan as completion of construction or whatever value add component there may have been, or additional leasing or prospects for leasing. So obviously it's straightforward from a positive perspective. Uh, with respect to the downgrade, that's, that's a mixed use asset in a, in a college town. Um, that was a new build asset, a mix of retail and office. And notwithstanding, um, the fact that there's been continued leasing at that asset, so continued progression along the business plan. One of the tenants has not been paying current, so just to take that into account, we chose to downgrade that asset to a four. But, you know, the fact that it's well-located, new-build asset in the college town, institutional sponsor, both in terms of the LP and the operating partner there, gives us a positive view long-term, but we just took the cautious approach to downgrade that particular asset. With respect to the three loans on non-accrual, each of those remains stable and paying at least a portion of current debt service. So as we touched on when we put those assets on non-accrual, including the fourth, which has since been removed, we felt that was the most cautious and judicious approach to those assets, but we still feel, and I think reflected in their current payment of debt service and the fact that sponsors continue to contribute to speaks to long-term value. And obviously, we're continuing to actively asset manage that through our team and continuous dialogue with the sponsors to bring those to resolution.
Tim Hayes
Thanks, Brian. That's really helpful. I'll leave it there and hop back in the queue. But thanks again for taking my questions this afternoon. Of course. Thank you.
Operator
The next question will be from Doug Harder of Credit Suisse.
Doug Harder
Thanks. Chase, I was hoping you could help us with how you view the all-in cost of funds on the new CLO compared to kind of the warehouse lines that are paying off and, you know, kind of how that compares.
Veronica
Sure. No, absolutely. So, Doug, I think, you know, when we look at the CLO, so unlike the third CLO we did, the fourth CLO, as you saw, is a static CLO. And so you kind of have to take the, you know, the initial cost of capital versus what we expect to be kind of the average, you know, over the sort of expected life of the transaction itself. As you saw, at least from an initial perspective, you know, we received, you know, an excellent advance rate of just over four to one, just over 80%. And the initial coupon on the senior certificates that we sold to third parties you know, was L plus 117, again, excluding expenses. So we're still going through the final, you know, accounting for the transaction. You know, we believe it will certainly be lower cost than the warehouse lines. In addition to the lower cost, obviously there's a number of other benefits, including the non-mark-to-market positions, the non-recourse, the match funding, all of that we believe is an improvement as well. But just to kind of give you a rough estimate, I think we're estimating that the all-in cost of capital will be lower, call it by, you know, call it 40 to 50 basis points versus warehouse funding costs.
Doug Harder
And just, is that on kind of the blended basis that you were talking about, or is that kind of day one?
Veronica
Yeah, more or less on a blended basis, right? So when you take into account all of the amortization of expenses, both on the warehouse line and on the you know, on the securitization itself. You know, again, a lot of estimates go into that, obviously, depending on how quickly or slowly you expect the CLO to, you know, to start to amortize down. But, again, that's why we're sort of still working to the final numbers. But I would say a good estimate is 40 to 50 over the life of the CLO.
Doug Harder
And then, you know, I guess you said you're up to 67% in kind of non-recourse financing. What would be your appetite to kind of continue to add to that, or is that the right mix?
Veronica
Yeah, I think there's no magic number. I mean, we'd certainly like to make the percent of our debt that is recourse acre as low and low as possible. Having said that, that is one of the factors, one of the core principles that I talked about in terms of what we're hoping to achieve in terms of our liability structure. So non-recourse, match funding, Those are all important concepts and non-recourse will be one of those critical concepts. But I do think getting to a level where your recourse level is about equal to your shareholder equity would make a lot of sense. So that's not a specific target, but I think that would give us even more comfort than where we are today. So we're sort of approaching those kinds of levels. And certainly securitizations, one-off, loan-on-loan type of financing, other types of non-recourse financing make sense. But again, there is very attractive benefits to some forms of recourse financing, whether it's warehouse lines, whether it's term loans, whether it's convertible notes, where it's working capital facilities. So I think it'll always be a blend of the two, but obviously, all else being equal, we would always want the lowest recourse ratio possible. Thank you, Tasek. Absolutely. Thank you, Doug.
Operator
The next question will be from Steve Delaney of J&P Securities.
Steve Delaney
Hello, everyone. I hope that everyone at Acre is doing well. Tasek, the CLO execution sounded exceptionally good. Can you just confirm that between The advance rate, the initial advance rate and the weighted average spread on the senior notes, is this the best execution that you've had on any of your four CLOs?
Veronica
Steve, thank you. Thank you for that comment and question. You know, we're very, very happy with the execution. I think coming out of 2020, you know, seeing the markets improve as quickly as it has and, frankly, having the right collateral base that we did, you know, at that time, particularly taking advantage of the Aries warehouse line, you know, really helped us put this together. So certainly, you know, it was very favorable market conditions. You know, again, having said all that, they're all a little different because as I mentioned, FL3 was also very attractive. It was certainly priced a bit higher, but it is certainly something that we did very efficiently given that it's a managed structure and And even four years later, effectively, almost four years later, that we still have the full balance of the senior certificates outstanding means that it was a very, very attractive and efficient financing source for us. And we have been able to amortize those types of expenses over a much longer period, as well as keep that full outstanding balance outstanding. Um, and by the fact that again, using the resources of areas management, we were able to do that third securitization, uh, during those market conditions on a private placement basis. And therefore, you know, incurred less upfront expenses. Right. So again, I think when you sort of compare, you know, compare FL three to FL four, I would say, you know, it's not an apple to apple comparison because of the different nature of the two transactions. And so, yeah, no, we think SL4 was terrific, but, you know, we still think SL3, even looking back at the time we did it, was also a very, very attractive transaction and continues to be of great benefit to us. Great.
Steve Delaney
Thanks for that, Cullick. Now that the CLO is done and your warehouse is significantly cleaned out, if not completely, your appetite, can you just comment, Brian, on your appetite for new net loan growth in the first half of this year. Can we expect that you'll plan to at least cover repayments, and is there any possibility of a small amount of net growth? I guess that would have to come from cash of $90 million coming down a little bit.
Brian Donahoe
Yeah, absolutely. I think 2020 was a difficult year for the real estate industry. I think I saw transaction volume as a whole down 15% to 25%. But throughout the greater ARIES real estate debt platform, we still were very active and I think grew our market share. And we saw significant uptick in activity throughout the industry in the fourth quarter, and I think that continues today. into the first quarter and looking forward into this year. And I think we're very well positioned to continue to grow our footprint and our market share in what will be a really interesting environment. So I think you hit the nail on the head. The fact that we've got access to various liquidity sources that are proprietary to ourselves and with respect to the warehouse line, we also obviously repaid a lot of our third-party warehouse providers as part of the CLO are sitting in a pretty enviable position with respect to our cash position, right? And when you combine all those things, I do think we expect to be active utilizing all of those resources to attack this market that we see as really attractive today.
Steve Delaney
Great. Well, it's nice to hear that cautious, prudent, but optimistic tone in your voice and your outlook. So thank you both for those comments.
Brian Donahoe
Of course. Thank you.
Steve Delaney
Thank you, Steve.
Operator
The next question will be from Jade Romani of KBW. Yes.
spk08
Thank you very much. I guess to start off with supplemental dividend, you know, I've covered this industry since 2007. I don't think I've seen that terminology before. Maybe, maybe I missed something, but you know, I've seen special dividends. So can you just clearly enunciate what you're trying to communicate to the market? Historically special dividends in the mortgage rate space, you know, they don't really add much to the valuation of these companies because it's not really viewed as a promise, not something set in stone in terms of a recurring dividend. So yeah, I guess for the foreseeable future, are you saying that we will be, shareholders will be receiving a 33 cent regular weight dividend and a two cent supplemental dividend at least maybe over the next four quarters? And beyond that, maybe you're reluctant to potentially have to reduce the dividends. So that's why you're classifying it as such. Just want to put a finer point on this so that shareholders could be extremely clear as to what you're trying to articulate.
Brian Donahoe
Yeah, sure, Jade. I'll start and I'll turn it over to Tasik. But by way of background, obviously, within the Aries family of companies, we've got a lot of different corporate structures. And the genesis as we started to talk about this over the past weeks and months was really that it is something that is used within the BDC realm fairly widely. And so that was the genesis of why we thought it was appropriate to transition it into the Tasek, maybe you can give a little bit more color as to the conversations we've had.
Veronica
Sure. And, Jade, I think it's a great question. I appreciate the opportunity to sort of further clarify the distinction, if you want to call it, between maybe the nomenclature that has been used previously in the word special versus supplemental that we've chosen here, borrowing from, again, the BDC space. Special to us, I guess, meant a little bit more of a one quarter or a one transaction based type of dividend payment to shareholders, right? So for example, if you sold a large asset and you realized a gain, you know, you can make a special one-time dividend to clear up some of the earnings from that one-time sale, right? Or if you found yourself in a position where for tax purposes, you needed to make you know, a cash dividend or an in-kind dividend to make sure that you met your requirements. But it was really driven by a unique circumstance, a special circumstance. We think it would be appropriate to call it special. I guess we wanted to distinguish it from that type of one transaction, one quarter type of situation, because, you know, we do feel this is ongoing. maybe not ongoing into perpetuity, but ongoing for at least more than a couple of quarters. So as we indicated, because of our positive outlook on the earnings benefit that we have from the LIBOR floors and from locking in the interest rate on a substantial portion of our floating net liabilities, we feel comfortable that certainly over the next four quarters that we will be able to continue to share some of that excess benefit and earnings benefits With our shareholders in the form of this incremental two cent number. And that's why we felt, you know, borrowing from the terminology of the BBC space, that supplemental was the right way to go with it. And I do have to give our credit to our IR team who really thought of this and said that was the best. nomenclature to kind of describe the circumstance. And so while it is unique in the commercial mortgage REIT space to use that terminology, we felt it was, you know, the most appropriate terminology that we'd come up with.
spk08
Thank you. Yeah. I mean, just looking at the stock's performance today, granted the space seems to be down, you know, most of the mortgage REITs down maybe 1%, acres up 1%. the dividend increase, if you factor in the supplemental, would be a 6% increase. So Acre would be underperforming, holding a dividend yield constant, what the sector is doing. And I've seen this a lot of times, these special dividends, these one-time pronouncements, even if they're for the next few quarters, shareholders never capitalize those into earnings. So Maybe at some point you could consider a halfway point, you know, a modest increase in dividend. I think that would be more creative to the stock price than using terminology like supplemental. I also would say that we are recommending the stock. So I'm not trying to be overly harsh, but something just to think about. So as of today. Are there still three loans on non-accrual? I think Brian said that there was a fourth loan that came off non-accrual, including another loan that was modified. Could you clarify that comment?
Brian Donahoe
Sorry. Yeah, it was three loans on non-accrual. Earlier in the midst of last year, we removed a fourth. So that was from prior course. Sorry for the confusion. But three loans remain on non-accrual, as I said, continue to pay at least a portion of interest and outlook remains stable, but working towards resolution on each of those remaining three.
spk08
Great. And when you say a hundred percent on interest collections, I noticed you gave the number for the full year, but not for the fourth quarter. So the fourth quarter would be helpful, but also I know that when loans are modified and there's been 11 modifications in 2020, you know, obviously the interest contract changes. So how would those interest collections compare with the pre-pandemic portfolio? If you could give some sense, I mean, should we just take the non-accruals, which are about 2% of the portfolio, so interest collections pre-pandemic would be about 98%. Is that an accurate statement or is there any other nuance you would want to put on that?
Brian Donahoe
It's a good question. And, you know, I'd say that, like I said, with respect to the three assets on non-accrual, we are continuing to receive some interest, but classifying that differently. There have been, I think, the pace of amendments clearly has slowed down from the acute portion of last year. And when we are pursuing those amendments in concert with our borrower groups, that's generally coming with, as we touched on in previous quarters, new equity coming in from borrowers in return in general for additional duration or some leniency with respect to extension covenants. But continued high pay rate throughout the fourth quarter with respect to just kind of an apples to apples comparison versus 100% collections pre-COVID. Let us come back to you a little bit with greater detail, if that's all right.
spk08
Yeah, that's great. Thank you very much. Just in terms of the Earnings outlook, I know you guys don't provide guidance. None of your peers do, so not expecting that. But clearly, you know, distributable earnings have been running well in excess of the dividend. I think you've articulated what you expect the dividend policy to be for the next few quarters. But do you think that there's enough visibility in which to project sort of a consistent level of distributable ETFs? there could be some timing differences with respect to originations and repayments, but overall, are you, are you projecting consistency for, for 2020, 2021? And I think also there could be a upside potential based on the CLO you put in place as well as the, uh, you know, live or floor hedges, uh, as well.
Brian Donahoe
Yeah, I'll start. Um, And good question. I think, like we touched on, the philosophy behind our dividend announcement is one of confidence and stability, right? And as much transparency as we have based on what we see, we try to reflect that, notwithstanding the nomenclature issue that you cite. So, you know, we feel good about where we sit today. With respect to specifics, Teyska, I don't know if you have anything to add to Jade's question here.
Veronica
The only thing I would add is we've been able to generate, we think, very attractive returns in a rather challenging environment while still maintaining a pretty defensive posture. In other words, we have 15% to 20% of our book value sitting in cash, effectively earning zero. and yet we still have been able to generate the distributable earnings that we have the past few quarters. And so as conditions change, we will then look to potentially deploy that excess capital as well as take advantage of the Aries Warehouse line. But once you start to deploy that capital into more interest-earning assets, again, we could find ourselves with further avenues of growth either to add incremental to where we are today or to replace some of the earnings that may run off in the next couple quarters. So I guess it's sort of a long-winded way of saying that there's a number of moving pieces. The good news is that we find ourselves in a very advantageous position to have a few levers that we can continue to take advantage of to what we would say is at least maintain the kind of earnings that we've been able to generate.
spk08
Thanks very much. Lastly, just wanted to ask about M&A, something we used to talk about quite frequently. You know, I think Acres trading at very close to book value, and there's a number of mortgage REITs, as well as probably, I would assume, valuations on private debt vehicles substantially below, you know, a close peer, which is diversified and internally manages at 75% of book value. What is the company's interest in pursuing M&A at this point, or given where we are in the cycle, does it make sense to be more prudent with capital, not reach for an M&A transaction to grab scale, and rather wait until things become more certain?
Brian Donahoe
We don't have anything specific yet. with respect to the M&A opportunity that exists today, I think clearly we see the value of a scaled business. And as we think about some of the retained earnings, I think that speaks to that continued growth of the book and scale and further deployment. And as Tasek points out, I think we feel really good about having all of the different levers that we can pull available to us post-CLO, right? And I think... In addition to normal course warehouse lines, et cetera, we also have access to the Greater Aries platform, including some strategic thinkers and execution folks to pursue strategies like that. We don't have anything specific to discuss, but clearly it's something that we're always paying attention to and looking at a number of opportunities throughout the market.
spk08
Thank you very much.
Operator
The next question will be from Charlie Arestia of JP Morgan.
Charlie Arestia
Hey, good afternoon, guys. Thanks for taking all the questions. Most have been covered already. I really appreciate all the color. But I did want to ask about LIBOR floors a bit. You know, given the significance of those floors, especially in the context of the supplemental dividend and the hedging transaction, can you just help me understand sort of the cadence of How those floors are going to shift over the next few quarters, especially as the older vintages pay down and new loans are coming onto the book. I'm just trying to get a sense because the weighted average floor for the whole portfolio is sort of a snapshot, you know, static analysis. And the portfolio is obviously more dynamic than that.
Brian Donahoe
Yeah, absolutely. A lot of thought went into exactly how this was structured, so I'll let Tasek walk you through the specifics, but I think your question is a good one.
Veronica
Yeah, thanks, Brian and Charlie. Thanks for the question. No, you're 100% on. While we can easily summarize the benefit of LIBOR floors and the fact that, again, 95% of our loans have LIBOR floors with a weighted average of 1.73%, which is quite a premium over where LIBOR is today, clearly the real analysis is done on a loan-by-loan basis. So, for example, we do expect over the next, call it three years, for the loans with LIBOR floors to repay, and that when we redeploy the capital from the proceeds of those repayments, that we will not be able to achieve LIBOR floors you know, anywhere near the existing rates today. In fact, you know, most LIBOR floors are set very low or even at market, you know, at the time we close a loan or quote the loan. So, you know, that is certainly all factored into, you know, our forecast and business plan. It is, as we've always said on a, you know, deal by deal, loan by loan basis that we make that determination. And one thing to note on the interest rate hedge that we did, you know, very, very similar there is, is that, as I mentioned, both the swap and the cap have the initial balances, the initial known balances of $870 million and $275 million, but that they do amortize down over the next three years. And again, that amortization schedule of even the interest rate hedging is largely based upon what we expect the runoff of the loans with interest rate floors, the LIBOR floors, to prepay as well or to repay as well. So it is, you know, it's a very granular exercise that we go through to make sure that we are, again, continuing to maximize the benefit of the LIBOR floor, but knowing that, you know, that those loans will eventually run off and we have to make sure that our liability structure closely matches that runoff as possible as well.
Charlie Arestia
Okay, thanks, Tasek. That makes sense. And Just one more question. Some of your peers have made some comments recently that their warehouse lenders are actively looking to kind of grow their footprint and grow facility utilization. I'm just curious if you guys can provide any color around the conversations you guys are having with your lenders and if you feel that that view is pretty consistent across the sector.
Brian Donahoe
Yeah, I think so. Look, from a macro perspective, we've all seen what's occurred in rates over the past 12 months, and clearly that was part of the genesis for our hedging strategy. The other impact of that is, you know, I think across the board you've seen relatively positive credit performance and a search for yield throughout the globe, right? And what we are taking advantage of at a high level is the ability to lend in what we'll call a private market, so direct origination channels throughout our origination channels. offices in the country and then borrow in either the capital markets directly through the CLO or through our financing counterparties. And clearly, as the CLO market has kind of cleared the decks for a lot of our warehouse lending counterparties, they are seeking out additional assets, right, in pursuit of NIM. And that is absolutely something we're seeing almost universally with respect to our counterparties and something that we will likely benefit from over the coming six, 12 months.
Charlie Arestia
I appreciate the fellow guys. Thanks so much.
Operator
Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Brian Donahoe for any closing remarks.
Brian Donahoe
Great. Thank you. In closing, I just want to once again thank everybody on the team for their contribution over the last 12 months. It really has been and I want to thank everybody for joining today and for all the questions from our analysts. I appreciate all the continued support of ACRE, and we look forward to speaking to you again on our next earnings call. Thank you again.
Operator
Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available approximately one hour after the end of this call through March 4, 2021, to domestic callers by dialing 1-877-344-7529, and to international callers by dialing 1-412-317-0088. For all replays, please reference conference number 10150859. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website.
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