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spk00: Thank you for standing by. This is the conference operator. Welcome to the Broadmark Realty Capital second quarter 2021 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Nevin Bhopari, Chief Legal Officer of Broadmark Realty Capital. Please go ahead.
spk05: Good afternoon. Thank you for joining us today for Broadmark Realty Capital's second quarter 2021 earnings conference call. In addition to the press release issued this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the investor section on our website. at www.broadmark.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, we will also be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our earnings release and SEC filing. This afternoon's conference call is hosted by Broadmark's Chief Executive Officer, Jeff Pyatt, and Chief Financial Officer, David Schneider. Management will make some prepared comments, after which we will open up the call to your questions. Now, I'll turn the call over to Jeff.
spk08: Thank you, Nevin, and welcome to our second quarter earnings call. This afternoon, I'll begin with a discussion of our quarterly performance and market overview. And then I'll turn the call over to David to provide additional detail on our financial results and loan portfolio. We will then open up the call for your questions. In the second quarter, we generated $212 million of new originations and amendments. This is our largest quarterly origination volume since going public in 2019 and demonstrates the power of our platform and the strength of housing and construction fundamentals in our lending markets. We have expanded our geographic footprint and now operate in 16 states plus Washington, DC. As of June 30th, our portfolio consisted of $1.3 billion of loans secured by high quality real estate with a weighted average loan to value at origination, 59.7%. We are diversified across property types and geographies with a bias towards single family and multifamily housing construction. and states with high population growth. Our typical borrower is a small to mid-sized local market expert who benefits from Broadmark's reliability and speed of execution. We in turn benefit from our borrower's expertise as well as our requirement that they retain a significant equity stake in their projects, which incents them to perform. At quarter end, the average loan size in our portfolio was $6.7 million, with an average term outstanding of 18 months. The short-term and fixed-rate nature of our loans means that we have limited exposure to interest rate fluctuations. It also means that our loan portfolio turns over relatively frequently, providing us with a steady stream of payoffs to fund new projects, as well as allowing us to be nimble and pivot quickly as we allocate capital across our markets. As our portfolio has grown, we have been able to make larger loans while keeping our percentage exposure to individual loans very low. Underwriting larger loans has the benefit of being more efficient from an expense perspective, as well as opening up an additional potential pool of borrowers and projects, while maintaining our underwriting discipline. Having observed the pricing environment and competitive pressures in the market, we have recently made adjustments that should enable us to continue winning a high volume of business without compromising our risk profile. Leveraging our team's expertise, we have implemented a dynamic pricing model that allows us to respond to the level of risk on a potential project more effectively. Under our new pricing model and amid a competitive environment, we do expect that the weighted average all-in yield on our portfolio will be reduced over time from its current level of 16%, which decreased from 16.6% as of March 31, 2020. However, by increasing our loan origination volume but still utilizing our disciplined underwriting approach, we expect to grow the business accretively but at a wider range of risk-adjusted yields. We demonstrated this in the second quarter as this new approach, leveraging our dynamic pricing model, allowed us to further enhance our pool of borrowers with better credit, better collateral. Amid the uncertainty in today's world and new entrants into the construction lending space, I would like to remind borrowers that there is no more stable source of capital than Broadmark. With regard to the macro environment, Demand for new housing continues to far outstrip supply. This is both an immediate opportunity and a long-term one. Single-family housing starts have increased nearly every year since 2010, and yet still remain below levels seen in the 1990s. With a current housing deficit of 3.8 million units, according to a recent Freddie Mac report, it seems clear that we're still in the very early innings of the current housing cycle, with an enormous amount of growth still to come. With low mortgage rates, strong household balance sheets, and a fundamental shift in working arrangements, Americans are free to move, to upsize, or to relocate to the high-growth states where we operate. All of these demographic trends continue to drive new construction, which flows through as demand for our loans. In addition, We operate within this large and highly fragmented lending market where the big banks are not able to compete and where small, typically unsophisticated lenders lack the scale and expertise that Broadmark has built over the past 11 years. Because of our size, we only need to capture a small fraction of that market in order to achieve significant growth. In our conversations with borrowers, we are encouraged by signs of improvement in the cost of building materials. Lumber prices have started to moderate and builders have generally been able to mitigate some of the major supply chain issues to date. That said, the nature of the projects we fund, high costs, supply disruptions, and rising costs of labor can translate into delays requiring us to modify our loans or place them into maturity default. We continue to monitor these conditions and take all the inputs into account during our underwriting process. Looking ahead, we remain excited about our opportunity set and our prospects for growth at Broadmark. With our deep borrower relationships, local market knowledge, decades of combined experience, and the differentiated underwriting process that go into Broadmark's platform, we have created a formidable competitive advantage. Furthermore, we believe we provide the best exposure to the attractive housing and construction markets in high-growth states, with our short-duration loans and low LTVs that provide superior risk protection versus traditional home builders and landlords. As always, we remind you that we are internally managed and fully aligned with our fellow shareholders' interests. With that, I'll turn it over to David to review the financials.
spk07: Thanks, Jeff, and good afternoon, everyone. Our operating results are detailed on slide nine of our earnings presentation. For the second quarter of 2021, we reported total revenue of $29.2 million and net income of $18.3 million. On a per share basis, this reflects a gap net income of approximately 14 cents per diluted common share. Adjusting for the impact of non-recurring costs and other non-cash items, our distributable earnings for the second quarter were $23.5 million, or 18 cents per diluted common share. Interest income on our loans in the second quarter was $21.6 million, and fee income was $7.6 million. On the expense side, we continued to execute on our G&A reduction efforts by bringing additional corporate functions in-house. For the second quarter, we had cash compensation expense of $2.8 million, and G&A expense of $3.5 million, together totaling $6.3 million. This continues to be below the $6.7 million run rate in 2020, and we are expecting a year-over-year reduction in cash expenses of $1.5 to $2 million as a result of further internalization efforts. With regard to origination volumes, which are presented on page 10 of the earnings presentation, in the second quarter, our originations and amendments totaled $212 million, our highest volume quarter since going public in 2019. We reiterate that origination volumes may vary from quarter to quarter based on the timing of loan closings. Now, turning to our balance sheet, as detailed on slide 15 of our earnings presentation, we had $164 million of cash and no debt outstanding as of June 30th. We remain fully undrawn on our $135 million revolving credit facility, and given the added capacity from our credit facility, we've continued to reduce our existing cash balances, which we view as the cheapest form of capital available to us. In the second quarter, we reduced our cash balance by approximately $40 million, and we expect to be near our target $100 million cash run rate by the end of the third quarter. We did not issue any shares, under our ATM in the second quarter as we continue to focus on deploying existing cash. In the event that we raise additional capital in the future, we are fully aligned with the interests of our shareholders and would access capital only when we believe that it is in the long-term interest for Broadmark shareholders. As we said last year when we added our credit facility, we plan to continue assessing multiple sources of capital, including potentially a modest amount of long-term debt. which is very attractively priced in today's low interest rate environment. Maintaining a fortress balance sheet has always been a part of our DNA, and this will not change, but we believe this approach will support future growth as it will help to lower our overall cost of capital and make us even more competitive in the marketplace. Subsequent to quarter end, we announced the retirement of our private REIT. During the third quarter, Broadmark will repurchase the loan participations held by the private B for approximately $42 million. The repurchase price is equal to the loan's carrying value and therefore is not expected to have a significant impact on our earnings. We are currently evaluating the opportunity to offer a new private investment vehicle that would look to finance a loan type that is complementary and adjacent to Broadmark's existing business. Turning to portfolio management, as of June 30th, we had 27 loans in contractual default representing $152 million in total commitments, or 11.5% of the total portfolio by value. Additionally, we have five foreclosed properties with $37 million in total commitment. During the second quarter, we foreclosed on one loan and cured two loans in default for a total of $44 million and had no new defaults. As a reminder, loans in non-accrual status continue to have a drag on earnings. For the second quarter, the earnings drag was approximately $0.04 per share. As we have had certain loans in default status for over a year now, we wanted to provide additional insight into our default management process. Let me start by highlighting that preserving shareholder capital is our primary goal with defaults, although the process often takes time. I believe that it is helpful to categorize our defaults into two buckets, which we call standard and high-touch defaults. as the management and resolution timeline can differ between those two categories. For standard defaults, which account for about two-thirds of our current non-accrual pool, our focus is working with the borrower to complete any remaining construction and to position the project for sale or refinancing. In some cases, borrowers do not work as quickly as we would like to see, and we have seen delays in construction completion resulting from the recent raw material and labor shortages. However, we continue to expect that the most common result of these standard defaults will be a positive economic outcome for Broadmark as we capture our interest in fees over a slightly longer timeline. For high-touch defaults, comprising about one-third based on value, borrower equity has often been reduced due to cost overruns or project delays. While the interests of Broadmark and its borrowers are aligned at origination, upon entering default, such interests sometimes diverge as our goal of quick resolution typically runs counter to a borrower's focus on maximizing proceeds to themselves. For these two types of defaults, it is often necessary to work through legal channels, which prolongs our resolution timeline. Timelines have not been optimal, including as a result of COVID-related delays within the court system and foreclosure moratoria in certain states. And although we have resolved some defaults while continuing to avoid principal losses, we expect it will take additional quarters for us to bring our default level back down to historical rates. While meaningful progress will not come all at once, it is the right approach for us to continue to take. Ultimately, there is a lot of work left to be done in clearing defaults, but we have a history of maximizing value through strategic management and will continue to put in the time and effort to achieve outcomes that are in the best interest of our shareholders. Finally, I would like to provide an update on the four principles for growth that we outlined in the past two quarters. Number one, maximize earnings on our currently deployed capital through the continued resolution of defaults. During the second quarter, we reduced defaults by $44 million with no new defaults and made significant progress towards resolution of multiple large commercial loan defaults. Number two, maximum deployment of existing capital with the credit facility now in place. We had Q2 total loan production of $212 million and reduced cash on balance sheet by $40 million. We plan to deploy approximately $42 million associated with retirement of the private REIT and expect to be at the $100 million run rate of cash on balance sheet by the end of Q3. Number three, Ensure sufficient operating capital available for deployment through our various sources. We are currently evaluating available sources of capital with a focus on the lowest available weighted average cost of capital for the company and the most accretive to our shareholders. Number four, identify opportunities for new earnings power and growth. We are in the process of expanding into new states and evaluating products that are complementary to our existing construction loans that will enable significant long-term earnings growth. Now, I will turn the call back to Jeff for a few closing comments.
spk08: Thank you, David. We are pleased with our performance in the first half of 2021 and look to build on those efforts as we move through the balance of the year. Clearly, we have work to do on cleaning up defaults, and as David has discussed, we expect that process to take several more quarters. However, we believe we have all the tools in place in an advantageous capital structure to continue growing our loan portfolio. With powerful secular growth drivers in housing and construction and our expansion into new states and markets, we believe we are positioned well to capitalize on the near-term and long-term need to finance new construction. On top of that, we think we offer an unparalleled way to access this niche market with superior risk protections and attractive returns on our loans. This completes our prepared remarks. We will now open up the line for questions. Operator?
spk00: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Our first question comes from Tim Hayes of BTIG. Please go ahead.
spk06: Hey, good evening, guys. Thanks for taking my questions. My first one there, Jeff, just on the, or maybe for David, just the new REO property, if you could just You know, it seems like it's a big one, about a $25 million asset, so I assume it's commercial, some type of commercial asset. Can you just give us an idea of the collateral there, you know, how close it is to being complete with construction and the timeline for resolution that you guys are expecting there? Hi, Tim. Sure. Yeah.
spk08: Or take that question.
spk07: Sure. Yeah, thanks for the question, Tim, and thanks for joining. So the REO that we had during the quarter was a hotel in Moab. We feel pretty good about it. It's construction near complete. I think we probably have, you know, I don't want to commit to timelines, but I think three to six months, probably closer to the three-month deadline. where we can probably finish any incomplete construction and then look to position for sale or refinancing. Green property is something that we have a history of avoiding defaults and really reserve it for the most appropriate times, whether that's based off of the borrower or just taking over a really good piece of collateral that could have benefits for us. So in this case, this one just made sense for foreclosure. And we feel really good about it, you know, as a new, we'll call it a posh hotel in that neighborhood that did really well throughout COVID. And we expect to continue to see increases once the construction is complete. So we feel pretty good about that.
spk06: Okay. And so, David, can you just remind me, you know, were you receiving a full quarter of interest from this asset last quarter and it, you know, I guess entered into maturity default and you went through the foreclosure process this quarter? Or I, you know, I just noticed that interest- No, this- Okay, go ahead.
spk07: Oh, yeah. No, so this loan has been in default for some time. It wasn't accruing interest. There won't be an impact on interest income- from it going to REO. Obviously, as long as it sits in REO, we will continue to not accrue on it. So the quicker we can get out of it, I think that's really, as we think about REOs, this is the biggest one we have right now. The quick resolution for something like this is definitely a possibility and something that we're gonna focus on so we can get paid, redeploy that capital and start earning interest again.
spk06: Okay, got it, that's helpful. And then just on the two defaults you've shared this quarter, I imagine those were two that were construction complete at this point. They also look like they were a little bigger assets there. So were those also commercial in nature? And, you know, just how are you able to go about curing those two? Because you still have about 15% of your defaults in completed properties. So I guess I'm just trying to understand, you know, for that subset of defaults, what's you know, what the hurdle is for getting your borrowers to pay you back?
spk07: Sure. Yeah. The resolutions, one was a payoff. The smaller one was a payoff. And then we had a little bit larger loan that we actually brought current through an amendment and additional collateral added to it. So we feel good about that. They were both residential in nature. That one was, I believe, townhomes is the one that we were able to convert to performing and resume accruing interest on that.
spk06: Okay, got it. And then just one more for me, and I'll hop back in the queue, just about the decision to bring in the private REIT here. If you could maybe just talk to us a little bit more about the nature of that decision, if it reflected kind of the capital raising environment or anything else, and if we can see something like that from you guys in the future, but maybe just under kind of a a different mandate or just maybe looks a little bit different than how it was structured previously. Just trying to understand, you know, again, the nature for the decision and then also what we can expect at a later time from that type of strategy.
spk07: Sure. And Jeff, let me, I'll give it a quick go and then jump in if there's other things you want to add to it. So I would say, you know, Tim, the reason, I think we alluded to this in the press release, but really It was viewed as a capital source under the structure that it was in. It actually was incredibly helpful. We happened to go public and then immediately hit COVID. Very difficult time for us to raise capital as we worked to get not only through COVID, but also waited to get our shelf registration done, which we got towards the tail end of the year. So it served its purpose in terms of as a capital provider. Now that we are a public company with, you know, it almost seems like unlimited different sources of capital, it really put a strain on not the ability to raise capital. There was a pipeline of various investors. We had to hold up the pipeline at times. So it wasn't an inability to raise the capital. It was really focused on competing sources of capital. And for us, primarily, we were focused on deploying as much cash off the balance sheet and we're in a position where we needed any capital. So that really forced us to take a step back and think about whether there's a better structure for the private. We still think there is a great amount of interest from private investors. And I think it's just a matter of us taking a step back and restructuring it in a manner where hopefully, you know, first step is answer the question of what is a complementary product that our borrowers are interested, complementary to our construction loans that's not currently offered by Broadmark. and how can we and should we be offering that product and can we find the right position to place that? And I think the private REIT could be very attractive for one of those complementary products as we think about expanding beyond just our construction loan offering. So that's really the focus is answering that question of what similar adjacent products to construction would our borrowers love to see that just historically haven't offered and take a hard look at that and see how we could actually structure it in a non-participation format so it's never a competing capital source, and rather it's just purely additive.
spk06: Okay. Well, that makes sense. And I hate to hog all the time in the Q&A, so I want to leave some things to be asked for the other analysts. But just since you bring it up, though, you talk about these complementary asset types. I mean, can you give us a little bit more color on what shape that could take and what you guys are evaluating at this point? I mean, I think we're –
spk07: That's not something we've talked about publicly. We think there's some nice products that are similar to construction, whether that's a different piece of collateral that we typically don't look at or different opportunistic loans that are out there. So I think we probably need to spend a little bit more time finalizing that, but we feel good that there's a product, there's multiple products that our borrowers currently like that we think could offer you know, very attractive returns for a private vehicle and kind of make everybody happy.
spk06: Gotcha. Well, guys, I appreciate the time this evening. Nice talking to you, Tim.
spk00: Our next question comes from Stephen Laws of Raymond James. Please go ahead.
spk04: Hi, good afternoon, Jeff and David. Hi, Stephen. Hi, Stephen. Jeff, I want to start with maybe a bigger picture question that kind of funnels down to the portfolio. But, you know, you mentioned the new state, you know, growth in the Atlantic and Southeast is something we've talked about, you know, for a little while, you know, now kind of continuing the expansion. And coupled with shutting down the private REIT in the manner it was, you know, you've really positioned the balance sheet to start benefiting from all of the growth from the origination channel. Where would you like to see that get? What's the goal a few years down the road as far as portfolio size and footprint to where you have kind of a matching number of origination pipeline with repayments and kind of reach a natural steady state? Can you maybe talk about the growth outlook to reach that point and maybe where that point is as far as what you see today?
spk08: Oh, Stephen, you always ask me the good question. The short answer is we want to keep growing this company as quickly and carefully as we can. David mentioned the fact that we have access to various forms of capital that we never have in the past. We have expanded into some new states. We are looking at some others where, as we always have, being very cautious about so that we don't just go into a state because it's got a loan that we want to do and we don't know what we're doing there. We've been able to have a great quarter. I think we'll continue to this year just based on what the markets look like, the demand for housing, the demand for our product. And we'll just keep pushing as hard, as I said, as hard and as safely as we can. which doesn't really answer your question, but I can't tell you that we want to grow by X percent or X dollars or X loans. We just have always tried to grow as quickly and as well as we can.
spk03: Great.
spk04: And the focus is on the credit underwriting side, certainly, as opposed to volumes. David, I want to follow up on a question on the private lease. You know, I know with some of the assets that transferred over around the IPO period, we had to think about the accounting around the fee income line. Can you give us an idea of any accounting considerations we need to think about with the $42 million that comes over from the fee income side, as well as any maybe one-time expenses or anything we need to think about there that might go into the third quarter results?
spk07: Yeah, great question, Stephen. You know, I think as we mentioned in the press release, no material real impact from it. You know, we'll see most of these loans have been outstanding for 15 months or 16 months or 17 months by now. So not a lot of unamortized fee income. There's obviously going to be a pickup of interest income for the remaining until they go to maturity. I would highlight that all the loans are in performing status and on accrual status. So we'll see a little bit of pickup, maybe a cent over the last two quarters, just purely on interest income. Marginal expenses, nothing significant that you would see flow through the Pubco financial statements.
spk03: Great. Appreciate the time this afternoon. Thanks, guys. Thanks, Stephen. Thank you, Stephen.
spk00: Our next question comes from Steve Delaney of JMP Securities. Please go ahead.
spk01: Hi, Jeff. Hi, David. Nice to be on with you this evening. Hey, Steve. Congrats on the stable to improving credit profile. I know that's been your focus over the past year for sure since COVID hit. Just looking at your deck on slide 10, you had what you refer to as an amendment, a $15 million increase, I guess, in total commitments. I don't know whether that was one loan or multiple, but when you amend a loan in that regard and increase your commitment, what conditions are normally in place? Are you getting additional collateral or is the scope of the project expanding? Just like to understand if that is a normal type of thing or more of a one-off type of thing.
spk08: Well, David, you can probably answer this with more detail, but I think Steve, the underlying takeaway is that we don't just extend a loan to keep it performing. If a loan needs to go into non-accrual, it goes into non-accrual. If it needs to go into default, we put it into default. But if a borrower can bring some nice collateral and we can get a first deed of trust on it and we can look at that total asset pool then, and be back within our lending parameters, then we're happy to do that. That helps them succeed. Candidly, it gives us some better diversified collateral underlying the loan and then helps them get out from under it more quickly. Got it.
spk01: you've got a relationship, it's healthy, and it sounds like it's something of the core financing that you had in place is performing and it's a way that you can kind of create a win-win for a borrower. Is that the sense of what you're working towards?
spk08: Yeah. Remember that I think 60% this quarter of our borrowers were repeat borrowers. We like to keep them happy, but only if they're only if they're holding up their end of the bargain.
spk01: Sure, understood. And, David, you had to foreclose. I know that's your last line of defense, but you had to foreclose on a loan, but it would appear your provision for incremental loan loss was de minimis, only $58,000. So it would appear that when you made that decision to go into REO, which, of course, has to be at fair value, that your loan had already been foreclosed. impaired written down to a level where you could go straight in without a material additional hit. Am I interpreting that correctly?
spk07: Yeah. So the REO we had this quarter, we didn't have any major principal loss on it, so it was already taken care of. And I think that's one of the benefits of CECL is as we think about our default portfolio, we still have some wood to chop. But Any potential losses have already been captured in our gap in that income. I think our allowance was $10.9 million as of 6-30. If anything, we hope to potentially come in just under that. So you wouldn't see any material impact of future foreclosures.
spk01: Got it. Okay, that's helpful. And then I noticed in your income statement, this is a small thing, but it just kind of caught my eye. This is in your reconciliation to distributable statement. And you have the adjustment for new public company expenses. And certainly, I understand post-IPO or SPAC merger, you're going to have something. But $289,000, now it is down pretty significantly from what you had in the first quarter. And is that something that you've about run the course on that? And should we expect that to become a de minimis item going forward? Yeah, that's a great question, Steve.
spk07: I think this will be the last quarter you see that. This one specifically was just some cleanup of CECL implementation and some of the work that we had to do to really come up with our CDNA for our annual report. So there were kind of one-time things. I know we try to keep out one-time and non-recurring from the explanations, but I think you'll see that be zero in future periods. And I think we feel, though, pretty good about our expenses. We talked a little bit about in the prepared remarks continuing to bring down our G&A and comp, expecting hopefully about one and a half to two million drop year over year in cash. And I think that just reflects, you know, their internalization, some of the key hires we've made. So we feel pretty good about, you know, continuing to be consistent where our expenses are at.
spk01: Great. Well, appreciate the comments from both of you, and we'll look forward to what you get done in the third quarter. Thanks so much. Thanks, Steve. Thanks, Steve.
spk00: Our next question comes from Matthew Howlett of B. Riley. Please go ahead.
spk02: Hey, guys. Thanks for taking the question. I jumped out and laid it. I apologize if you discussed this already, but on potential new capital, you know, the debt preferred, you know, towards the end of the year, can you give us, you know, I know what your limits are, what you can say, but can you in terms give us you know, what you would look at. Would it be preferred? Would it be debt? Would it be, you know, secured term debt type of term it would have? I mean, anything you could give us in terms of rate? It would be helpful given, you know, I've seen companies in your position, you know, the lever one-to-one at some point. Can you just go over how you're thinking about, you know, putting debt on the company?
spk07: Sure. Yeah, that's a great question, and thanks for joining, Matt. You know, so I think the number one priority or the top two priorities or 1A, 1 and 1A, are really coupon. So we're making a conscious effort over the next several quarters and over the long term to bring down our weighted average cost of capital. So we feel like there's very competitive rates out there from a coupon perspective. I'm not at liberty to say the specific range, but I'd say it's much lower than we would get for our dividend rate and our cost of equity. So I think we feel good about that. In terms of the focus, the other focus is getting amounts that we can, you know, source and then deploy quickly. You know, we've reached a nice level. We dropped our cash balance by $40 million. So we had, you know, net deployment, net of payoffs of $40 million. We think that number can probably come up in future quarters, given the increase in production that we started to see in June and expect to kind of continue in future quarters. So I think the real focus is sizing, make sure it's something, you know, that's not too big and we're going to have to sit on it and have, you know, cash drag and interest expense on. And two is most competitive coupon possible. We think that there's things that would work, you know, within, you know, those two kind of top items that we're looking for. I think we have multiple options, whether that's the preferred route is in there, senior unsecured bonds are in there. You know, there's all kinds of products that fit that, that would fit both within our credit facility and not impact, you know, from a covenants perspective, our our undrawn credit facility, as well as give us that flexibility around sizing as well as a cheap coupon.
spk02: And I appreciate that. And I guess, you know, the, I mean, the million dollar question, I guess is, you know, I realized that, you know, the sizing is, you know, important, but I mean, with over a billion, one of equity, what do you think ultimately how much debt preferred equity you could put against that? I'm assuming just, today, snapshot today, ultimately, could you get up to a billion? I mean, just in terms of ultimately, how much leverage there was?
spk07: Yeah, I mean, there's, there's, there's, you know, I would say the immediate term, you know, we do have covenants in our credit facility, that's a 30% debt to equity ratio. So I think that's kind of the initial hurdle. But you know, even getting to that level, you know, that's three, $400 million of debt. And you know, that from a capital needs perspective, that would take a while for us to even get through that. And then we'd start to take a look back. But I think the focus is really as we, you know, we think about potentially having leverage, you know, it's always going to be modest relative to our peers. And I think that's a key distinction that we're never going to waver from. You know, I think I mentioned our prepared comments. That's in our DNA. You know, it's to get to this point where we would even consider that is a big step. And I think it will be very conscious and modestly approaching, you know, changes to our capital structure.
spk02: Gotcha. It does change our lead profile. And the last question is, I mean, do you think in terms of GNA expense reductions, is there a level on your portfolio growth where you would have to add, I mean, in terms of what can you tell us in terms of just GNA going forward, if you do end up growing the portfolio significantly, how much, you know, operating leverage do you have? Thanks a lot.
spk07: Yeah, I think, Pretty marginal. I think we've obviously increased our headcount really significantly since we went public, and I think we're in a pretty good space now. We did a little bit of hiring in the first two quarters of this year to make sure that we have enough underwriters and sales folks to the different regions as we think about expanding into states. But I don't think it's going to move the needle much from a cash expense perspective. I think we could grow multiple times our current portfolio and you wouldn't recognize the significant uptake in expenses. I think that's the beauty of our platform is it's incredibly scalable.
spk03: Great. Thanks, everyone. Thank you.
spk00: This concludes the question and answer session. I would like to turn the conference back over to management for any closing remarks. Thank you.
spk08: If you'd indulge me for a couple of minutes, I would appreciate it. If I've interacted with you personally over the last decade, you have encountered Peggy Armstrong, most likely, who has served as my assistant and is listening to today's call. Peggy did her job with competence, commitment, and awry and sometimes sharp humor. She was a very early employee of Broadmark and has played an important role in our company. Peggy's been on a medical leave for several months now so she could focus on a years-long struggle with metastatic breast cancer. Today, Peggy is being released from Seattle Cancer Care Alliance Hospital to begin hospice care. I wanted to be sure to acknowledge Peggy's contribution to the company and to my family and publicly say, Peggy, that we wish you well on this next leg of your journey. Thank you all for joining today and for your ongoing support of Broadmark Realty Capital. I look forward to seeing you all next quarter.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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