Ladder Capital Corp

Good afternoon and welcome to Ladder Capital Corp's earnings call for the fourth quarter of 2022. As a reminder, today's call is being recorded. This afternoon, Ladder released its financial results for the quarter and year ended December 31st, 2022. Before the call begins, I'd like to call your attention to the customary safe harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our supplemental presentation, which is available in the Investor Relations section of our website. We also refer you to our Form 10-K and Earnings Supplement presentation for definitions of certain metrics which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

Good evening. We are pleased to report that ladder generated distributable earnings of $38.9 million, or $0.31 per share, reflecting an after-tax return on equity of 10.2% for the fourth quarter of 2022. Undepreciated book value grew to $13.66 per share, and as of December 31, our same-day liquidity from cash, cash equivalents, and our undrawn unsecured revolver was over $900 million. As of December 31st, our adjusted leverage ratio was 1.9 times and 1.1 times net of cash and securities. For the full year 2022, LATA generated distributable earnings of $148.4 million, or $1.16 per share, representing a 9.7% after-tax return on equity. We are further pleased to report that after raising our quarterly dividend by a cumulative 15% over the course of 2022, Our dividend remains well covered with carry from net interest margin and net rental income. In 2022, we originated $1.2 billion of balance sheet loans, two-thirds of which were either multifamily or manufactured housing, with our multifamily originations focused on newly constructed properties. As of December 31st, our total balance sheet loan portfolio had a weighted average spread of four and a quarter on floating rate loans and a weighted average coupon of eight and a quarter. While loan origination slowed due to a lack of a transaction activity, we have strong liquidity to deploy into this product as activity returns. As of December 31st, 40% of our loan portfolio was comprised of loans on multifamily or manufactured housing, and 82% of the portfolio was comprised of post-COVID loans that reflect conservatively reset valuations with newly capitalized business plans and substantial reserves in place. Only approximately 6% of our loans have a final maturity in 2023, and all of our floating rate loans have interest rate caps in place. We continue to focus on dollars per foot or basis lending on smaller middle market loans, and we continue to see enhanced liquidity for these loans with payoffs from the various lending options available to refinance loans of this size. 86% of our balance sheet loans are lightly transitional, as evidenced by our modest future funding commitments, which are limited to $322 million in total, with approximately half of this commitment being contingent upon a creative good news leasing. A topic on everyone's minds has been office. We've continued to see stable performance in our office loan portfolio, which comprises 25% of our total loan portfolio. If you exclude our two largest office loans, both of which Brian will address when he discusses our office investments in more detail shortly, That percentage drops to just 18% with a $25 million average loan size, consistent with the rest of our portfolio. Further, our average last dollar loan exposure is $112 per square foot, a testament to our focus on basis. 65% of our office loans are acquisition loans, 69% are on Class A properties, 58% are located in the Sunbelt, and 72% of our office loans are post-COVID loans. We've seen similar liquidity for our office loans with full and partial loan repayments, including over $200 million in 2022 and an additional $28 million thus far in Q1 of 2023. We expect our credit discipline and unwavering focus on basis and the middle market to continue to distinguish ladder with sustained credit performance. Turning to our other investments, our real estate portfolio continued to contribute to distributable earnings by generating net rental income of $67.9 million in 2022. In addition, this portfolio has continued to generate attractive gains on sale at premiums to undepreciated book value. In 2022, we realized $35.8 million of gains in distributable earnings from the sale of real estate. In the fourth quarter, Ladder realized $3.8 million of gains on sale of real estate, including the sale of our largest office asset for gross proceeds of $118 million. Our securities portfolio ended the year with a balance of $588 million. Turning to our capital structure, a combination of our internal management, high insider ownership, strong credit performance, and differentiated liability structure have earned Ladder the highest credit ratings in the sector. Of significant note, as of December 31st, equity unsecured bonds and non-recourse, non-marked market debt made up 82% of our capital structure. 50% or $3 billion of our assets were unencumbered, with 76% of those assets comprised of cash and senior secured first mortgage loans. In addition, and thanks to our large base of fixed rate unsecured debt, we ended the fourth quarter with a competitive total cost of debt capital equal to 5.34%. In conclusion, 2022 was a good year for Ladder. We delivered a 9.7% return on equity, selectively augmented our balance sheet loan portfolio, and grew carry income to comfortably cover our higher quarterly dividends. Lastly, the deployment of our significant liquidity into this higher rate environment will help Ladder grow earnings in 2023 and beyond. With that, I'll turn the call over to Paul.

Thank you, Pamela. As discussed in the fourth quarter, Ladder generated distributable earnings of $38.9 million, or 31 cents per share. And for 2022, Ladder generated $148.4 million, or $1.16 per share. Our three segments performed well during the fourth quarter and in 2022. Our net interest margin rose steadily as benchmark interest rates increased. We benefited from our liability structure of which approximately 50% is fixed rate. The $1.6 billion of unsecured corporate bonds that anchor our capital structure have an overall weighted average maturity of approximately 4.7 years with the nearest maturity in October 2025 and provide an attractive fixed rate cost of capital. at a 4.7% average coupon. Our $3.9 billion balance sheet loan portfolio is primarily floating rate, diverse in terms of collateral and geography, with our primary asset class focused on multifamily assets. As Pamela discussed, 82% of the portfolio is made up of 2021 and 2022 vintage loans. During the fourth quarter, balance sheet loan origination was $38 million related to one multifamily loan, We received loan payoff proceeds of $180 million and acquired one office property in Houston, Texas via foreclosure with a carrying value of $10 million or a basis of approximately $50 per square foot. Additionally, as Pamela mentioned, subsequent to year-end, we received $28 million of proceeds from two office loans that paid off at par. During the fourth quarter, we increased the general portion of our CECL reserve by $2.4 million, or 15%, driven by the current market outlook. Overall, we believe that the granularity and diversity of our positions, with limited exposure to any single sponsor, market, or asset, serves as a credit enhancement to our portfolio. Our $900 million real estate segment also continues to perform well, and 2022 marked the year in which we demonstrated the embedded value of the assets in the portfolio. This portfolio continues to provide stable net operating income and includes 156 net lease properties, representing over 70% of the segment. Our net lease tenants are strong credits, primarily investment-grade rated, and committed to long-term leases with an average remaining lease of 10 years. During the fourth quarter, we sold one office complex, one net lease property, and one residential holding, which together generated a $39 million gap gain to shareholders and produced $3.8 million of gains for distributable earnings. In 2022 overall, we sold eight properties, generating a gap gain of $93.5 million to shareholders and $35.8 million of gains for distributable earnings. Our 2022 real estate sales overall generated IRRs ranging from 14% to 58% during the respective holding periods of each asset. As of December 31st, the carrying value of our securities portfolio was $588 million. The portfolio is 86% AAA rated, 99.5% investment grade rated, and in 2022, we received $185 million of paydowns on these positions. Given the seniority and short-dated maturity of this portfolio, we expect the mark-to-market associated with these positions to reverse as the portfolio continues to pay off at par. As of December 31st, we had over $900 million of same-day liquidity, and our adjusted leverage ratio stood at 1.9 times. This liquidity includes our undrawn corporate revolver capacity, which, as previously reported, in 2022 was increased to $324 million and extended to 2027. Further, as Pamela discussed, as of December 31st, our unencumbered asset pool stood at $3 billion and was 76% comprised of cash and cash equivalents and first mortgage loans. We believe our liquidity position and large pool of high-quality unencumbered assets provide Ladder with strong financial flexibility and substantial dry powder heading into 2023 with a corporate credit rating one notch from investment grade from two of the three rating agencies. During the fourth quarter, we repurchased $639,000 of our common stock at a weighted average price of $10.27. And overall in 2022, we repurchased $7.9 million of stock at a weighted average price of $10.11. As previously reported, in 2022, our Board of Directors increased the authorization level for our share buyback program to $50 million, with 46.7 of remaining capacity as of December 31st, 2022. Our underappreciated book value per share was $13.66 at quarter end, based on 126.5 million shares outstanding as of December 31st. Finally, in the fourth quarter, we declared a $0.23 per share dividend, which was paid on January 17, 2023, capping off a year in which Ladder raised its quarterly dividend by 15%, which remains well covered. For more details on our fourth quarter and full year 2022 operating results, please refer to our earnings supplement, which is available on our website, as well as our 10-K. With that, I'll turn the call over to Brian.