Ladder Capital Corp

Good afternoon and welcome to Ladder Capital Corp's earnings call for the second quarter of 2023. As a reminder, today's call is being recorded. This afternoon, Ladder released its financial results for the quarter ended June 30, 2023. Before the call begins, I'd like to call your attention to the customary safe harbour 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 afternoon. We are pleased to report for the second quarter of 2023, LATTA generated distributable earnings of $41.5 million, or 33 cents per share, reflecting an after-tax return on equity of 10.8%. Our dividend remains well covered from net interest margin and net rental income. As of June 30th, LATTA remained flush with liquidity and modestly levered with an adjusted levered ratio of 1.7 times. As of quarter end, The latter had $777 million, or 14% of our assets, in cash and cash equivalents, with $1.1 billion of same-day liquidity, including our undrawn unsecured revolver. In addition, over 50% of our assets are unencumbered, and 84% of these unencumbered assets are comprised of first mortgage loans, investment-grade securities, and cash and cash equivalents. Lattice continues to maintain a considerable surplus of unencumbered assets over the amount required by our covenant, currently totaling over $1 billion. This cushion provides us with a great deal of flexibility and enhances our liquidity profile as the majority of our unencumbered assets are readily financeable. As of June 30th, Lattice balance sheet portfolio totaled $3.5 billion with a weighted average coupon of 9.15%. We continue to have modest future funding commitments of $272 million, with more than half of this commitment being contingent upon accretive good news leasing. Repayments in the second quarter totaled $309 million, both exceeding the amount of quarterly repayments we received in any quarter over the last year, and more than doubling the amount of loan payoffs we received in the first quarter. During the second quarter, we added $35 million loan on a mixed-use property to non-accruals. The borough owned the asset at a basis of $55 million, which is comprised of 174 newly constructed multifamily units and three floors of office and commercial space in Pittsburgh, Pennsylvania. We're pursuing our remedies for the asset, which included a recent change in management at the property that has already led to an improvement in occupancy and net cash flow. Over 80% of the property's revenue is generated from the multifamily units. Current occupancy supports an in-place debt yield of 6.2%. which is forecasted to increase to 7% before we anticipate taking title to the asset later this year as the multifamily units are leased to stabilization. We did not take any specific impairments in the quarter, and Paul will cover the increase in our general CECL reserve, which reflects our current view of evolving macro market conditions. We are continuing to proactively monitor our loan portfolio, including our office loans, which comprise 16% of that ladder's total assets. As previously disclosed, over one-third of our office loans are concentrated in two assets in South Florida, which continue to perform well. With robust liquidity and a highly experienced origination team in place, we're well positioned to transact when activity resumes in the market. In the meantime, we've begun to take advantage of opportunities to add to our securities portfolio by acquiring additional AAA CLO securities that are currently offering highly attractive returns. Our real estate portfolio also continued to contribute nicely to distributable earnings by generating $16 million of net rental income this quarter. Over 70% or $653 million of the larger portfolio is comprised of 156 net lease properties. These properties are leased to strong necessity-based tenants, 69% of which are investment grade, with a weighted average lease term of over nine years. The upcoming mortgage maturities on the properties have over three years remaining on average and are very manageable, with no debt coming due in 2023 and only approximately 35% of the portfolio having mortgage maturities before 2026. The financing on our net lease portfolio has a weighted average in-place coupon of 5.54%, which compares favorably to the current 10-year SOFR swap rate of 360, implying a spread of 190 ultimately giving us comfort on the feasibility of refinancing. We continue to like the stable long-term cash flows that this long-term lease segment provides the ladder, and we view it as a favorable complement to our shorter-term bridge lending business. We also think there is upside that can be achieved through extensions at lease maturity by achieving higher lease rates for longer terms, which we have already had prior success with, including as recently as December of 2022, when latter executed early five-year renewal options for $3 general stores with less than five years of lease term remaining. Our corporate credit rating was reaffirmed during the quarter by two of the three rating agencies at one notch below investment grade. We believe our large, unencumbered asset pool, stable use of modest leverage, and diverse liability structure comprised of 78% unsecured and non-recourse, non-marked market debt allowed us to maintain our ratings. the highest in the space despite the disrupted commercial real estate market. In conclusion, our dividend is well covered as we await the opportunities we expect the market to present. We benefit from strong asset diversity and conservative advance rates on our loans and believe we are well positioned to take advantage of the dislocation in our sector with meaningful liquidity and modest leverage. With that, I'll turn the call over to Paul.

Thank you, Pamela. In the second quarter, Ladders' diverse business model performed well, generating distributable earnings of $41.5 million, or $0.33 per share, driven by strong net interest margin and net operating income that benefits from our liability structure, of which approximately 50% is fixed rate. Our primarily floating rate $3.5 billion balance sheet loan portfolio decreased in the second quarter due to $309 million of proceeds received from loan paydowns. offset by $13 million of funding on existing commitments. The proceeds from paydowns included 13 full loan payoffs with a $25 million average loan size. The payoffs were generated from property sales and refinancing through agencies, regional banks, credit unions, and insurance companies, demonstrating liquidity in Ladder's origination strategy with a middle market focus and smaller average loan size. In the second quarter, we increased our CISO reserve to $32 million. driven by the current market outlook. We continue to believe the credit of our loan portfolio benefits from overall diversity in collateral type, geography, and granularity, with an average loan size of $26 million and limited exposure to any single sponsor or market. As Pamela discussed, we added one new loan to non-accrual, a $35 million loan on a mixed-use asset for which we are pursuing remedies via foreclosure. Our $900 million real estate segment continues to perform well, and as Pamela discussed, provides stable net operating income to our earnings. As of June 30th, the carrying value of our securities portfolio was $458 million and was comprised of 82% AAA rated and 99% investment grade rated securities. In the second quarter, we received $75 million of paydowns on these positions, and their seniority and short-dated maturity continues to demonstrate steady amortization. Furthermore, we paid down $150 million of securities-related debt during the quarter, saving on interest expense and de-levering the company. As of June 30th, we had $1.1 billion of same-day liquidity, and our adjusted leverage ratio was 1.7 times. This liquidity represents cash and cash equivalents of $777 million, plus our undrawn corporate revolver capacity of $324 million with a maturity in 2027. Unsecured corporate bonds remain an anchor to our capital structure with $1.6 billion outstanding, or 40% of our debt, with a weighted average maturity of 4.3 years at an attractive fixed rate cost of capital, a 4.7% average coupon. In the second quarter, we repurchased $3.1 million in principal of our unsecured bonds at 84.3% of par, generating $0.5 million of gains from the retirement of debt, And in 2023 through June 30th, we have repurchased $62 million in principal of unsecured bonds at 83.6% of par, generating $9.7 million of gains from the retirement debt. As of June 30th, our unencumbered asset pool stood at $2.9 billion, or over 52% of our balance sheet. 75% of this unencumbered asset pool is comprised of first and originals and cash and cash equivalents. We believe our liquidity position and large pool of high-quality unencumbered assets continues to provide Ladder with strong financial flexibility, As Pamela discussed, it's reflected in our corporate credit rating as one notch from investment grade from two of three rating agencies. Year to date, we've repurchased $2.3 million of our common stock at a weighted average price of $9.14. We did not purchase any shares in the second quarter of 2023. Our share buyback authorization of $50 million has $44 million of remaining capacity as of June 30th, 2023. Ladder's underappreciated book value per share was $13.72 of quarter end based on 126.9 million shares outstanding as of June 30th. Finally, our dividend remains well covered, and in the second quarter, Ladder declared a 23 cent per share dividend, which was paid on July 17th, 2023. For more details on our second quarter operating results, please refer to our earnings supplement, which is available on our website, as well as our 10Q. With that, I will turn the call over to Brian.