Ladder Capital Corp

Good morning and welcome to the Ladder Capital Corp's earning call for the third quarter 2023. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended September 30, 2023. 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, the latter will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. 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 earnings supplement 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 Ladner's President, Pamela McCormick. Please go ahead.

Good morning. We are pleased to provide an overview of Ladder's financial performance for the third quarter of 2023. During the quarter, Ladder generated distributable earnings of $39 million, or $0.31 per share. It is worth emphasizing that these results, which yielded an after-tax return on equity of 10.1%, were achieved while maintaining a modest adjusted leverage ratio of just 1.6 times. Our book value has remained steady even as we continue to add to our CECL reserves to align with the current market environment. Our dividend also remains well supported by net interest margin and net rental income. We will endeavor to prioritize credit optimization in the upcoming quarters in order to continue to deliver these results. We've consistently maintained robust liquidity with approximately $800 million in cash and cash equivalent. This amount represents more than 14% of our total assets. With our fully undrawn unsecured revolver, our same-day liquidity stands at $1.1 billion. It's worth mentioning that our leverage ratio stands at less than 1.0 times when excluding investment-grade securities and unrestricted cash, underscoring our commitment to prioritizing safety and prudence in the face of ongoing market uncertainties and the prevailing geopolitical landscape. Over 40% of our debt is comprised of unsecured corporate bonds, 55% of our assets are unencumbered, and 82% of these assets consist of first mortgage loans, investment grade securities, and cash and cash equivalents. This composition significantly enhances the flexibility and liquidity of our balance sheet in comparison to traditional secured funding sources. Turning to our balance sheet loan portfolio, It stands at $3.4 billion as of September 30th and features a weighted average yield of 9.77% and an average loan size of $27 million. In addition, we maintain limited future funding commitments amounting to only $258 million, with more than half of this commitment being contingent upon favorable leasing activities at the underlying properties. In the third quarter, we received loan repayments totaling $119 million, When combined with the year-to-date repayments for 2023 through September 30th, our total loan repayments reached $560 million. Our strategic emphasis on originating loans within the middle market with a smaller average loan size remains a key factor enhancing credit quality. As demonstrated in the past, these smaller loan sizes allow borrowers to access a broader array of capital sources for repayment, be it through refinancing or asset sale, and contributes to the resilience of our credit portfolio. During the quarter, we foreclosed on a mixed-use loan secured by four properties in Harlem, New York, with a combined carrying value of $31 million. The property is 89% occupied, and our plan moving forward is to actively work on stabilizing the multifamily and retail components of these assets. This action resolved a loan on non-accrual, reducing the balance from $88 to $58 million. In the same quarter, we sold a hotel in San Diego, California, that we previously foreclosed on, resulting in an $800,000 gain. This gain was in addition to a $2 million gain we recorded at the time of foreclosure in 2019 and resulted in an 18% return on equity from the time of initial investment to the point of sale. Subsequent to quarter end, we concluded foreclosure proceedings on a $35 million multifamily loan located in Pittsburgh, Pennsylvania. The loan had previously been classified as non-accrual in the second quarter of 2023. The property primarily consists of 174 newly constructed multifamily units that are 98% occupied. In addition to these units, there are some office and commercial space, and the property currently generates a solid in-place capitalization rate of 7% at our basis. Further, as Paul will cover in more detail, we increased our CECL reserve to align with our assessment of current market conditions. but we did not identify any specific impairments during the quarter. Regarding our proactive asset management approach, we maintain ongoing communication with borrowers and closely monitor their business plans well ahead of any maturity date. We are paying special attention to pivotal milestones where capital infusion may be needed, and our ability to optimize asset value is bolstered by our expertise in real estate ownership and operations. Turning to our securities portfolio, We've begun capitalizing on opportunities to expand this portfolio by acquiring additional $58 million of AAA CLO securities, which are presently offering highly attractive returns and a compelling unlevered yield of approximately 7.68%. Our real estate portfolio remains a substantial contributor to distributable earnings, generating $16 million in net rental income this quarter. In 2023, all three major rating agencies reaffirmed our credit ratings and two of these agencies maintained our rating at one notch below investment grade. This is a noteworthy achievement, especially in light of the disruptions in the commercial real estate market. In conclusion, we are continuing to maintain a patient stance, assured by the secure coverage of our dividends. Due to the resilience of our credit portfolio, we also continue to maintain a high bar when it comes to reinvestment. However, we are well prepared to seize new investment opportunities that offer attractive risk-adjusted returns once that transaction activity rebounds. This readiness is supported by robust liquidity, prudent leverage, and the expertise of our seasoned originations team. With that, I'll turn the call over to Paul.

Thank you, Pamela. In the third quarter, Ladder generated distributable earnings of $39 million, or $0.31 per share, driven by contributions from strong net interest margin and net operating income, both of which benefit from our primarily fixed rate liability structure. A $3.4 billion balance sheet loan portfolio decreased in the third quarter due to $119 million in proceeds received from loan paydowns, partially offset by $17 million from funding on one new loan and existing commitments. As previously mentioned, we foreclosed on a $30.5 million loan collateralized by four mixed-use properties, reducing our non-accrual loan balance. In addition, we sold a previously foreclosed on hotel property for a $0.8 million gain. In the third quarter, we increased our CECL reserve by $7.5 million, bringing our general reserve to approximately 110 basis points of our loan portfolio. The increase was driven by the current macro view of the state of the U.S. commercial real estate market and the overall global market conditions, including the increase in long-term interest rates. We continue to believe that the credit quality of our loan portfolio benefits from overall diversity in collateral type and geography and granularity. with limited exposure to any single sponsor or market. Our $888 million real estate segment continues to perform well and provide stable net operating income to our earnings. And as of September 30th, the carrying value of our securities portfolio was $477 million, comprised of 99% investment grade rated securities, of which 83% were AAA rated. Worth noting that as of September 30th, 2023, Seventy percent of our securities portfolio was unencumbered and readily financeable, which is in addition to the $1.1 billion of same-day liquidity we maintain. The latter same-day liquidity simply represents cash and cash equivalents of $798 million plus our undrawn corporate revolver of $324 million with a maturity in 2027. As of September 30, 2023, our adjusted leverage ratio was 1.6 times down from prior quarters. We continue to delever our balance sheet, all the while producing steady earnings. Unsecured corporate bonds remain an anchor to our capital structure with $1.6 billion outstanding, or 41% of our debt, with a weighted average maturity of four years and attractive fixed rate cost of capital at 4.7% average coupons. In the third quarter, we repurchased $5.3 million in principal of our unsecured bonds at 81.6% of par, generating $0.9 million in gains from the retirement debt. Through September 30th, in 2023, we repurchased $67 million in principal of unsecured bonds at 83.4% of par, generating $10.6 million of gains. As of September 30th, our unencumbered asset pool stood at $3.0 billion, or 55% of our balance sheet. Over 80% of this unencumbered asset pool was comprised of first mortgage loan securities and cash and cash equivalents. We believe our liquidity position and large pool of high-quality, unencumbered assets continue to provide ladder with strong financial flexibility. As Pamela discussed, it's reflected in our corporate credit rating that is one notch from investment grade in two of three rating agencies, with all three rating agencies reaffirming our credit rating in 2023. In the third quarter, Ladder repurchased 19,000 shares of common stock at an average purchase price of $10.33 per share. Year-to-date, we have repurchased 2.5 million of our common stock at a weighted average price of $9.22 per share. Our share buyback program authorization of $50 million, that's 44 million of remaining capacity as of September 30th, 2023. Ladder's underappreciated book value per share was $13.77 at quarter ends. based on 126.9 million shares outstanding as of September 30th. As Pablo discussed, it remains stable. Finally, our dividend is well covered, and in the third quarter, LATER declared a 23 cent per share dividend, which was paid on October 16th, 2023. For more details on our third quarter operating results, please refer to our earnings supplements, which is available on our website, as well as our 10Q. With that, I will turn the call over to Brian. Thanks, Paul.