Ladder Capital Corp

Good morning and welcome to Ladder Capital Corp's earnings call for the fourth quarter of 2023. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter and year ended December 31st, 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, 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 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 the latter's president, Pamela McCormack.

Good morning. We are pleased to provide an overview of Ladder's financial performance for the fourth quarter and full year 2023. In the fourth quarter, Ladder generated distributable earnings of $40 million, or 32 cents per share, resulting in a 10.5% return on equity. For the full year 2023, Ladder reported distributable earnings of $167.7 million, or $1.34 per share, generating a 10.9% return on equity. Plata demonstrated notable financial strengthening across key metrics over the course of the year. With a smaller asset base and lower leverage, we achieved higher returns. Our adjusted leverage ratio stands at 0.7 times, excluding investment-grade securities and unrestricted cash and cash equivalents. Distributable earnings increased 13% year-over-year, and underappreciated book value increased to $13.79. Our financial performance benefited from a positive correlation to rising interest rates. with net interest income growing 58%. Our commitment to an unsecured capital structure contributed to this growth, and we benefited from $1.6 billion of unsecured bonds at a low fixed rate weighted average coupon of 4.7%. We increased our liquidity position to over $1.3 billion by year end, with cash and cash equivalents up 67% year over year. In 2023, we received approximately $1 billion in cash from pay downs of loans and securities which was accompanied by a $462 million or 11% reduction in total leverage. Future funding commitments also declined by over $100 million or 36%, and our unencumbered assets increased to 55% of total assets. In addition, dividend coverage also rose to 146% in 2023, reinforcing the safety and durability of our dividend. Furthermore, our credit ratings were reaffirmed by all three rating agencies during the year, with two agencies continuing to rate Ladder just one notch below investment grade. In the face of significant market disruption, the company's actions have notably strengthened our financial position, as evidenced by these positive trends. As we enter 2024, our efforts have left us well-positioned to quickly pivot to offense. Our originators continue to explore the market for new investments in an environment we anticipate will offer compelling opportunities for well-capitalized lenders like Ladder, particularly given the pullback by the middle market banks. Regarding our loan portfolio, we received $727 million in repayments, reducing the portfolio balance by 19% from the start of the year. This amount included the full payoff of 35 loans and approximately $100 million in proceeds from the repayment of office loans. Subsequent to year end, we received an additional $70 million in proceeds from the payoff of four unencumbered loans, including one office loan. We attribute our robust payoffs to our strategy of originating smaller loans in the middle market. This approach borrows access to a broader range of capital sources for repayment, whether through refinancing or asset sales. Our balance sheet loan portfolio stands at $3.1 billion as of December 31st, with a weighted average yield of 9.65% and an average loan size of $27 million. We have limited future funding commitments, totaling only $204 million, with approximately two-thirds of that amount contingent upon a favorable leasing activity or other positive developments of the underlying properties. In the fourth quarter, we successfully concluded foreclosure proceedings resolving two loans on non-accrual. This includes a $23 million loan on a retail property on the Upper West Side of Manhattan, which had been on non-accrual since the second quarter of 2018, and a $35 million loan on a newly constructed multifamily in Pittsburgh, Pennsylvania, discussed on our third quarter earnings call. Lastly, in the fourth quarter, we placed one $15 million loan on non-accrual status. The loan is collateralized by a newly renovated multifamily portfolio in Los Angeles, California, and we anticipate taking title to the asset during the first half of 2024. As Paul will discuss, we did not identify any specific impairments during the quarter and increased our general CISO reserve to align with our assessment of current market conditions. Heading into 2024, we expect to pivot to offense while continuing to actively monitor our loan portfolio. Despite the liquidity pullback from regional banks impacting our market, We believe that the long-term advantages for non-bank CRE lenders like Ladder, stemming from reduced competition for lending in our space, outweigh any short-term obstacles. In the meantime, we're continuing to work with our well-capitalized sponsors who, in most cases, we've seen investing new capital into their assets, expecting more palatable interest rate environment later this year. That said, as we have consistently demonstrated, even during the challenges posed by COVID, we make a clear distinction between a default and a loss. As a well capitalized and experienced real estate owner, we possess the capacity to proficiently own and manage the underlying real estate. Our ongoing objective will be to maximize our value at our conservative loan basis, particularly as we navigate the upcoming quarters with the current higher for now interest rate environment. Turning to our securities and real estate portfolios. Over the course of 2023, we received $196 million in pay downs in our securities portfolio. and acquired over $88 million of new positions, ending the year with a $486 million portfolio comprised primarily of AAA securities earning an unlevered yield of 6.82%. Our $947 million real estate portfolio, mainly comprised of net lease properties with long-term leases to investment-grade tenants, contributed $50 million in net rental income in the fourth quarter and $59 million in 2023. In summary, We entered 2024 with a strong balance sheet, substantial dry powder, modest leverage, and a well-covered dividend. As the commercial real estate market continues to reset, we remain focused on optimizing the credit of our existing loan book, and we are well-positioned to deploy our capital for the right opportunities that we believe will present themselves as transaction activity rebounds. With that, I'll turn the call over to Paul.

Thank you, Pamela. As discussed, in the fourth quarter of 2023, Ladder generated distributable earnings of $40 million, or 32 cents of distributable earnings per share. And for the full year in 2023, Ladder generated 167.7 million of distributable earnings, or $1.34 of distributable earnings per share, a return on equity of 10.9% for 2023. Our strong earnings in 2023 were driven by robust net interest income. and steady net operating income from our real estate portfolio and benefited from our primarily fixed-rate liability structure. Our balance sheet loan book continued to receive a healthy rate of paydowns in the fourth quarter, which totaled $167 million. This was partially offset by $11 million of fundings on existing commitments. The portfolio totaled $3.1 billion as of year-end across 116 loans and represented 56% of our total assets. As previously mentioned, in the fourth quarter of 2023, we completed the foreclosure proceedings on two non-accrual loans totaling $58 million. Overall, in 2023, we added three REO assets and sold one $44 million hotel asset previously foreclosed on, which produced an $800,000 gain for distributable earnings, demonstrating our ability to maximize value on assets where we proceed with foreclosure. In the fourth quarter, we increased our CECL reserve by $6 million, bringing our general reserve to $43 million or an approximate 137 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 overall global macroeconomic conditions. We continue to believe the credit quality of our loan portfolio benefits from the diversity in collateral, geography, as well as granularity given our small average loan size. which was demonstrated by the $727 million in proceeds received from PayDown in 2023, including the full payoff of 35 loans. Our $947 million real estate segment continues to perform well, providing a stable source of net operating income to our earnings. The portfolio includes 156 net lease properties, representing approximately 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 term of nine years. As of December 31st, the carrying value of our securities portfolio was $486 million. Ninety-nine percent of the portfolio was investment grade rated, with 86 percent being AAA rated. Over 71 percent of the portfolio was unencumbered as of year end and readily financeable, providing an additional source of potential liquidity complementing the $1.3 billion of same-day liquidity we have as of year-end. Ladder same-day liquidity simply represents unrestricted cash and cash equivalents of over $1 billion, plus our undrawn unsecured corporate revolver capacity of $324 million. It's worth noting in January of 2024, we extended our corporate revolver with our nine-bank syndicate to a new five-year term out to 2029. The facility carries an attractive interest rate of SOFR plus 250 basis points on an unsecured basis with further reductions upon achievement of investment grade ratings. This enhancement demonstrates the strength of our capital structure as well as ladder strong relationships with these financial institutions. As of December 31st, 2023, our adjusted leverage ratio was 1.6 times, which was down year over year as we delivered our balance sheet while producing steady earnings strong dividend coverage, and an attractive double-digit return on equity. Unsecured corporate bonds remain the foundation to our capital structure, with $1.6 billion outstanding, or 41% of our debt, with a weighted average maturity of nearly four years and an attractive fixed rate coupon of 4.7%. We'll also note, in 2023, we repurchased $68 million in principal of our unsecured bonds at 83.5% of par, generating $10.7 million of gains. As of December 31st, our unencumbered asset pool stood at $3 billion, or 55% of our balance sheet. Eighty-one percent of this unencumbered asset pool is comprised of first mortgage loans, securities, and unrestricted cash and cash equivalents. We believe our liquidity position and large pool of high-quality unencumbered assets provided Ladder with strong financial flexibility in 2023 and continues to do so as we enter 2024. And as Pamela discussed, it's reflected in our corporate credit rating. That is one notch from investment grade from two of three rating agencies, with all three rating agencies reaffirming our credit rating in 2023. In 2023, we also repurchased $2.5 million of our common stock at a weighted average price of $9.22 per share. And our current share buyback authorization of $50 million. That's $44 million of remaining capacity as of December 31st, 2023. Ladder's undepreciated book value per share was $13.79 as of December 31, 2023, with 126.9 million shares outstanding. Finally, as Pamela discussed, our dividend is well covered, and in the fourth quarter, Ladder declared a 23-cent per share dividend, which was paid on January 16, 2024. For more details on our fourth quarter and full year 2023 operating results, please refer to our earnings supplement, which is available on our website, as well as our annual report on Form 10-K, which we expect to file in the coming days. With that, I will turn the call over to Brian.