Ladder Capital Corp

Good morning and welcome to Ladder Capital Corp's earnings call for the second quarter of 2024. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended June 30, 2024. 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 Ladder's President, Pamela McCormack.

Good morning. We are pleased to present an overview of Ladder's performance for the second quarter of 2024 and an update on our progress towards becoming an investment-grade company. During the quarter, Ladder generated distributable earnings of $40.4 million, or 31 cents per share. This performance yielded a return on equity of 10.2%, supported by modest adjusted leverage of 1.4 times. In addition, we successfully priced a $500 million seven-year unsecured corporate bond offering, resulting in positive rating actions from all three rating agencies. We're pleased to note that both Moody's and Fitch placed ladder on positive outlook, and S&P upgraded both our corporate credit rating and our bonds. We didn't fish a one notch away from a fine ladder and investment grade rating, we believe this milestone will enhance our distinction among peers in the commercial mortgage rate space and position us as an attractive option for traditional equity investors. Pro forma for the $500 million offering 53% of our debt is comprised of unsecured corporate bonds as of July 25 letter has $1.9 billion in liquidity. with $1.6 billion or approximately 30% of our balance sheet comprised of cash and cash equivalents. With this enhanced liquidity, we can now squarely focus on offense. As we have stated in the past, our core objective is striving for the highest possible return on equity while prioritizing principal preservation and employing modest leverage. This disciplined and differentiated strategy, supported by our diversified business lines and conservative capital structure, has enabled Ladder to generate stable and attractive returns. Specifically, over the past 12 months and against the challenging backdrop, we reduced assets to $5 billion from $5.6 billion from loan payoffs and asset sales, almost doubled our liquidity to $1.9 billion as of July 25th, reduced debt, resulting in a modest adjusted and gross leverage of 1.4 times and 2.2 times respectively, increased our component of unsecured debt to 53% from 40%, pro forma for the bond offering that closed in July, grew unencumbered assets to $3.1 billion, or 62% of assets, with 82% comprised of cash, securities, and first mortgage loans, preserved a stable book value, and finally, we achieved all of this while providing a healthy return on equity to shareholders of over 10% while building up a large liquidity position. Turning now to our balance sheet loan portfolio, which totaled $2.5 billion as of quarter end. With a weighted average yield of 9.48% and limited future funding commitments totaling $94 million, our earnings for the second quarter included a $1.6 million or 5.4% gain from the sale of approximately $29 million of fixed rate loans into a recent CMBS securitization. In the second quarter, we originated a $16 million first mortgage balance sheet loan secured by an industrial portfolio in Florida. Additionally, We made a $13 million passive equity investment in a joint venture with a seasoned operating partner to strategically acquire a Class A office building in the Plaza District of New York City. The asset was acquired from an institutional investor who owned the asset for over 20 years with favorable financing arranged through the existing lender. We're well capitalized and anticipate further expansion of our loan portfolio for which our originators are actively pursuing new investments. Regarding our current loan portfolio, We remain proactive in asset management. In the second quarter, we received $255 million in loan paydowns, including the full repayment of 13 loans totaling $242 million. In addition, four more loans totaling $56 million were repaid after the quarter ended. Year to date, we received $668 million in total loan paydowns, including the full repayment of 32 loans totaling $618 million. We've also been active in opportunistically divesting owned real estate. In total, we sold three assets securing loans that defaulted during the first half of the year at a gain above our basis. Two multifamily assets located in Longview, Texas and Los Angeles, California with a total carrying value of $20 million were sold in the second quarter resulting in a net gain of $1 million. Additionally, a third multifamily asset in Texas valued at $11.5 million was sold at a gain above our basis after the quarter ended. We're continuing to demonstrate that defaults do not necessarily lead to losses. We take pride in our capability to own and manage properties, including our readiness to inject capital when necessary or to strategically expedite asset sales as appropriate to maximize their value. There were no specific impairments identified during the quarter, and we modestly increased our general CECL reserve to $54 million, which we believe is sufficient to cover any potential loan losses we may incur. Turning now to our securities and real estate portfolios, we purchased $81 million of AAA rated securities with a weighted average yield of 7.1% during the quarter. We ended the second quarter with $481 million securities portfolio, primarily consisting of AAA rated securities earning an unlevered yield of 6.92%. And we have been actively acquiring new securities to add to the portfolio in the third quarter. Our $947 million real estate portfolio contributed $14.7 million in net rental income in the second quarter and continues to be mainly comprised of net lease properties with long-term leases to investment-grade rated tenants. We sold four properties for a net gain of $3.4 million during the quarter, including the two REO assets previously mentioned. In conclusion, we maintain ample liquidity, a strong balance sheet, conservative leverage, and a well-supported dividend positioning us to seize opportunities as 2024 progresses. With that, I'll turn the call over to Paul.

Thank you, Pamela. In the second quarter of 2024, Ladder generated $40.4 million of distributable earnings, or 31 cents per share of distributable EPS, for a return on average equity of 10.2%. Our earnings in the second quarter continued to be driven by strong net interest income and stable net operating income from our real estate portfolio, and was complemented by gains from the sales of real estate properties. As Tom has discussed, the unsecured bond issuance that priced at the end of June and closed in July further strengthened our balance sheets. The latter issued $500 million of unsecured corporate bonds at 7.0% for the seven-year term, which is callable after year three in 2027. Unsecured corporate bonds are the foundation of our capital structure, which is now $2.1 billion outstanding across four issuances. Pro forma for the issuance. 91% of our debt is comprised of non-marked market financing, with 53% of total debt being unsecured corporate bonds with a weighted average maturity of over four years and an attractive weighted average fixed rate coupon of 5.2%. We remain committed to the corporate unsecured bond market as our primary source of financing and are now the closest we have been to an investment grade credit rating than at any point in ladder's history. As Pamela discussed, Both Moody's and Fitch placed Ladder on positive outlook, and Moody's upgraded and unnotched the rating on our bonds to BA1, aligning our bonds with our corporate credit rating. Additionally, S&P also issued an upgrade to our rating on both our bonds and our corporate credit rating. With Moody's and Fitch just one notch away from investment grade, and now with a positive outlook on our corporate rating, Ladder is one step closer to achieving our long-held goal of becoming an investment grade company, which opens Ladder to the more accessible and broader investment grade bond market, where we believe Ladder will ultimately achieve a more attractive cost of capital and enhance our return on equity to shareholders over time. Our balance sheet remains highly liquid. As of July 25th, we had $1.6 billion in cash and cash equivalents, or $1.9 billion of liquidity with our $324 million unsecured revolver, which remains fully undrawn. Our loan portfolio totaled $2.5 billion as of quarter ends across 85 balance sheet loans, representing approximately 50% of our total assets. We did not record any specific impairments in the second quarter. However, we increased our seasonal reserve by $5 million, bringing our general reserve to $54 million, or an approximate 213 basis point reserve on our long portfolio. The increase was driven by the continued uncertainty in the state of the U.S. commercial real estate market and overall global market conditions. Our $947 million real estate segment continues to generate stable non-operating income and includes 155 net lease properties, representing approximately 70% of the segment. Our net lease tenants are strong credit, primarily investment grade rated, and committed to long-term leases with an average remaining lease term of eight years. As we have historically demonstrated, we have a long track record of maximizing the value of real estate assets that we own and operate. This was demonstrated through the sale of four properties, including the two REOs previously mentioned, that generated a total of $3.4 million of net gains for distributable earnings during the second quarter. As of June 30th, recurring value of our securities portfolio was $481 million. 99% of the portfolio was investment grade rated, with 86% being AAA rated. As of July 25th, our entire securities portfolio was unencumbered and readily financeable, providing an additional source of potential liquidity, complementing the $1.9 billion of same-day liquidity as of that date. As of June 30th, 2024, our adjusted leverage ratio was 1.4 times, and has continued to trend down as we deliver our balance sheet while producing steady earnings, strong dividend coverage, and a double-digit return on equity in the second quarter of 2024. As of June 30th, our unencumbered asset pool stood at $3.1 billion, or 62% of our balance sheet. 82% of this unencumbered asset pool comprises of first mortgage loans, securities, and unrestricted cash and cash equivalents. Our significant liquidity position, large pool of high-quality unencumbered assets, and capital structure that has been further strengthened with a new corporate bond deal provides Ladder with strong financial flexibility as we head into the second half of 2024. As of June 30th, Ladder's underappreciated book value per share was $13.71, which was net of the 42 cents per share of C-Sourcer we have established. In the second quarter of 2024, we repurchased $212,000 of our common stock at a weighted average price of $10.75 per share. Year-to-date through June 30, 2024, we have repurchased $860,000 of our common stock at a weighted average price of $10.77 per share. Finally, our dividend remains well covered, and in the second quarter, we declared a dividend of $0.23 per share, which was paid on July 15, 2024. For details on our second quarter 2024 operating results, please refer to our earnings supplement, which is available on our website, and the latest quarterly report on Form 10-Q, which we expect to file in the coming days. With that, I will turn the call over to Brian.