Ladder Capital Corp Q2 FY2025 earnings call

Key Points - Achieved investment-grade ratings from Moody's (Baa3) and Fitch (BBB-), with a successful $500 million 5-year unsecured bond issuance in June 2025, tight spread, and strong demand. - Liquidity stood at $1 billion as of June 30, 2025, including $850 million undrawn unsecured revolver; unencumbered assets were 83% of total assets. - Made over $1 billion in investments during Q2 and Q3-to-date, including $600 million in AAA-rated securities. Loan origination activity was flat in Q2, with $188 million new loans in Q3-to-date and $325 million under application. - Balance sheet had modest adjusted leverage of 1.6x, gross leverage 1.9x (below target range 2x-3x); unencumbered asset pool was $3.7 billion (83% of total assets).

During the second quarter, Ladder generated distributable earnings of $30.9 million or $0.23 per share, with a return on equity of 7.7%. The loan portfolio totaled $1.6 billion (36% of total assets) with a weighted average yield of approximately 9%, and 5 loans on nonaccrual totaling $162.3 million (3.6% of total assets). The securities portfolio was $2 billion (44% of total assets) with a weighted average yield of 5.9%, 99% investment-grade rated (97% AAA), and 81% unencumbered. The real estate segment, $936 million, generated $15.1 million in net operating income in the second quarter.

Forward-Looking - Expect continued tightening of cost of debt capital as recognized in the investment-grade bond community. - Well-positioned to deploy capital into new opportunities with strong liquidity and conservative balance sheet. - Aim to increase stock price by redefining comp set to align with investment-grade property REITs, highlighting senior secured exposure, granular portfolio, and lower leverage.

Risks - Market volatility could impact loan origination and investment activities. - Pockets of multifamily with falling rents and concerns in the hotel sector during loan due diligence. - Longer closing times for loan originations affecting pipeline conversion to book.

Q: On CMBS securities portfolio, is it flat or selective selling?

A: Brian Harris says they bought in April due to volatility, selectively selling now as they move from securities to loans, with securities up and selectively sold for carry trade.

Q: Does IG rating open up different investments?

A: Brian Harris says it makes investments more profitable but won't change investment strategy; will stick to discerning credit, possibly moving to AAs instead of AAAs but not higher octane investments.

Q: Thoughts on leverage ramp after investment-grade rating?

A: Pamela McCormack says leverage composition is changing from 2/3 secured to 2/3 unsecured, aiming for normal leverage as they deploy balance sheet; Brian adds they paid off CLOs, reducing secured debt.

Q: Net portfolio growth and levered returns?

A: Pamela McCormack expects portfolio growth with muted payoffs; Brian Harris says levered returns are healthy with current rates, spreads tight but comfortable, expecting portfolio growth of ~$1 billion by year-end.

Q: Benefit of investment-grade bond rating on cost of funds?

A: Brian Harris says coupon would have been higher without rating, now tighter spreads, moving towards yields of investment-grade property REITs.