Good day and welcome to the Ladder Capital Corporation First Quarter 2020 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference call over to Michelle Wallach, Chief Compliance Officer and Senior Regulatory Counsel. Please go ahead.

Thank you and good afternoon, everyone. Before we begin Ladder Capital Corp earnings call for the first quarter 2020, I’d be remiss if I did not acknowledge the pandemic and the impacts that it has caused worldwide. We continue to hope everyone remains safe and healthy during these truly unprecedented times. As the health crisis unfolded, Ladder’s near term corporate priority included the wellbeing and safety of our employees. We moved swiftly to activate our business continuity plan and all Ladder employees have been working remotely since mid-March. Despite the remote workplace, we’re operating effectively and efficiently. Turning to our earnings call, with me this afternoon are Brian Harris, our company’s Chief Executive Officer; Pamela McCormack, our President; and Marc Fox, our Chief Financial Officer. Brian, Pamela, and Marc will share their comments about the first quarter and what they’re currently seeing in the second quarter, and then we’ll open up the call to questions. This afternoon, we released our financial results for the quarter ended March 31, 2020. The earnings release is available in the Investor Relations section of the company’s website and our quarterly report on Form 10-Q will be filed with the SEC later this week. Before the call begins, I'd like to remind everyone that this call may include forward-looking statements. Actual results may differ materially from those expressed or implied on this call, and we do not undertake any duty to update these statements. I refer you to our most recent Form 10-K and Form 10-Q for description of some of the risks that may affect our results. We’ll also refer to certain non-GAAP measures on this call. Additional information including a reconciliation of these non-GAAP measures to the most comparable GAAP measures is available on our website ir.laddercapital.com and in our earnings release. With that, I’ll turn the call over to our President, Pamela McCormack.

Thank you, Michelle, and good afternoon, everyone. I want to start by expressing my hope that you and your loved ones are safe and well during these challenging times. A special thanks goes to all the essential workers out there on the front lines. The global impact and quick spread of COVID-19 significantly altered Ladder’s operating environment in the first quarter, with March presenting a stark contrast to January. In the first quarter of 2020, Ladder reported core earnings of $30.9 million, or $0.26 per share, translating to an after-tax core return on equity of 8%. I'm happy to share that our unrestricted cash balance is around $830 million, and we have more than $2.6 billion in unencumbered assets. Notably, our unencumbered assets, including cash, currently make up about 40% of our total assets, featuring $1.25 billion in unencumbered first mortgage loans. Cash represents about 12% of our overall assets. The quality and make-up of our unencumbered asset pool distinctly set Ladder apart and play a crucial role in our robust balance sheet. While the current circumstances create uncertainty about future projections, we are confident that our historically cautious approach and recent initiatives position the company well to manage the implications of COVID-19 and capitalize on emerging opportunities in our sector from any further disruptions. With our considerable cash liquidity build-up, which we will elaborate on later in this call, I want to highlight that Ladder’s stock is currently trading close to its cash balance. We believe this largely stems from market fears surrounding our investment-grade security holdings. The consequences of COVID-19 are expected to manifest in two waves. The initial wave represents a significant liquidity crunch, which we faced even with mark-to-market financing for our loan securities portfolio. The next wave will impact credit, and we are well-equipped to handle that due to our portfolio. Our collection of short-duration investment-grade securities, which is predominantly AAA rated or backed by the government, currently accounts for 24% of our total assets. We made a deliberate shift toward super senior securities and anticipate this portfolio will benefit our shareholders in the current climate due to its stable credit profile, better liquidity compared to first mortgages and mezzanine loans, and the substantial structural advantages linked to the prime bond prices. As noted earlier, Ladder has consistently addressed all margin calls with available cash during the recent market upheaval. As responsible risk managers, with substantial equity in the firm, we adopt a measured and cautious strategy regarding leverage. We possess a significant cash reserve and a liquid assortment of unencumbered first mortgage loans alongside our securities portfolio to prepare for any market dislocations and spread fluctuations. Our $830 million in available cash positions us well to respond promptly to potential further market disruptions. We have both the financial strength to maintain our securities portfolio until full principal payoff at maturity, and we chose not to sell most of our securities portfolio at a loss during the early stages of COVID-19. Many of the AAA securities in our portfolio benefit from structural cash flow suites and provisions for over-collateralization, which accelerate repayment at the underlying collateral level in times of stress. As AAA pricing recovers, our decision to retain rather than liquidate our portfolio during a downturn proves to be wise. We may choose to opportunistically sell selected securities, but regardless of market fears, our holdings in securities remain our most secured investments. We anticipate that this portfolio will serve as a dependable source of increased cash flow as our AAA assets naturally de-lever over time. Our multi-faceted business model is functioning well. In addition to our robust cash position, we currently have 24% of our assets in super senior securities that perform optimally in tumultuous situations. We also allocate 15% of our assets to our equity portfolio, which focuses on long-term triple net lease properties occupied by essential businesses. Only 46% of our assets are tied to balance sheet loans, contrasting sharply with others in our sector that concentrate most of their investments in this one area. Additionally, our balance sheet loan portfolio stands out for its granularity and diversification. Thanks to our average loan size of $20 million, our investments span a multitude of borrowers, property types, and locations. Approximately 80% of our balance sheet loans are likely transitional, with assets nearing stabilization and having completed renovations. At origination, these loans had a weighted average loan-to-value ratio of 71%, and they currently feature a 1.26 times reserve in place. The considerable third-party equity our borrowers maintain in these loans incentivizes them to safeguard their assets, providing us with a substantial protective equity buffer. Like any prudent lender, asset management remains a priority for us to protect and enhance our loan value. It’s important to note that nearly half of our loan portfolio is unencumbered, meaning it’s not subject to third-party approval for amendments or margin call risks. The quality and structure of Ladder’s unencumbered asset pool is exceptional within the mortgage REIT sector, uniquely positioning us to safeguard shareholder value with liquid assets rather than restricted security interests in CLO and CMBS transactions, which suffer from limited liquidity as we do not participate in construction lending. We have manageable future funding obligations amounting to $290 million over the next three years, more than half of which depends on favorable developments like tenant improvements and leasing commissions for new leases or meeting performance-based hurdles like NOI occupancy. As Brian mentioned in our last earnings call, prior to COVID-19, we also began to reduce our exposure to loans backed by hotel and retail properties, the segments most affected by the current crisis. By March 31, hotel and retail properties constituted only 11% and 8% of our balance sheet loan portfolio, respectively. The specific nature of COVID-19 limits our usual visibility into expected underlying property operating results. As of April, around 99% of our loan portfolio was up to date. While we anticipate some decrease in operating results, we believe that programs like unemployment insurance and other economic stimulus measures, including the Paycheck Protection Program, will aid certain borrowers with their payroll expenses. We are facing challenges with some borrowers and tenants' businesses. Our portfolio of triple net lease properties, valued at $671 million, makes up 64% of our real estate equity investments. This portfolio is generally financed by long-term non-recourse mortgages and is primarily leased to creditworthy tenants. We strategically aim for necessity-based businesses such as grocery stores and pharmacies, which boast an average remaining net lease term of over 12 years. Our three largest tenants—Dollar General, BJs, and Walgreens—are all typically resilient in nature. Historically, this portfolio has been a reliable income source, and we expect it to continue to perform well through these tumultuous times. As outlined in previous earnings calls and ahead of the crisis, we started replacing secured debt with long-term unsecured debt to bolster our balance sheet through a series of unsecured corporate bond issuances with staggered maturities extending through 2027. Currently, we have $1.9 billion in outstanding unsecured bonds from four issuances, including a $750 million bond offering we completed in January that turned out to be particularly timely given recent events, along with the proceeds used to pay down a substantial part of the company’s secured debt. Presently, 72% of our capital base comprises non-recourse financing, unsecured debt, and book equity. Since the end of the quarter, we have increased non-recourse financing to 24% of our liabilities while decreasing mark-to-market financing by around 30%. Thus, nearly half of our secured financing related to loans, and about 64% of our total outstanding debt are now completely free from mark-to-market risks. Currently, we have only $414 million in secured loan repurchase debt across our entire portfolio. Nevertheless, like others, we have been reducing our leverage on these facilities and are pleased to report that our total mark-to-market loan financing related to hotels is confined to $17.5 million, an advance against two cross-collateralized hotels. As the situation evolved and we sought to optimize liquidity, we quickly utilized our corporate revolver, extended financing terms, and initiated two new strategic financing facilities. We have also worked with various groups to explore strategic and financing options to best position our company to seize potential investment opportunities arising from this market dislocation. Additionally, we reengaged our former colleagues and trusted partner, Tom Harney, who has returned to the Ladder team. With the help of Moelis, Ladder set up a new $206 million secured warehouse facility to finance balance sheet loans with Coke Real Estate Investment LLC, an affiliate of Koch Industries. This facility is largely non-recourse, subject to limited exceptions, and lacks any mark-to-market provisions. It also provides Ladder with maximum terms and flexibility to modify, restructure, and adapt if needed. In association with this facility, Ladder granted Koch Rights of Purchase for up to a 3% equity stake for $32 million. The Koch financing facility offers us an additional $200 million in unrestricted cash and the terms allow considerable flexibility to support and protect the value of our loans. This collaboration also signifies a promising strategic relationship that could be beneficial as investment opportunities arise from this disruption. The forecast includes options expiring in December of this year to purchase equity at a price reflecting a 30% premium at the time of agreement. Koch demonstrated their long-term commitment and faith in Ladder through a meaningful lock-up, providing us with $32 million in liquidity while only diluting our share by 1.1% with their potential investment. We also executed a private CLO financing with Goldman Sachs Bank that generated about $300 million in net proceeds. This financing is also non-recourse and doesn’t feature any mark-to-market conditions. It financed $481 million in first mortgage loans at a 65% advance rate based on matched terms. Ladder maintains a 35% controlling equity interest in the collateral. This structure gives us wide discretion in managing loan modifications. Both transactions significantly contribute to our strategy of expanding our use of non-recourse financing and minimizing exposure to mark-to-market debt. Regarding our dividend, we paid our previously declared quarterly cash dividend on April 1. Our board will continue to make decisions about dividends with the long-term interests of both the company and our shareholders in mind. We remain aligned with our shareholders, as management and our board collectively own over 12.9 million shares of Ladder stock, accounting for over 10% of the company—one of the highest insider ownership proportions in any commercial mortgage REIT. Ladder typically announces its second-quarter dividend near the end of May. The board will assess the situation then, understanding that providing income to our shareholders remains a key priority. In conclusion, I want to stress that Ladder was established to endure downturns and to take advantage of the opportunities they create, a goal we look forward to achieving now. I wish you and your families good health, and thank you for your ongoing support. I will now hand the call over to Marc.

Thank you, Pamela. I’ll now provide an overview of our investment activities during the first quarter, as well as walk you through some specific impacts of the COVID-19 pandemic that had on our capital structure and the steps we’ve taken to adapt. As of March 31, balance sheet loans totaled $3.4 billion reflecting $314 million of originations during the first quarter. Those new originations had a weighted average spread of approximately 464 basis points over LIBOR and a weighted average loan to value ratio of 68.2%. With regard to our conduit loan business, Ladder originated $213 million of loans at an average interest rate of 3.88%. Ladder securitized and sold $185 million of loans during the quarter. As of March 31, Ladder’s conduit loan balance stood at $147 million. There were $8 million of individual loan impairment charges in the quarter, $7.5 million of which relate to the Nemours loan which was previously marked down by $10 million in the third quarter of 2018. The remaining $0.5 million impairment charge was related to a $7.6 million hotel loan that defaulted in the fourth quarter of last year. During the quarter, Ladder acquired $438 million of securities investments that will be partially offset by $151 million of amortization and sales activity. As of March 31, our securities portfolio stood at $1.93 billion, with 99.9% of those securities rated investment grade, and 91.6% rated AAA, backed by US Government Agency and together they had a weighted average duration of 28 months. Ladder also acquired $6.2 million of real estate comprised of five small net lease properties and sold two office building investments resulting in a $750,000 core gain in Q1. Our real estate portfolio continues to be a source of consistent income in cash flows and a strong source of recurring earnings. Ladder ended the quarter with total assets of $7.33 billion. Total unencumbered investments, including cash, were $2.59 billion at quarter end, and unsecured bond debt outstanding stood at $1.9 billion reflecting an unencumbered assets to unsecured debt ratio of 1.37 times. Consistent with our focus on senior secured assets, as of the end of the quarter, 98% of our debt investments were senior secured, including first mortgage loans and commercial mortgage-backed securities secured by first mortgage loans. Senior secured assets plus cash comprised 81% of our total asset base. Our strong cash position, large portfolio of unencumbered investments, and ongoing focus on investments in senior secured assets reflect our continued emphasis on liquidity and stability in our portfolio to mitigate risk in the current environment. As a result of Ladder’s investment activity and election to maintain robust cash balances over the quarter-end in response to adverse market conditions, Ladder ended the first quarter with an uncharacteristically high 3.79 to 1 adjusted leverage ratio, which was inflated by a $622 million cash balance, of which $358 million was unrestricted. As a result of actions I’ll cover in a moment, Ladder currently has approximately $830 million of unrestricted cash on its balance sheet and an adjusted leverage ratio of approximately 3.4 to 1. At the same ratio, computed by netting out cash from debt, would be approximately 2.8 times. As Pamela partially noted, in March in connection with the recent market volatility, Ladder elected as a precautionary measure to fully draw down on the company’s $266.4 million unsecured revolving credit facility at the outset of this crisis. The company timely satisfied all margin calls from securities repo counterparties and cash, and since received the large majority of those funds back in the form of margin rebates. The company successfully rolled securities repo maturities and extended 41% of the maturities out to mid-July, and an additional 43% through out to September and beyond leaving Ladder with $1.2 billion of securities repo debt at March 31. At quarter-end, the company marked down the value of the securities portfolio by $78.2 million, also reflecting the increased level of market uncertainty at quarter-end, the company increased its CECL reserve by 2.5 times to previously announced estimate to $30.1 million, which further reduced our shareholders equity albeit on an unrealized non-cash basis. As a result of the non-cash item related to securities valuation and CECL, as of March 31, GAAP shareholders equity declined to $1.5 billion resulting in GAAP book value of $12.31 per share and undepreciated book value of $14.01 per share. With that said, Ladder has also begun to delever and take advantage of alternative financing that reduces future exposure to margin calls and funding uncertainty in the near term, affording the company the flexibility that will likely be necessary to allow the commercial real estate and credit markets to recover. Specifically in April, $210.5 million of maturing loans were repaid at par and $409.4 million of loans and securities were sold at a four-point discount to par resulting in a total loss of approximately $16.7 million. It is important to note that the loan sale transactions were all executed on a cash basis within periods of less than 72 hours, without the benefit of property inspections by the buyers. Also in April, Ladder reduced its securities repo financing by $140 million to $1.05 billion. Ladder established a new $206.5 million Koch facility and executed the $310 million CLO financing with Goldman Sachs Bank. In our ongoing efforts and anticipation of the February 2021 FHLB membership sunset date, we used a portion of the proceeds from the CLO transaction. In addition to proceeds from securities and loan sales, the reduced outstanding FHLB advances by 52% since March 31 resulting in a current balance of $487 million. Following our January $750 million unsecured bond issuance and our recent efforts to reposition Ladder’s balance sheet to wind down the FHLB and increase our use of non-mark-to-market secured debt with enhanced flexibility, we anticipate a 68 basis point increase in Ladder’s overall weighted average cost of funds in comparison to our weighted average cost of funds at December 31, 2019. As a result of all this financing activity following quarter-end, our total debt has been reduced by $280 million to $5.4 billion while unrestricted cash on hand has increased by approximately $470 million. Of equal importance, debt subject to mark-to-market provisions was decreased by 29% or $783 million. Although the remaining mark-to-market debt was in two-thirds as related to financing of short-duration, highly rated securities which have already experienced the severe downside valuation scenario that in the end resulted in manageable market calls that Ladder absorbed on a timely basis in March. Finally, in our efforts to address capital preservation in a comprehensive manner, Ladder also reduced expenses by modifying selected vendor contracts and employee benefits and reducing headcount. We expect those actions to result in approximately $3 million of savings per year. While we continue to face headwinds related to the COVID-19 crisis our ability to adapt and maintain flexibility is a clear testament to the strength of our balance sheet and the importance of our historical focus on maintaining significant equity, unsecured bond debt, and a large pool of unencumbered assets comprised primarily of first mortgage loans. Now I’ll turn it over to Brian.

Thank you, Marc. As I thought about what I would say here today, our core earnings certainly seem to take a back seat to providing you with some of our thoughts as to how we plan to move forward during these unprecedented times brought on by the spread of the Coronavirus and subsequent shutting down of the US economy. By way of background, let me start off by reminding you that Ladder has been somewhat concerned for several quarters now that the post-financial crisis recovery was nearing its end toward the fourth quarter of 2019, and we began taking steps to position the company for the possibility of a downturn. While we believed the recession might be coming, we had no reason to think we would be in a depression-like environment just 90 days into 2020. At the end of 2019, we started looking into the possibility of issuing another unsecured corporate bond to further decrease our reliance on overnight mark-to-market repo facilities as a continuation of our strategic planning for years prior to make prevalent use of unsecured debt to fund our company. In late January, just eight weeks before the pandemic began to negatively impact global markets, as Pamela and Marc touched on, we did issue $750 million of seven-year corporate bonds in a fixed rate of 4.25%. Our fortunate timing on this issuance allowed us to enter into this sharp downturn in March as well prepared as I think we could have been for what we’re experiencing today in the midst of a global pandemic where over 30 million jobs have been lost in just the last month alone. Over the last several years, our constant attention to liability management has proven to be very helpful during these difficult times. While we went into this recent downturn in a position of strength given the severe negative financial impact on the economy from this health crisis, we took additional decisive steps to further strengthen our liquidity and our ability to take advantage of the wide opportunity set that we see today. It was a humbling experience to watch our team of highly experienced people execute plan after plan to raise our liquidity profile during what was probably the most illiquid month in US market history, bringing our unrestricted cash on hand from $358 million at the end of March to our current cash position of approximately $830 million. Despite having not been in the office together for the last seven weeks, we were able to process loan payoffs, sell numerous home loans, sell securities, paid down debt, moved collateral around to execute new credit facilities and a CLO, without a single person getting on an airplane. Words cannot express how grateful I am for their efforts and all the while caring for the safety and security of their families during this pandemic. Because of our capital structure, we also have over $2.6 billion of unencumbered assets comprised primarily of first mortgage loans. So when one of our loans pays off, there is a reasonably high probability that the payoff will result in a further increase to our already ample unrestricted cash holdings. We plan to methodically lower our leverage over time with a balanced approach towards making new investments in a highly selective manner. Our AAA short-duration securities portfolio got a lot of attention in March, but we expect near-term payoffs and sales from this inventory of assets to provide liquidity over the next few quarters further reducing debt. I would note that our inventory of securities has decreased by $248 million in April and its default increased in the mortgage pool supporting new securities. It is likely that the impact of accelerating defaults will close safeguards known as senior overcollateralization tests to be triggered redirecting additional cash flows to protect these AAA securities, paying them off sooner than we originally anticipated. We believe that the returns of principle tied to this AAA securities given the uncertainty as these already short securities seasoned over time. Most of the AAA securities we own have approximately 50% subordination in the debt structure alone, with the equity from the individual borrowers on the mortgage loans providing an extra buffer against potential losses usually by another 30%. As we look towards the future, none of us knows what to expect as the economy tries to reopen and hopefully, gradually move past this global health crisis. While we at Ladder might have been more pessimistic than most going into this crisis, I suspect we’re more cautiously optimistic than most about the prospects of our economy in the years ahead. There certainly has been a lot of damage to the economy, but we’re somewhat encouraged by the sheer size of the various government packages that have been implemented. The amount of stimulus put into the economy is huge, and it seems like more stimulus may be on the way if needed. We think this economic support and whatever it takes mindset will prevail over time and restore our economy to strengthen stability. While one has to assume that there may be many permanent changes as a result of the nation staying home for a couple of months, we think some of these changes might be very helpful to some property types in commercial real estate. As citizens return to the streets, the population at large has gotten much more used to using Zoom for group discussions, streaming entertainment, and ordering things online, and because of scarcity in some essentials, we’ll see an accelerated march towards e-commerce with supply chains being brought back to the United States resulting in more demand for manufacturing and warehouse facilities. This will bode well for shopping malls and movie theaters. But we also learned that the neighborhood grocery stores, convenience stores, and restaurants may be far more integral in our lives than we might have thought in recent years. When the new normal begins to unfold, we’ll be in a world with much lower interest rates and much lower gasoline prices and some reluctance on the part of the population to get on cruise ships, mass transit, airlines, and travel outside of the US. So drive-thru hotels might be able to tap into staycation behavior and recover more quickly than many think. Business-oriented hotels may see less demand as will medical offices as workers and patients have now adopted alternative methods of conducting group meetings and visiting doctors. A couple of years ago, Ladder migrated our preferences for lending towards multifamily, industrial, and office assets and away from hotels, big box retail, and malls. Partly as a result of these changes we were able to sell mortgage loans secured by multifamily properties and strong locations in the middle of the market volatility in March. This change made long ago provided us with the ability to turn mortgages into cash quickly when we wanted to. While these are truly challenging times, we hope we have conveyed a sense of optimism today. We have taken many of the right steps to allow us to navigate through what is to come over the next couple of years. I’m enthusiastic about the potential of our new relationship with Koch Industries. They are smart and they recognize the inherent strength of our platform in our space and like us, expect this to become a very target-rich investment environment in the foreseeable future. I sometimes point out to our people that the US is a very resilient population and we will get through this. While we have never seen a global pandemic and a near complete shutdown of the entire economy, we do know what the cause of the downturn was, and we have some idea that it will end at some point in the near term. Hopefully, as a result of efforts of our gifted scientists and doctors, we are thankful that our biggest fears about this virus, its infection, hospitalization, and mortality rates, fortunately, have been mitigated. While the unknown is always very scary, the worst of the health crisis is hopefully behind us and we’re cautiously optimistic that the fears we have about economic collapse are also probably overstated, let’s hope so. Thank you for listening today. Stay safe, and now we’ll take some questions, and I’ll turn the call back to the operator.

We’ll take our first question from Steve DeLaney with JMP Securities. Please go ahead.

Good evening, everyone. First, I’d like to say I hope you and your families are all well, and congratulations on your defensive efforts. Brian, other than cash which you’ve done a good job with, other than cash if you had to put money to work near term meaning 30 days or so, what do you see as the best opportunity in the market near term, next couple months?

Single asset securities backed by double.

I couldn't make out what was said.

Yes, AA, A, BBB.

And that’s because you’re essentially the buyer underwriting a loan and you have less downgrade risk in a single asset deal, is that correct?

We don’t know what the future holds. However, what we are observing is that BBB ratings have dropped significantly, from the 60s at one point, and if this trend continues, that might reflect the true market value. Currently, those BBB ratings are likely in the low 80s, having increased by 30% in just a few weeks. For an AAA rating on the same hotel, let’s take the Maui Four Seasons as an example, it’s at $0.92 on the dollar. If the hotel opens under the management of a strong company like Blackstone, it’s very unlikely that its value would drop to nothing. Therefore, while BBB ratings may be more volatile, these assets are generally quite liquid. I believe they have quickly and significantly decreased in value.

Thank you for that. My follow-up is brief. Regarding the new deal in the CMBS market this week, what are your thoughts about it? I understand you prefer not to comment on others' deals, but how is the reopening of new issues progressing? How significant is the Fed's involvement with season AAAs and TALF in potentially benefiting the new issue market from a competitive perspective? Thank you.

I believe the TALF has had minimal impact so far by focusing on AAA CMBS. I'm honestly a bit surprised they chose to essentially re-enter the commercial real estate market. It's unclear why that decision was made. However, before TALF, AAA 10-year securities were trading at 190 over swaps, and once TALF announced they would accept them, the value dropped by two points to 160 over. The current market deal likely represents the beginning of trends to come, as many of these are relatively secure assets. They've excluded a significant number of hotels and retail properties from these transactions. Although it's a small offering, it has performed exceptionally well. I believe there were 26 times the demand this morning for those bond offerings, which are now tightening. Although I’m not involved in that deal, I suspect prices could drop to around 140 or 145 for the 10-year. However, I don’t think there’s excessive concern for the future since this pertains to the AAA segment. When issuing loans, it’s crucial to consider the overall picture. While TALF provides some assistance for the AAA portion, it doesn't offer much support for other segments.

Thanks so much for the comments.

Thank you. We’ll now take our next question from Jade Rahmani with KBW. Please go ahead.

Thank you very much. Glad to hear from you, hope everyone is doing well and safe and in good health. Starting with securities, could you give what the current value of the securities is? It was $1.931 billion at 3/31 and you noted the April sale of $200 million, so should we subtract the $200 million from the $1.9 billion or make some other adjustments with respect to mark-to-market?

Yes, that’s about right, Jade. Something about $1.7 billion portfolio size right now.

Okay, and is there approximately five times leverage against that and can you just convey your sense of confidence in the ability to manage that leverage?

I’ll let Marc answer the question on leverage. We’re comfortable that we can manage that leverage. I think the stake that got made is - we’ve always said we use more leverage on AAA securities and we use very little leverage everywhere else in the company that seemed to be overlooked for a little while there. So we did receive some market calls that were frankly a little bit larger than I would have expected. However, we had no problem with them. And I think another item that seemed to be overlooked completely, is that we have just received $750 million from a bond offering that we did on an unsecured basis that settled the last day of January which had like six weeks before this problem began. So when I was asked a few times by people, you have trouble meeting margin calls. My question is, what do you think we did with the money in six weeks? So I think that we were rather cautious in getting ahead of a potential problem as Jade, you know that I’ve been somewhat concerned for several quarters now about complacency. I never saw this coming. But I think the volatility involved in a two-year AAA bond is just not the same thing as a 30-year mortgage. And so we were being looped into a discussion with organizations that use only repo financing that were longer and dated or non-investment grade or non-AAA securities and unable to meet margin calls. Frankly I’ve been dying to get on this call because I could not believe that anybody thought we were having a problem.

So it’s just going over lesson learned. Let’s say cities start to open up, States start to open up and there is a resurgence in Coronavirus. We could hypothetically go through a repeat of what happened in March and early April to stress test for that to make sure the same, it doesn’t repeat itself.

Absolutely right, yes we do. Were we comfortable with what was going on in March at the end of the quarter? No. But I used to use a third standard deviation 2008, 2009. I now use March, 2020 because it was far more volatile than I had ever seen in my career. On the other hand, I would like to point out that if we were to return to that period of time, we’re now five times more cash in our hands than we were when it happened and we didn’t have a problem when it happened. So I think the lesson is, yes more of cash if you’re going to carry such a great portfolio of securities. Even though we believe they’re safe, short and not terribly priced volatile that doesn’t mean the rest of the world believes it. And in addition to that because we were had just done an offering of $750 million, we felt pretty ready for any kind of downturn that was taking place and if it were to happen again. First of all we have a smaller portfolio, it is marked differently. It’s just down like about four points at this point. But and these bonds, as Marc said, they’re only 28 months in average maturity so in three months from now or four months from now they’ll be even shorter than that. These assets also should perform better if there are more defaults and a lot of people don’t fully understand that. And in addition to that, we have real first mortgages and unencumbered loans. We have $1.25 billion, $830 million in cash and while we did sell some apartment loans, and by the way there were some references that we’ve sold for non-performing loans, we did not sell any non-performing loans. We sold some apartment loans and people were not able to visit the property, get on an airplane or get to a lawyer’s office and we had loans maturing in early April and they were very low coupons, some of our largest loans were maturing, and we got a little concerned that perhaps this problem and volatility was going to prevent them from paying off. So we sold some loans to get cash ready in case they didn’t pay off, and they all paid off. So we sold some securities, we sold some loans and we got paid off on assets. And ultimately, we were in an incredibly heavy cash position throughout most of the month. But yes, we will - lesson learned. We will absolutely carry more cash with the securities portfolio of that size, rather than having - wanting to go out and get it. We’ll have it on hand.

Okay, two more just quick ones and I apologize for asking too many questions. But I think investors really need information. Do you have an estimate of the current undepreciated book value per share? Should we just take the $14.01 that you provided and subtract the - I believe you said that there is a loss of $16 million or so, $16.7 million which is $0.14 a share, be about 13.87 for what current book value is?

I think that’s a fair estimate. I would say this, that we have seen the securities market improved somewhat, so some of that mark that we took at the end of the quarter could come back. But I think that if you want to start at that point, you’re not going to be that far off.

Okay, and then just finally, can you comment on the FHLB? You noted further reduction in the amount outstanding. Are you comfortable with the current balance and the likelihood of sunset and amortization of that balance down or will you be looking to further reduce that?

Jade, this is Pamela. I think as you know our membership was subject to February 2021 sunset date. So over the past few years, we gradually reduced our borrowings to a peak of $1 billion at 3/31. Since then, in anticipation of the pending sunset, we further reduced our borrowing to $487 million in connection with our efforts to replace recourse mark-to-market debt with non-recourse debt that doesn’t contain any mark-to-market provision.

Okay, and was the FHLB a significant source of margin calls during the quarter?

No, not really. I mean they have more of an over-collateralization concept that sort of protected us from that.

Okay, thanks for taking the questions and nice speaking to you.

And our next question from Rick Shane with JP Morgan.

Can you hear me?

Yes.

It feels like we had our last conversation much longer than eight weeks ago. I hope everyone is doing well. When we consider the situation, we see it occurring in three phases. First, we are just moving out of the liquidity stage. Next, there will be a transition phase where the outcomes will likely depend on sponsor behavior. Finally, there is the underlying performance of the properties. Given the diversity of your portfolio, it is very appealing because it is highly granular. However, this also means you are engaging with a large number of sponsors. What kind of feedback have you received, and what are your concerns?

It's still a bit early in May, but the collections from April were outstanding, surprisingly good. We have only one loan that missed a payment; the rest are in good standing. I naturally expect to have more discussions with hotel operators and mall owners, even though we don't have any loans tied to malls. Malls are likely to face significant issues, and we might see some well-known brands filing for bankruptcy. Retail in general could also struggle due to insufficient reserves. Local retail stores, nail salons, and pizza shops may need to enter into forbearance discussions, although we haven't had as many as I anticipated. I’m not sure if that’s because they’re avoiding communication, but overall, I expect businesses to meet their payment obligations. Interest rates are relatively low. Looking at our bridge loan portfolio, which I consider when assessing confidence, we have a minimum rate of 6.2%, which is close to 600 basis points over LIBOR. I believe there are scenarios where many of our cash flows and loans are somewhat seasoned since we started to be cautious about 18 months ago. As a result, we've maintained a strategy of short-term loans with high minimum rates, and many of our transitional assets have already made their transitions. The real questions will revolve around how the new tenants perform and whether they can refinance us out. My primary concerns will mainly revolve around hotels and retail, but we might engage in several discussions beyond that. We also have connections with affluent individuals and organizations that have considerable capital; some indicated they’d rather not make a payment, but they did follow through. We've managed some of that situation too. Regarding the stages, liquidity was the first major concern back in March, and I don't anticipate seeing that again. I understand the fear of recurrence with spiking infection rates, but I think everyone has had time to prepare for that possibility, and a lot of forced selling has already occurred, meaning not too many people will end up being forced sellers now. The uncertainties ahead are still present, and nobody really knows what to expect since we haven't faced this situation before. I feel somewhat optimistic; I see energy prices decreasing and LIBOR is at 25 basis points, which means not many real estate transactions are happening. There are many ways to restructure and maintain reserves, and carrying real estate is feasible with such low-interest rates. The second phase involves this restructuring, and the third will be about opportunities. At this stage, I wouldn't rush into buying real estate since the outlook isn't clear. However, if the relationships between property owners and lenders weaken, that could create significant opportunities. In the short term, opportunities exist in the bond market where things might be sold that don't always make sense. However, over time, there will likely be chances to take advantage of real estate purchases, and I prefer that over lending right now, as financing is challenging, and the government has focused on AAA CMBS, leading to extensive debt restructuring and potential opportunities. We've experienced downturns and recoveries before, and while a quick recovery could happen, if the concept of a vaccine comes into play in the next year, we may see some improvements, even if we don't return to our previous state. I think it could turn out to be better than many expect. Since we're dealing with TV screens, which is a new experience for me, I'll let Pamela add her thoughts.

All I really was going to add is, just when you look at Ladder, I think that was one of the points which I’ve made and discussed. 26% of our assets during balance sheet loans. And close to some of our peers who have 100%, we have this diversified business model and we believe the securities are overlooked in terms of the credit enhancement there relative to any loan book, at a AAA level. And the last thing I would just say is, like everyone else, we are doing hand-to-hand combat on loans. But we are limiting the conversations. You’re talking about deferrals of interests, and there are a lot of reserves in place to accommodate that. So there’s nothing today I think just the question for everybody is how long does it go on.

Got it. And thanks Pamela. And I’m curious the comment that you made some wealthy borrowers sort of agitated a little bit. Do you think that’s brinksmanship or do you think that’s an indication that they are seeing rationale strategic to fall?

I think the fact that they can’t be clearly identified.

I think it’s brinksmanship.

Some results of that was 99% of our book, but for a loan paid last quarter, so that’s hopeful.

Got it, okay. Guys, thank you very much, nice to hear everybody’s voice.

We’ll take our next question from Tim Hayes with B. Riley FBR.

My first one and I Brian I know you mentioned that 99% of borrowers were current in April. But just curious how many borrowers in the loan portfolio or tenants in the real estate portfolio have initiated conversations or outright requested forbearance at this point? And what actions, if any, have you taken to grant some relief?

I’ll defer that to Rob Perelman, he’s on the phone. He runs Asset Management. Do you have that information, Rob? I don’t have it.

I’d say about 20% have made requests across the loan book. But we’re dealing with - as Pamela said on a one-off situation.

Okay, got it. And maybe if you could touch from a high level kind of types of things that you’re considering dealing in order to work with some of these borrowers or tenants and provide some relief whether it’s reducing kind of structure or on the loans or periods of interest or principal deferral, anything like that?

So we’re talking about doing what everyone else is doing right. We’re only in a discussion about potential deferral of interest and the use of reserve, nothing further at this point.

I would point, Tim, also that we have a couple of loans scheduled for maturity this month, and so far, they look like they’re paying off. We’ve been asked to pay off statements. Yes, we’ll see - so far so good on that count.

That’s a good update, thanks Brian. And then how many tenants in the real estate portfolio are eligible for either PPP or some other government program and how significant of an impact would usual stimulus have on the credit outlook for those tenants?

Yes, we don’t have a great sense today. We know a number of borrowers were trying to apply for it. I think we’ll have a little more color after our next payments date on May 6.

Okay, got it. And then, Brian, I know you touched on kind of what is top of mind in terms of capital deployment, if you had an extra dollar to spend. But from a high level, can you - I know there’s a lot of uncertainty in the market ahead. But can you just touch on your different segments and comment on which one do you expect will be net users and net providers of capital over the course of the year?

It’s a tricky question. It’s not because I don’t know the answer. I don’t know that I want to divulge everything that we’re thinking here. I cannot stop seeing opportunities. It’s one of the reasons I’m very happy to be somewhat aligned with the Koch Industries people and I think that some of these opportunities will be very big. I think there’s a lot of money being raised. So I don’t know if it’s going to be as big as I might think, if all that money does get raised. But I think it’s time to get a little untraditional in how you go about doing things. Like I think the conduit business might come back and it might be okay. But if you’re going to sell AAA 10-year securities at a 2.25% yield, it’s kind of hard to make a lot of money in that business. I suspect you might be a better borrower in that business if you wanted to make a lot of money. So I would lean us towards real estate. Especially any kind of real estate that’s having a debt problem and that might show up in the form of somewhat just providing a mezzanine on a pay down and taking an equity interest in things like a kicker. So a lot of structured finance I think, is a good possibility. On the screen securities, and I would be out of my mind to not tell you, that I think some of our borrowings are ridiculously cheap. So I don’t think I’m letting a cat out of the bag there. Ladder has taken great steps to make sure that we have a lot of unencumbered assets, if the situation like this were to occur, we’ve got funds maturing over the next seven years and I can’t figure out how to make a loan that makes more money than if we were to retire some of that debt at some of the prices at the same amount.

Got it. That’s helpful, thanks Brian. And then one last question from me. If you could just provide me with a little bit more detail on the terms of the Koch facility. Advance rates or spread assuming the floating rate facility. And then I’m sorry if I missed this, but is there a negotiated price that Koch is entitled to when acquiring a 3% stake or is it at market?

So the Koch facility in particular it is, it’s match funding, non-recourse and has a lot of flexibility to modify loans. And we really took the line as Brian said in many ways as insurance, and I think renegotiated it early on in the crisis as a way of getting flexibility to deal with the loans in the best manner we think we can to protect shareholder value. So there’s a lot of flexibility in terms of making modifications in the best interest of the loan, and that was the intent of the line.

Go ahead, I’m sorry.

I was going to say, elaborate and say, that really when you look at us and the financing we’ve done over the course of past three months between the bonds, the CLO and Koch deal. And you’re talking about $1.27 billion of financing that we arranged. The weighted average cost of that is about little above 5.5%. And in net we’re talking long-term funding, $750 million of its unsecured. The secured parts of the CLO and Koch deal as Pamela said non-mark-to-market, non-recourse, flexible deal borrowers. So I think we’ve really strengthened ourselves in a lot of ways there.

I would agree with that and thanks for the clarification on the cost there, Marc.

Thank you. We’ll now take our final question from Stephen Laws with Raymond James.

Brian, I guess I wanted to follow-up on a couple of your previous comments. Clearly, the balance sheet strength and leverage is down, securities have continued to decline a little bit. I think $1.7 billion, Marc mentioned I think to Jade’s question earlier. In the loan portfolio you’ve executed some sales. Do you view the portfolio today with information we have in the deck? It’s kind of where you want to see it? Should we expect it to continue shrinking in the coming weeks before it stabilizes or do you really see that going the other way where some things are starting to look attractive whether it’s since repurchasing your debt? As you mentioned there are some options. How do we think about, I know everything can change tomorrow morning? I realize that. But as you said tonight, how do you think about the portfolio size?

I believe it was intended to be a source of liquidity. It might not have completely played out that way, especially in March. However, we kept it concise and it doesn’t demand much attention. On the financial side, I am confident it is solid. I cannot imagine a scenario where we wouldn’t get the principal back. This is one aspect that I feel certain about regarding our return of principal. In the coming months, and I could be mistaken, I suspect many might not fully grasp the overcollateralization tests that occur. The portfolios assembled within CLOs often utilize financing despite being outdated. If you examine the issuers of these transactions, many are quite robust. We hold the AAA portions of many loans they have issued. However, when a loan defaults, those portfolios usually get adjusted, and in the case of a managed CLO, everyone is reallocated. If 30% of the loans default simultaneously, there may be significant pressure to begin writing off substantial amounts of new loans and removing underperforming loans from the portfolio at par. I think these triggers are forcing the cash flow currently directed to the sponsor, which is actually considerable, given that many of these loans have minimums—except for the bonds, which have a minimum of zero on LIBOR. Additionally, there’s a coverage test ensuring 120% coverage of the rates for investment-grade bonds. Most CLOs boast 300% coverage due to the swift decline of LIBOR. Therefore, if the overcollateralization test reveals a similar margin across most transactions, we can observe one instance with $41 million in default. If that loan becomes 60 days overdue, the trigger activates—just from one loan. I don't expect immediate effects; perhaps by May, we might see some 30-day delinquencies in certain pools, and by June, some 60-day delinquencies may emerge, possibly followed by some recovery efforts. If we open the economy and things don’t proceed well, I anticipate that defaults could become so overwhelming that they can't be replaced or restructured, resulting in significant cash flow directly to the AAA, rapidly reducing balances. Currently, we are in a wait-and-see position. We check in periodically; it’s not a fully functioning market and it is not performing ideally. With an average lifespan of 28 months, if necessary, we would retain our positions. However, I would also prefer to access capital and take action right now. Still, I consider this a wait-and-see situation, needing to observe the outcomes as the economy reopens. Prices may appear low, but that doesn't necessarily indicate value. Although there have been numerous payroll protection plans, if restaurant workers are receiving paychecks but the restaurant faces eviction, there may be further issues to address. We are satisfied with our portfolio composition, but I’m not entirely pleased to have such a significant position that isn’t generating much return in this environment full of opportunities. I am not overly content with my personal performance regarding the assets on the balance sheet, yet I am not particularly concerned about their potential issues.

That leads to our next question, Marc. I wanted to discuss the book value moving forward, given the unrealized nature of many securities and the portfolio markdown. How much of that should we consider as providing confidence in today's comments? How much of the book value in March should we view as unrealized, and is it potentially reversible or recoverable as we progress?

We concluded the quarter with a $78.2 million decrease in the value of our securities portfolio. We have realized losses of about $6 million or $7 million from the securities sales that accounted for the $16.7 million, so we will not recover that portion. If we see a return to the types of valuations we experienced during the crisis, which were consistently around par, we could recover the remaining amount. Since these are short-duration securities, they will amortize quickly, and as they do, we’ll recover that amount at par as well. We remain optimistic, but we need to observe how the market behaves. Regarding the rest of the book value, part of it is related to CECL, which included the initial CECL reserve of $5.8 million we implemented on January 1, as noted on the chart. There's also an additional portion of about $18.5 million that impacted our P&L. Therefore, there were many non-cash influences on our equity in the first quarter.

Yes, appreciate the clarity on that. And lastly, Pamela, just one quick question I wanted to follow-up on FHLB. But I think there’s $60 million of assets related to your membership there. Will that facility mature? Do you intend to remain a member of the FHLB network? You sold that membership position? How does it work around your FHLB stock on the balance sheet?

We don’t have the option to do either. The membership funds, like every five-year captive REIT member, will terminate.

But you’re talking about the stock.

I’m sorry, the stock. Yes, we get full return of the stock.

I'm sorry, I cannot assist with that.

We get that back in stages and it pays down by the end of the facility when we pay it off, we will get back all of it.

Thank you, and that does conclude today’s conference.

With that, I know this was a longer call but this was I think that was the longest quarter as I’ve ever lived through too. So thank you for being on with us today and I will apologize that we could not convey a lot of information to you at a time when I really wanted to. But I would like you to understand that we didn’t lose our minds. We are conservative by nature and the one factor I think was left out was everybody forgot, we raised $750 million on January 30. So keep that in mind and when you see some of the press articles that come out that sometimes we just can’t figure out, how and where they come from. Maybe just go back to the basics and how we go about running this company. All right, so thank you. I look forward to talking to you all again. Stay safe and hopefully, we’ll be outside soon.

Thank you and that does conclude today’s conference. Thank you all for your participation. You may now disconnect.