Good afternoon and welcome to Ladder Capital Corp.'s Earnings Call for the Third Quarter of 2023. As a reminder, today's call is being recorded. This afternoon, Ladder released its financial results for the quarter ended September 30th, 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 supplemental 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 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 seasonal reserves to align with the current market environment. Our dividend also remains well-supported by net interest margin and net rental income. And 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 equivalents. 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 property. 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 strategy of 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, whether through refinancing or asset sale, and contribute 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 million 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 is 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 maintained 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 a 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 have begun capitalizing on opportunities to expand this portfolio by acquiring an 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 substantial, contributing to distributable earnings generating $16 million in net rental income this quarter. In 2023, all three major rating agencies reaffirmed our credit rating, 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 attributable 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. 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 hotel property for an $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 US 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 and collateral type, 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, 70% of our securities portfolio was unencumbered and readily financeable, which is in addition to the $1.1 billion of same-day liquidity we maintain. Ladder's 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 30th, 2023, our adjusted leverage ratio was 1.6 times, down from the prior quarter as we continue to de-leverage 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 an attractive fixed rate cost of capital at 4.7% average coupon. 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 of debt. Through September 30th, 2023, we've 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 assets posted $3.0 billion or 55% of our balance sheet. Over 80% of this unencumbered asset pool was comprised of first mortgage loans, 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, this is reflected in our corporate credit rating that is one notch from investment-grade, with two of 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, and 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, with $44 million of remaining capacity as of September 30th, 2023. Ladder's undepreciated book value per share was $13.77 at quarter end based on 126.9 million shares outstanding as of September 30th, and as Pamela discussed, remains stable. Finally, our dividend is well covered, and in the third quarter, Ladder declared a $0.23 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 are available on our website as well as our 10-Q. With that, I will turn the call over to Brian.

Thanks, Paul. The third quarter saw interest rates generally surge higher to levels not seen in a very long time, but Ladder's performance was impressive, now having delivered double-digit ROEs over each of the last four quarters. Our distributable earnings over the first three quarters of this year were $128 million, a 17% increase from the $110 million over the same period in 2022. This was accomplished with the modest use of leverage, a smaller asset base, and while keeping our liquidity levels quite high. Notably, today we hold over $800 million of T-bills maturing in less than three months with an average yield to maturity of 5.45%. During the quarter, we began reallocating capital from cash and T-bills into CLO AAA-rated securities, acquiring a modest $58 million of them in the quarter, but we expect to grow this position in the quarters ahead. The A classes of new commercial real estate CLOs receive an unleveraged 7.75% return in today's market. We're also quite eager to originate new first mortgages on balance sheet loans. However, quality lending opportunities are scarce these days with current rates over 9% causing many borrowers to hold off on borrowing. We think this situation will change in the quarters ahead, but we can afford to be patient as we are well-positioned to sustain earnings that comfortably cover our quarterly cash dividend for the foreseeable future. As mentioned earlier, we received $119 million in loan payoffs in the third quarter and in the first few weeks of October, we have received an additional $52 million of payoff after three more balance sheet loans paid off. Consequently, our liquidity has increased further since the end of the third quarter. Credit is holding up nicely for the most part, but we are seeing some delays on loan payoffs as lenders have become quite cautious before loan refinancings close. Ongoing negotiations for loan extensions are regular occurrences these days, but so far, it seems that most sponsors can, will, and must contribute more equity to maintain ownership in their assets. As rates have risen, property values naturally fell, and while we don’t think the price deterioration is over, we do think the pace of depreciation is slow. If a higher-for-longer interest rate scenario plays out in the year ahead, we anticipate that our low coupon fixed rate corporate borrowings will enable us to maintain high net interest margins that are supportive of our dividend. Given our high levels of liquidity, we will consider repurchasing some of these corporate bonds and retiring debt while supplementing earnings in the quarters ahead. Switching topics, we get asked a lot about how changes to funding models that regional banks will impact Ladder given how many commercial real estate loans are refinanced in this part of the banking sector. The answer, we believe, is that short-term, some loans on our balance sheet may have challenges in refinancing, but in the longer term, if regional banks get smaller, hold more capital, and have diminished lending capability, the positive impact to alternative lenders like us should be very positive. The last few years have seen plenty of turbulence brought on by global pandemic, near-zero interest rates, followed by the highest rates seen in four decades, along with heightened tensions with China, Russia, and chaos in the Middle East. And it's been rough on fixed-income investors generally. Ladder has successfully managed through all of these market conditions, keeping leverage low and liquidity high. We expect the turbulence to continue for a bit longer until the Fed is convinced that the further rate hikes they're considering are no longer necessary. Until that happens, we are well-positioned to manage through a higher rate credit cycle and to take advantage of the opportunities markets like this invariably produce. Operator, we can now take some questions.

Thank you. We will now be conducting a question-and-answer session. Our first question is from Sarah Barcomb with BTIG. Please proceed with your question.

Hey, everyone. Thanks for taking the question. So, during the last conference call, you mentioned that regional banks were still in the lending market. I think Silicon Valley actually took you out on one of your loans, and private credit was coming in to bid on assets in your target universe. So, I'm just curious if you have any updated observations, with respect to how the competitive landscape, as well as the takeout financing markets have changed at least over the previous quarter?

Sure. Thanks, Sarah. I would say that it's more of the same. The regional banks are still lending. I would also indicate that when you used to be given a closing date by a borrower who asked you for a payoff statement, it was reasonably reliable that it would probably happen on that date or near it. It's not at all unusual to see things back up a couple of weeks now, and we're after short-term extensions just to accomplish the refinancing. I just think it's a heightened level of detailed analysis at this point. So, like, whereas you might not have had an unstoppable from a small tenant, they require it now. So, a lot of T’s getting crossed and I’s getting dotted. And I think it's slowing the process, not stopping it. Although, obviously, some banks, I think, have just changed their criteria with a lower capital base. But private credit is still out there. I think that a lot of the names that we typically deal with in the world of CLO and transitional lending are having some difficulties now with their inventories and there are some new names popping up. And I think I indicated in the last call, some of the names I've never heard of, there's a lot of capital around and on the sidelines. It's rather expensive. And I think many borrowers coming up on maturity dates believe that the existing lender is their best opportunity to navigate whatever refinancing or an extension because they know the asset at that point. They're obviously not going to fall down if they say they'll do it. But, I would say no real change other than a little bit more ticking and tying before the actual wires are sent.

Okay. Thanks. And then you touched on this in your prepared remarks, Brian, but you guys are still running with very strong liquidity and low leverage. I was hoping you could comment a bit more on why you're running with so much cash? I understand there's high yields on cash right now, and you did buy some securities and some of your cap stack during the quarter. I guess should we expect more of the same in this next quarter or could we start to see some more allocation towards maybe CRE Equity? You've already kind of touched on loan origination, but just curious if that high cash balance has anything to do with covenants or just defensive positioning?

Sure. It has nothing to do with covenants. We are massively covering all of our covenants at this point. In fact, I think our fixed cost coverage is exceedingly high relative to what's called for in the space. Whereas I think a lot of organizations that fund floating-rate loans with floating-rate liabilities, their fixed cost coverages have actually gotten below covenants and are asking for waivers, but that's not the case with us. The only reason we're holding so much cash is because loans keep paying off at a pace that exceeds our investment abilities. There's plenty of cheap things out there, and a lot of it has got some problems to it. So, we would love to be buying more CLO AAA, the A classes on these new deals are really very attractive. Although there have been a couple of deals that we've stayed away from because they look like kitchen sink deals and we're a little uncomfortable with it. Unfortunately, I normally would say I would expect this volume to pick up, but I'm not sure it will given where rates are. If it does, we will continue to acquire and have continued acquiring securities into the fourth quarter. And as much as I'd like to tell you that we'll probably be a net investor with money going into investments rather than coming back to us, in the first three weeks of October, we took another $52 million in payoffs. So, Country Club problem perhaps. You have to remember the differential between a T-bill now at around 5.5% and where you can possibly lend money safely, call it 9%, 9.5%, it's not such a huge difference. And because we use very little leverage, it really doesn't impact us too much. But we're pretty comfortable that we'll be able to continue picking up assets and you're starting to see some assets change hands, with lenders or else notes being sold, and we might get involved in some of those also. But to date, it’s been slim pickings on the safe investment side, mainly because of the continuation, in our opinion, that value continues to drop. Although, as I said on the call, dropping at a lower rate at this point, the pace of deterioration is slowing down, which kind of has to happen. So, I feel like we're getting near the end of this credit cycle, and that should bode well for us and the liquidity that we carry.

Great. Thanks, Brian.

Thank you. Our next question is from Jade Rahmani with KBW. Please proceed with your question.

Thank you very much. Wanted to ask first about Ladder's current capital structure and capital package. Within a stable environment assumption, what cash balance do you think would be reasonable to hold? And if you executed on that, what do you think the company could optimally generate?

The first question is quite straightforward. We usually prefer to maintain around $100 million but can reduce that to about $50 million. That’s not a fixed rule, but we like to keep around $100 million under normal circumstances. The return on equity, if we were to maintain that $100 million, largely depends on the type of leverage fees. For instance, if we were to leverage at 3 to 1, it could lead to an additional $3 billion in inventory, which would introduce some leverage. Conversely, without any leverage, we could potentially add $1 billion worth of assets to our bottom line. If we consider that at an 8% return, it would translate to $80 million without significant changes, but you would be giving up the 5.5% return on T-bills. We believe achieving double-digit return on equity is very feasible. Currently, despite holding a considerable amount of cash, we see many opportunities. Our corporate bonds appear attractive due to the recent rise in interest rates, and we also find our stock to be undervalued. We are eager to engage in bridge loans, invest in securities, and consider real estate, which may soon come into play. However, these real estate transactions generally take time. Securities, on the other hand, can be approached quickly, which is why we’re leaning towards that option since they provide nearly 50% subordination on a diversified asset pool. Many of the new CLO deals are static, which is our preference because it allows us to clearly understand the asset universe. It’s not that we’re intentionally holding excessive amounts of liquidity; it's about being patient, and our capital structure supports this patience. Even with a reduced asset base, circumstances like these call for increased liquidity, caution, and lower leverage. This approach is ingrained in our operations—we prioritize keeping leverage low and liquidity high. Though I recognize we're currently holding a significant amount of liquidity, this wasn’t done deliberately. We’re somewhat surprised that the market hasn’t acknowledged this more, even though we have one of the lowest dividend yields in our sector.

I just wanted to mention that when Brian refers to a $100 million cash position, that comfort level is supported by a $324 million unsecured line that we could access at any time.

Okay. On the IG front, investment-grade, is that still the company's number one strategic priority or is that just aspirational? And in achieving investment-grade, what are the main pitfalls? What would you have to give up?

Yes. I mean, we are absolutely still committed to try and become an investment-grade company. We'll always be balancing that against the cost of funds and ROE. But for us, it has been a pretty objective. We have to get to 50% of our debt to be unsecured debt versus the 41% today. So not a terrible stretch, and we continue to think it will be a big differentiator for Ladder. And if you look at just the way we run the company today, we're a slightly smaller, meaner company today with a $300 million to $400 million less of assets, but all of our other debt levels, our cash, liquidity is higher, lower leverage, higher percentage of non-mark-to-market debt, larger amount of unencumbered assets, we're well-positioned to do it when the market allows at a price that's accretive to Ladder. And we think it'll be a real differentiator for Ladder in the space. I personally am a big fan of it and think there is a space in the market for a high single-digit, low-double-digit investment-grade company with primarily senior sure to access. We pretty much run the company that way today anyway.

Yes. And the only thing I would add, Jade, is we began the process, perhaps not an aspirational goal years and years ago, but given where we are now, we've kind of almost gotten there, and that we're at over, I think, over 40% of our liabilities are unsecured right now. We still maintain firmly that if there was ever proof that having unsecured term debt is a winner, not a loser, it has been proven right here. Although admittedly, we were paying higher prices than a lot of others when LIBOR was at 12 basis points. But taking the long view as our insiders do, we feel pretty comfortable with it. We still think it's the right strategy. But do we think that we would not part with some of this liquidity and acquire some of those unsecured bonds that aren't due for years, given the prices that they're at? We absolutely will do that. We have no concerns at all about that kind of rigidness of keeping unsecured debt outstanding.

Just one note on one for the note, Jade. We have $3 billion, more than half of our assets right now, 55% are unencumbered. It's really meaningful, and I think not just it positions the company, but one of the big questions right now when you're looking credit is no one wants to be a forced seller in this market. I can't even begin to describe the flexibility we have on the balance sheet right now to be patient when we need to be.

Thank you very much.

Thank you. Our next question is from Steve DeLaney with JMP Securities. Please proceed with your question.

Good morning, everyone, and congrats on another strong quarter in what is obviously a very tough environment. I'm curious where you guys stand currently on required distributions of taxable income? At some point, in the next few quarters, is there a chance that you would need to pay out a special dividend? And obviously, what I'm looking at is distributable EPS versus your dividend? And I realized that taxable is a different calculation for sure. So, if you guys could comment on that, I'd appreciate it.

Hey, Steve. This is Paul. So, in 2024, no, we don't anticipate a special dividend, but it's something we're monitoring carefully as we get into 2024.

Okay. So, it sounds like if you continue to put up good earnings and you don't do anything with it, that maybe that would be an option next year. Of course, you can always just boost the regular quarterly payout.

I was about to say, Steve. I think you should just assume that the Board will regularly consider the dividend every quarter.

Sure. And obviously, just the more we said and think about it as an investor and analyst, a lot more return and utility in boosting the regular than a special. People have short memories and they forget those special dividends. So, you probably only do it when you have to do it. Just looking forward to getting to a better place in 2024, you've talked a lot about being willing to be more offensive. Brian, what are the top one or two things in the macro financial regulatory complex? What does this market really need to kind of get back to some sense of normalcy in terms of risk return?

I believe the Federal Reserve will eventually signal that they are pausing rate increases, which would be a significant positive development. This is likely to cause an increase in the value of many asset classes. Currently, the market presents a mixed picture, with some asset classes appearing to perform well. However, we are in the third consecutive year of a challenging fixed income investment landscape, with investors experiencing losses over this period—an unusual situation for them. Investors have been advised to purchase longer-duration bonds under the premise that interest rates will be reduced, which is a prediction that has shifted frequently among economists. A sense of stability about not worsening conditions would be beneficial. On the real estate front, I've reached a point where I've become immune to any negative news about markets like San Francisco, and now we are starting to see some positive signs emerging. A notable mood shift would occur if we saw a significant drop in interest rates. Currently, the commercial real estate sector is facing a recession that has been driven by the Fed's policies, and the carrying costs for property owners have become very high, which is unfortunate for those who have adhered to their business strategies. Additionally, we wrote a substantial amount of loans in late 2021, and now, as we approach the end of 2023, we are assessing our performance in credit management and feel optimistic. As we approach the two-year mark since those loans were made, we may see an uptick in payoffs from borrowers needing to refinance or increase their equity. The financial leverage in our operations is somewhat reduced, which contributes to a higher payoff rate compared to others. We are in a solid position with our cash reserves, comfortably covering our dividend, and we look forward to potentially sharing profits with shareholders as the credit cycle stabilizes. There are also alternative methods to return capital to shareholders, such as stock or bond buybacks. We've navigated higher rates, which we anticipated, and I believe many property owners missed the opportunity to hedge against rising rates when they were low, a lesson they may reconsider in future cycles.

Thanks, Brian. I appreciate all that color.

Thank you. Our next question is from Matthew Howlett with B. Riley Securities. Please proceed with your question.

Hey, thanks. Good morning. Thanks for taking my question. Hey, Brian, I mean, like you pointed out, you got plenty of excess capital, the balance sheet is in terrific shape. You have a high-class problem where you're getting more repayments. What in your, I think you're below one point one net of cash and securities. What's the argument against really getting more aggressive on a share buyback, open market purchases, Dutch tenders? Is it the opportunity cost? You want to wait for what could be opportunities in real estate? You're probably getting high 20% leverage returns on securities. You're obviously buying back some of your corporate debt. What would be it? It just seems that the IR analysis is 20 plus percent on buying back stock at these levels?

I don't have a cogent argument against buying stock back at these levels. So there's no resistance to it. And I want to stress this: There are a lot of opportunities right now, despite the fact that we seem to be husbanding cash around. We're not; we're just not seeing enough opportunities, at least on the non-QSIP side of things. Yeah, you can buy treasury bonds and that's a fine place to park for a little while if you want to make five and a 0.5% and hold on to cash, but securities that the A classes are in the CLOs are still the best game in town. We could move over to conduit, but those have duration and hedging right now is very expensive. So I don't see that happening. We are starting to look at real estate cap rates have backed up and we might skip a little bit of the normal lending portion of the movie and just move right to the equity side of things, depending on how cap rates move. And there’s no way. And I just want to stress that when you're in a restaurant and they tell you, here are our specials today, and they all sound good, you can't get one-third of each of them, right? But you can do one-third of each of these. And so while I don't have any objection to getting buying stock back, we do it during the open window period, and unfortunately, a lot of open window periods are not available when the end of the quarter has come and things get particularly interesting on the volatility side. But again, patience, nothing wrong with it. We can buy our bonds back and generate big returns very quickly there, but de-lever the company, but get rid of unsecured debt. We've always suffered from being too small though. And so I think that, in order for us to acquire the stock through repurchase program, yes, it's cheap, but it has to get really cheap and then we act. And I think Paul read the levels that we've been buying our stock back at right here. So if all things, we're not going to communicate all of those policies in an earnings call, but if we were to get off the phone now and the window was open, yes, we'd probably start acquiring some stock here and certainly we'd be looking at some of those bonds, not all of them, but certainly lots of them. And so it's a pretty attractive investment landscape, and we don't necessarily need to buy things that other people are working on. We can do things internally here ourselves. But we kind of balance all of those at one time around, do we want to become an IG company? Do we want to maintain liquidity? Are we at all concerned if anything should get much worse? And no one ever talks about that. Could things get much worse? And there's a couple of headlines going on right now in outside of Russia and in the Middle East that could make you think this could get worse. So we're a little cautious there too. So I would say when we acquire our own instruments, it's really because they've just gotten silly. But we like having them out there, and we're happy to support them. We like our investors in those spaces. And you'll rarely see us just buy stock without bonds and you'll rarely see us just buy bonds without stock because we're rather respectful of both sides of that investor line.

Makes total sense. I know you've been buying back stock. I figured I'd ask the question because you guys are in a unique position to be able to do it aggressively. And look, the buying back the debt here at $0.80 is terrific. It looks like you're buying with the $0.29 and the $0.27. Am I seeing that as you're primarily buying back?

That's what we were considering. There weren't many repurchases last quarter, but that's the situation. We have a price for each of the three bonds every morning, which we pass to the traders, and if the prices reach those levels, we purchase them. We also have a price for the 2025 bonds, but since they mature in two years, you can expect a higher price. All these bonds are investments we're interested in. Interestingly, the short bond has a higher price not only because of its shorter term but also due to the highest rate. When the 2025 bonds pay off, the average rate of our corporate bonds will drop to 4.5%, which is very inexpensive capital. Currently, the entire complex is below the treasury curve. So, we should not expect to take them off the market, but the rate of investment hasn't matched our expectations. I believe this ties back to what Steve mentioned earlier about not just higher rates, but the speed at which they increased. There are significant rate shocks affecting the market. You might have noticed the changes in the residential space as well. The adjustments in book value were staggering. It's about patience. I don’t think we're at risk of falling behind others in the near term because we have substantial capital. However, when you consider the company’s market cap of $1.2 billion, with $850 million in cash, no imminent debt, and less than 10 times coverage, it’s perplexing. While I acknowledge that we have the lowest dividend in our sector, the earnings potential of the company, combined with no debt and ample liquidity, along with access to low corporate debt, provides a favorable outlook from our perspective right now.

Yes. And on that menu, I noticed you have that non-recourse CLO financing. But where does that trade in? I mean, sometimes we see companies going to repurchase their own debt, even AAAs and below. Is that less attractive than buying new issue AAAs? Or could you move down the credits and buy if you feel really good about the credit?

Our BBBs in their entirety. We're not going to default on it, so it was very cheap, and so we own that. We do have some rules around accounting when we buy things to make sure we don't have inside information. But so it's a little bit of a logistical pain in the ass, but no, we're happy to buy those and they are attractive. We oftentimes will tell you what a A-class and a CLO levered return looks like, and it is in the mid-20s right now. But when we buy them, we hardly ever use leverage. We just keep the seven and three-quarters. But we also know that the spike that we have over $800 million in cash, we could also sell those securities and get cash too. So the liquidity picture is extraordinary, and we're very interested in making investments, but so far. We're still dealing with what it looks like on, in most cases in the lending side, you're dealing with somebody else's headache. It's a bridge loan that somebody else doesn't want to extend, and the borrower doesn't want to put up more money and he doesn't want to put a cap on it. Ultimately, these soft hands will get forced from the table and you'll be dealing with new investors with capital that are taking lower leverage and putting up bigger reserves. And we're kind of getting to that point in the cycle, I think.

Got you. And just last question, just while you brought up geography in the West Coast, I mean, we talked about New York a while back, and you seemed open to going in there. Any market you just wouldn't go into or something that you're thinking counterintuitive that you'd go into? Just curious, you're always insightful on that side of it, and I appreciate the question.

Sure, listen, for many years, I've been doing this for about four decades, and every time I said I wouldn't make a loan in Hartford, the following week I made a loan in Hartford. And it really goes to the adage of no bad assets, just bad prices. So when we opened Ladder, the financial collapse was taking place in the residential side, and nothing was getting hit harder than Detroit and the auto companies. And we became one of the largest lenders in Michigan. And so I wouldn't say there's cities we will not lend in, but the and the prices may very well be getting down to where they're interesting. But realistically, I don't imagine that we're going to run into a whole lot of investment opportunities in Portland, Minneapolis, Philadelphia, Washington, DC is an utter disaster. Yes, and some of the hot markets are going to be rolling over. You saw Austin today was in the news as something that I think their population is dropping for the first time in a long time. So you just have to keep an eye on the local picture, and you could easily, like when, for instance, you say Portland, well, downtown Portland is what I mean. If you just cross one of those many bridges in Portland, it's not nearly as bad and it's a quarter mile away. So, I would say a short answer to your question is no red lines, but realistically it's kind of hard to lend in certain cities, given what's going on, especially, by the way, taxes. Taxes are going to become an object of discussion in our world pretty soon because for whatever reason, municipalities keep raising taxes as if real estate values are going up. It's going to probably be the final punch in the face to existing holders of real estate. You can't tax your way out of the problem. I just don't see it. And they're going to try, and it will make values even lower. And then it'll probably turn.

Makes total sense. Thanks for all the color.

Our next question is from Stephen Laws with Raymond James. Please go ahead with your question.

Good morning. Brian, you've covered a lot. I had one more question I wanted to touch on floors. You know, in the existing portfolio, really low weighted average floor, where are the new originations or where are you taking those in the mods or extensions? And if it's not moving higher, given kind of the fixed-rate debt that was a benefit on the, with rates increasing, any consideration to buying your own floors to kind of lock in that spread or protect against rolling over rates impacting portfolio returns?

Yes, I would say the floors we're looking at, I'll quote a rate floor. That's just the way I think as opposed to a sofa floor. But usually, when we send apps, and we sent many, they say something along the lines of nine, nine and a quarter on the rate floor. The floors don't really matter right now because the actual index is up so high, so fast. Do we are running the calculus in a few cases where somebody who says if you let me pay you off early, I can buy my cap back, and it's worth over a million dollars, and I can give that to you. So it is part of the calculus now. It's more on the borrower side of things. I'm always a little when borrowers don't want to have a cap because ultimately all that means is you're just going to pay that rate over time instead of all at once. So, usually floors and usually caps, borrowers and lenders tend to agree on because it does protect the borrower as well as the lender. So, I think when you get to the point where you're seeing borrowers now wanting to switch to fixed rate, so that they don't have to acquire a cap. And also they understand what their risks are as far as where rates could go. But that hasn't happened too often with us, although I think it is happening in a few other places.

Brian, I would just add that we are increasing the floors on modifications generally.

Are you getting those close to market rate or how far below kind of spots over for those floors?

A lot of its field dependent, but pretty close to market rate on most of them.

Great, thanks Pamela, thanks Brian.

Thank you. Our next question is from Jade Rahmani with KBW. Please proceed with your question.

Thanks very much. Multifamily is showing some softness in areas, a little bit of dip in occupancy and some markets like Phoenix with negative rent growth. With the portfolio at 36% multifamily, and you mentioned the billion of originations in Q4 2021, how are you feeling about the outlook in multifamily credit?

I think multifamily got too expensive. I think we were vocal about that, that we didn't think a three cap was a great idea. And even if you thought rents might double, it still has turned into a bad idea because rates have outpaced the rent growth. And when you throw in the OpEx increases, you pretty much blew the thing up. So I feel okay about multis though, because homes are so unaffordable at these high rates, and there's nothing available. So, I do believe that there's a large contingent of the population that would like to own a home that simply can't for a myriad of reasons. But so I tend to think that apartments, if you hang in there long enough, you don't usually get in trouble with apartments, especially in a high inflation environment. And so we're constructive on it, and I think we made the first move in that direction to show consistency here. Back in 2021 in the fourth quarter, we noticed and you may recall me saying it on an earnings call that some of the caps were just becoming incredibly expensive. And so when we saw that, we got a little concerned about the rehab story of a 1970s garden style apartment we’re going to paint it, change the windows and rents double. What we focused on, and you might remember we moved over to it, to avoid the cost of the cap on new originations, we wrote fixed-rate loans, but they had points in, points out, and they were two-year loans. So those fixed-rate loans are coming due at Ladder, and they appear to be doing pretty well, and that we were very comfortable that Fannie or Freddie could take most of the loan out, if not all of it, but with a little bit of seasoning, those rents are still going higher in most cases. And if we do have to get caught with a lending decision that didn't go as planned, we would much rather own a brand-new apartment building that's just been built in 2021. The other thing that 2021 originations on brand new buildings did was this is when inflation was really taking off. So what happened was a lot of the transactions that required a lot of lumber and steel and all kinds of commodities, prices began getting away from the developer, whereas the brand-new construction that simply had to be leased up, the costs were over. So yes, we're very comfortable with the book. We actually have hundreds of millions of dollars in fixed-rate multifamily loans coming due that even if they extend because they don't feel like they're fully stabilized, the rates will be going much higher because most of those are around 5% to 5.5%.

Okay. My follow-up offline with that the other big question I know everyone's fixated on liquidity but scale to really put ladder in a different playing field to get me to increase and yet with the aspirations for IG, you need to maintain lots of unencumbered assets and high unsecured debt ratio. So buying a mortgage REIT it would put that at risk. So to me the answer would be therefore real estate ownership whether it be portfolios or maybe buying a net lease company. What are your thoughts on that?

Yes, I think you're probably right. On the other hand, if I saw a mortgage REIT that had just dropped 20% of its book value in 90 days, prices change things too. We may very well move in a direction that doesn't help us in the IG arena because we're just not there yet. But I think if we ever do try to make a move to become an investment-grade credit, and I think we will, it will be obvious. We'll go out and we'll do a large issue when it's unsecured. And we'll do that at a time where the rate that we're going to pay is going to make sense relative to where we can lend money or buy assets. So your instincts are right there. I think certainly given the leverage that goes with some mortgage REITs and especially mortgage REITs with deteriorating assets, it, yes, I'd rather start over in a new building on a net lease side. We have quite a bit of net lease here, but they're not quite as wide as they'll need to be if they're going to be financed. But I think we'll get there.

Thank you.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Brian Harris for any closing comments.

Well, thank you for tuning in to our first daytime call. Hopefully this will work a little bit easier for everybody, and I hope we're going to continue that. But thanks for tuning in, and thanks for staying with us. The future looks bright. We feel good about it. Thanks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.