Earnings Call Transcript - LADR Q2 2025

Operator, Operator

Good morning, and welcome to Ladder Capital Corp.'s Earnings Call for the Second Quarter of 2025. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended June 30, 2025. Before the call begins, I'd like to call your attention to the customary safe harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. The company's presentation of this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the Investor Relations section of our website. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

Pamela McCormack, President

Good morning. During the second quarter, Ladder generated distributable earnings of $30.9 million or $0.23 per share, generating a return on equity of 7.7% with modest adjusted leverage of just 1.6x as of quarter end. The second quarter of 2025 marked a significant milestone for Ladder as we achieved our long-standing goal of becoming an investment-grade rated company with Moody's and Fitch upgrading Ladder to Baa3 and BBB-, respectively. This accomplishment is the culmination of a 13-year journey that began with our inaugural unsecured bond issuance and initial credit rating in 2012. The recent upgrades are a testament to Ladder's consistent record of prudent balance sheet and credit risk management, our disciplined approach to leverage, emphasizing unsecured debt and the strength and flexibility of our diversified business model focused on commercial real estate. In June, we successfully issued our inaugural $500 million 5-year investment-grade unsecured bond issuance with a fixed rate coupon of 5.5%, representing a 167 basis point spread over the benchmark treasury, the tightest new issuance spread achieved in Ladder's history. The offering was met with exceptional demand with the order book surpassing $3.5 billion shortly after launch and closing at 5.5x oversubscribed. This strong response underscores investor confidence in our platform and sets a benchmark for future issuance as we aim to become a consistent presence in the investment-grade unsecured bond market. Enhanced liquidity. Pro forma for the offering, 74% of Ladder's debt consisted of unsecured corporate bonds and 83% of our balance sheet assets remain unencumbered. As of June 30, Ladder had $1 billion in liquidity, including our $850 million unsecured revolving credit facility that was fully undrawn. This facility provides same-day liquidity at a highly competitive rate, which was reduced to SOFR plus 125 basis points following our upgrade. Subsequent to quarter end, we also redeemed the remaining $285 million in unsecured bonds maturing in October of 2025. We remain highly liquid, positioning us well to deploy capital into new higher-yielding investments. During the second quarter and through July 23rd, we made over $1 billion of investments, including acquiring over $600 million in AAA-rated securities at a weighted average unlevered yield of 6.1%. As of June 30, our securities portfolio totaled $2 billion, representing 44% of total assets, and our loan portfolio totaled $1.6 billion, representing 36% of total assets. Loan origination activity remained relatively flat in the second quarter. We received $191 million in loan payoffs, largely offset by $173 million in new loan originations at a weighted average spread of 400 basis points. Following quarter end through July 23rd, we originated an additional $188 million in new loans, bringing total year-to-date origination activity to $690 million. Additionally, we have another $325 million of new loans currently under application. The majority of our loans originated and pipeline are secured by multifamily properties, reflecting continued demand in this sector. In addition, during the second quarter, we sold a $64 million conduit loan, generating a healthy gain and illustrating that conduit lending remains a complementary part of our diversified model, and we are well positioned to participate in when market conditions warrant. We continue to focus on middle market lending, particularly light transitional assets with an average loan size of $25 million to $30 million. The granularity and diversity of our portfolio reflected in an average investment size across all investment products of less than $15 million, enhances our credit profile by minimizing concentration risk to any specific borrower, geography, asset type or product across the commercial real estate space. Our $936 million real estate portfolio generated $15.1 million in net operating income during the second quarter. The portfolio primarily consists of net lease properties with long-term leases to investment-grade rated tenants and continues to generate stable income. Our recent credit rating upgrades and successful bond issuance have already started to reduce our cost of debt capital. We saw spreads tighten on our June bond issuance, and we would anticipate continued tightening as we become more widely recognized in the investment-grade bond community. As Brian will allude to shortly, we also anticipate that our equity valuation will begin to reflect this shift. As an investment-grade issuer, we believe we should increasingly be compared to a broader set of high-quality peers, including equity REITs rather than solely within the commercial mortgage REIT space. We believe this can help lower our cost of equity capital over time as the market gains a deeper appreciation for our senior secured investment strategy and investment-grade capital structure. With over 11% insider ownership, management and the Board are highly aligned with all stakeholders. We remain well positioned with strong liquidity and a conservative balance sheet to continue to deploy capital into new opportunities as they arise with a focus on delivering strong and stable returns to shareholders. With that, I'll turn the call over to Paul.

Paul Miceli, CFO

Thank you, Pamela. In the second quarter of 2025, Ladder generated $30.9 million of distributable earnings or $0.23 per share of distributable EPS, achieving a return on average equity of 7.7%. As Pamela discussed, in the second quarter marked a milestone in Ladder's history with our upgrade to investment grade from Moody's and Fitch, followed by our inaugural investment-grade rated bond issuance. The $500 million 5-year issuance priced at a coupon of 5.5% in June and settled in July. Subsequent to quarter end, we called the remaining $285 million of our 2025 bonds that were maturing in October. The new bond offering further strengthens our balance sheet, and we are pleased that the bonds have traded well in the secondary market since their issuance. Pro forma for the issuance and redemption of our 2025 maturity in July, $2.2 billion or 74% of our debt is comprised of unsecured corporate bonds across 4 issuances with a weighted average remaining maturity of over 4 years and an attractive weighted average fixed coupon rate of 5.3%. Our next maturity is now in 2027. As of June 30, 2025, Ladder's liquidity was $1 billion, comprised of cash and cash equivalents and our $850 million unsecured revolver, which remains undrawn. As Pamela discussed, the cost of the facility automatically reduced by 45 basis points, down to SOFR plus 125 basis points on achieving our investment-grade ratings. This reduced cost makes using the facility to finance our operations an attractive option on a fully unsecured basis. In the second quarter, we also called our FL3 CLOs that continue to amortize. Total gross leverage was 1.9x as of quarter end, below our target range of between 2x and 3x. Overall, Ladder's balance sheet remains strong with room to grow leverage as we deploy our capital. As of June 30, 2025, our unencumbered asset pool stood at $3.7 billion, or 83% of total assets. 88% of this unencumbered asset pool is comprised of first mortgage loans, securities and unrestricted cash and cash equivalents. As of June 30, 2025, Ladder's undepreciated book value per share was $13.68, which is net of $0.41 per share of CECL general reserve established. In the second quarter of 2025, we repurchased $6.6 million of common stock or 635,000 shares at a weighted average price of $10.40 per share. As of June 30, 2025, $93.4 million remains outstanding on Ladder's stock repurchase program. In the second quarter, Ladder declared a $0.23 per share dividend, which was paid on July 15, 2025. As Pamela discussed our performance in detail, I will highlight a few additional points regarding the performance of each of our segments in the second quarter. As of June 30, 2025, our loan portfolio totaled $1.6 billion, with a weighted average yield of approximately 9%. As of June 30, 2025, we had 5 loans on nonaccrual, totaling $162.3 million, representing 3.6% of total assets. During the quarter, we added one $50 million loan to nonaccrual, collateralized by a multifamily asset for which we are pursuing foreclosure. Our CECL reserve was $52 million or $0.41 per share, as previously mentioned. We believe this reserve level is adequate to cover any potential losses in our loan portfolio, including consideration of the continued macroeconomic shifts ongoing in the global economy. As of June 30, 2025, the carrying value of our securities portfolio was $2 billion, up 82% from the end of last year with a weighted average yield of 5.9% as we further rotated capital out of T-bills and into AAA securities, while our loan pipeline continues to close. As of June 30, 2025, 99% of the securities portfolio was investment-grade rated with 97% being AAA rated. 81% of the portfolio, which is almost entirely AAA securities, is unencumbered and readily financeable, providing an additional source of potential liquidity, complementing our $1 billion of same-day liquidity. Our $936 million real estate segment continued to generate stable net operating income in the second quarter of 2025. The portfolio includes 149 net lease properties of primarily investment-grade rated credits committed to long-term leases, with a weighted average remaining lease term of over 7 years. The portfolio now includes an office property in Carmel, Indiana, which we foreclosed on during the quarter at a basis of $112 per square foot. The property is 82% occupied and generates an over 11% return on our equity on an unlevered basis. For further details on our second quarter 2025 operating results, please refer to our earnings supplement, which is available on our website and Ladder's quarterly report on Form 10-Q, which we expect to file in the coming days. With that, I will turn the call over to Brian.

Brian Harris, CEO

Thanks, Paul. While our second quarter highlights included achieving investment-grade status, a goal we have communicated to investors for years, the most meaningful impact will be the long-standing improvement in our cost of funds. Just 12 months ago, we issued a $500 million 7-year unsecured corporate bond at a 7% interest rate and a spread of plus 275 basis points at the time. By comparison, our second quarter 5-year issuance of the same size, $500 million, now with investment-grade ratings executed at a spread of 167 basis points and an interest rate of 5.5%, over 100 basis points tighter than last year. With fixed income investors welcoming us into the investment-grade capital markets, a market that is not only 4x larger than the high-yield market, but also deeper, more liquid and more consistently accessible across market cycles. We have established an optimized financial foundation for Ladder. Building on this momentum, we are now focused on the next phase of our long-term plan, increasing our stock price. As the only current investment-grade mortgage REIT in the country, we have created something new on the investment landscape for equity investors. This unique position requires us to be thoughtful about how we are perceived and compared given our in-between placement between non-investment-grade mortgage REITs that use significant leverage and investment-grade property REITs that use limited secured debt and low leverage, but have a first loss exposure through direct real estate ownership. Ladder distinguishes itself from the investment-grade property REITs with senior secured exposure at a higher attachment point, supported by a granular and diverse investment portfolio with an average size of $15 million. These factors provide enhanced liquidity, downside protection and risk diversification. And we think that when we point out to income-oriented investors that the assets owned by Ladder, primarily first mortgage loans and AAA securities, they will understand that our assets are a lot safer than the assets held by investment-grade property REITs. Historically, investors have grouped us with both internally and externally managed commercial mortgage REITs. However, our consistent defensive book value per share has earned strong investor regard, as reflected in our relatively lower dividend yield. Unlike our peers in the CRE mortgage space, who primarily rely on CLO issuance, term loan B financings, and short-term repo debt, Ladder stands apart by financing our business with 74% fixed-rate, longer-term unsecured corporate borrowings and maintaining a much lower overall leverage profile. As investors continue to reassess our comp set, it is increasingly clear that our business model and risk profile align more closely with investment-grade property REITs companies that typically offer dividend yields in the 4% to 5% range, issue unsecured corporate debt and maintain lower leverage. We believe the reason property REITs trade with lower dividend yields is largely due to the stability and predictability of their revenues, as well as their strong total return profiles over time. While we may not trade at the same yields as property REITs today, given the senior secured nature and higher attachment point of our assets, our total return proposition driven by our highly liquid and secure asset base should be very compelling to shareholders. We believe this will ultimately be reflected in our valuation as the market continues to recognize our differentiated profile. On the equity side, we think we appeal to investors focused on a stay-rich strategy rather than a get-rich strategy, with an emphasis on capital preservation and attractive dividend payments, which we intend to grow in the years ahead. We will try to reach out to family offices and retail banking experts and make a purposeful and targeted marketing push towards this group of wealthy investors. We have not previously highlighted this next phase of our long-term plan, but we do so now following the upgrade because adoption of a new comp set for Ladder is not only credible, it's quite likely. I want to thank the investors who supported us in our inaugural investment-grade issuance as well as the Ladder management team who worked for years to reach this milestone. Our focus is now on protecting our new ratings and growing earnings through deploying capital into new investments at a time of generally higher interest rates. Now with a lower cost of capital than most other lenders in the commercial real estate space, our future appears bright. Current market conditions have produced some very attractive investment opportunities, and we are taking full advantage of those situations. In the first days of April, markets were roiled by volatility after tariff announcements were made. This volatility caused credit spreads to widen, and at Ladder, we purchased $605 million of securities in the second quarter. In the current quarter, volatility has been much lower and with very little new supply coming to market this summer, we see much tighter credit spreads, and we are selectively selling some of our inventory of securities as we now favor mortgage loan origination to CUSIP acquisitions. Looking ahead, we remain constructive on the broader market environment. While volatility and uncertainty persists, we believe our investment-grade status, strong liquidity and disciplined approach toward credit positions us to capitalize on opportunities and deliver attractive risk-adjusted returns to our stakeholders. We can now take some questions.

Operator, Operator

Our first question comes from Randy Binner with B. Riley.

Randolph Binner, Analyst

I'll pick up on the CMBS. Given the lower market volume and the selling activity you've mentioned, do you think that would help get the portfolio balanced for this quarter, or is it more a case of selective selling?

Brian Harris, CEO

Are you talking about the securities portfolio?

Randolph Binner, Analyst

Yes, securities in the securities portfolio, the CMBS.

Brian Harris, CEO

Yes. They are generally up, especially considering the volatility of April when the quarter started. We purchased quite a bit during that time, and we believe they are now at fair value, which suggests we have seen a slight increase. However, it's a 2-year floating rate AAA, so it doesn't experience much price volatility. Overall, it feels positive. We have been selling selectively because we acquired a large amount in a short time. It has worked out well for us, but we are also in the process of moving from securities to loans. This transition has been designed to maintain liquidity as our loan book grows.

Randolph Binner, Analyst

Okay. That's helpful. And then just kind of related to the loan portfolio. You mentioned the pipeline of, I think you said $300 million plus, mostly multifamily focused. Can you just give us any color on the kind of convertibility of that pipeline into the book and just how conversations are going in the market, kind of the market dynamic there now that the macro environment has stabilized?

Brian Harris, CEO

Certainly. We experienced a decrease in loan origination volume this quarter, but we've already exceeded our total loan originations from the second quarter within the first three weeks of the third quarter. A lot of this is due to timing; if some transactions had closed in June, the numbers would be significantly higher. As a result, some have been pushed back. We are seeing that certain areas within multifamily are experiencing rent declines, which raises concerns during due diligence, especially for higher leveraged loans. The hotel sector in major cities is also a worrying area for loan originations at the moment. Overall, I've noticed that closings are taking longer than they used to, which is puzzling. Currently, we have $325 million in loan applications, and I estimate that around $275 million will close. However, predicting when they will close is challenging. Typically, we'd expect to finalize these by mid-September if they were submitted by the end of July, but that no longer seems certain. It feels reminiscent of pre-pandemic timelines, but with an additional delay of about 30 days. The exact reasons for this longer timeline are unclear, and it may just be that lenders are exercising more caution.

Operator, Operator

The next question comes from Jade Rahmani with KBW.

Jade Rahmani, Analyst

Does the IG rating open you up to different investments than you previously might have considered? Perhaps they might be lower-yielding investments or perhaps there's a broader set of equity property investments you might make?

Brian Harris, CEO

I don’t believe our investment strategies are changing, but they are becoming more profitable. While the stock market looks ahead, with a $2.1 billion or $2.2 billion corporate bond portfolio, we’ve effectively reduced our rate by 150 basis points, which could contribute around $30 million to our bottom line over time. This won’t be immediate since we have bonds that need refinancing. Many lenders are currently competing to enhance spreads and loan volume, but another way to increase earnings is by reducing expenses, particularly interest expenses, without resorting to layoffs. We anticipate that our income will continue to increase with similar risk profiles on the balance sheet. It is easier for us to finance purchases at a lower cost of funds, but we’re not planning to chase higher-risk investments as we have in the past. We are focused on what we do best, which is identifying credit risks that are likely to repay on time, without needing legal intervention. We will maintain this approach, but we might consider transitioning from AAAs to AAs. However, I don’t foresee us pursuing higher-risk mezzanine investments.

Jade Rahmani, Analyst

I was thinking more along the lines of very lightly transitional or stabilized commercial real estate and maybe even fixed rate loans?

Brian Harris, CEO

Yes, the curve has flattened a bit more, but the fixed-rate loan business should improve as the curve steepens, which I anticipate. We haven't been very active in fixed-rate securitizations, but we participated somewhat this quarter and contributed one loan that made up 10% of a deal. We're starting to get back into that area. I believe this will become a high return on equity sector. However, we are dealing with assets that have decreased in value, making it more challenging to issue 10-year loans unless the cash flow appears stable. Mortgage-backed securities issuance is down significantly, which is linked to our product as there is little supply expected until September. Additionally, many CLO issuances included loans from 2018, 2019, and 2020 that were part of previous deals. Consequently, half of the new CLOs' pools consist of loans from older CLOs. The lack of production means we expect spreads to continue tightening, and for the moment, on the security side, we will be selling into this environment. We will still purchase during market interruptions and volatility, but generally, we are looking to sell securities, take small gains, and redeploy into loans and other opportunities.

Pamela McCormack, President

The only thing I would add, Jade, is, listen, we love that we can be very agnostic towards what we originate. We're not beholden to the CLO market, the lenders. We feel really good about our credit skills. And I think at this point, we can make the loans we like we tend to prefer light transitional loans, but we have a lot of flexibility in our capital structure to originate the type of loans, with the type of terms that we want without regard to lender constraints with this unsecured capital.

Jade Rahmani, Analyst

And lastly, on the net lease portfolio, I think Paul mentioned a 7-year or slightly over weighted average lease duration. Can you talk about if you're thinking about growing that book, and if managing to a certain wall is important to how you view that portfolio?

Brian Harris, CEO

It's beneficial for us to manage a specific term lease, and we tend to aim for longer leases when possible. Our motivation to invest and acquire assets in this area primarily hinges on the comparison between the cost of funds and the cap rate at which we are purchasing. It's a financially structured product. A common mistake is focusing solely on the credit rather than the asset itself. Therefore, we are very selective about the amount we invest per square foot, as this strategy significantly minimizes potential losses if issues arise. For example, if one were to invest in a Walgreens at $700 or $800 per square foot, it could be problematic if they start closing locations in certain areas. We approach this cautiously. We own some Dollar Generals, and typically we purchase about one out of three opportunities presented to us at the same cap rate, concentrating on locations with low crime rates, decent population levels, and frequently observing a shift from a shopping center across the street to a standalone building we own. Our interest in this sector will likely increase when there's a notable difference between cap rates and financing rates, as this spread influences our return on equity. While we have seen others beginning to accumulate portfolios, and we noted a recent portfolio transaction, we currently do not see the arbitrage opportunity in acquiring a large number of these assets. However, from a depreciation perspective and for stable income, it remains a viable option for us. Presently, cap rates are high, as are financing costs, but if we see a drop in financing rates as anticipated, we may consider acquiring more triple net leases.

Operator, Operator

The next question comes from John Nickodemus with BTIG.

John Nickodemus, Analyst

We saw leverage stay fairly stable this quarter, especially when considering your redemption of the remaining 2025 unsecured notes. Just curious on the team's current thoughts on a ramp there as the Ladder has achieved the investment-grade rating.

Brian Harris, CEO

John, if you don't mind, that broke up a little at the end. What was the last sentence?

John Nickodemus, Analyst

Yes. Just your thoughts on the ramp on leverage now that Ladder has achieved the investment-grade rating. Sorry about that.

Pamela McCormack, President

This is Pamela. We fully intend to say that since inception, we've maintained leverage of 2 to 3 times, which aligns with the investment grade parameters set by rating agencies. I want to emphasize that the only change at Ladder is in the composition of our leverage. We have consistently operated this company and achieved some of the highest return on equity in our sector year after year with our 2 to 3 times leverage. We are shifting from historically funding ourselves with two-thirds secured and one-third unsecured to now funding two-thirds unsecured and one-third secured. As our spreads tighten, there is significant potential for funding Ladder almost entirely with unsecured debt since the cost of capital is becoming competitive and sometimes more favorable compared to other funding sources. Therefore, consider our current position as two-thirds unsecured and one-third secured while maintaining the same leverage we have always utilized. The only reason for our lighter leverage is that we have been slow to redeploy from treasuries into securities and then into loans. As we fully utilize our balance sheet, we will return to our normal leverage levels, which I would estimate to be around two and three quarters.

Brian Harris, CEO

Yes. During the quarter, and possibly extending into the third quarter, we paid off $25 million of a $285 million debt, and we also paid off the only CLO we had outstanding. Interestingly, about 45% of the loans in that CLO were office loans at the time of payoff. We made this decision because the payoff pace was quite fast, and our cost of funds was reaching the mid-200s, with an advance rate of around 50% due to the rapid payoff of the AAA portion of the CLO. This means we have reduced secured debt. Of the $500 million, we took $285 million into the '25s, and around $130 million into the CLO. Overall, it was mainly a refinancing exercise.

John Nickodemus, Analyst

Great. Pamela and Brian, appreciate the answer. And then other one for me. Glad to hear the conduit loans come up for the second straight call. Just wanted to hear any more detail on the team, how you're all thinking about that as we get into the second half of the year and just that sort of being a composition of the team strategy.

Brian Harris, CEO

You're welcome. I would like to expand more in the conduit business. Currently, the curve is not very steep, but it is certainly steeper and better than inverted. We are making moves in that direction. It is a highly profitable business, although somewhat constrained by supply. One reason we provided a $64 million loan to the pool was that the pool was insufficient without our contribution. That loan represented about 10% of the actual deal. For a deal worth $650 million in conduit terms, that's considered relatively small. I believe the mortgage-backed securities business is significantly affected by a lack of supply, and this situation is likely to persist unless rates start to decrease. I believe the Fed will begin lowering rates by the end of the year.

Operator, Operator

The next question comes from Chris Muller with Citizens.

Christopher Muller, Analyst

Congrats on a solid quarter here. So, it's nice to see you guys making new bridge loans, and it looks like that momentum is continuing into the third quarter. So, I wanted to ask, do you guys have any expectations for net portfolio growth in the back half of the year? And is there a target portfolio size that you guys are looking to grow to? And then, just one piggyback on that one is what do levered returns look like on new loans today versus historically?

Brian Harris, CEO

When setting long-term volume goals, you need to be ready to adjust them quickly due to the current economic volatility. I expect we will likely originate $1 billion in loans by the end of the year, but if we don't reach that amount, that's okay. The demand for loans is still present, but they originate from two main sources. One is refinancing, which is currently affected by over-leverage from recent years. The other is acquisition loans, which I believe are safer than refinancing and are gaining traction, contributing to the growth in our business. People are adapting to new price levels, and we are seeing down payments, seller financing, and equity being added to transactions. The market is healthy, although it is still somewhat over-leveraged due to the aftermath of the pandemic, which will take some time to correct. The office sector is improving, although it is not yet at a great level, and in the multifamily sector, we’re noticing some stabilization in rent growth, with some properties experiencing slight rent decreases quarter-over-quarter. However, I want to clarify that while I do expect rents to soften somewhat, I do not anticipate a significant decline similar to what we saw in the office sector after the pandemic.

Pamela McCormack, President

I would just close that by adding, we do expect portfolio growth. We have limited payoffs just given our vintage and the high, high volume of payoffs we've had over the last year. We have muted payoffs for the rest of the year. So, I do expect you'll see portfolio growth for sure.

Brian Harris, CEO

The unlevered figure is at 9%. Historically, LIBOR and SOFR were much lower than this around 5 to 6 years ago. Currently, these margins are healthy. While spreads are tight, rates are high, which is a favorable situation for lenders. I do not anticipate continued volatility. If rates decrease, we might see spreads widen unless there is a significant supply constraint. Initially, we may see that in June, July, and August, but I don't expect it to last until the end of the year. Eventually, I believe the balance on both sides will begin to stabilize.

Christopher Muller, Analyst

Got it. That's helpful. And then the other one for me. So, it's great to see you guys finally get that investment-grade bond rating. It's well deserved. And it sounds like, Brian, from your comments that the bond coupon had you not gotten that rating on the new issuance would have been somewhere around 6.5%. Is that the right way to think about the benefit on the cost of funds side?

Brian Harris, CEO

Yes, I believe so. It might even be slightly more than that since I provided an example of a 12-month period with a 7% rate. Of course, there are movements in the treasury curve to consider. A few of our competitors also borrow funds, and our trading patterns often align with theirs. Typically, we are about 25% tighter compared to their issuance. However, I think we've now moved away from that comparison and will start resembling the yields of investment-grade property REITs. This transition will take some time, but it doesn’t seem like it will be difficult due to our lower leverage. When we compare ourselves to commercial mortgage REITs, our dividend may seem low, but when placed alongside property REITs, it appears significantly high. Since we align more closely with investment-grade property REITs that utilize low leverage, our profile differs greatly from that of commercial mortgage REITs, which tend to be more heavily leveraged and are not investment-grade.

Pamela McCormack, President

I also think you see more tightening in that space quickly. We issued at a 167 spread and quickly saw that tighten down into the low 150s. It was as low as 151. So, I think the potential for tightening in the investment-grade space as you become a more frequent issuer and they understand the credit story, and we redeploy into higher-yielding investments, you're going to see that momentum as well.

Brian Harris, CEO

As Pamela mentioned, I think we could potentially fund this company completely using unsecured corporate debt. Even though we recently issued a $500 million transaction, we used it to pay off other debts. We may very well conduct another issuance before the year ends because the volatility is currently low, rates are appealing, and our spreads are narrowing. We remain significantly wider than the property REITs. Therefore, I'm playing the waiting game to see if we can close that gap. However, I suspect we will likely issue another bond before the end of the year, and it will have a maturity longer than 5 years.

Pamela McCormack, President

I just want to add one thing. One of the benchmarks that people were looking to for us when we were with investors is, if you look at our unsecured revolver from the banks at 125 over, that's sort of a benchmark of where we think we should trade to. And I know there's a little bit of a new issue tax for a new issuer in the space, but that is a benchmark that we're all looking at as we continue to issue.

Brian Harris, CEO

In closing, I want to thank everyone who contributed to achieving our investment-grade rating. I also want to address some past discussions regarding two loans we made to the Trump organization – one for $100 million at Trump Tower and another for $160 million at 40 Wall. Both loans have been successfully paid off. Despite the media speculation suggesting potential issues, I want to highlight that the Trump Organization paid off the loan for 40 Wall at the end of June. This information may not be prominently covered in the news, and it doesn't impact our current situation since we do not own those loans. However, I want to emphasize that while refinancing large office buildings can be challenging, we chose two that were refinanced without issues. Thank you, and I look forward to our next quarter.

Operator, Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.