Ladder Capital Corp (LADR) Earnings Call Transcript & Summary

Good morning, and welcome to Ladder Capital Corp.'s Earnings Call for the Third Quarter of 2026. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended September 30, 2026. Before the call begins, I'd like to call your attention to the customary safe harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the Investor Relations section of our website. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

Good morning, and thank you for joining us today. Ladder had a strong third quarter. We generated distributable earnings of $44.7 million or $0.35 per share with modest adjusted leverage of 2.5x. Results included a $31 million gain on the sale of our largest net lease asset and office campus in Jacksonville, Florida. The sale provides another clear example of unlocking value above our cost basis in the real estate portfolio. We are executing the plan we laid out at the start of the year and the quarter reflects it. Three things stand out this quarter. Book value increased -- our loan portfolio is predominantly new vintage with limited legacy loans, and we're well positioned for rising rates. Each one supports our earnings going forward. First, book value. Our undepreciated book value per share did not just hold steady this quarter. It went rising to $13.50 from $13.44 driven primarily by the gain on sale of the Jacksonville office campus. That increase builds on book value that has helped firm since the end of 2022, reflecting the strong credit performance of our portfolio. The Jacksonville sales, along with the full payoff of our largest legacy office loan in Miami during the second quarter is the latest proof. Second, our loan portfolio is new vintage. Approximately 90% of our loans have been originated since late 2024. They were underwritten in a higher rate environment at conservative loan to values on reset basis. We believe that positions the portfolio well for today's rates and gives us room to keep growing it. Third, we are well positioned for rising rates. Over 50% of our debt is fixed rate. So as our floating rate assets reset higher, our income rises while the cost of that debt stays the same. As the only investment-grade rated commercial mortgage REIT with senior secured assets and modest leverage, our model is cycle tested. Ladder has been in business for 18 years, public for 13 and a bond issuer for 14. We are middle market by design. Our average loan size is about $30 million, and our average investment size is about $15 million. That granularity and diversification limit our exposure to any single asset sponsor or market. And we believe it is one of the reasons that our book value has remained stable in addition to our clear alignment of interest with high insider ownership. Investment activity. During the third quarter, we stayed selective as rates rose. We made $703 million of new investments, including $481 million of predominantly AAA-rated securities at attractive yields and 7 new balance sheet loans totaling $222 million. Net of payoff sales and amortization, our combined loan and securities portfolios grew by approximately $570 million. Year-to-date, we've originated $1.4 billion in new loans already matching our 2025 volume, and our loan portfolio has grown over 50% in the trailing 12 months. Balance sheet loans now make up approximately half of our total assets. Our goal is to keep growing that share over time. But we will stay flexible. When higher rate flow lending activity as they began to in September, we will put capital to work where we see the best risk-adjusted returns. Brian will talk more about that. That said, with ample liquidity and payoffs expected to remain light in coming quarters, we are well positioned to keep growing our loan portfolio without compromising on credit. Securities portfolio. During the third quarter, we acquired $481 million of primarily AAA-rated securities at attractive yields, and we continued buying into October. As of September 30, our securities portfolio totaled $2.3 billion, representing 37% of total assets with a weighted average yield of 5.5%. The portfolio was 99% investment grade and 97% AAA rated with a weighted average duration of approximately 3 years. Because of the short duration, liquid and largely floating rate, our securities portfolio earned attractive yields in today's market. And gives us a ready source of capital to move into loans when they offer the best risk-adjusted returns. Real estate portfolio. Ladder has consistently produced real estate and other gains on top of our carry income. And Brian will discuss that track record in more detail. As mentioned, this quarter, we completed the sale of our net lease office campus in Jacksonville, Florida. The sale contributed $31 million to distributable earnings and generated an 18% IRR over the life of the investment. We sold the property well above our carrying value, which highlights the value embedded in our real estate portfolio. Share repurchases. We believe our stock is undervalued. During the third quarter, we repurchased $8 million of stock at an average price of $9.38 per share, a 31% discount to our undepreciated book value of $13.50 per share. Repurchases at these levels are accretive to book value and alongside loan growth and real estate gains, they remain one of the ways we create value for shareholders. In closing, this quarter showed our plan at work. Our loan and securities portfolios grew, we realized a meaningful gain in our real estate portfolio and our floating rate assets earn more while the cost of our fixed rate debt stayed the same. Our plan for the coming quarters is unchanged, grow our loan portfolio, deploy capital where we see the best adjusted returns and realized gains across our businesses, all with the credit discipline that has always defined Ladder. We believe these levers will drive higher earnings support our dividend and create long-term value. Finally, as promised, we've begun taking our story directly to shareholders, and we'll continue those conversations in the coming months. Our message is simple. Management and Board own 13% of Ladder and are collectively our largest shareholder group. So we're focused on the same things you are, protecting principal, growing earnings and building long-term value. With that, I'll turn the call over to Paul.

Thank you, Pamela. Good morning. During the third quarter, Ladder generated distributable earnings of $44.7 million or $0.35 per share. Excluding a realized loan loss previously reserved for, our third quarter earnings were $0.38 per share. Our balance sheet remains strong. We maintain modest leverage in a resilient investment-grade capital structure with unsecured debt representing 69% of our total debt and attractive cost of capital. As of quarter end, our adjusted leverage ratio was 2.5x, and we maintained robust liquidity of $784 million, including same-day capacity on our unsecured revolver. In addition, we held $1.2 billion of unencumbered primarily AAA securities. Our $1.25 billion unsecured corporate revolver continues to be a valuable asset, allowing for funding flexibility with same-day liquidity driving our ability to execute our capital deployment strategy. Alongside of our revolver, our access to the investment-grade unsecured corporate bond market allows us to fund our growth with long-term fixed rate unsecured debt. We have been monitoring the markets closely and expect the unsecured debt market to continue to be a meaningful source of capital for Ladder. As Pamela mentioned, rising rates this quarter highlighted the benefit of how we finance our balance sheet. As of September 30, 57% of our debt was fixed rate, primarily unsecured corporate bonds with a weighted average coupon of 5.3%. This is complemented by 92% or $4.8 billion of our interest-earning assets being floating rate. Based on our balance sheet as of quarter end, we estimate that each 25 basis point increase in SOFR adds approximately $0.01 per share per quarter to our distributable earnings. Our unencumbered asset pool represented 73% of total assets as of quarter end September 30. 88% of this pool is comprised of first mortgage loans, investment-grade securities and unrestricted cash. As of September 30, Ladder undepreciated book value per share was $13.50 which is net of $0.35 per share of CECL reserve established. In the third quarter, we repurchased $8.2 million of common stock or 871,000 shares at a weighted average share price of $9.38. Year-to-date in 2026, we've repurchased $29.6 million of common stock or 3 million shares at a weighted average price of $9.89 per share. As of September 30, $83.8 million remains outstanding on Ladder stock repurchase program. Overall, we continue to believe in our book value, and we'll seek to continue to opportunistically utilize our buyback program while our stock is trading at a meaningful discount. In the third quarter, Ladder declared a $0.23 per share dividend, which was paid on October 15, 2026. Going forward, we believe our largely floating rate asset base, fixed rate debt and continued loan growth will support a durable dividend. Turning to credit quality. As of September 30, we had 2 loans on nonaccrual, with a combined carrying value of $61 million. The first, the $51 million is collateralized by hotel in Los Angeles, California. The second is collateralized by an office property in Minneapolis, Minnesota. We expect to take ownership of that property in the fourth quarter. In anticipation, we charged off $3.5 million of existing CECL allowance associated with that loan, bringing our carrying value to $9.9 million or $67 per square foot. As of September 30, our CECL reserve was $44 million or $0.35 per share, which represents 1.48% of our loan portfolio and takes into consideration current market conditions, including the rise in interest rates, as well as the fact that 87% of our loan portfolio was originated since late 2024 at reset values. We continue to believe this reserve level is adequate. As of September 30, our securities portfolio totaled $2.3 billion with a weighted average yield of 5.5%. Notably, 99% of the portfolio was investment grade, 97% was AAA rated with 96% being floating rate and a weighted average duration of approximately 3 years, underscoring its high credit quality and overall liquidity. During the quarter, we recognized a $4.5 million loss in distributable earnings on a legacy fixed rate CMBS with no impact to book value as the loss was previously recognized through our other comprehensive income. As previously stated, as of quarter end, over 50% or $1.2 billion of our securities portfolio remained unencumbered, complementing our $784 million of same-day liquidity. We believe this combined broad access to liquidity reinforces the strength of our balance sheet and positions Ladder well to continue to selectively originate and grow our loan portfolio to drive future earnings growth. Our $900 million real estate segment continued to generate stable net operating income during the quarter. The portfolio includes 148 net lease properties comprised primarily of investment-grade credits committed to long-term leases with an average remaining lease term of 6.4 years. As noted, we sold our largest net lease property in the third quarter, the office campus in Jacksonville, Florida. The sale contributed to a $31 million gain to distributable earnings and produced a GAAP gain of $66 million. The difference between the 2 reflects the recapture of depreciation and amortization previously recorded on the property and is why we measure our real estate and our book value at an undepreciated basis. For further details on our third quarter 2026 operating results, please refer to our earnings supplement presentation available on our website as well as our quarterly report on Form 10-Q, which we expect to file in the coming days. With that, I'll let Brian take it from here.

Thanks, Paul. In the third quarter, interest rates moved quite a bit higher, especially in September. This abrupt increase in global interest rates will undoubtedly put the brakes on a lot of refinancing activity. In addition, we are seeing many buyers of assets going back to sellers requesting lower purchase prices due to the recent spike in borrowing rates. Knowing that both of these items with slow origination pipelines, we pivoted to acquiring more securities, $481 million in the quarter as general market volatility created a higher yield environment for these high-quality investments. After this week's inflation statistics were released, market sentiment now expects that we're in for another 25 basis point hike from the Fed before year-end. And as Paul said, our balance sheet is constructed to benefit from this kind of market change with incrementally higher earnings per share as the Fed hikes the Fed funds interest rate. Also, as mentioned earlier, we sold our largest office asset after owning it for about 9 years. Because we identified our 5 largest office exposures back in 2022 when that sector was causing some consternation among investors, I wanted to point out that this is the fourth of the 5 assets we highlighted at that time with no losses to date from these 5 larger exposures. We expect the final office loan from that 2022 group to pay off in full before year-end, and I will update you when and if that happens. We hear a lot that investors don't really value onetime gains, preferring steady carry each quarter, but I'd like to mention that we don't view these occasional sales of real estate as onetime gains. While these gains are hard to model, when we look at the last 13 years since we went public, we've made $250 million in profits on the sale of 69 assets, with $76 million of gains reported in just the last 5 years after the pandemic. Owning real estate is a high ROE business line at Ladder, not a hobby, and we don't think it's accurate to characterize these 69 transactions as onetime gains. I'll end today by noting that the capital markets are very volatile lately, given many geopolitical events, price shocks in the energy sector, AI capital consumption and ballooning deficits. Given our careful construct of our liability complex with primarily unsecured corporate debt, funding our business we are prepared to take advantage of the market opportunities that invariably come up as markets churn and investors raise liquidity. We hope to continue migrating our capital out of securities and into higher-yielding loans but sometimes markets lead us to consider other options. While we only leverage half of our securities, those levered returns are now reaching into the 14% to 15% range for AAA CLO securities. The other half of our securities totaling over $1 billion of mostly AAA mortgage-backed securities are held unlevered and yielded about 5.5%. We don't view these unlevered securities as long-term investments, but rather as a source of liquidity for higher-yielding loan origination in the quarters ahead. We're pleased to have ample liquidity in this now higher rate environment. We don't view a 10-year U.S. treasury yield of 5.25% to 5.5% as problematic. Today, with higher rates, the returns available on almost everything we invest in have improved meaningfully. We think our slow but steady deployment of capital will now pay off for our investors as we lend in the quarters ahead at higher nominal mortgage interest rates. Further benefiting our expectation of higher returns is our mostly floating rate asset base primarily financed with fixed rate liabilities. While loan originations have slowed recently due to higher rates, we still see plenty of suitable investments that would produce safe and sustainable cash flows in the years ahead. We think we should be compared to other investment-grade REITs that finance themselves the way we do. And not to highly leverage mortgage REITs that are only similar to us by virtue of the fact that they own mortgages. In the year ahead, we hope to appeal to investors who appreciate an attractive dividend that pays it much more than T bills while they own a stock at a steep discount to book value. Our conservative approach to leverage, along with our slightly obsessive attention to credit, should start paying off in the quarters ahead. We can now take some questions.

Our first question comes from the line of Timothy D'Agostino with B. Riley Securities.

I was just wondering if you could provide some detail on the retail property in Carmel, New York. We caught that in the press release. So yes, any commentary or color on that would be great to hear.

Sure. The -- it's an asset that we foreclosed on a few years ago. It is under contract for sale presently. And there is likely going to be a slight loss associated with it of about $600,000, which I think we took this quarter, didn't we, Paul?

Yes. Correct.

Okay. Great. And then just a second one on my end. Just thinking about how rates have moved and obviously, you lean back into securities this quarter. Just in terms of general capital allocation, maybe to year-end, how are you thinking about balancing share repurchases, loan originations, maybe purchasing additional securities, selling securities, just trying to figure that out, maybe with an emphasis on what might limit buybacks or what might expand your appetite to buy back more shares?

Sure. A couple of questions in there, but I'll take them as best I can. If I leave one out, let me now. The securities movement lately with the volatility that has taken place really since September, a couple of types of companies are being hit particularly hard because of the view that higher interest rates cause big problems. I think there's a big difference between taking interest rates from 2% to 7% very quickly than it is from taking them from 6% to 7.5%, very quickly. So I think most of the noise from the 2021 and '22 era is coming through the pipeline now. It's now about 5 years later. So that's what you would expect. So ideally, we would like to do nothing but loans. If the market didn't provide alternatives that were safer and pretty acceptable yield. What made us move towards securities, as we said in my opening comments was we saw that acquisitions were falling down. We saw things were just -- the contracts are not being completed. And in addition to that, things that were under contract borrowers were seeking lower prices. So when you go back to a seller, the pens go down on the lending side until you know that you have a transaction to work on. So that's added some time, too. And because we knew that, that was going to slow the pipeline, we began to take advantage of what was happening elsewhere in the world, which was securities were getting wider and very attractive. So with the combination of repo rates tightening, while spreads on CMBS and CLO AAAs are widening, those yields went from about -- a levered yield went from around 12 to 13 to 14 to 15. And that's pretty good levels for those that are comfortable using leverage. We kind of bifurcate our book into 50% of the book is not levered at all on securities, and the other half is. And so as a result of that, we're doing quite well with the levered book. The 5.5% is more or less a parking spot. We're just hanging on to that cash until we have reason to deploy it an opportunity to deploy it. As I've said for a while here this year, a lot of transactions are falling out. The other thing in the backdrop that's causing a slowdown is the multifamily rents pretty much everywhere except a couple of places like New York and San Francisco are falling. However, I would point out that -- they're not falling to a point where it's problematic from a debt cycle with loans originated in 2025, '26. They're slowing the rate at which rents are falling. So it kind of does feel like we're putting in a bottom here. And in many ways, I must feel about multifamily like I talked about office not too long ago rather than make loans in that I'd almost rather buy these things. Because if you get it right and rents do stop falling and start increasing, then you're going to get paid off on your 7% mortgage. But if you own the property, you can do considerably better. And I think in markets like this, where there's a lot of volatility, you want to seek higher quality everything. So that may be a AAA bond or it might be a property coming off new construction as opposed to Class C multis that you're trying to figure out how to get rid of a prime problem. And so what -- and then I think I'll jump over to your last one. The origination side, we'd love to sell all of our securities and put that money into own originations. But the demand just isn't there and at least the quality demand because the acquisition pipeline has effectively evaporated because prices -- borrowing rates have gone up so much. But what would stop me on the stock buyback there -- we think our stock is cheap. We thought it for a while. Our stock, I think, is doing okay today, but if you looked at this a couple of days ago, it was pretty, frankly, distressing that we're unable to separate ourselves from typical mortgage REIT ETF thinking. So we got hit in the quarter on a stock price just like a lot of others did. But we feel very comfortable in our portfolio. The biggest fear people had a while back was office. We identified our 5 biggest office properties. We're not going to take any losses there. And 4 of them have already paid off. In fact, we're up $30 million in on all of them. But the buyback side of things, as long as the stock stays about where it is, we'll keep buying it back, I think. Are there limits? Of course, there are. We have bonds outstanding, and we have to deal with bondholders and make sure that they understand we're not borrowing money in the corporate unsecured bond market so that we can go buy our stock back. We may buy some back when it's fortuitous, and I don't think anybody regrets us that. But we have quite a big buyback allowance left. And I suspect we'll continue to pick up some of our stock each quarter as long as it's anywhere near where it is now.

Okay. Great. That was super helpful. I appreciate you answering all the questions today.

Did I get them all?

Yes, you did.

Our next question comes from the line of Jade Rahmani with KBW.

You noted 87% of your loan portfolio was originated since late 2024. So 13% pre that date. Do you know what dollar amount or percentage is 2021 and 2022 vintage. And what percentage of that is multifamily?

I don't know if -- I don't have that number, but I'll ask Paul if he does. And if he doesn't, we'll get that number back to you. But Paul, what do you think?

I should have it. Craig, I don't know if you have it handy. If not, we'll get back to you, Jade.

Okay. Well, the question is around stress and multifamily. I think Brian, you said rents are continuing to go down. What we've been hearing is that we're kind of close to a bottom in terms of new lease rent growth concessions or burning off, so net effective rents could be set to stabilize and go up next year. So this is coming -- so the fundamentals could be bottoming stabilizing set to improve at a time when capital markets are going in the opposite direction. So do you expect there to be stress in the multifamily book, either a Ladder or elsewhere? And what do you think the best way to deal with that is?

I don't really suspect Ladder is going to deal with a lot of stress in the multifamily book. And the reason why is I think most of the damage that's coming out of prior originations across the United States. Most of those acquisitions and loans were made in 2021 and '22. When we saw people borrowing money at very low rates and buying properties in 3 cap areas, saying that rents were going to go up without any thought towards perhaps inflation would eclipse the rent growth. We backed away from that market in '21 and '22. And if you know some of the well-known syndicators that have been associated with very large losses, we don't have any of them in our book. What we did do early on was rather than compete with some of the houses that we're really pushing hard for multifamily products because the CLO market was saying, we want all multifamily at the time. Whenever market says we want all of something they're usually wrong. But -- so in those days, what we did was because we have that fixed rate liability set, we began to offer fixed rate 1- and 2-year loans. And that way, people didn't have to buy the interest rate cap, which was getting very expensive as the Fed was chatting up their plans for much higher rates. And I think they move in 75 basis points a couple of times. But what we did was we gave people fixed rate loans at slightly higher rates than they would get in the floating rate market, but we took the uncertainty of risk off the table. Unbeknownst to us, but ultimately, a good side effect was what really fits that description is brand-new apartment buildings that are in lease-up coming off construction. So I don't think that most of the problems we're experiencing in the multifamily sector as a country, not at Ladder. I think most of it is in the brand-new construction of apartment complexes, rather, I think it's really the property types that have lower rents and more exposure to the bottom quartile of the economic earners in the country. And I think that, that quartile is really getting hit by high prices on everything, including gasoline. They drive trucks to work. And whereas I think the higher-end apartment complex is they're usually populated by people with 401(k), we just sold the house. So we're not expecting problems in our multifamily sector, does mean you can't have it, if rates can go too high. But I do think that you're going to see some more multis from 2021 and '22 coming out at some unusually high losses. But I don't think later is going to be impacted by that in any meaningful way.