Ladder Capital Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: In the fourth quarter, Ladder generated distributable earnings of $33.6 million or $0.27 per share, achieving a return on equity of 8.9%. For the full year, distributable earnings totaled $153.9 million, delivering a 9.9% return on equity.
• Balance Sheet: As of December 31, 2024, Ladder had $2.2 billion in liquidity, including $1.3 billion or approximately 27% of total assets as cash and cash equivalents. Adjusted leverage remained modest at 1.4 times, with 77% of the asset base unencumbered and 65% of debt comprised of unsecured corporate bonds.
• Loan Portfolio: Ending balance of $1.6 billion (33% of assets) with a weighted average yield of 9.3%. Q4 originated six loans totaling $129 million, primarily focusing on multifamily and industrial properties, with a pipeline over $250 million.
• Real Estate: $904 million real estate portfolio generated $56.3 million in net rental income for the full year 2024. Sold four multifamily properties and five net lease properties in 2024, realizing gains to distributable earnings.
• Securities: Purchased $911 million of AAA-rated securities in 2024, with a weighted average unlevered yield of 6.46%, providing enhanced liquidity and stability.

Segment Performance

• Loan Portfolio: In the fourth quarter, the loan portfolio paid down $575 million, including the full payoff of 11 loans. For the full year 2024, received $1.7 billion in proceeds from loan payoffs across 61 loan positions. Ended 2024 with a $1.6 billion loan portfolio, representing 33% of total assets, with a weighted average yield of 9.3%. Q4 originated six loans totaling $129 million, with a pipeline over $250 million.
• Real Estate Portfolio: The $904 million real estate portfolio generated $13.2 million in net rental income during the fourth quarter and $56.3 million for the full year 2024. Sold four multifamily properties and five net lease properties in 2024, generating gains to distributable earnings.
• Securities Portfolio: During the fourth quarter, purchased $295 million of AAA-rated securities at a weighted average unlevered yield of 6.2%. By year-end, the portfolio totaled $1.1 billion with a weighted average unlevered yield of 6%, primarily comprised of AAA-rated securities.

Guidance

• 2025 outlook is optimistic, with plans to deploy substantial liquidity prudently. Expect to grow the loan book, with originations expected to outpace payoffs. Targeting migration of capital into higher-yielding loans. Moving closer to investment-grade credit ratings, which will lower funding costs and attract broader investors.

Risks

• Macroeconomic uncertainty impacting commercial real estate markets and loan repayments.
• Interest rate fluctuations affecting net interest margins and loan originations.
• Credit risk in the loan portfolio if economic conditions deteriorate.

Question and Answer

Q: About the CMBS conduit business, do you see an opportunity to increase CMBS conduit originations meaningfully?

A: Brian Harris says there's a shortage of fixed income investments, but current allocations to other investments are more profitable for now. As the yield curve steepens, may see more activity but not in the very near future.

Q: On the CECL reserve, unchanged in dollars, are you planning to maintain it or release some?

A: Brian Harris says reserve is adequate, likely to release reserves as economy and inventory improve, but not expecting the reserve to increase.

Q: On origination yields, are you seeing tightening and how does it impact pipeline?

A: Brian Harris notes credit spreads tightening, but interest rates are up. Impacting pipeline, with borrowers seeking floating rate loans, and focusing on certain property types like multifamily and industrial, avoiding some large cities with issues.

Q: Can you grow loan book by $1 billion in 2025 and what's expected return on equity?

A: Brian Harris expects to grow loan book by $1 billion, targeting an unlevered return on loans of around 8.5%, with plans to migrate capital into higher-yielding loans.

Q: Any opportunity to partner in agency servicing business?

A: Brian Harris is open to partnerships but no current discussions, focused on deploying capital attractively and will consider partnerships once $2 billion of new originations are achieved.